ACAT softens penalty tax for unaware couple
The Australian Capital Territory Civil and Administrative Tribunal (ACAT) has lowered the penalty tax for a couple who operated an investment property while living overseas, but found that being unaware of a tax was no excuse for a failure to pay.
In 2012, Geoffrey Wade and Siew Imm Tan were living in Singapore due to personal circumstances. In April that year, they used an agent, PRD Nationwide, to rent out their Australian property. For two years, from May 2012 to May 2014, the property was leased, and they were liable to pay land tax for the two years.
Neither the couple nor their agent notified the state tax department of the rental agreement within the required 30 days of its commencement. Once the couple were aware of their tax liability, in early 2014, they began paying the land tax off immediately, in installments.
The Commissioner for ACT Revenue decided to impose a penalty tax on Wade and Tan above the default 25% of unpaid tax, at 50%. The 50% rate usually applies if the taxpayer isn't able to provide a reasonable excuse for failing to pay their land tax, and the mistake was caused by a failure of the taxpayer to take reasonable care.
If a taxpayer intentionally disregards tax law, they are usually charged a penalty at 75% of the unpaid tax. The penalty rate can increase to 90% in certain circumstances.
Wade and Tan disputed the 50% penalty rate, arguing that their agent, acting on their behalf, should have notified ACT Revenue that their property was being rented.
They contended that the legislation which saw them incur a penalty of 50% was irrelevant, as it referred to an owner that had not notified the Commissioner of a rental property, not an agent that had not notified the Commissioner.
However, the Commissioner argued that owners were still responsible for declaring a rental property, even in the case where there has been a failure to do so by the agent. Tan and Wade, it was contended, had failed to take reasonable care, and had an obligation to independently figure out their tax obligations.
Ultimately, the Tribunal considered the couple's exceptional circumstances: Tan and Wade had to remain overseas, were unable to access mail from the Commissioner, and had been let down by their agent (who did not appear as a witness). It also noted that Tan and Wade had not heard of land tax, and upon realising they had a tax obligation, immediately began paying their land tax.
It was, however, also noted that the couple had failed to take reasonable steps to ensure they met their tax obligations, and that they couldn't receive a full remission of their penalty tax.
The Tribunal decided to remit 40% of the penalty tax imposed, which meant they were required to pay a 40% penalty tax, rather than the 50% sought by ACT Revenue.