XIN v Chief Commissioner of State Revenue [2024] NSWCATAP 333

Introduction

On 8 November 2024, the NSW Civil and Administrative Tribunal (Tribunal) made orders remitting the assessment of surcharge purchaser duty issued by the Chief Commissioner of State Revenue (Chief Commissioner) on 2 February 2024 for recalculation of interest payable by the Applicant.

The assessment was issued in respect of the Applicant’s purchase of a property in Castle Hill, NSW (the Property) on 29 October 2019, and interest and penalty tax payable for the period between 29 January 2020 and 2 February 2024.

The Applicant has paid the surcharge purchaser duty, but sought review of the interest and penalty tax assessed in the assessment.

The issue in these proceedings was whether the interest (market and premium components) and penalty tax assessed against the Applicant should be remitted, having regard to the Applicant’s circumstances.

The Crown Solicitor acted for the Chief Commissioner in these proceedings.

Background

On 29 October 2019, contracts for the sale and purchase of the Property were exchanged. At the time of exchanging the contract, the Applicant held a temporary partner visa, which was treated by the Chief Commissioner in the same way as a permanent resident visa in accordance with Revenue Ruling G009.

Prior to exchanging the contract, the Applicant signed a Purchaser/Transferee Declaration in relation to the Property. The Declaration was dated 15 October 2019 and included statements that the Applicant was:

1. a foreign person; and
2. an “exempt permanent resident who will occupy the property as their principal place of residence (PPR) for a continuous period of 200 days within the first 12 months after the liability date (date of agreement)”.

On 29 October 2019, the Applicant departed for China and returned to Australia on 26 February 2020. The Applicant stated that the trip was needed as a result of her mother’s illness. The Applicant’s mother was admitted to hospital in China on 18 November 2019.

Upon her return on 26 February 2020, the Applicant claimed to have started residing in the Property and continued to do so until 9 September 2020, when she departed for China to look after her mother. The Applicant did not return to Australia until 7 December 2022.

The Chief Commissioner commenced an investigation into the Applicant’s tax compliance status on 23 October 2023. In response to the investigation, the Applicant confirmed that she had only occupied the Property as her PPR for 197 days, instead of a continuous period of 200 days within the first 12 months from 29 October 2019. The Applicant conceded that she was liable to pay surcharge purchaser duty for the purchase of the Property.

On 2 February 2024, the Chief Commissioner issued an assessment of surcharge purchaser duty to the Applicant.

The Statutory Framework

Surcharge purchaser duty

Chapter 2A of the Duties Act 1997 (NSW) (Duties Act) imposes duty on dutiable transactions involving foreign persons in relation to residential land.

Section 104N(2) of the Duties Act provides that a dutiable transaction in relation to an agreement for sale or transfer is taken to have occurred when the agreement was entered into.

Section 104W of the Duties Act provides that if the taxpayer pays the duty within 3 months after the liability to pay the duty arises, there will be no tax default for the purpose of the Taxation Administration Act 1996 (NSW) (TAA). In this matter, in order to avoid a tax default from occurring, the Applicant must have paid the surcharge purchaser duty by 29 January 2020.

Relevant to the circumstances in this matter, s. 104ZKA provides that no surcharge purchaser duty is chargeable if the taxpayer is an “exempt permanent resident” under s. 104ZKA(2). To be an “exempt permanent resident”, a taxpayer must:

1. be a permanent resident when a liability for duty charged on a transfer or agreement  arises; and
2. satisfy the Chief Commissioner that the taxpayer intends to use and occupy the residential land/property as their PPR for a continuous period of 200 days within the first 12 months after the liability date (per s. 104ZKA(4), also known as the residence requirement).

Interest

In the event of a tax default occurring, s. 21(1) of the TAA provides that the taxpayer is liable to pay interest on the amount of tax unpaid, calculated on a daily basis. Section 22(1) of the TAA provides that the interest consists of a market rate component and a premium component.

Section 25 of the TAA provides for the remission of interest. Before s. 25 was amended by the Treasury and Revenue Legislation Amendment Act 2023 (NSW) (Amendment Act) on 1 February 2024, it provided:

25 Remission of interest

The Chief Commissioner may, in circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

Section 25 now provides:

25 Remission of interest

1. The Chief Commissioner may remit interest.
2. The Chief Commissioner may issue guidelines setting out how interest must be remitted under this division.
3. If guidelines are issued, interest must be remitted only in accordance with the guidelines.
4. The imposition or remission of penalty tax is not relevant to the imposition or remission of interest.

As at the time of decision, no guidelines have been issued under s. 25(2). The Tribunal in this matter referred to CPN 024: Interest and penalty tax guidelines in its consideration of the relevant factors.

Penalty tax

In addition to interest, s. 27(1) of the TAA imposes a penalty of 25% of the unpaid tax. This rate could be reduced to 20% under s. 29(1) if the taxpayer makes a disclosure during an investigation.

The Chief Commissioner or the Tribunal may determine under s. 27(3) that no penalty is payable, if satisfied that the taxpayer took reasonable care, or the tax default was beyond the control of the taxpayer.

Section 33 of the TAA provides for the remission of penalty tax. Before s. 33 was amended by the Amendment Act on 1 February 2024, it provided:

33 Remission of interest

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

Section 33 now provides:

33 Remission of interest

1. The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.
2. The imposition or remission of interest is not relevant to the imposition or remission of penalty tax.

The Chief Commissioner had imposed penalty tax at the reduced rate of 20% to reflect her cooperation with the Chief Commissioner during the investigation.

Submissions

The Applicant submitted that:

1. The Applicant’s mother’s critical illness necessitated her travel to China before she had met the 200-day residence requirement;
2. Border closure at the time was beyond the Applicant’s control and contributed to her  shortfall in days occupying the Property as her PPR;
3. The Applicant’s personal circumstances, including her mental and physical stress she was suffering as a result of her mother’s illness, should be taken into account; and
4. The Applicant took reasonable care to comply with her duty obligations by relying on advice given to her by her solicitors during her purchase of the Property.

The Chief Commissioner submitted that as the Applicant was required to pay the duty by 29 January 2020 to avoid any tax default, the Applicant’s failure to pay the duty by that date led to a tax default, and therefore was liable to also pay interest and penalty tax accrued on the unpaid duty from that date until 2 February 2024.

Decision

The Tribunal noted that:

1. The Applicant’s tax default was not caused by her failure to meet the 200-day residence requirement, but rather by her failure to pay the surcharge purchaser duty by 29 January 2020. The only reason for the late payment appeared to be that the Applicant was unaware of her liability until she was notified by the Chief Commissioner (at [33]).
2. The Applicant’s claim in relation to the border closure and related travel restrictions was not accepted, in that her travel plans at the time would render it impossible for her to satisfy the residence requirement (at [35]).
3. It was difficult to understand how the Applicant’s personal circumstances (including her miscarriage in May 2020 in Australia) had contributed to her tax default, since the Applicant’s understanding was that she was still on track to meet the residence requirement (at [37]).
4. The evidence before the Tribunal could not support the Applicant’s claim that she was advised by the conveyancer to remain in Australia for at least 200 days, rather than the more stringent requirement of actually living in the Property for a continuous period of 200 days. The Tribunal was accordingly not satisfied that the Applicant had taken reasonable care (at [38] – [39]).

In relation to the interest components, the Tribunal considered that the Applicant’s case fell within the circumstances “where it is impossible to lodge or pay on time (excluding financial incapacity including hardship)” as stated in CPN 024. In particular:

• The Applicant hoped to rely on s. 104ZKA of the Duties Act to claim an exemption from the surcharge purchaser duty. That exemption is prospective and would only be confirmed upon satisfaction of the residence requirement in s. 104ZKA(4).
• Accordingly, the Tribunal considered that the Applicant:
  • could not know as at 29 January 2020 whether she would ultimately satisfy the residence requirement, because the Applicant still had 274 days left until the end of the first 12 months after the liability date to satisfy the residence requirement; and
  • would only know on 9 September 2020 (when the Applicant departed from Australia) that she would not satisfy the residence requirement.

The Tribunal considered that in the Applicant’s circumstances, it was inevitable that she would not pay the surcharge purchaser duty on 29 January 2020, and it would not be reasonable to calculate interest from that date. The Tribunal held that the market interest component and the premium component assessed between 29 January 2020 and 9 September 2020 should be remitted (at [47]).

In relation to the penalty tax, the Tribunal held that, despite the Applicant not being able to practically identify her tax liability on 29 January 2020, her tax liability nevertheless crystallised due to her non-payment of the surcharge purchaser duty (at [48] – [49]).

The Tribunal noted that:

1. The Applicant did not take reasonable care in her tax affairs, and the tax default was not beyond her control.
2. The legislation relies on taxpayers assessing their own liabilities and informing the Chief Commissioner what they are. As the Applicant failed to satisfy the residence requirement and did not notify the Chief Commissioner of the default, there was no basis to reduce the penalty tax further or excuse the Applicant from paying the penalty tax.

Orders

1. Remit the assessment to the Chief Commissioner for recalculation of the amount of interest payable, so as to remove any interest imposed for the period from 29 January 2020 to 9 September 2020.
2. All other components of the assessment are confirmed.

Read the full decision