Part VII - Land Tax Amendment Act 1988

This commentary item was published in Public Information Bulletin Volume 174, May 1988

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This Act amends Part IV of the Land Tax Act 1976, which deals with the recovery of land tax from defaulting taxpayers. In particular the amendments:-

1. rewrite sections 49 and 50 of the Act, which deal with the recovery of tax from persons other than owners of the land and the registration of the land tax change, to give effect to the recommendations contained in the report of Property Law and Equity Reform Committee on land tax charges; and
2. include in the Land Tax Act section 400 of the Income Tax Act 1976, which provides for the deduction of tax from payments due to defaulters, by amending section 51 of the Act. Section 51 deals with the application of certain provisions of the Income Tax act 1976 relating to recovery procedures.

Section 1 - Short Title, Commencement and Application

Subsection (1)

provides that this Act is to be read with, and form part of, the Land Tax Act 1976.

Subsection (2)

provides that the Act shall apply with respect to the land tax payable for the year of assessment commencing on 1 April 1988 and for every subsequent year.

Section 2 - Recovery of tax from persons other than the owner of the land

This section repeals section 49 of the principal Act and substitutes a new section. The previous section provided that where any land tax payer was in default in the payment of the tax the Commissioner could demand the unpaid land tax from any of the following persons who then became liable to pay the tax:

1. Successors in title;
2. Tenants;
3. Mortgagees;

in relation to the land in respect of which the land tax was assessed. The amendment, which is discussed in full below, is based upon the recommendations of the Property Law and Equity Reform Committee report on land tax charges. The principal change being that the collection of unpaid land tax has been modified. The provisions in relation to successors-in-title have been removed and the provisions in relation to tenants and mortgagees have been substantially modified.

Section 3 - The registration of a charge on land

This section repeals section 50 of the principal Act and substitutes a new section. The previous section provided that land tax which was due and payable constituted an automatic charge on the land, such charges ranked ahead of all other encumbrances and once a charge was registered no disposition of any estate or interest in the land could be registered.

The amendment, which is discussed in full below, is based upon the recommendations of the Property Law and Equity Reform Committee report on land tax charges. The principal change is that the previous automatic charge has been abolished and land tax charges will only arise upon registration.

Section 4 - Application of certain provisions of Income Tax Act 1976 relating to recovery procedures

This section amends section 51 of the principal Act which includes the application of certain Income Tax provisions for the purposes of Land Tax.

The amendment includes the application of section 400 of the Income Tax Act 1976 into the principal Act.

Background to sections 2 and 3

Sections 49 and 50, taken together, gave the Commissioner the power to recover land tax from a person other than the person who was assessed for land tax and to secure the payment of any unpaid tax by registering a charge against the land which prevented any dealing in the land.

The Property Law and Equity Reform Committee reviewed the provisions of the Land Tax Act in relation to land tax charges and subsequently reported to the Minister of Justice on certain problems that it identified. In the course of investigating a problem, which could arise for a purchaser of land which was affected by a charge for land tax, the Committee noted that the effect of some provisions of the Act were unfair. In particular the Committee considered that it was wrong that the provisions of the Act should hang over the security of title of an innocent purchaser especially where, in every other respect, the purchaser could rely on a clear land transfer register and due enquiries made by the solicitor acting on behalf of the purchaser. The Committee also considered that it was unfair to collect unpaid land tax from mortgagees, tenants, and successors-in-title. On the basis of this concern the Committee recommended, to the Minister of Justice, that the provisions of section 49 and 50 of the Land Tax Act 1976 be amended so that:

1. A purchaser who registers his transfer before a land tax charge is presented for registration will have no liability for the land tax of his predecessor(s) in title;
2. Where land has passed out the hands of a taxpayer, the Department will have no right to collect land tax personally from any successor in title, and until the Department's charge is registered, its rights would be those of an unregistered chargeholder;
3. The guaranteed search notes provisions (Land Transfer Act 1952, section 172A as inserted by the Land Transfer Amendment Act 1982) would apply to protect a purchaser or mortgagee relying on the Land Transfer Register;
4. A mortgage registered before a land tax charge is presented for registration will have priority over the land tax charge;
5. The Department's right to claim land tax from a tenant of the taxpayer should be limited to requiring the tenant to pay a sum to the Department in lieu of rental or other payment which would otherwise be due to be paid by the tenant to the taxpayer.
6. A mortgagee exercising a power of sale will not be liable to account to the Department for land tax except for such amount as is stated in a land tax charge registered prior to the date of the mortgagee sale, provided that the Department has given not less than one month's prior notice of the intention of the mortgagee to conduct a sale. The presence of the charge on the title should not prevent transfer of the title by a prior ranking mortgagee.

The Minister of Revenue considered the proposals of the Committee and agreed to their recommendations. Sections (2) and (3) of this Act implement the Committee's recommendations.

THE AMENDMENT

Section 2 - Recovery Of Tax From Persons Other Than The Owner Of The Land

This section repeals section 49 of the principal Act and substitutes the following section which is designed to implement the committee's recommendations (b); (e); and (f).

Subsection (1) - Recovery of tax from tenant

Subsection (1) implements recommendation (e) and provides that where assessed land tax has become due and payable and the taxpayer has made default in payment:

• the Commissioner may demand payment of the tax from any person who, is at the time, a tenant of the land: and
• the tenant becomes personally liable in respect of the unpaid land tax.

That liability, however, is limited to any rent payable (or to be payable) by the tenant at the time the demand is received. Furthermore any tax paid by the tenant pursuant to the subsection shall be deducted from the rent payable by the tenant.

Before a tenant becomes personally liable for the unpaid land tax, the Commissioner must give notice of the demand for payment to the tenant and that notice must be in writing.

Under the previous provision the tenant may have been held personally liable in the same manner as the taxpayer for any unpaid land tax. This liability is now limited to the extent of the rent payable by the tenant to the taxpayer. This change in emphasis reflects the fact that land tax is in reality a personal tax which happens to be levied in a manner which depends upon the level of property ownership of the taxpayer. This amendment (and the others in this Act) to the principal Act is based on the premise that it is unfair that a person should be held liable for the tax properly payable by another merely because he or she is a successor-in-title, mortgagee or tenant of the real taxpayer.

Subsection (2) and (3) implement recommendation (f)

Subsection (2) - Recovery of tax from mortgagee

Subsection (2) provides that where assessed land tax has become due and payable and the taxpayer has made default in payment:

• the Commissioner may demand payment of the tax from any person who at time is a mortgagee who has failed to comply with the requirements of subsection (3) of this section and who after the giving of notice by the Commissioner exercises a power of sale over the land; and
• the mortgagee shall thereupon become personally liable for any unpaid land tax.

That liability, however, is limited to the extent of the moneys referred to in paragraph (d) of the Land Transfer Act 1952.

Essentially this money is the surplus which would have been left over after all mortgages, costs, etc., have been paid to those entitled to payment.

Subsection (3) - Mortgagee to give notice

Subsection (3) places a requirement on a mortgagee of an estate or interest in land (not being land that is exempt from land tax) who intends to exercise a power of sale over that land to inform the Commissioner of that intention.

The subsection requires that the notice be in writing and also that the mortgagee inform the Commissioner, of the intention, at least one month before the date of the sale.

The combined effect of subsections (2) and (3) is that so long as the mortgagee gives the Commissioner at least one month's prior notice of the intention to exercise the mortgagee sale then he will not be held personally liable for any unpaid land tax. However where the mortgagee fails to give that notice a personal liability may result. This liability will occur where, following the demand for payment of the tax by the Commissioner, the mortgagee exercises a power of sale. The extent of the liability is limited to the surplus that would be available to the mortgagor from the proceeds of the sale. Furthermore the liability may exist even if the Commissioner has not registered a charge pursuant to section 50 of the Land Tax Act. Where the Commissioner has registered a charge however, then the provisions of the Land Transfer Act 1952 will ensure the appropriate share of the proceeds for the payment of the tax. The entitlement to proceeds is based on the priority rankings in the provision.

These new subsections also ensure that recommendation (b) of the Committee is implemented as the Land Tax Act no longer places a personal liability on a successor-in-title which was the case previously.

Subsection (4) - Recovery of amount paid from defaulter

Subsection (4) ensures that any tenant or mortgagee who pays any land tax pursuant to this section is entitled to recover the amount so paid from the taxpayer as a debt, or to retain or deduct the amount out of or from any money which is payable to the taxpayer by either the tenant or mortgagee. This subsection is self explanatory and the recovery of the amount paid is only tempered where the person has agreed with the taxpayer to pay the land tax. In such a situation this subsection has no application.

Subsection (5) - Contractural arrangements to pay tax

Subsection (5) provides that the provisions of this section shall not affect the terms of any contract entered into between relevant parties as to the liability of payment for land tax. However in the situation where the owner has contracted to pay the land tax, then that contract does not effect the provisions of subsection (1) of this section where the owner of the land is in default. The tenant may deduct the amount of tax owed from any rent which is or becomes payable to the owner by the tenant.

Subsection (6) - Amounts are paid on behalf of taxpayer

Subsection (6) provides that all payments made under this section by any person on whom demand has been made shall be deemed to be made by the taxpayer. This is a technical amendment which ensures that when an amount of unpaid tax has been paid on behalf of a defaulting taxpayer, credit for the payment is given to the taxpayer.

Subsection (7) - Apportionment by Commissioner

Subsection (7) provides that where the land held by a tenant, or subject to a mortgage, is only part of the land for which the land tax was assessed the tax shall be apportioned by the Commissioner in such manner as he thinks fit. Following that determination the liability of the tenant or mortgagee shall be determined accordingly. This provision takes account of the fact that the land upon which the liability of land tax is assessed may be in the hands of several tenants or subject to more than one mortgage.

Section (3) - The Registration Of A Charge On Land

This section repeals section 50 of the principal Act and substitutes the following section which is designed to implement the Committee's recommendations (a), (c) and (d).

Subsection 1 - Registration of Charge

Subsection (1) implements recommendations (a) and (d). This the operative provision in relation to the Commissioner registering a land tax charge. Before the Commissioner can register a land tax charge the taxpayer must be in default in payment of the amount of tax due. The subsection sets out the method the Commissioner undertakes to register the charge. The methods are the same as those that existed in the previous section and for that reason are not presently addressed.

It is important to note the fundamental change that this provision makes for the registration of land tax charges. The previous provision created an automatic charge on any land upon which land tax had been assessed and became due and payable. The automatic charge also had priority over all existing or subsequent mortgages, charges, or encumbrances and the land continued to be subject to the charge irrespective of any disposition of any estate or interest in the land.

This new provision enables the Commissioner to register a land tax charge. However the charge no longer crystallises automatically. This change will ensure that any person who intends to deal with the land will have prior knowledge of any claim that the Commissioner may have on the land due to a default in the payment of the tax by the owner of the land. More importantly any purchaser who registers a transfer before the Commissioner presents a land tax charge for registration will have no liability for land tax of the predecessor(s) in title. This is because subsection (1) only entitles the Commissioner to register a charge on the land of the taxpayer. Previously the automatic charge went on the land irrespective of ownership. Also as the registration of the charge by the Commissioner is now subject to the relevant provisions of the Land Transfer Act instruments registered prior to the charge have priority over the charge (recommendation (d)).

Subsection (2) - Certificate to be signed

Subsection (2) follows from the provisions in subsection (1) which relate to the method of registration. This provision provides that the certificate deposited with the District Land Registrar or Registrar of Deeds must be signed by the Commissioner or on behalf of the Commissioner. Those Officers the Department who act on behalf of the Commissioner do so pursuant to the power to delegate vested in the Commissioner.

Subsection (3) - No disposition to be registered where land subject to charge

Subsection (3) provides that no disposition of any estate interest in any land shall be registered while a charge this section is registered against the land. This provision has not been amended and is the same as was previously in section 50. This ensures that when the Commissioner registers the charge, the defaulting taxpayer is prevented from evading liability for tax by disposing of the property. Furthermore, the provision will encourage the defaulter to pay the tax in full as potential purchasers will insist that the charge be discharged; otherwise they will not be able to register their interest in the land.

Subsection (4) - Statutory charges rank equally

Subsection (4) provides that if any land subject to a land tax charge is also subject to another statutory charge, the charges shall rank equally with each other unless, by virtue of the other Act, that statutory charge would be deferred to the land tax charge.

Subsection (5) - Guaranteed search notes

Subsection (5) implements recommendation (c) of the Committee and ensures that the guaranteed search notes provisions of the Land Transfer Act apply to protect any person acquiring any estate or interest in the land so that such persons may rely on the Land Transfer Register.

Subsection (6) - Enforcement of charges

Subsection (6) is a procedural provision which provides for the enforcement of any charge. The provision provides that the High Court may make such an order as it thinks fit. Such an order could include the sale of the estate or interest that is subject to the charge, or for the appointment of a Receiver. Furthermore any order for sale shall be carried into effect by the Sheriff in the same manner as a writ for sale.

Subsection (7) - Charge secures tax payable for year of assessment

Subsection (7) provides that the registered charge, will operate to secure all the land tax payable for the particular year of assessment and will also include any subsequent year of assessment, unless the charge has been released by the Commissioner before that latter tax has been assessed.

Subsection (8) - Release of charge

Subsection (8) provides the conditions that must exist before the Commissioner will release a registered charge. Firstly upon payment of all the tax for the time being secured by the charge. Secondly, where the land is subject to a mortgage, registered prior to the charge, and the mortgagee exercises a power of sale over the land.

Subsection (9) - Amount payable upon release of charge

Subsection (9) provides for the amount to be payable, to the Land Transfer Registrar or Registrar of Deeds, on the registration of any release.

Subsection (10) - Owner of land to pay fees

Subsection (10) provides that the fees are to be payable by the owner of the land charged or other person by whom the land tax was payable. Such fees are to be paid in the first instance to the Commissioner.

Subsection (11) - Application for release by Commissioner

Subsection (11) provides that the application for the registration of the release shall be made by the Commissioner in writing. Furthermore in the application the Commissioner shall certify that the registration fee has been paid or, if the case so requires, recommend that the release be registered without payment of a registration fee.

Section (4) - The Registration Of A Charge On Land

This section amends section 51 of the principal Act to include the application of section 400 of the Income Tax act 1976 into the Land Tax Act. Section 400 provides for the deduction of tax from payments which are otherwise due to defaulters. This amendment is consistent with the thrust of the Property and Law Reform Committee which concluded that land tax was in reality a personal tax. As a personal tax the recovery focus should be placed on the defaulter. The inclusion of the application of section 400 of the Income Tax Act is consistent with this approach.