Burswood Care Pty Ltd (ACN 154 327 545) as trustee for Roshana Family Trust and Commissioner of Taxation (Taxation)

[2023] AATA 1468

Burswood Care Pty Ltd (ACN 154 327 545) as trustee for Roshana Family Trust and Commissioner of Taxation (Taxation) [2023] AATA 1468 (13 May 2023)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2021/9667

Re:Burswood Care Pty Ltd (ACN 154 327 545) as trustee for Roshana Family Trust

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:13 May 2023

Place:Perth

The objection decision of the Commissioner of Taxation is affirmed.

...................................... SGD..................................

Deputy President Bernard J McCabe

Catchwords

Superannuation guarantee – Discretion to remit – Part 7 – Covid-19 – Taxpayer culpability

Legislation

Superannuation Guarantee (Administration) Act 1992

Taxation Administration Act 1953

PS LA 2021/3

Cases

Archibald Dixon as trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54

BSRJ and Commissioner of Taxation [2021] AATA 333

Commissioner of Taxation v Ross (2021) 174 ALD 77; [2021] FCA 766

Re Drake and Minister or Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

REASONS FOR DECISION

Deputy President Bernard J McCabe

13 May 2023

1. Australian employers are required to make provision for the superannuation of eligible employees.  The employer’s contribution towards an employee’s super is known as the superannuation guarantee. The amount of the superannuation guarantee for each worker is calculated with reference to the employee’s ordinary time earnings. If an employer fails to pay the minimum amount of the superannuation guarantee in a timely way in a particular quarter, the employer must self-report by filing a superannuation guarantee charge statement within a month of the quarterly due date. The statement records the employer’s liability to pay a superannuation guarantee charge (SGC). The charge includes the amount of the shortfall plus interest and an administration fee. If the employer fails to lodge a superannuation guarantee charge statement when required to do so, an administrative penalty is imposed.

2. Administrative penalties are imposed under part 7 of the Superannuation Guarantee (Administration) Act 1992 (the SGAA). The Part 7 penalty is imposed automatically and becomes an additional SGC in respect of that quarter. The amount of the additional SGC is equal to 200% of the SGC. The Commissioner may remit the penalties in certain circumstances.

3. That brings us to the taxpayer, Burswood Care Pty Ltd as trustee for the Roshana Family Trust. The taxpayer is a member of a group of companies that operate residential health care facilities in Western Australia. The Commissioner audited the taxpayer in 2018, 2019 and 2021. On each occasion, the Commissioner identified shortcomings in the taxpayer’s compliance with its superannuation obligations. Amended assessments were issued following each audit where there was non-compliance. The amended assessments included penalties. In the wake of the 2018 audit, the Commissioner agreed to remit in full the Part 7 penalties that were otherwise payable in those periods. The Commissioner adopted the same lenient approach following the 2019 audit when he again remitted the penalties in full. The Commissioner took a different approach to the penalties that were applied following the audit in 2021. The Commissioner declined to remit a portion of the penalties that applied in those quarters.

4. The taxpayer has asked the Tribunal to review the Commissioner’s decision on objection dated 13 October 2021 in which he declined to further remit the penalties. The application relates to the following quarters which ended:

   ·30 June 2019,

   ·30 September 2019,

   ·31 December 2019,

   ·31 March 2020,

   ·30 June 2020,

   ·30 September 2020,

   ·31 December 2020 and

   ·31 March 2021

5. The taxpayer also asked the Tribunal to review the penalties imposed with respect to an earlier period ending 31 December 2017. The taxpayer withdrew that request at the hearing.

6. The total amount of the penalty that remains in dispute is $849,995.58. The taxpayer says I should exercise the discretion contained in s 62(3) of the SGAA to remit all or part of the amount remaining in dispute. The Commissioner points out he has already remitted $5,555,180.32 in penalties after taking account of the taxpayer’s poor compliance history and other relevant facts and circumstances.

7. Both parties acknowledge the taxpayer bears the onus of establishing the reviewable decision should not have been made, or that it should have been made differently: s 14ZZK(b), Taxation Administration Act 1953 (the TAA). As a practical matter, the taxpayer in this case must persuade the Tribunal on the balance of probabilities how the discretion to remit should be exercised.

The discretion to remit additional SGC

1. The discretion to remit in s 62(3) of the SGAA is, on its face, a general discretion. As with all such discretions, it must be exercised for the purpose for which it was granted. The discretion is in any event subject to limits set out in (or which may be divined from) the statute.

2. There is also an administrative policy which should be considered. Both parties drew my attention to an internal ATO document, PS LA 2021/3 Remission of additional superannuation guarantee charge issued on 25 November 2021. The practice statement sets out the policy which guides ATO officers in the exercise of the discretion to remit pursuant to s 62(3). While that practice statement is not binding on the Tribunal, it should be consulted and followed unless the Tribunal is satisfied it is not appropriate to do so: see, generally, Re Drake and Minister of Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 644 per Brennan J; see also BSRJ and Commissioner of Taxation [2021] AATA 333 at [80] per SM Olding. The reasons for that approach towards a non-binding policy are obvious enough: as Brennan J pointed out in Drake, a lawful, generally-applied policy that was developed according to a careful deliberative process - and which takes account of various public interest considerations - has the advantage of promoting consistency amongst decision-makers. Consistency is a feature of good government. Treating like cases alike is also one of the hallmarks of justice. I am satisfied it is appropriate to use the policy in my analysis of the key issue in this case.

3. PS LA 2021/3 points out:

   …the maximum 200% penalty should be reserved for rare cases where there is an employer engaging in egregious tax avoidance behaviour. For all other cases you should consider remitting the Part 7 penalty either in part or in full.

4. The practice statement says the remission decision should be made having regard to “all the relevant facts and indicia”. So much is obvious. Helpfully, the statement explains penalties are imposed to:

   ·ensure there are appropriate consequences for employers for failing to pay super contributions for their employees correctly and on time;

   ·change the decision-making behaviour of employers to ensure employee SG entitlements are not put at risk of delay, compromise or loss; and

   ·encourage employers who fail to pay super on time to take corrective action and lodge SG statements by the due date.

5. The statement then summarises a ‘four step penalty remission process’ that is explained in more detail in the schedule to the statement. The process contemplates a decision being made at each step, with each step potentially leading to a partial remission that could be added together at the end to reach an overall result. The summary describes the process as follows:

   Step 1: Consider remission based on the employer’s attempt to comply with their obligations through late payment.

   Step 2: Consider remission based on the employer’s attempt to comply with their obligations by lodging an SG statement.

   Step 3: Consider any increase or reduction in penalty based on the employer’s compliance history.

   Step 4: Consider any other mitigating facts or circumstances that warrant further remission.

6. The taxpayer in this case says the evidence discloses mitigating facts or circumstances that warrant further remission at step 4 of the penalty remission process. The taxpayer relied on the Full Court’s decision in Archibald Dixon as trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 to argue a failure to remit would be harsh in the particular circumstances of the applicant.

7. The Commissioner made the point in written submissions that the decision-maker did not simply have regard to the individual circumstances of the applicant when considering whether to remit. That was appropriate because the power to remit was not intended to remedy or relieve hardship - even unusual hardship - more generally. The Commissioner argues the facts and circumstances that are relevant for present purposes are those facts and circumstances which prevented the taxpayer from complying with his obligations in the first place. As Derrington J explained in Commissioner of Taxation v Ross (2021) 174 ALD 77; [2021] FCA 766 (at [219]):

   …the question was whether there was something in the circumstances giving rise to the imposition of the penalties which rendered the imposition of the fixed rate of penalty inappropriate in the sense of it being unreasonable, unjust or harsh. No doubt that conclusion is reached because, in those circumstances, the taxpayer’s culpability is less than that deserving of the automatic level of penalty. The consideration was, therefore, not one of whether the penalty imposed was inappropriate having regard to circumstances which were divorced from the contravening conduct for which it was imposed. [Emphasis added]

8. Ross dealt with the general power to remit in s 298-20 of Schedule 1 to the TAA. The Commissioner, in his written submissions in this case, acknowledged the penalties regime discussed in Ross included a separate power in s 340-5 of Schedule 1 that allowed the Commissioner to release an applicant from liability in the event of serious hardship. The existence of a separate power to provide relief in the face of hardship is consistent with adopting a narrower interpretation of s 298-20 that directed attention to facts and circumstances which diminished culpability. The taxpayer points out there is no equivalent to s 340-5 Schedule 1 in the SGAA. It is possible the different context (ie, the fact there is no separate power to waive penalties in the case of hardship) might permit a broader interpretation of the power in s 62(3) SGAA which would allow the decision-maker to have regard to facts and circumstances that suggest hardship more generally.

9. The narrower interpretation of the remittal power which was adopted in Ross should also apply to s 62(3). The narrower view is appropriate because the scheme of the SGAA clearly establishes an incentive structure that is intended to promote compliance. The power to impose a penalty in s 59 focuses on the employer’s refusal or failure to provide a superannuation guarantee statement or provide information that is required to assess the employer’s liability. Section 62(3) needs to be interpreted in light of that objective. The sub-section makes it possible to remit where it would be harsh to hold the employer responsible because of the circumstances which prevented the employer from complying with its obligations in the first place. To that extent the sub-section focuses on culpability, not hardship per se.

10. That narrower interpretation makes sense given the consequences of the employer’s default. The failure to pay superannuation contributions in the correct amount in a timely way potentially impacts on the employee on whose behalf those contributions are made. Whereas the penalty regime discussed in Ross was directed to ensuring taxpayers met their income tax obligations to the Commissioner, the obligation to pay superannuation is ultimately owed to the employee, and the obligation to provide statements and information is intended for their benefit. That explains why there is no separate power to remit for reasons of hardship.  The absence of such a provision does not suggest the general power to remit in s 62 should be exercised more liberally. Given the statutory objective, there is every reason for assuming the discretion to remit was intended to be used in a way that incentivised compliance. In those circumstances, relief from the penalties should be focused on instances of non-compliance where the employer is less culpable; an employer that fails to comply for other reasons should not expect their interests to take priority over the objective of protecting employee rights.

The evidence

1. The applicant provided witness statements and led oral evidence from several witnesses who pointed to what they said were mitigating facts and circumstances that might justify remission.

2. Mr Rosh Jalagge is the chief executive officer of the group which includes the taxpayer. He provided a witness statement (exhibit 4) and gave oral evidence at the hearing. His written and oral evidence can be summarised as follows:

   ·The Roshana group was growing quickly in the period under review. The business was adding new facilities and Mr Jalagge and the senior executives were focused on bedding down the acquisitions and obtaining the appropriate approvals from regulators. He explained in his statement (at [6]):

   All of the aged care facilities acquired by the Applicant were old and not only needed substantial renovations and repairs but were not also financially stable and were on the brink of bankruptcy.

   ·The acquisitions resulted in the taxpayer becoming responsible for large numbers of additional employees.

   ·One consequence of the rapid growth was that the applicant’s payroll and accounting staff and infrastructure were not equal to the rapidly increasing workload. Mr Jalagee said (at [17]) the company “started with no payroll officer which then gradually grew to two fulltime payroll officers at present”.

   ·The group retained expert advisers to assist with aspects of the acquisitions, but not to assist in relation to payroll issues.

   ·The applicant experimented with software solutions that did not work out.

   ·The applicant experienced difficulty recruiting appropriately qualified staff that were capable of understanding the applicant’s superannuation obligations

   ·The applicant experienced churn amongst the managers and personnel in its accounting department. In his statement, he said ‘Department officers’ were “replaced 11 times within a three (3) year period from 2018 to 2021”: exhibit 4 at [16].

   ·The applicant’s operations were significantly impacted by Covid-19 once the pandemic took hold in 2020.

3. It is notorious that Covid-19 impacted on aged care facilities because the residents of those facilities were especially vulnerable to infection. There is no doubt special measures were required that complicated the operation of aspects of those businesses.

4. Mr Asanka Atapattu provided a statement (exhibit 6) and gave evidence at the hearing. Mr Atapattu had been employed by the applicant’s group to undertake accounting functions since 2013. He traced the history of the company and its exponential growth. He also referred to the difficulties it experienced with personnel and software in its accounting department. He talked about administrative difficulties involved in transferring and recording entitlements in to the new accounts system in the wake of the acquisitions of additional facilities: at [19]. He agreed the staff were not properly educated about the applicant’s superannuation obligations until mid-2021: at [21]. He spoke about how the tight labour market in Western Australia made it difficult to hire competent and trained staff with the skills required to comply with its obligations: at [32]-[33].

5. The constricted labour market was made worse by Covid, and the operations of the accounting department were made more difficult because the facilities might be locked down in response to outbreaks of infection. Mr Atapattu said staff were being forced to work from home, which made communication and supervision harder: at [25]. He said the other effect of Covid was financial: it increased the costs of running an already marginal business (at [26]-[30]), which (I infer) resulted in fewer resources being invested in the accounting and payroll functions.

6. Mr Atapattu pointed out in his oral evidence that he was marooned overseas for several months during the relevant period. He had returned home to Sri Lanka but was unable to re-enter Western Australia for several months after an outbreak of the virus where he had been staying.

7. One of Mr Atapattu’s subordinates, Danushka Premakumara, also provided a statement (exhibit 7) and gave oral evidence. While the statement referred to churn in management and personnel and problems with procedures and software, the witness also acknowledged (at [8]:

   The Applicant’s accounts team did not have competent leadership from 2018 to 2020 to solidify and lead it and to provide it with guidance when required. This period was difficult for the accounts team thus decision making, and other crucial tasks (including the Applicant’s superannuation obligations) were delayed.

8. Chamila Dissanayake, the applicant’s procurement and maintenance manager, described the maintenance challenge following the acquisition of the additional facilities in a statement (exhibit 2). The statement explained (at [4]):

   Since all the facilities owned by the Applicant are old, they need immediate significant refurbishments and regular maintenance. Therefore, the Applicant felt the need to prioritise that and not to compromise with the high quality care we provide to the vulnerable aged residents. [Emphasis added]

9. Millaniyage Perera has been the finance officer since May 2020. In Mr Perera’s statement (exhibit 1), he confirmed the role that a lack of structure, resources and trained personnel had played in the poor performance of the organisation’s accounting and payroll functions during the period under review. There was also a reference to the impact of Covid, although the observations in the statement highlighted the financial impact of Covid on the group rather than focusing on the practical effect on the applicant’s attempts to comply with its obligations at the time.

10. The evidence of Mr Eric Zhou also spoke about the history of organisational challenges before focusing on the impact of Covid on the group’s bottom line – and the possibility that the group would not be able to continue if the penalty were not remitted. As he explained at [14]-[16] of his statement (exhibit 5):

    The business operation will be severely impacted if the payment of Part 7 penalty amount of $966,602.46 was required to be paid by the Applicant. As you can see from our group 2021 financial statements, we incurred a loss of $1.2 million […]. Because of the COVID-19 pandemic significantly increased aged care sector's cost of running business, the 2022 financial year result would be even worse. ….

    Considering the other industry wide changes on regulation such as increase of care minutes by nurses and carer on each resident, the bottom line is not going to improve for the foreseeable future for Roshana Care Group.

    The Applicant provides care to some of the most vulnerable residents in our society. Roshana Care Group has been working hard to provide them more than adequate care. I submit that the Tribunal should consider setting aside the objection decision and remitting the Part 7 penalty of $966,602.46 in full.

Findings

1. The evidence suggests most of the challenges that led to the non-compliance were the result of inadequate resources and shortcomings in internal processes that persisted over a relatively long period. The applicant embarked on an expansion strategy in which it acquired marginal facilities without the wherewithal to do so. It coped with the challenge by prioritising its expansion rather than its obligations owed to employees under the law, as the evidence of Chamila Dissanayake demonstrates. While I acknowledge labour market conditions were tight, that is a variable which every business must manage. The applicant made use of consultants to assist with aspects of the business, but not with respect to payroll and superannuation obligations. It follows the mitigating facts and circumstances that are relevant are not especially weighty.

1. The impact of Covid in 2020 and 2021 is an external factor which is largely beyond the control of the applicant although one must not forget the pandemic did not really take hold until March 2020. The applicant’s non-compliance occurred over a much longer period. I accept the applicant’s industry faced a greater burden as a consequence of the pandemic, but it is not clear how the pandemic restrictions seriously compromised the applicant’s capacity to administer its superannuation obligations in any practical sense. I accept the applicant’s operations (including the operations of its accounting staff) were subjected to occasional shut-downs which forced overworked staff to operate from home, but it is unclear how much that undoubted inconvenience contributed to the problem during those periods. I also note Mr Atapattu was prevented from attending the office for several months in 2021. I accept he had limited contact with the company because of communications difficulties during this period. To the extent Covid had a practical impact, it was to make a poorly functioning system operate marginally and occasionally worse.

2. The financial impact of Covid on the profitability of the business is of limited weight here because the obligations to pay arise on an ongoing basis. If the applicant was unable to meet those obligations as they arose because of its financial situation, it should have considered appointing administrators rather than consciously failing to meet the obligations (if that is indeed what happened). In the circumstances, it seems the applicant was not organised to meet its obligations and did not regard them as a priority.

3. The Commissioner points out the applicant has already had the benefit of a partial remission in light of the effect of Covid.

Conclusion

1. The applicant bears the onus of establishing the Commissioner’s decision should have been made differently. In this case, the Commissioner has agreed to a partial remission but has declined to remit all the penalty. The applicant has pointed to what it says are mitigating circumstances that should attract the exercise of the discretion to further remit, but – for the most part – the applicant’s operational shortcomings and resourcing challenges are not genuine mitigating circumstances. To the extent they are, they do not commend a further remission. The ‘Covid impact’ is potentially a mitigating factor, but the evidence of Covid’s impact on the ability of the applicant to comply with its superannuation obligations is less clear, and it has in any event already prompted a partial remission.

2. When one has regard to the facts and circumstances that reflect on the applicant’s culpability in failing to meet its obligations, there is nothing harsh about the penalty. The applicant consistently failed to meet its obligations. The Commissioner has treated the applicant leniently in the past, but the applicant chose to pursue a business expansion without addressing the need to build effective and resilient capacity to meet its obligations. While I acknowledge the imposition of a penalty might have unfortunate consequences for a marginal business, that is not the test. Having regard to all the relevant circumstances that reflect on culpability, I am unable to conclude the penalty is harsh and that it ought to be further remitted.

3. The objection decision is affirmed.

I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of

.................................SGD.......................................

Associate

Dated:  25 May 2023

Date(s) of hearing:

18 July 2022

Solicitor for the Applicant:

Chelsea Lyford

Counsel for the Respondent:

Solicitor for the Respondent:

Craig Slater

Kiralee Duke