Commissioner for Act Revenue v Dataflex Pty Ltd
[2010] ACTSC 117
•24 September 2010
COMMISSIONER FOR ACT REVENUE v DATAFLEX PTY LTD & ANOR
[2010] ACTSC 117 (24 September 2010)
APPEAL – appeal from ACT Civil and Administrative Tribunal – taxation – question of law – payroll tax liability – penalty for non-compliance – reduction in penalty tax – voluntary disclosure – disclosure before investigation – meaning of ‘investigation’ in s 32 of the Taxation Administration Act 1999 (ACT) – more limited than dictionary meaning – enquiry letter not part of an investigation – appeal dismissed.
ACT Civil and Administrative Tribunal Act 2008 (ACT), ss 79, 83, 86
Taxation Administration Act 1999 (ACT), ss 31, 32, 33, 37, 82
Payroll Tax Act 1987 (ACT)
Taxation Administration Act 1996 (SA), s 31
Scott v Cawsey (1907) 5 CLR 132, 154
McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 144 CLR 633, 643-4
ON APPEAL FROM THE ACT CIVIL AND ADMINISTRATIVE TRIBUNAL
No. SCA 11 of 2010
Judge: Higgins CJ
Supreme Court of the ACT
Date: 24 September 2010
IN THE SUPREME COURT OF THE )
) No. SCA 11 of 2010
AUSTRALIAN CAPITAL TERRITORY )
ON APPEAL FROM THE ACT CIVIL AND ADMINISTRATIVE TRIBUNAL
BETWEEN:COMMISSIONER FOR ACT REVENUE
Appellant
AND:DATAFLEX PTY LTD
First Respondent
AND:ACT CIVIL AND ADMINISTRATIVE TRIBUNAL
Second Respondent
ORDER
Judge: Higgins CJ
Date: 24 September 2010
Place: Canberra
THE COURT ORDERS THAT:
The appeal be dismissed.
This is an appeal from a decision of the ACT Civil and Administrative Tribunal (Senior Member Hatch). Mr Hatch, on 12 November 2009, set aside a decision of the appellant not to remit a penalty for non-payment of payroll tax by more than 20%. It was the contention of the respondent taxpayer that it was entitled to an 80% reduction in the statutory penalty for that default.
The appeal was removed to the Supreme Court by order of Appeals President Stefaniak on 8 February 2010 pursuant to s 83(1) of the ACT Civil and Administrative Tribunal Act 2008 (ACT). Under s 79 the appeal to the appeals Tribunal may be on a question of fact or law. There is, separately, a right of appeal to the Supreme Court under s 86, also on any question of fact or law.
This appeal is, essentially, on a question of law. It turns on the meaning to be assigned to the term “investigation” in s 32 of the Taxation Administration Act 1999 (ACT) (TA Act).
Factual Background
There was no factual issue joined between the appellant and respondent. The respondent became obliged, under the Payroll Tax Act 1987 (ACT) (PT Act) to register for payroll tax purposes on and from 1 July 2005. It failed to do so.
On 13 December 2007, as part of a general survey of unregistered employers in the ACT, the appellant sent a letter to the respondent with respect to potential payroll tax liability. That letter was in the following form:
Dear Sir/Madam
RE: ACT PAYROLL TAX
The ACT Revenue Office is currently conducting an investigation of all employers who pay or are liable to pay wages in the ACT. This investigation is being undertaken to determine whether the employers have an existing or previous liability to payroll tax under the provisions of the ACT Payroll Tax Act 1987.
A search of the ACT Revenue Office database shows that Data Flex Pty Ltd has not lodged returns or paid payroll tax in the ACT. In order to determine whether Data Flex Pty Ltd has a payroll tax liability and to assist this Office with our investigation, you are requested to complete and return the enclosed questionnaire. To assist you in this, a brochure, ‘Payroll Tax in the ACT’ is enclosed for your information.
Your return of the completed questionnaire and a copy of Data Flex Pty Ltd’s 2005/2006 (or most recent) Statement of Financial Performance (Profit and Loss Statement) within 28 days from the date of this letter would be appreciated.
Please note that giving false or misleading information is a serious offence.
Should you have any questions regarding this matter, I can be contacted on 6207 0100.
Yours faithfully
(signature)
Paul Amalos
Authorised Officer
ACT Revenue Office
13 December 2007
Following this letter the respondent’s accountants forwarded to Mr Amalos applications to register for payroll tax for the respondent’s group of companies.
Payroll tax reconciliations for the years ending 30 June 2006 and 30 June 2007 were enclosed.
On 14 January 2008 assessments were issued including penalties assessed at 25% of the tax payable.
Objection was taken to that decision of 17 January 2008. On 24 February 2009 that objection was disallowed by the appellant.
Application was then made to the Tribunal challenging the rate of penalty. Mr Hatch, in a decision handed down on 12 November 2009, upheld that challenge.
The respondent had contended that it was entitled to the benefit of s 32 of the TA Act. The primary penalty applied was calculated pursuant to s 31(1) of the TA Act. It provides:
The amount of penalty tax payable in relation to a tax default is 25% of the amount of tax paid, subject to this division.
Subsections (2), (4) and (5) apply greater rates if the appellant was satisfied of the various aggravating circumstances, therein described. Subsection (6) provides that, if the taxpayer had taken “reasonable care” to comply or if non-compliance happened solely because of circumstances as beyond the taxpayer’s control, then no penalty is payable.
The respondent accepted that s 31(1) applied. The appellant accepted that ss 31(2),(4) and (5) did not apply. Neither party disputed that the respondent was not eligible for the concession allowed by s 31(6).
The contention in dispute related to whether the respondent fell under s 32, as it contended, or under s 33, as the appellant contended.
32 Reduction in penalty tax for voluntary disclosure
The amount of penalty tax determined under section 31 is reduced by 80% if, before the commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.
33 Reduction in penalty tax for disclosure before investigation
The amount of penalty tax determined under section 31 is reduced by 20% if, after the commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is begun, the taxpayer discloses to the commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.
There is, under s 37, a residual discretion for the appellant to remit penalty tax otherwise payable in whole or part in exceptional mitigating circumstances. Neither party contended or accepted, as the case may be, that s 37 was engaged.
The legislative intent
It is apparent that what previously was a general discretion to remit penalty tax has been, to some extent, regulated in favour of a mandated outcome. The explanatory memorandum recites the effect of ss 31-33 but does not explain what is meant by “an investigation into the taxpayer’s affairs”.
Clearly, however, for s 33 to have effect, it is contemplated that, before an investigation is commenced, the taxpayer will be notified of an intention on the part of the appellant to commence such an investigation. The process of “investigation” is not further defined.
Reasons of Senior Member Hatch
Mr Hatch noted that, even before the letter of 13 December 2007, the respondent, alerted by its accountant to the issue, had begun to take steps to ascertain its payroll tax liability, with a view to disclosure. Nevertheless it was not disputed that, before receipt of that letter, the respondent had not disclosed relevant information to the appellant. Nor it disputed that following that letter, without any threat of an “investigation relating to the taxpayer” (ss 32 and 33), full disclosure was made.
I note that the words used in the Explanatory Memorandum are a little different, that is, it refers to an investigation “into the taxpayer’s affairs”. It seems to me, however, that the two expressions are intended to convey the same meaning.
Mr Hatch noted that the only issue raised before him was as to the application or not of s 32.
The Senior member, at [20] of his decision said:
The final issue therefore is whether there can be a reduction pursuant to section 32 of the Taxation Administration Act 1999. For completeness I do not find section 33 of the Taxation Administration Act 1999 is relevant. No evidence was presented to suggest that the [Appellant] advised that an investigation was going to be carried out and that it had not yet begun. The issue in this matter was whether there was an investigation at all, or if there was the [Respondent] was informed of that.
Reference was made to s 82 of the TA Act:
82Power to require information, instruments or records or attendance for examination
(1)The commissioner may, for a purpose related to the administration or enforcement of a tax law, by written notice served on a person, require the person—
(a)to provide to the commissioner (either orally or in writing) information that is described in the notice; or
(b)to attend and give evidence before the commissioner or an authorised officer; or
(c)to produce to the commissioner a record or other document described in the notice that is in the person’s custody or control.
(2)If a notice to a person under subsection (1) is made to determine that person’s tax liability, the notice must state that the requirement is made for that purpose, but the commissioner is not otherwise required to identify a person in relation to whom any information, evidence, record or other document is required under this section.
(3)The commissioner—
(a)may specify whether information or evidence to be provided or given under this section must be given orally or in writing; and
(b)may require any information or evidence given in writing to be in the form of, or verified by, a statutory declaration; and
(c)may require any information or evidence given orally to be given on oath or affirmation.
(4)A person must not, without reasonable excuse, fail—
(a)to comply with the requirements of a notice under this section within the period specified in the notice or any further period allowed by the commissioner; or
(b)to comply with any other requirement of the commissioner about the giving of evidence or how information or evidence is to be provided or given under this section.
Maximum penalty: 50 penalty units.
(5)A person required to attend before an authorised officer to give oral evidence must be paid expenses in accordance with the scale of allowances determined under section 139.
(6)Subsection (5) does not apply to a person, or a representative of a person, giving evidence in relation to the person’s own tax liability.
The appellant had submitted that the letter of 13 December 2007 should be construed as a notice pursuant to that section. Was it more than a mere request for information?
Mr Hatch was of the view that it was not, noting:
... The letter also gives the appearance of being a circular letter which is being sent to a large number of employers who may be liable to pay ACT Payroll Tax. I cannot find that this letter amounts to a written notice as required by section 82 of the Tax Administration Act 1999.
I have to agree that there is no reasonable way of interpreting the letter of 13 December 2007 as other than a request for information. It is not a notice under s 82. In that assumption Mr Hatch was undoubtedly correct.
He concluded, therefore, that no investigation had begun before the respondent replied to the letter of 13 December 2007 and, hence, the respondent was entitled to the reduction specified in s 32 of the TA Act.
Appellant’s contentions
The appellant contends that the Tribunal failed to accord to “investigation” its natural and ordinary meaning.
In effect, the appellant contends that the powers in Div 9.2, including s 82, of the TA Act are in aid of an “investigation” necessarily already commenced. Hence the letter of 13 December 2007 should be viewed as a notice of intent to commence an investigation if full disclosure be not made thus enabling the taxpayer to engage s 33 of the TA Act but not s 32.
Mr Walker, for the appellant, pointed out that whilst similar provisions have been enacted in other Australian jurisdictions, the ACT was the last to do so and should, therefore, be regarded as having done so with knowledge of those other provisions. Thus it should be concluded that “investigation” was intentionally left undefined.
In New South Wales, Victoria and Tasmania, the legislature has chosen to define “investigation” in the context of the equivalent reduction of 80% of the penalty tax, in terms engaging the compulsory processes equivalent to those contained in Div 9.2 of the TA Act.
The Taxation Administration Act 1996 (SA) , under s 31 thereof, provides for reduction of penalty tax, similarly to the ACT, in the event that the taxpayer makes a sufficient disclosure “... while not subject to a tax audit”. If the disclosure is made “while subject to a tax audit” the reduction is the lesser figure of 20%.
Subsection (3)(a) of that section provides that:
(a)a taxpayer becomes subject to a tax audit in relation to a tax default under a taxation law when the Commissioner serves written notice on the taxpayer advising that the Commissioner is to investigate the tax liability of the taxpayer under that taxation law, and the taxpayer remains subject to the tax audit for 28 days after service of the notice on the taxpayer or such longer period as the Commissioner may specify by written notice;
Whilst a “tax audit” is not defined as a process engaging the Commissioner’s compulsory disclosure powers under Pt 9 of the South Australian Act (see Div 2 thereof), it clearly does indicate a particular scrutiny of the relevant affairs of the particular taxpayer.
I observe that the South Australian regime is more favourable to the taxpayer than the New South Wales, Victorian and Tasmanian regimes in that the decision to subject a particular taxpayer to scrutiny of his, her or it’s affairs for tax liability will be preceded by a notice allowing at least 28 days to make disclosure before a ‘tax audit’ commences. Under the regime in the latter States, a decision to carry out an “investigation” involves a decision to engage the compulsory investigative processes of the relevant Act. A taxpayer would not necessarily have notice of such a decision. Nevertheless, it is more favourable than the regime contended for as applicable to the ACT by the appellant. There is no doubt that the letter of 13 December 2007 would not qualify as indicating that the compulsory powers of investigation had been or were likely to be engaged in respect of a particular taxpayer.
I agree with Mr Walker that an investigation may be commenced into the affairs of a taxpayer without the engagement, in the first instance, of compulsory powers. On the other hand, the taxpayer is entitled to the benefit of s 32 even if the taxpayer becomes aware that the Commissioner may be contemplating or may be alerted to the desirability of an investigation provided that the Commissioner has not informed the taxpayer that he or she has decided to carry out an investigation into the taxpayer’s affairs for payroll tax purposes. Once he or she does so, of course, s 33 is engaged.
The question is whether the letter of 13 December 2007 evidences an “investigation” that has been commenced. If it does, then the despatch of the letter to each of the taxpayers on the list to receive it would deny any rebate under s 32 or s 33 to any such taxpayer. The appellant concedes that this respondent is entitled to a rebate under s 33. That however, implies a contention that the letter is a notice that an investigation “relating to the taxpayer” is to be carried out but has not yet begun. It is difficult to justify that suggested distinction.
If the “investigation” of which the letter is a part is not the investigation to which ss 32 and 33 refer, what then is it? The first distinction which the appellant’s concession must imply is that the investigation to which ss 32 and 33 applies is specific to the affairs of a particular taxpayer and might then engage the powers of investigation under Pt 9.2. That is consistent with the provisions in the States other than South Australia. Even there, however, the concept of a ‘tax audit’ is not very different. It is an investigation of the relevant affairs of the target taxpayer, not a blanket survey of all or all of a class of taxpayers. It is true that the New South Wales, Victorian and Tasmanian model does not mandate any warning to a taxpayer that his, her or its financial affairs are to be examined thus providing the opportunity for, at least, a s 33 disclosure.
Nevertheless, if, fortuitously, the appellant, by requesting information from taxpayers, prompts compliance without giving notice that that particular taxpayer is a target for a tax audit or investigation, it does not seem contrary to the effect of similar legislation elsewhere in the Commonwealth which would allow the application of the equivalent of s 32, for prompt compliance.
The contrary view, that the ACT legislature was determined to put in place the most draconian regime in the Commonwealth is not one that would be consistent with the presumed intention of a reasonable legislature. Nor is it consistent with good public policy which would favour taxpayers voluntarily disclosing their liability with minimal prompting from or expense occasioned to those administering the tax regime. In my view, both public policy and legislative consistency favours the view that the ACT regime is not intended to be less beneficial in relation to defaulting taxpayers than those in comparable states. It is apparent that the reform of the various Acts was intended to be uniform or, at least, consistent as between jurisdictions. I am mindful that there is no general presumption that a penal statute should receive a strict construction (see Isaacs J in Scott v Cawsey (1907) 5 CLR 132, 154). However, it does no violence to the language of ss 32 and 33 to conclude that the term “investigation” is used in a more limited sense than the general dictionary definition. It cannot, in context, be construed as referring to some wider inquiry than the sense in which it is used in s 82. That is, as Ms Burnett for the respondent submitted, consistent with the High Court’s approach in McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 144 CLR 633, 643-4 per Gibbs J.
The most telling argument against the appellant’s contention is that if a letter such as that of 13 December 2007 is circulated to all taxpayers who have not apparently complied, it automatically renders not only s 32 but also s 33 inapplicable. Each such taxpayer is thrown back upon the general power of discretionary remission which these sections were designed to limit (see Explanatory Memorandum p 3). Certainly, the ACT Revenue Office explanatory documents indicate to taxpayers that, at least in “most cases”, the investigator will telephone the taxpayer “to let you know an investigation will be conducted”. That indicates that not even the appellant was of the view that sending an enquiry letter to taxpayers is or is part of an investigation under the Act.
It follows that the Senior Member’s conclusion that the respondent had made disclosure before being notified that an investigation was to be conducted into its affairs was correct. It follows that the respondent was entitled to the rebate of penalty prescribed by s 32 of the TA Act.
The appeal is dismissed. I will hear the parties as to costs.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.
Associate:
Date: 24 September 2010
Counsel for the Appellant: Mr P Walker
Solicitor for the Appellant: ACT Government Solicitor
Counsel for the First Respondent: Ms C Burnett
Solicitor for the First Respondent: Williams Love & Nicol
Solicitor for the Second Respondent: ACT Civil and Administrative Tribunal
Date of hearing: 19 August 2010
Date of judgment: 24 September 2010
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