Australian Medical Council Ltd v Commissioner for Act Revenue (Administrative Review)
[2016] ACAT 105
•14 September 2016
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
AUSTRALIAN MEDICAL COUNCIL LTD v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2016] ACAT 105
AT 47/2015
Catchwords: ADMINISTRATIVE REVIEW – payroll tax – application for extension of time to lodge objections – charitable status
Legislation cited: Duties Act 1999 (ACT) s 150 (repealed)
Fringe Benefits Tax Assessment Act 1986 (Cth) s 65
Income Tax Assessment Act 1936 (Cth) s 23
Payroll Tax Act 1987 (ACT) (repealed) s 9
Payroll Tax Act 2011 (ACT) ss 7, 48
Taxation Administration Act 1999 (ACT) ss 9, 18B, 100, 102, 103, 104, 108
Cases cited: Brown v Federal Commissioner of Taxation [1999] FCA 563
Case 4/2000 (2000) ATC 144
Ciaglia v Commissioner of Taxation [2002] ATC 2066
Comcare v A’Hearn (1993) 45 FCR 441
Commissioner of State Revenue (Vic) v Royal Insurance Australian Ltd (1994) 182 CLR 51
Fardon v Federal Commission of Taxation 92 ATC 4339
Federal Commissioner of Taxation v Ryan (2000) ATC 4079
Hunter Valley Developments Pty Ltd v Cohen [1984] FCA 186
PAAN Investments (in liq) v Commissioner for ACT Revenue (2012) 290 FLR 1
Phillips v Australian Girls’ Choir Pty Ltd [2001] FMCA 109
The Institution of Engineers Australia and Commissioner for ACT Revenue [2015] ACAT 50
Wedesweiller v Cole (1983) 47 ALR 528
Windshuttle v Deputy Federal Commissioner of Taxation (1993) 46 FCR 235
Zizza v Federal Commissioner of Taxation (1999) 99 ATC 4711
Tribunal: Senior Member M Brennan (Presiding)
Senior Member R Creyke
Date of Orders: 14 September 2016
Date of Reasons for Decision: 14 September 2016
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 47/2015
BETWEEN:
AUSTRALIAN MEDICAL COUNCIL LTD
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Senior Member M Brennan (Presiding)
Senior Member R Creyke
DATE: 14 September 2016
ORDER
The Tribunal orders that:
1.The reviewable decision be set aside.
2.The applicant may lodge objections to payroll tax assessments for the financial years ending 30 June 2010, 2011, 2012 and 2013.
………………………………..
Senior Member M Brennan
for and on behalf of the Tribunal
REASONS FOR DECISION
The decision under review was made by the respondent, the Commissioner for ACT Revenue (Commissioner), on 2 June 2015. The decision refused permission to the applicant, the Australian Medical Council Ltd (applicant/AMC), to lodge objections to payroll tax assessments after the 60 day period prescribed for objections, for the financial years 1 July 2009 to 30 June 2013.
The application to the ACT Civil and Administrative Tribunal is made under section 108A of the Taxation Administration Act 1999 (ACT) (TAA) which permits review of a ‘reviewable decision’.
The application was a reviewable decision being a review by the respondent of a decision refusing permission to lodge a late objection.[1]
[1] At the time of the decision this was a reviewable decision under Taxation Administration Act 1999 schedule 1, clause 1.2(i).Following amendments that commenced on 10 June 2015, this remained a reviewable decision pursuant to clause 1.2(k)
Hereafter, a reference to ‘ACAT’ or ‘tribunal’ refers to the ACT Civil and Administrative Tribunal generally, whereas a reference to ‘Tribunal’ refers to the panel hearing the current matter.
Background
Since 16 July 2008, the applicant has been a company limited by guarantee under the Corporations Act 2001 (Cth). Previously, the applicant was incorporated under the Associations Incorporations Act 1991 (ACT). The respondent conceded that in all practical respects, upon incorporation, all the activities of the association were transferred. Nothing turns on the change of status.
The applicant is an employer for the purposes of the Payroll Tax Act 2011 (ACT) (PT Act), having a staff of about 80, and operates in the Australian Capital Territory in premises held on a sublease from the lessee, Arts Services Australia Pty Ltd. The AMC also has operations in other states such as Victoria.
The applicant described its purposes or objects in 1985 as:
[T]o advise and make recommendations to State and Territory Medical Boards in relation to:
· accreditation of medical schools and courses of Australian Universities;
· …the suitability for practice in Australia of overseas trained medical practitioners; and
· uniform approaches to registration. [at Pt 2.7.]
The applicant’s constitution as a company limited by guarantee was last amended on 16 November 2010 and the revised objects are shown in the Appendix to these reasons.
Although spelled out more fully in 2010, the purposes of the AMC, in essence, remain the same as those shown at paragraph 7 of these reasons. They were the objects relied on by the respondent in 2014 to accept the charitable status of the applicant.[2]
[2] Exhibit A1 , statement of Ravindra Lilanthi Wickramaratna dated 17 August 2015 at [10]
The history of the applicant’s charitable status for taxation purposes is as follows. In 1986 the Federal Commissioner of Taxation found that the applicant was exempt from income tax as a ‘religious, scientific, charitable or public educational institution’ under section 23(e) of the Income Tax Assessment Act 1936 (Cth).
In 1994 the Federal Commissioner of Taxation found that the applicant qualified for a rebate as a ‘rebateable employer’, being ‘a scientific, charitable or public educational institution’ under section 65J(1)(b) of the Fringe Benefits Taxation Assessment Act 1986 (Cth).[3]
[3] A ‘rebateable employer’ for the FBT rebate includes: ‘charities that are institutions; certain scientific or public educational institutions; … and not-for-profit organisations’: Fringe Benefit Taxation Assessment Act 1986 s 65J(1)(b)
On 6 August 1996, the applicant requested the Commissioner for ACT Revenue to exempt it from payroll tax.[4] By letter dated 30 October 1996, the respondent advised that the applicant was not exempt from payroll tax under section 9(b) of the Payroll Tax Act 1987 (ACT).[5] The applicant did not object to the decision.
[4] T Document page 20
[5] T document page 92. See also Payroll Tax Act 1987 (ACT) s 1A. The Dictionary referred to in that section exhaustively defines ‘charitable organisation’ as ‘an organisation, society, institution or body carried on for a religious, educational, benevolent or charitable purpose, other than one carried on for securing financial benefit to its members’
By letters dated 27 June and 11 July 2007, Arts Services Australia Pty Ltd requested that it should only be required to pay nominal stamp duty for the area sublet to the applicant since the AMC was an organisation entitled to an exemption under section 150(d) of the Duties Act 1999 (ACT).[6]
[6] T documents page 93. See also section 150 of the Duties Act 1999 was repealed subsequently
On 8 August 2007, the respondent decided the applicant was not a charitable organisation under that Act.[7] No objection was lodged in relation to the decision.
[7] T documents page 270. See also the Duties Act 1999 (ACT) which relied on the definition of ‘charitable organisation’ in the TAA for deciding charitable status in matters involving taxation
The applicant did not receive a copy of the 8 August 2007 letter sent to the solicitors for Arts Services Australia Pty Ltd and did not become aware of the decision until October 2014.[8]
[8] Applicant’s submissions dated 15 June 2016 at [4.6]; evidence of Mr Wickramaratna
On 22 August 2008, following its incorporation as a company limited by guarantee, the applicant lodged an application to be re-registered for payroll tax. The respondent duly registered the applicant for payroll tax. For the financial years 2009-2013, the applicant paid payroll tax. The payments over that period totalled $1,312,515.06.[9]
[9] T documents pages 94-100; applicant’s statement of facts and contentions dated 17 August 2015 at [10]
By letter dated 26 May 2014, following advice from its auditors, PricewaterhouseCoopers (PwC), the applicant again applied for payroll tax exemption as a charitable organisation under the PT Act. The letter included a request that if the respondent granted the request, the application was to be treated as a request for a refund of payroll tax for the financial years 2009/2010 to 2012/2013.
By letter dated 4 August 2014, the respondent informed the applicant that it was exempt from payroll tax effective from 2013/2014, as a charitable organisation in accordance with the PT Act section 48 and schedule 2, part 2.2[10]. The organisation was registered on the Charity Register on 1 July 2014.[11] The applicant was advised that payroll tax for that financial year only was to be refunded.[12]
[10] T documents page 259
[11] The decision was made under the Payroll Tax Act 2011 (ACT) s 48, Schedule 2, clause 2.13
[12] T documents page 261
In a letter dated 12 August 2014 the respondent further advised the applicant:
There is no provision under the Payroll Tax Act 2011 or the Taxation Administration Act 1999 to apply this exemption retrospectively and … no refund for any tax paid for periods prior to the financial year in which the company applied and was approved for a Payroll Tax exemption based on their charitable status will be issued.[13]
[13] T documents page 261
On 30 October 2014 the applicant requested permission to lodge late objections in respect of its payroll tax assessments for the financial years 2009/2010 to 2012/2013.
On 28 November 2014, the respondent refused the application.[14]
[14] T documents pages 270-274
By letter dated 21 January 2015, the applicant objected to that decision and sought a further review by the respondent.[15] On 2 June 2015, the respondent disallowed the objection.[16]
[15] T documents pages 278-287
[16] T documents pages 9-19
On 24 June 2015, the applicant sought further review by the tribunal. The decision to refuse permission to lodge a late objection is reviewable by ACAT.[17]
Hearing
[17] TAA section 107A(1)(b), schedule 1, clause 1.2(k) and section 108A
The Tribunal took into account the documents filed by the parties including submissions, the statements of facts and contentions, and exhibits tendered during the hearing.
The Tribunal heard the evidence from the AMC’s Finance Manager, Mr Ravindra Lilanthi Wickramaratna.
Consideration
The application is to lodge a late objection to assessments of payroll tax for the financial years 2009/2010 to 2012/2013.
Sections 100(1) and 102 of the TAA permit a taxpayer to lodge an objection to an assessment of payroll tax provided that the objection is made no later than 60 days after notice of the assessment is given.[18] Under section 103 of the TAA, the Commissioner has an unfettered discretion to permit a late objection.
[18] TAA section 102
Section 103 of the TAA states:
103Objections lodged out of time
(1)The commissioner may permit a person to lodge an objection after the 60 day period.
(2) The person seeking to lodge the objection must state fully and in detail, in writing, the circumstances concerning and the reasons for the failure to lodge the objection within the 60 day period.
(3)The commissioner may grant permission unconditionally or subject to conditions or may refuse permission.
Although unfettered, the discretion must be exercised in accordance with the subject matter, scope and purpose of the TAA.[19] These requirements include the statutory criteria in section 103, namely, that the application must refer to the ‘circumstances’ and the ‘reasons’ for the failure to lodge an objection.[20]
[19] PAAN Investments (in liq) v Commissioner for ACT Revenue (2014) 290 FLR 1 at 15 [65] per Foster J
[20] TAA section 103(2)
Justice Hill in Brown v Federal Commissioner of Taxation [1999] FCA 563 (Brown) at [59] said of a similar provision in federal taxation:
What is required is the balancing of the delay; the explanation for it; the circumstances which gave rise to it; and such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to the taxpayer who has, by reason of the failure to object in time, lost the right to a review of the assessment. In this balancing process the Commissioner or the tribunal on a review will be guided by what the justice of the case requires. The balancing process should be approached on the basis that while Parliament has stipulated a time in which objections are required to be lodged it has entrusted to the Commissioner a power to extend that time in appropriate circumstances.
These observations were approved by the Full Federal Court in Zizza v Federal Commissioner of Taxation.[21] They reflect the well-known principles identified by Wilcox J in Hunter Valley Developments Pty Ltd v Cohen [1984] FCA 186 (Hunter Valley).
[21] Zizza v Federal Commissioner of Taxation (1999) 99 ATC 4711 at 4715 [13]
The principles, adapted to the circumstances of this matter, can be summarised in the following questions:
(1)Is there an acceptable explanation for the delay?
(2)What actions were taken by the applicant to meet the time limits for lodging an objection?
(3)Is there prejudice to the respondent caused by the delay?
(4)Are there other public considerations arising from the delay, such as unsettling of other people or of established practices?
(5)What are the merits of the substantive application?
(6)Would there be unfairness as between the applicant and other persons in a like position if this application was granted?
It is accepted that matters considered in other cases may be helpful, but the Tribunal’s task is to decide on the circumstances under consideration.[22]
[22] The Institution of Engineers Australia and Commissioner for ACT Revenue [2015] ACAT 50 at [34]
In closing submissions, the respondent conceded that, on the facts, the applicant’s case arguably met the criteria in principles four to six. The respondent said its case rested on the first two of the Hunter Valley principles to which, in view of the statutory requirement under the TAA section 103(2), significant weight should be attached.
The Tribunal finds that the concession was appropriate based on its consideration of the final four principles.
Principle 3: Prejudice to the respondent
It is for the respondent to produce evidence of the nature and extent of any prejudice.[23]
[23] Windshuttle v Deputy Federal Commissioner of Taxation (Windshuttle) (1993) 46 FCR 235 at 249-250 per von Doussa J
The respondent said in its reasons for decision under cover of a letter dated 2 June 2015 that:
… this Office would suffer prejudice … [because] [t]his Office has relied upon the revenue paid to base forecasting of expected revenue available to the Government. Further, reopening the examination of the liability of the taxpayer would require further research into the taxpayer’s purposes, activities and financial records over periods well in the past.
The applicant’s response was first that the Commissioner had provided no evidence in support of this assertion, and second, that:
… this is not prejudice by reason of granting an extension of time, but prejudice by reason of a possible requirement to refund tax which ought not to have been collected. It is not the kind of prejudice to which factor (iii) is directed.[24]
[24] Applicant’s submissions dated 15 June 2016 at [12]
Section 9 of the TAA provides for the Commissioner to make reassessments of tax, retrospectively, for a period of up to five years from the date of the initial assessment. In those circumstances, there can be no certainty of government revenue, since for any of the previous five years the amount of tax revenue may change. These retrospective amendments inevitably impact on the amount of revenue the Government may expect in the future since a shortfall or windfall from previous years will require a readjustment of the revenue going forward.
Accordingly, the Tribunal accepts that some adjustments to the financial statements of the respondent would be required, but this is the inevitable consequence of a statute which permits adjustments to tax assessments for a retrospective period of five years.
Nor does the Tribunal accept that a re-examination of the applicant’s liability for the period from the 2009/2010 financial year would entail significant further research by the Commissioner. The Commissioner already has the documents needed for an assessment. These are the purposes, activities and financial records of the applicant for each of the five years, supplemented by the material available to the Tribunal for the hearing.
The documents include the annual reports for the relevant years, the AMC’s Constitution as at 2010, the ‘Strategic Plan Summary 2012-2017’, and supplementary documents relating to its purposes, and activities for each of those years. Although the Constitution was amended in 2010, as the evidence indicates, at paragraph 7 of these reasons, the purposes of the applicant in 1985 and as at 2010-2014, in essence remain the same. The annual reports support a finding that the activities of the AMC were also not changed in material respects during that period
There is also no prejudice to the Commissioner from compliance with the law. There is an obligation on the Commissioner correctly to assess a tax liability. The Commissioner’s statement that: ‘this Office is well within its rights to consider that the matters, ie the annual payroll tax assessments, were correctly assessed and concluded’,[25] does not properly take that compliance into account.
[25] T document page 14
As Mason CJ said in Commissioner of State Revenue (Vic) v Royal Insurance Australian Ltd (1994) 182 CLR 51 at 64 of comparable legislation:
… the first and foremost consideration is that the Act is a taxing Act and that in terms it confers no authority upon the Commissioner to levy, demand or retain any moneys otherwise than in payment of duties and charges imposed by or pursuant to the Act. … Nothing short of very clear words is sufficient to achieve [the result of permitting] the Commissioner to retain the overpayment in the absence of circumstances disentitling the payer from recovery.
In addition, as Hill J said in Brown at [47] that:
[I]t is hard to see what prejudice there could be to the [Federal Commissioner of Taxation] in a case such as the present, or indeed in like cases [proceedings for extending the time in which a taxpayer may object], other than administrative inconvenience. The [Federal Commissioner of Taxation]… is obliged to collect tax in accordance with a correct assessment, that is to say, to collect the correct amount of tax, no more and no less. If an assessment is excessive it would be improper for [him] to seek to collect tax payable under it …..
The Commissioner conceded that this principle was of little relevance in the comment in its ‘Reasons Statement’ that principle 3 “is not of sufficient weight to ultimately influence the objection decision”.[26] That concession is supported by the findings. The task of making a correct assessment and possibly having to refund tax already paid, is a task envisaged by the TAA. It is the task required by law and the delay, in the circumstances, entails no prejudice to the respondent.
Principle 4: Public considerations arising from the delay
[26] T document page 15
The Tribunal finds that there can be no unsettling of other people or established practices in a correct assessment of tax. Indeed, the correct assessment of the liability in this instance may benefit the public generally in that it demonstrates that the Commissioner is prepared to acknowledge an error and to correct it, thus engendering greater public confidence in the taxation system. Further, it may benefit other like organisations in providing an incentive to them to test their liability. There are no public considerations from the delay.
Principle 5: The merits of the assessment application
The merits of the substantive application are to be taken into account. It is for the applicant to establish an arguable case to this effect.[27]
[27] Brown at [20], [23]
The Commissioner assessed that the applicant was entitled, as a charitable organisation, to be exempt from payroll tax for the 2013/2014 financial year. On its face, this finding suggests that the earlier decision in 1996 by the Commissioner was incorrect. Despite this assessment, the Commissioner contended that:
It cannot be assumed without evidence that the Commissioner’s decision[s] [in the years 2009/2010 to 2012/2013] [were] incorrect. Rather the contrary assumption ought to be made.
The Tribunal does not find this argument persuasive. As the discussion of the facts also suggests, there have been no relevant changes to the purposes of the applicant’s Constitution during the relevant period. Nor have there been changes to the activities of the applicant in that period. This is evident in the AMC’s annual reports for the relevant years. Finally, as noted at [72-75] in these reasons, there has been no change to the relevant eligibility criteria in the Payroll Tax Act 2011 (ACT) from those in the Payroll Tax Act 1987 (ACT).[28]
[28] For a comparable example, see Case 4/2000 (2000) ATC 144, 146 at [5(j)]
In these circumstances, it is hard to see that the ‘contrary assumption’ referred to in the respondent’s statement of facts and contentions has weight. At the hearing, the respondent conceded that it was ‘arguable’ that the merits of the matter favour the applicant. The Tribunal accepts that this concession was appropriate in the circumstances.
Principle 6: Unfairness as between the applicant and other persons
This factor has little relevance in the context of merits review of a tax assessment. As Hill J observed in Brown:
It will seldom have any significance in the context of income tax assessments. In the present case the [AAT] appears to have considered it should take into account persons who decided not to object to assessments. But there can here be no question of fairness arising so far as other taxpayers are concerned. They are entitled to lodge objections and if out of time to seek an extension of time in which to lodge their objections.[29]
[29] Brown at [46]
As the discussion under Principle 4 indicates, it would be fairer to other similar organisations for a correct assessment to be made than for an opportunity to test the applicant’s eligibility to be denied and a possible error to remain uncorrected. This is a feature of the individual circumstances attaching to each return. There are no issues of a broader policy nature from that process.
The Tribunal finds, in summary that concessions made by the respondent in relation to these four principles were appropriate.
That leaves for consideration, the principles which the respondent claims are not met by the applicant: whether there was an acceptable explanation for the delay; and the actions taken by the applicant towards seeking to lodge a late objection.
Principle 1: Acceptable explanation for the delay
The applicant delayed until 26 May 2014 to lodge objections for the 2009/2010 to 2012/2013 years. The time limit for objection is 60 days, unless permission is given to lodge a late objection.
The applicant’s letter of 26 May 2014 was both an application for exemption from payment of payroll tax for the 2013/2014 year, and, if successful, an objection to the assessments of payroll tax for the 2009/2010 to 2012/2013 years.
The applicant was not out of time for the application for an exemption; it was only out of time to object to the earlier assessments.
In relation to the objections, as the respondent submitted, the applicant has been advised each year of its opportunity to object and until 26 May 2014 did not do so. That meant, it was submitted, that the applicant:
… waited 18 years after the Association first sought exemption from payroll tax and 6 years after it registered for payroll tax in its current name, to agitate any issue in relation to its status as a charitable organisation for payroll purposes.
In either case, the respondent said the periods of delay were unacceptable.
The reference to eighteen years significantly overstates the position. The time period for objection to the first of the assessments under challenge expired 60 days after the applicant received notice of the assessment of payroll tax for the 2009/2010 tax year. That period of delay is less than four years. Nor was the reference to six years correct. For the assessments the subject of the objections, the period following the 60 day time limit for lodgement of an objection until 24 May 2014, was between three years eight months twenty days for the 2009/2010 assessment, and five months for the assessment for 2012/2013.
Nonetheless, there was delay. A delay in disputing an assessment should not, of itself, preclude an applicant from the grant of an extension of time provided there is an acceptable explanation for that delay.[30] At the same time, the Tribunal accepts that time limits are not to be ignored, given the need for finality of decision-making within public administration.[31]
[30] Ciaglia v Commissioner of Taxation [2002] ATC 2066, 2076
[31] Federal Commissioner of Taxation v Ryan (2000) ATC 4079; Case 4/2000 (2000) ATC 144, 156 at [14]
Both parties accepted that these were the correct tests to be applied, and the task for the Tribunal is to take into account and balance all the identified factors. The parties also accepted that blame attributed to any of the parties should not influence the outcome.[32]
[32] Transcript of Proceedings 21 June 2016, for example, at pages 50, 61
The respondent in its reasons statement referred to the statement in Hunter Valley that: “It is a pre-condition to the exercise of the discretion in his favour that the applicant for extension show an ‘acceptable explanation of the delay’”.[33] In light of the decision of the Full Court of the Federal Court in Comcare v A’Hearn (1993) 45 FCR 441 that ‘there is no rule that such an explanation is an essential precondition’,[34] this statement is in error. As the Court later acknowledged, and the Tribunal accepts, it is “clearly an important factor”[35] but is not a pre-condition to a successful application.
Reasons and circumstances behind delay
[33] T documents page 13
[34] Comcare v A’Hearn (1993) 43 FCR 441 at [15]
[35] Brown, 17 at [46]
The respondent submitted that one of the occasions when the applicant should have turned its mind to its status for the purposes of payroll tax was in 2007. This submission was discounted at the hearing.
The initial application by PwC on 30 October 2014 for further time to object referred to the rejection in 2007 of charitable status for AMC in relation to stamp duty as the principal reason for the delay.[36] However, Mr Wickramaratna’s evidence was that until 2014 he had not seen the rejection in 2007 by the Commissioner of the application by Arts Services Australia Pty Ltd. That evidence was not shaken in cross-examination and is accepted by the Tribunal. The Tribunal finds accordingly that this argument presented by PwC in its 2014 application has no foundation.
[36] T documents page 266
In any event, that argument did not persuade the Commissioner, nor does it sway the Tribunal. There can be no assumption that determination of charitable status for one kind of taxation liability is an indication that an exemption applies to tax liability of a different kind. The legislation for different taxes has differing objects and purposes, and even if the description of the bodies entitled to exemption from the tax have categories in common, the ultimate liability for tax under each statute has to be considered in its own terms.
This response applies also to the submission of the respondent that there is no excuse for the delay by the AMC since the issue had arisen on ‘numerous occasions’, namely, in 1986, 1994, 1996 and 2007.
On only one of those occasions, 1996, had an application been made for exemption from liability for payroll tax. The remaining occasions concerned exemption for different taxation liabilities under different Acts. In two cases, the application was for an exemption from income tax and from fringe benefits tax, both Commonwealth legislation, and in 2007, the request was for a concession in relation to stamp duty under ACT legislation.
In any event, the Tribunal notes that Mr Wickramaratna was only employed from 2004, so was not responsible for the first two applications, and was not the proponent of, and did not see the outcome in the third application in 2007. So his knowledge of these events was not likely to be central to his understanding of the tax liabilities of the organisation.
Evidence of Mr Wickramaratna
Mr Wickramaratna was questioned closely about the reasons the applicant had not earlier sought exemption for payroll tax for the relevant years. His reasons can be summarised as:
(1)The AMC had been paying payroll tax when he took on his position and he accepted it was liable for payroll tax.
(2)None of the bodies with which he had previously been employed had been a charity and he had no experience of bodies with charitable status.[37]
(3)His role as Finance Manager for the AMC was principally day-to-day financial management, including compliance, not tax advice.
(4)The delay after the discussion of the possibility of payroll tax exemption in April 2013 was due to a range of factors. These will be discussed under Principle 2, following.
(1) No reason to doubt not exempt for payroll tax purposes
[37] Transcript of proceedings 21 June 2016 page 17
The AMC had been paying payroll tax for eight years when Mr Wickramaratna was employed by AMC in 2004 as Finance Manager. The 1996 assessment had resulted from a ruling by the Commissioner that the AMC was not entitled to an exemption.[38] Mr Wickramaratna said he had no reason to doubt the assessment and simply “assumed that this … was correct”.[39] He did not resile from this response under cross-examination.[40]
[38] Transcript of proceedings 21 June 2016 pages 19, 20
[39] Ibid
[40] Transcript of proceedings 21 June 2016 pages 16, 19, 20
The Tribunal accepts that the assumptions made by Mr Wickramaratna were made because the circumstances affecting payment of payroll tax had not changed. In addition, the Commissioner had decided in 1996, on similar facts and principles, that the AMC did not fall within the exemption.
Section 9 of the TAA provides for a reassessment of tax liability of a taxpayer. The provision states in section 9(2):
A reassessment of a tax liability must be made in accordance with the legal interpretations and assessment practices generally applied by the commissioner in relation to matters of that kind at the time the tax liability arose except to the extent that any departure from those interpretations and practices is required by a change in the law (whether legislative or non-legislative) made after that time.
The absence of any material change is apparent first from the legislation. The Payroll Tax Act 1987 (ACT) section 9 exempted from payroll tax:
… wages paid or payable— …
(b) by a charitable organisation (other than a charitable organisation carried on for an educational purpose); or
(c) by a charitable organisation that is a school or college (other than a technical school or college) carried on by a body corporate, society or association and providing education at or below, but not above, the secondary level of education. …
There was no definition of ‘charitable’, the meaning being left to case law.
The Payroll Tax Act 2011 (ACT) section 48 exempted from payroll tax ‘wages paid or payable by those specified in schedule 2, part 2.2’ which states:
(a) by a charitable organisation (other than a charitable organisation carried on for an educational purpose); or
(b) by a charitable organisation that is a school or college (other than a technical school or college) carried on by a body corporate, society or association and providing education at or below, but not above, the secondary level of education.
The PT Act provided that the meaning of a ‘charitable organisation’ was to be found in section 18B of the TAA as relevant, namely:
18B Meaning of charitable organisation
For a tax law:
"charitable organisation"—
(a) means an organisation carried on for a religious, educational, benevolent or charitable purpose; …
A comparison of the relevant statutory definitions indicates that, in essence, the categories which attract the ‘charitable’ exemption in the 1987 and the 2011 payroll tax Acts were the same in all material respects.
Nor were there significant differences in the purposes and activities of the AMC. As Mr Wickramaratna said in his 17 August 2015 statement, in evidence which was not challenged:
The objects of the AMC shown in its Constitution at T144 have not changed between incorporation in July 2008 and the time of my affirming this affidavit.
...
Since its inception the AMC has been and remains a standards and accreditation body for the medical profession.
The Constitution as amended in 2010 (see the Appendix to these reasons) also refers to its objects as a standards and accreditation body, albeit in more detail than the earlier version.
In 1996 when the applicant first applied for an exemption from payment of payroll tax it was an association, not a company limited by guarantee. It is arguable that its change of status in 2008 should have been a trigger to reactivate the issue.[41] However, the fact that the purposes and activities of the applicant were the same as those when the ruling against exemption was first made, and there had been no material change to the legislation is an explanation for the AMC’s failure to object to its ongoing assessment for payment of payroll tax.
[41] Transcript of proceedings 21 June 2016 page 270
Nor did the AMC make a conscious decision not to object to the assessments made for 2009/2010 to 2012/2013.[42] The AMC’s position was passive – to accept the status quo. The organisation had simply not turned its mind to the question following the Commissioner’s 1996 ruling, leaving it to their advisers to do so on their behalf. As the applicant described it, they had an “honest but mistaken view as to their payroll tax liability.”
[42] Cf PAAN Investments Pty Ltd (in liq) v Commissioner for ACT Revenue (2014) 290 FLR 1; Case 4/2000 (2000) ATC 144
In these circumstances, the Tribunal finds that this explanation for the delay in lodging an objection to the payroll tax assessment following the decision of the Commissioner in 1996 is a plausible one.
(2)Lack of experience of working in an organisation with charitable status
Although he had been qualified for nearly thirty years when he joined the AMC, Mr Wickramaratna had not previously worked for an organisation with charitable status. As he said, although he knew in general terms about exemption for charitable status:
I never thought of looking into that because I’ve never had the opportunity to look into it so I never, sort of crossed my mind even to look into charitable organisations because I have never been exposed to that.[43]
[43] Transcript of Proceedings 21 June 2016 page 17
This explanation is related to the following one and the Tribunal discusses the two at the same time.
(3)Reliance on auditors and others for tax advice
Mr Wickramaratna said it was not his role to provide advice on taxation liability to the organisation. He relied on external advisers for such advice.[44] As he said the tax advisers knew the tax status of the organisation and he relied on them to inform him if anything changed.[45]
[44] Transcript of Proceedings 21 June 2016 page 18, 19; Wickramaratna’s statement of 17 August 2015 page 2
[45] Transcript of Proceedings 21 June 2016 pages 11, 12, 15, 16, 18, 19, 26, 40
The respondent contended that a lack of correct advice from advisers is not an acceptable reason, particularly as the AMC has access to advice from auditors and solicitors and did so in the relevant years. There are two elements to this contention: an organisation should not be able to claim ignorance due to reliance on advisers as an excuse for not taking responsibility for tax obligations; that principle is particularly true in a case such as the present where the organisation is a large, national and well-organised body.
The Tribunal accepts that ordinarily when a taxpayer like the applicant is represented by an agent, a failure to meet time limits is less excusable. In particular, the Tribunal accepts that an organisation should not generally be able to escape responsibility for complying with statutory deadlines by claiming that attention to such matters was handled by external advisers.[46]
[46] Transcript of Proceedings 21 June 2016 pages 56-57
Nonetheless, in this instance, the applicant was not relying only on its advisers, but also on the decision of the Commissioner as to the applicant’s status for payroll tax liability. Denial of an exemption by the Commissioner in 1996 arguably entitled the applicant to consider that an objection would be futile.
In addition, the Tribunal accepts that Mr Wickramaratna’s role did not include tax advice. Further, the Tribunal has inferred that as the AMC employed a series of reputable, and in the case of PwC, internationally experienced, auditors with specialist tax practices for provision of tax advice, his role in that context would be minimal.
That means Mr Wickramaratna’s reliance on that advice was understandable and is further supported by his lack of previous experience of working for an organisation with charitable status. These features also explain why the AMC through its Finance Manager, and its Finance and Risk Management Committee, to whom he reported, accepted the status quo, relying on both an earlier ruling by the Commissioner, as well as the absence of advice to the contrary from its auditors and solicitors.
The Tribunal finds that the Commissioner’s 1996 ruling, Mr Wickramaratna’s limited role and his lack of experience with bodies which were charitable, the reliance on the external auditors who failed to raise the possibility whether the applicant had charitable status for the purposes of payroll tax exemption, are reasons that provide an acceptable explanation for the failure of the applicant to object earlier to its non-charitable status.
Principle 2: Action taken by Taxpayer
This principle overlaps to an extent with Principles 1 and 3. It concerns the need for a taxpayer to indicate that it has not rested on its rights, since if it has done so, there is a danger that witness’s memories may have failed, and documents may no longer be available.
The respondent submitted that on multiple occasions, namely in 1986, 1994, 1996 and 2007 the applicant had an opportunity to object to the assessment of payroll tax and neglected to do so. Moreover, on each occasion on which it received an assessment, the opportunity to object was referred to in the letter, including any time limits which applied.
The response of the applicant was that the taxation liabilities in 1986, 1994 and 2007 related to legislation other than the Payroll Tax Act 1987 (ACT), and in any event, the applicant was not aware until 2014 of the outcome in the stamp duty assessment in 2007.
The Tribunal has discussed these issues at [66] in the reasons, and accepts that this history does not amount to ‘numerous occasions’ much less that the occasions should have triggered an awareness on the part of Mr Wickramaratna of the possibility that the AMC might have been exempt from payroll tax.
The respondent also raised the issue of the delay of some thirteen months from April 2013 when the possibility of objecting to the refusal of the extension of time was first raised by PwC with the applicant until 26 May 2014 when the objection was lodged. The respondent’s view was that: “The taxpayer was simply not exercising the degree of diligence in relation to the taxpayer's own affairs which the taxpayer ought to.”[47] Mr Wickramaratna said no-one brought the issue of a time limit to his notice and his focus was more on whether the application for exemption was going to be successful.[48]
[47] Transcript of Proceedings 21 June 2016 page 64
[48] Transcript of Proceedings 21 June 2016 page 29
The Tribunal notes the chronology and the reasons presented for this lapse of time. Following PwC’s advice in April 2013, no further steps were taken between June and September 2013. This was principally due to end of the financial year (EOFY) activities.[49] During the balance of 2013, the proposal was discussed ‘several times’ by the AMC’s Finance and Risk Management Committee. This step was said to be out of concern for any risks to the organisation if eligibility was denied.[50]
[49] Transcript of Proceedings 21 June 2016 page 18
[50] Transcript of Proceedings 21 June 2016 pages 29, 30
The matter was also brought to the attention of the applicant’s solicitors at the time, Mallesons Stephen Jaques. This period was followed by a further delay over the Christmas period – December 2013 to January 2014.[51] Activities associated with the EOFY and end of year explanations means these are understandable reasons for delays during these periods.
[51] Transcript of Proceedings 21 June 2016 page 28
The delay was also due to the concern at the cost of the objection if the organisation was unsuccessful,[52] and the negotiation of a fee with PwC for it to represent the applicant.[53] In addition, there was the need to gather the considerable material, also before the Tribunal, to support the application.[54] By February 2014, however, the applicant agreed to pursue the objection which was lodged on 26 May 2014.
[52] Transcript of Proceedings 21 June 2016 page 29, 30
[53] Transcript of Proceedings 21 June 2016 page 27
[54] The administrative burden of making the case is not inconsiderable: Case 4/2000 (2000) ATC 144
The Tribunal, as noted earlier, finds that Mr Wickramaratna’s reliance on the payroll advice previously received was not an absence of due diligence. There may have been failures on the part of its advisers to raise the issue earlier, but these failures should not be attributed to the applicant. In addition, the time involved in obtaining and collating the information required to make an application for exemption should not be underestimated.[55] The significant quantity of material before the Tribunal is evidence of the demands of this task.
[55] Case 4/2000 (2000) ATC 144, 146
When PwC advised in April 2013 that the applicant’s liability for payroll tax should be tested, the applicant took steps, including seeking the approval of its Finance and Risk Management Committee to accept the advice, prior to doing so. In addition, as the Administrative Appeals Tribunal held in Case 4/2000 (2000) 2000 ATC 144 at 158:
Where a taxpayer pays tax in ignorance of the fact that he is probably not obliged to do so, and where he takes remedial action as soon as, or at all events within a reasonable period after he becomes aware of his rights, …. justice demands that he be afforded an opportunity to pursue those rights.
In this matter, Mr Wickramaratna was ignorant of the fact that the AMC had no obligation to pay payroll tax. As soon as he was alerted to the possibility by PwC that the assessments for payroll tax had been incorrect action was taken to rectify the situation.
Thereafter there were some delays, but the Tribunal finds that although not entirely blameless, there are explanations for the delay in lodging the PwC application for exemption, and the objections letter. The delay was not unreasonable.
In summary, the Tribunal finds that to deny the applicant an opportunity to test their case for payroll tax exemption for the financial years since 2010 would be unjust to the applicant.[56] On balance, applying the principles from Hunter Valley Developments, and given the concessions made in relation to four of the principles and the Tribunal’s findings in relation to the remaining two principles, the decision of the Commissioner not to use the discretion to allow late objections for the assessments should be overturned and a decision substituted to allow the objections to be lodged after the 60 day period for each.
[56] Wedesweiller v Cole (1983) 47 ALR 528 at 531 per Sheppard J; Fardon v Federal Commission of Taxation 92 ATC 4339 at 4358 per Sweeney J
………………………………..
Senior Member M Brennan
for and on behalf of the Tribunal
APPENDIX
The Constitution of the Applicant as amended on 16 November 2010 contains its objects as follows:
Objects
The Applicant’s Constitution, as amended on 16 November 2010, set out its objects as follows:
The objects of the Australian Medical Council are:
(a) To act as an external accreditation entity for the purposes of the Health Practitioner Regulation National Law
(b) To develop accreditation standards, policies and procedures for medical programs of study based predominantly in Australia and New Zealand and for assessment of international medical graduates for registration in Australia
(c) To assess programs of study based predominantly in Australia and New Zealand leading to general or specialist registration of the graduates of those programs to practise medicine in Australia, to determine whether the programs meet approved accreditation standards, and to make recommendations for improvement of those programs;
(d) To assess education providers based predominantly in Australia and New Zealand that provide programs of study leading to general or specialist registration of the graduates of those programs to practise medicine in Australia, to determine whether the providers meet approved accreditation standards;
(e) To assess authorities in other countries which conduct examinations fore registration in medicine, or which accredit programs of study relevant to registration in medicine, to decide whether persons who successfully complete the examinations or programs of study conducted or accredited by those authorities should have the knowledge, clinical skills and professional attributes necessary to practise medicine in Australia;
(f) To assess, or oversee the assessment of, the knowledge, clinical skills and professional attributes of overseas qualified medical practitioners who are seeking registration in medicine under the Health Practitioner Regulation National Law and whose qualifications are not approved qualifications under the Health Practitioner Regulation National Law for medicine;
(g) To assess the case for the recognition of new medical specialities;
(h) To advise and make recommendations to Federal, State and Territory governments, the Australian Health Workforce Advisory Council, Health Workforce Australia, the Australian Health Practitioners Regulation agency, the Medical Board of Australia and State and Territory Boards of the Medical Boards of Australia, and any other state and territory medical regulatory authorities in relation to:
(i) Matters concerning accreditation or accreditation standards for the medical profession;
(ii) matters concerning the registration of medical practitioners;
(iii) matters concerning the assessment of overseas qualifications of medical practitioners;
(iv) matters concerning the recognition of overseas qualifications of medical practitioners;
(v) the recognition of medical specialties.
(j) to do all such matters as are ancillary to, convenient for, or which foster or promote the advancement of the matters the subject to these objections.
HEARING DETAILS
FILE NUMBER: | AT 47/2015 |
PARTIES, APPLICANT: | Australian Medical Council Ltd |
PARTIES, RESPONDENT: | Commissioner for ACT Revenue |
COUNSEL APPEARING, APPLICANT | Ms M Allars SC |
COUNSEL APPEARING, RESPONDENT | Mr P Walker SC, M K Katavic |
SOLICITORS FOR APPLICANT | John Topfer, Solicitor |
SOLICITORS FOR RESPONDENT | ACT Government Solicitor |
TRIBUNAL MEMBERS: | Senior Member M Brennan, Senior Member R Creyke |
DATES OF HEARING: | 21 June 2016 |
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