Introduction
These proceedings concerned the review of a decision of the Chief Commissioner of State Revenue ('the Respondent') to assess interest and penalty tax on unpaid amounts of surcharge purchaser duty. The issue was whether, Mr Karazincir ('the Applicant') as the liable person, was also liable for the interest and penalty tax as they were assessed, or whether remission of the interest and penalty tax was warranted under ss 27(3)(a), 27(3)(b), or 33 of the Taxation Administration Act 1996 ('TA Act'). The Tribunal confirmed the assessments made by the Respondent, including the imposition of interest and penalty tax, on the basis that the Applicant failed to discharge his onus of proof to justify remission.
Background
The Applicants in these proceedings are Mr Karazincir and his wife Mrs Karazincir. It was agreed that only Mr Karazincir ('the Applicant') had a liability to surcharge purchaser duty.
The Applicant was a citizen of Turkey (now known as Turkiye) at all relevant times.
On 27 August 2022, both Applicants entered into a contract for the purchase of a property, as joint tenants. On 19 October 2022, settlement occurred.
On 29 August 2022, they completed a Purchaser/Transferee declaration. In questions 1.9 and 1.10, the Applicant declared that Australia was his country of tax residence and Turkey was his country of citizenship. In question 2.1, which asked 'Is the purchaser/transferee a foreign person', the Applicant answered 'no'. He also ticked the box to indicate that he was an Australian citizen. It was agreed that both answers to question 2.1 were incorrect.
On 18 March 2023, a contract for the purchase of a second property was exchanged. Both Applicants were the purchasers as tenants in common in equal shares.
On 19 April 2023, the Applicant completed a Purchaser/Transferee declaration for the second property. In answer to question 2.1, 'Is the purchaser/transferee a foreign person?', the Applicant answered 'no'. He also ticked the box to indicate that he was a person who is 'ordinarily resident in Australia'. It was agreed that both answers to question 2.1 were incorrect.
On 8 June 2023, the contract for the purchase of the second property settled.
On 11 September 2024, following an investigation, the Respondent issued notices of assessment in respect of the purchase of both properties, which included assessments of surcharge purchaser duty, penalty tax and interest. The Applicant sought review of the interest and penalty tax included in those assessments but did not dispute the imposition of surcharge purchaser duty.
The Statutory Framework
If a tax default has occurred, interest is imposed by ss 21 and 22 of the TA Act at both market and premium rates. Section 25 of the TA Act provides for remission of interest in the following terms (with effect from 1 February 2024):
- The Chief Commissioner may remit interest.
- The Chief Commissioner may issue guidelines setting out how interest must be remitted under this division.
- If guidelines are issued, interest must be remitted only in accordance with the guidelines.
- The imposition or remission of penalty tax is not relevant to the imposition or remission of interest.
The Respondent, at the time of the hearing, had not issued any guidelines for the purpose of s 25 of the TA Act.
The Respondent’s power to assess penalty tax in addition to interest arises under s 26 of the TA Act.
Section 27 of the TA Act provides that the amount of penalty tax payable for a tax default is 25% of the amount of tax unpaid, but this can be varied at the Respondent’s discretion based on the taxpayer’s degree of culpability.
Under s 29, the Respondent may reduce penalty tax by 20% if, after notifying the taxpayer of an investigation but before its completion, the taxpayer provides written disclosure sufficient to determine the nature and extent of the tax default.
Under s 27(3)(a), the Respondent can determine that no penalty tax is payable if satisfied that the taxpayer, or a person acting on behalf of the taxpayer, 'took reasonable care' to comply with the law, or if under s 27(3)(b), the tax default is found to arise solely due to circumstances beyond the control of the taxpayer or a person acting on behalf of the taxpayer.
A separate power to remit penalty tax is allowed under s 33 of the TA Act which provides that the Respondent may, in such circumstances as he considers appropriate, remit penalty tax by any amount.
Submissions
The Applicant’s liability for surcharge purchaser duty was not in dispute. The Applicant submitted that penalty tax and interest should be remitted as despite the errors he had made in both Purchaser/Transferee declarations he provided to the Respondent, his answers to the other questions in the declarations and disclosure of his passport and visa status were sufficient to communicate his status as a 'foreign person' to the Respondent.
The Respondent submitted that there was no justification for the remission of any interest or penalty tax in this case as the Applicant did not take reasonable care to comply with his obligations.
Decision
Market rate component of interest
The Tribunal found that the tax defaults did not occur due to circumstances outside the Applicant’s control. The tax defaults occurred as a result of incorrect information being included on the two Purchaser/Transferee declarations, namely not identifying the Applicant as a ‘foreign person’. There was also no evidence that the Respondent was at fault, resulting in the Applicant’s tax defaults. Accordingly, the Respondent’s assessment of market rate interest was affirmed by the Tribunal.
Premium rate component of interest
The Tribunal accepted that whether the Applicant took reasonable care to comply with his tax obligations was a key consideration as to whether remission could be justified. Reliance upon legal advice or information published by the Respondent would be relevant considerations as to whether the Applicant had taken reasonable care. This was not factually made out, as the Applicant made wrong declarations about his foreign citizen and resident status twice in succession, which amounted to something more than a simple 'clerical error'. While the Applicant did disclose his passport and visa status, this was not sufficient to overcome the incorrect declarations. Importantly, the Tribunal found that the 'onus is on the taxpayer to ensure that the Respondent receives relevant information that is accurate, before or at the time of an assessment, including information provided in the declarations made to the Respondent' (at [64]).
Penalty tax component
The Tribunal held that the Applicant’s tax defaults were not caused ‘solely’ by circumstances beyond his control, and so s 27(3)(b) of the TA Act was not applicable. The Tribunal also acknowledged the general discretionary power for the Respondent to remit penalty tax under s 33 but found that there was no compelling reason to consider a full or partial remission of penalty tax in this case. The Tribunal noted the lack of reasonable care exercised by the Applicant and placed considerable weight on the erroneous statements made to the Respondent. As such, penalty tax was held to be accurately assessed at 20% (which had already been reduced from 25% through the application of s 29 of the TA Act) on the basis that the Applicant’s degree of fault did not go beyond a lack of reasonable care.
Orders
The assessments of the Respondent under review are confirmed.
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