Phan v Chief Commissioner of State Revenue [2025] NSWCATAD 193

Introduction

An application was made by Ms Phan (the Applicant) under s 96 of the Taxation Administration Act 1996 (NSW) (TA Act) for an administrative review of the Chief Commissioner of State Revenue’s (the Respondent) assessment of interest and penalty tax as specified in a Duties Notice of Assessment (DAN).

In 2022, the Applicant identified as a ‘foreign person’ under the Duties Act 1997 (NSW), purchased an apartment in Sydney, which subjected her to surcharge purchaser duty (SPD). However, during the processing of this transaction through the Electronic Duties Return (EDR) system, an oversight by the stamping agent engaged by the Applicant’s solicitors led to the exclusion of the SPD in the calculation of the payable amount of duty. Consequently, the Applicant did not pay the SPD, which amounted to $104,000.00.

Upon discovering the underpayment, the Respondent issued a DAN to the Applicant, which included the SPD along with interest and penalty tax totalling approximately $40,000.00. While the Applicant did not contest her liability for the SPD, she sought a review from the Tribunal regarding the interest and penalty tax, requesting their remission either partially or entirely.

The Tribunal decided not to remit the interest or penalty tax and confirmed the Respondent’s assessment of interest and penalty tax.

Background

In August 2022, the Applicant’s solicitors informed her about the financial implications of purchasing an apartment as a foreign buyer, specifically highlighting a surcharge that would increase the total amount payable to Revenue NSW. They estimated the total duty to be $159,720 which included a standard transfer duty of $55,720.00 and SPD of $104,000.00. The Applicant entered into the contract on 29 August 2022, and her solicitors reiterated the duty amount the following day. On 5 September 2022, Ms Phan completed a Purchaser Declaration, incorrectly declaring herself as an exempt permanent resident, which would have exempted her from the SPD. The solicitors engaged R & I Inhouse Stamping (R & I) to process the transaction, but the calculated duty was only $55,720.00, excluding the SPD.

The discrepancy in the duty calculation arose from errors in the information input into the EDR system by R & I, which did not align with the Applicant’s declaration of being a foreign person. Revenue NSW’s Modified Advanced Recoups System (MARS) showed a 'Total foreign interest' of 0% instead of 100%, and it indicated 'No' to the question of applying for a surcharge duty exemption, despite the Applicant’s claim of being an exempt permanent resident. The Applicant’s solicitors initially queried the discrepancy with R & I but did not investigate further the inconsistency between their research and R & I's input. Consequently, the SPD of $104,000.00 was not paid in 2022.

In June 2024, the Respondent issued a Notice of Investigation to the Applicant regarding the unpaid SPD. The Applicant complied by providing all requested documents, and the Respondent determined that she was a temporary resident at the time of purchase, making her liable for the SPD. A DAN was issued, including interest and penalty tax, which the Applicant sought to have removed or reduced.

The Statutory Framework

The Tribunal cited the following provisions of the TA Act in its decision:

3   Definitions

• tax default means a failure by a taxpayer to pay, in accordance with a taxation law, the whole or part of tax that the taxpayer is liable to pay.

21   Interest in respect of tax defaults

1. If a tax default occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis.

22   Interest rate

1. The interest rate is the sum of—
   1. the market rate component, and
   2. the premium component.

25   Remission of interest¹

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.

27   Amount of penalty tax

3. The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that—
   1. the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or
   2. the tax default occurred solely because of circumstances beyond the taxpayer's control (or a person acted on behalf of the taxpayer, because of circumstances beyond either the person’s or the taxpayer's control) but not amounting to financial incapacity.

29   Reduction in penalty tax for disclosure during investigation

1. The amount of penalty tax determined under section 27 is to be reduced by 20% if, after the Chief Commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Chief Commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.

33   Remission of penalty tax²

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.

Submissions

Applicant’s Submissions

The Applicant submitted that she had consistently sought information related to the SPD and took all reasonable steps to fulfill her obligations, indicating that she exercised reasonable care. She had paid all the taxes she owed, fully cooperated with the Respondent’s investigation, and did not engage in any wilful default. She submitted that her incorrect response to the question on the Purchaser Declaration inquiring whether she qualifies as an exempt permanent resident (Item 2.2) was a 'clerical error.'

The Applicant further submitted that by specifying her visa number, subclass and expiry date in Part A of the Purchaser Declaration, she effectively disclosed her non-permanent resident status. This disclosure should have been sufficient to highlight the error in her response at Item 2.2, making it impossible to process the transaction without imposing the SPD. The tax default was partly due to R & I, which, as an approved stamping agent, should be considered an agent of the Respondent. The incorrect calculation of the duty liability by R & I was entirely beyond the Applicant’s control.

Respondent’s Submissions

The Respondent submitted that the Applicant incorrectly declared herself as an exempt permanent resident, which indicated a lack of reasonable care. It was noted that the Applicant did not seek or receive advice on her status when completing the declaration and could not demonstrate a reasonable belief in her exempt status. The Respondent argued that the Applicant’s solicitors knew she held a temporary visa but failed to correct the declaration, leading to an incorrect assessment that no SPD was payable.

Under s 27(3)(b) of the TA Act, penalty tax is not imposed if the tax default was solely due to circumstances beyond the Applicant’s control and the control of her representatives. However, the Respondent submitted that this was not applicable in this case, as the Applicant’s incorrect declaration was within her control, and even if the stamping agent’s actions were beyond her control, they were not the sole cause of the tax default. The Respondent also argued that there were no special circumstances warranting a remission of the penalty tax, as the Applicant did not take reasonable care and was not entitled to an exemption from SPD. The Respondent further argued that the stamping agent was not his agent and that the errors could have been identified and corrected earlier.

Regarding interest, the Respondent submitted that there were no exceptional circumstances to justify remitting the market rate component of interest. The tax default arose from the Applicant's declaration, and the Respondent was not at fault. Additionally, the Applicant had not demonstrated that the tax default was beyond her control or that reasonable care was taken, which circumstances did not support a remission of the premium interest.

Decision

The Applicant did not provide a witness statement or any evidence clarifying whether she misunderstood the form, ticked the wrong box, or received incorrect advice. The Tribunal described her approach as 'lazy acceptance of a position that was favourable to her,' which indicated a lack of reasonable care. When the stamping agent returned a duty calculation that omitted the SPD, neither the Applicant nor her solicitors took steps to reconcile this with the earlier advice they had given her. The Tribunal found that the discrepancy should have prompted further investigation, especially given the significant difference in duty payable. The failure to review the Purchaser Declaration or to challenge the stamping agent’s result was a missed opportunity to correct the error before it became a tax default: [44].

The Tribunal also rejected the submission that the stamping agent was an agent of the Respondent, finding that the agent’s role was limited to lodgement of returns and calculation of tax on behalf of the taxpayer, not assessment of tax: [45].

Market rate interest

The Tribunal applied the reasoning in Incise Technologies³, noting that the market rate component is compensatory and rarely remitted. The Applicant’s solicitors had correctly advised her twice that she would be liable to pay SPD. Despite this, she completed a Purchaser Declaration in which she incorrectly stated that she was an exempt permanent resident. The Tribunal found that this declaration was inconsistent with her visa status and that she failed to explain how the error occurred.

Premium interest

Regarding the premium component of interest, the Tribunal considered the four criteria from Incise Technologies and found that, while the Applicant had paid the principal tax and cooperated with the investigation, she had not demonstrated that she took reasonable care. The Tribunal was not satisfied that the default was not wilful, noting the absence of a witness statement and the lack of clarity around her understanding of the declaration form. Accordingly, the Tribunal refused to remit the premium component of interest to any extent: [47] – [62].

Penalty tax

On penalty tax, the Tribunal found that neither the Applicant nor her representatives took reasonable care, and the default was not beyond their control. The Tribunal cited Downer EDI⁴ and Bayton Cleaning Company,⁵ confirming that remission under s 33 should only be exercised in 'special circumstances,' which were not present. The Tribunal noted that the SPD liability had been identified early but was not acted upon, making the case less deserving of remission: [68] – [69].

Orders

1. The assessments of interest and penalty tax are confirmed.

Read the full decision

¹ From 1 February 2024

² From 1 February 2024

³ Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19.

⁴ Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126.

⁵ Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657.