Dataflex Pty Limited v Commissioner for Act Revenue (Administrative Review)

[2009] ACAT 44

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

DATAFLEX PTY LIMITED v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2009] ACAT 44

AT 27 of 2009

Catchwords:  Administrative Law – payroll tax, penalty tax, investigation procedures

Payroll Tax Act 1987
Taxation Administration Act 1999 ss 30, 31, 32, 34, 37, 82

Aston and Commissioner for ACT Revenue [2007] ACTAAT 5

Tribunal:           Mr B Hatch                Senior Member

Date of Orders:  12 November 2009
Date of Reasons for Decision:         12 November 2009

AUSTRALIAN CAPITAL TERRITORY            )

CIVIL & ADMINISTRATIVE TRIBUNAL       )          AT 27 of 2009

BETWEEN:

DATAFLEX PTY LIMITED

Applicant

AND:

COMMISSIONER FOR ACT REVENUE  Respondent

Tribunal:Mr B Hatch                Senior Member

Date:  12 November 2009

ORDERS

1. The Tribunal orders that the decision under review be set aside and in its place a decision is made that the penalty tax determined pursuant to section 31 of the Taxation Administration Act 1999 is reduced by 80% pursuant to section 32 of the Act

………..……………………………..
Mr B Hatch
Senior Member

REASONS FOR DECISION

1. This is an application for Review of a decision of the respondent in relation to a penalty imposed with respect to a payment of payroll tax.

2. The applicant is a company involved in supplying computer hardware mainly to Government organisations. There are a number of related companies which are involved in buying and selling second hand computer hardware and the repair and renovation of second hand computers in order to prepare them for reselling. These companies have been successful in this enterprise.

3. It seems from the evidence that the applicant grew in scale from 2005. It is not disputed that it had not registered for payroll tax after 1 July 2005. On 13 December 2007 the respondent sent a letter to the applicant with respect to payroll tax liability. That letter enclosed a questionnaire which was promptly returned. The applicant was issued with an assessment with respect to payroll tax on 14 January 2008 for $196,305.78 plus interest of $17,686.40. In addition to that the other respondent imposed penalties at 25% of the principle sum being $49,076.45.

4. At the commencement of the hearing of this matter the applicant advised the Tribunal that it was only challenging the imposition of the 25% penalty.

5. Payroll Tax is imposed by the Payroll Tax Act 1987. That Act makes provision for payment of Payroll Tax with respect to a payroll which is above a certain threshold. Below that threshold no tax is payable. It is not in dispute that for the period with respect to the assessment the applicant had a payroll above the threshold and that Payroll Tax was therefore payable.

6. The applicant does some of its bookkeeping and accountancy work through its own staff and employs the accountancy firm of Bates and Pickering to do other work on its behalf. Mr. Andrew Pickering gave evidence. He has been a Chartered Accountant since about 1983. As at June 2005 the firm of Bates and Pickering had two partners who were Mr. Pickering and Mr. Bates and nine employed accountants with varying levels of qualifications and skills. One of those accountants was a Ms. Kathleen Hesling who also gave evidence. The evidence of Mr. Pickering was that he was in charge of all of Dataflex work and that Ms. Hesling did specific tasks with respect to the Dataflex Group of companies as directed by him.

7. Mr. Pickering gave evidence that the other companies in the Dataflex Group also were in the same position with respect to payroll tax but that the respondent had not issued penalty notices with respect to the non-payment of any payroll tax liability in relation to those companies. At one level the simple response for the Tribunal is that such an issue is not subject to review in these proceedings and therefore cannot be looked at. As a general comment however, the Commissioner will make decisions with respect to whether or not penalties are to be imposed and in many cases it will be a matter of policy as to how that is done and where such decisions are made on a rational basis and cannot be said to be arbitrary then it may not even be a matter which is open for review. Having said that however, the reasoning behind the Commissioner’s decision to not impose penalties was not put before the Tribunal and the Tribunal is not reviewing those matters.
   
   
8. Very large boxes of documents were produced to the Tribunal pursuant to subpoenas for production. A number of those documents were put into a bundle and tendered in evidence. Some of those documents were specifically put to Mr. Pickering. The first of those documents was the Business Activity Statement of the applicant. Mr. Pickering gave evidence that the BAS was usually prepared by the applicant itself. The document in question is with respect to the period 1 April 2005 to 30 June 2005. According to that document the total salary wages and other payments for the month of June 2005 were $110,288.00. At that time the threshold under the Payroll Tax Act was $104,000.00 per month. Mr. Bates agreed that at that time a payroll tax return should have been lodged. A profit and loss statement before the applicant prepared as of May 2006 shows the salaries and wages for the eleven months of that financial year already exceeded the threshold for the payment of payroll tax. There after there is a document which is an internal Bates and Pickering file note which was prepared by Ms. Hesling and reviewed by Mr. Pickering, although Mr. Pickering does not recall that taking place. There was a very good reason for that. Mr. Pickering had been involved in a motor vehicle collision in July 2006. For many months thereafter Mr. Pickering only attended work on a very restricted basis due to his serious injuries from which he is still suffering. Based on the evidence from Mr. Pickering it does not appear that he was properly able to undertake his duties as a partner in an accountancy firm for many months even though he was attending work on a very limited basis. His injuries probably stopped him being effective in his work for at least six months.
   
   
9. The hand written document which is the internal file out of Bates and Pickering is dated 23 August 2006 and has a note with respect to payroll tax followed by an exclamation mark. This is a hand written note made by Ms Hesling at about that time and it is probably the case that the issue of payroll tax was discussed with Mr. Pickering at that stage. Unfortunately nothing seems to have come from those discussions and that issue was not raised with the applicant.
   
   
10. Thereafter it was not until December 2007 that Bates and Pickering became alerted, or perhaps alarmed, by the knowledge that the applicant had an apparent payroll tax liability but that the respondent commissioner had not been advised. Bates and Pickering immediately notified the applicant and work commenced to ascertain what the liability may be. Within days the respondent sent a letter to the applicant. That letter is dated 13 December 2007.

11. The letter of 13 December 2007 enclosed a payroll tax questionnaire. That questionnaire was completed by Ms. Hesling and returned to the respondent on 19 December 2007. The respondent issued the assessment for a payroll tax on 14 January 2008 to the applicant.

12. Ms. Kathleen Hesling also gave evidence. In her evidence Ms. Hesling was taken to the bundle of documents produced by the applicant. One of those documents is a trading profit and loss statement for the year ended 30 June 2006 of the applicant. That shows salaries and wages for the year ending 30 June 2006 as above the threshold for payment of payroll tax. There is a hand written annotation which says “Payroll tax ??” which Ms Hesling agreed was in her hand writing. She does not recall whether she discussed this with Mr. Pickering. In relation to the hand written file note of Bates and Pickering of 23 August 2006 Miss Hesling agreed that it is largely her handwriting with notes made by Mr. Pickering and that she made the notation of payroll tax but she cannot recall when she made that note. Ms. Hesling did not know what follow up there was to that note.
    
    
13. There is agreement that payroll tax was properly payable and that it was not paid. This dispute now is with respect to the penalty imposed. The relevant legislation is the Taxation Administration Act 1999 and the relevant sections are as follows:

Section 30
(1) If a tax default happens, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid.

Note A taxpayer may also be liable to pay penalty tax under the Land Tax Act 2004 , s 19A (5) (Interest and penalty tax payable on land tax if no disclosure).

(2) Penalty tax imposed under this division is in addition to interest.

(3) Penalty tax is not payable in relation to a tax default that consists of a failure to pay—

(a) interest under division 5.1; or

(b) penalty tax previously imposed under this division.

Section 31
(1) The amount of penalty tax payable in relation to a tax default is 25% of the amount of tax unpaid, subject to this division.

(2) The amount of penalty tax payable in relation to a tax default is 50% of the amount of tax unpaid if the commissioner is satisfied that the tax default was caused wholly or partly by a failure by the taxpayer (or a person acting on behalf of the taxpayer) to take reasonable care to fulfill the taxpayer's obligations under a tax law.

(3) Subsection (2) does not apply if the tax payer satisfies the commissioner that the taxpayer (or a person acting on behalf of the taxpayer) had a reasonable excuse for the failure.

(4) Subsections (2) and (3) apply to a tax default that happened before their commencement in the same way as they apply to a tax default that happened after their commencement.

(5) The amount of penalty tax payable in relation to a tax default is 75% of the amount of tax unpaid if the commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a tax law.

(6) No penalty tax is payable in relation to a tax default if the commissioner is satisfied that—

(a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the tax law; or

(b) the tax default happened solely because of circumstances beyond the taxpayer's control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) but not amounting to financial incapacity.

Note  The commissioner's decision to impose penalty tax is an internally reviewable decision (see s.107, def internally reviewable decision ), and the commissioner must give an internal review notice to the taxpayer (see s.107B).

Section 32
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.

Section 33

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.

Section 34
The amount of penalty tax payable in relation to a tax default is 90% of the amount of tax unpaid if the commissioner is satisfied that, after the commissioner has informed the taxpayer that an investigation is to be carried out and before the investigation is completed, the taxpayer (or a person acting on behalf of the taxpayer)—

(a) deliberately damages or destroys records required to be kept under the tax law to which the investigation relates; or

(b) fails, without reasonable excuse, to comply with a requirement made by the commissioner under division 9.2 for the purposes of determining the taxpayer's tax liability; or

(c) hinders or obstructs an authorised officer exercising functions under that division for that purpose; or

(d) otherwise shows intentional disregard for a tax law.

Note 1 The Legislation Act, dictionary, pt 1 defines fail to include refuse.

Note 2 The commissioner's decision to impose increased penalty tax is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the taxpayer (see s 107B).

Note 3 Table 34 contains a summary of the effect of s.31 to s.34.

Table 34     Rates of penalty tax

column 1 item	column 2	column 3	column 4		column 5
basic rate	disclosure before investigation begins		intentional disregard for tax law
before notification	after notification
1	failure to take reasonable care	25%	5%	20%	90%
2	failure to take reasonable care and no reasonable excuse	50%	10%	40%	90%
3	intentional disregard of the law	75%	15%	60%	90%

Section 37

The commissioner may remit all or part of an amount of penalty tax payable by a person if satisfied that—

(a) either—

(i) the person has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax; or
(ii) the circumstances that resulted in the liability for penalty tax were exceptional; and

(b) it would be fair and reasonable to remit all or part of the penalty tax.

Note  The commissioner's decision to refuse to remit penalty tax payable by a person is an internally reviewable decision (see s.107, def internally reviewable decision), and the commissioner must give an internal review notice to the person (see s 107B).

14. On 26 March 2009 a recent statement was issued by Miss Lindsay Aquilina the Manager of the objections area within the respondent’s office. Those reasons state that 25% penalty should stand but that it would have been open to have imposed a penalty of 50% pursuant to section 31 (2) of the Taxation Administration Act 1999 but that Miss Aquilina had no power to do so.
    
    
15. The issue therefore is simply that a 25% penalty has been imposed and whether or not that can be from the applicant’s point of view ameliorated.
    
    
16. The first issue for the applicant is section 31(6)a and (6)b and section 37 of the Taxation Administration Act 1999. In relation to section 31(6)a I do not consider that the applicant took reasonable care to comply with the tax law.
    
    
17. A tax payer has an obligation to be aware of tax laws and payroll tax is common source of revenue for Governments. There is no reason provided by the applicant as to why it did not contact the respondent and seek advice as to whether payroll tax may be payable or in the alternative simply submit the appropriate forms to see whether a liability existed. In relation to section 31(6)b I do not consider that there were circumstances beyond the control of the applicant or its accountants. Much was made in evidence in this matter with respect to the motor vehicle collision in which Mr. Pickering suffered quite serious injuries. I accept that Mr. Pickering simply did not function as an accountant for some considerable period. His accountancy practice suffered as a result. Unfortunately the issue in relation to whether or not payroll tax needed to be addressed had arisen the year before that motor vehicle collision and that was the time at which it should have been investigated. In addition soon after that motor vehicle collision Ms. Hesling was aware of a payroll tax issue. I accept that Ms. Hesling did not have the experience and skills of Mr. Pickering but she was an employee in that firm with the sufficient knowledge and understanding as an accountant to recognise that payroll tax was an issue and as such the firm of Bates and Pickering should have raised the issue, at least at that stage, with the applicant. No officers or employees of the applicant gave evidence. I was not asked to draw any inference in relation to that and I do not draw any such inferences other than that the applicant had an obligation to make itself aware of the relevant taxation laws and for any employer payroll tax is clearly a tax law about which an employer should be expected to make enquiries.
    
    
18. In relation to section 37 of the Taxation Administration Act 1999 I am unable to see any evidence in this matter which would support reliance upon that section and indeed counsel for the applicant virtually conceded as much in his closing submissions.

19. For completeness sake it is worth mentioning section 34 of the Act. There is no evidence or suggestion, and no submission was made, that there was any concealment either before or after any investigation may have been instigated.
    
    
20. 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 Respondent 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, was the applicant informed of that.
    
    
21. An investigation takes place pursuant to section 82 of the Taxation Administration Act 1999. Section 82 of the Taxation Administration Act 1999 is as follows:

Section 82

(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.

22. The respondent’s submission is that his letter of 13 December 2007 is a notice pursuant to section 82. The applicant’s submission is that it can rely upon the 80% reduction allowed for on section 32 the Commissioner had not informed it that an investigation was to be carried out and that the letter of 13 December 2007 did not amount to a notice served as required by section 82(1).
    
    
23. A similar letter was dealt with in Aston and Commissioner for ACT Revenue [2007] ACTAAT 5. That decision does not set out the term of that letter although President Peedom states at paragraph 32 of that decision the terms of the letter, which appear to be, expressed as no more than a request and falls short of any language that may be regarded as the imposition of a requirement for the purpose of either section 82(1) or section 88(1) of the Taxation Administration Act1999. The fact that the letter contained a warning that the giving of false or misleading information was a serious offence does not change the proper characterisation of the letter as a mere request.
    
    

22. At this point it is worthwhile setting out the body of the letter of 13 December 2007:

“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 of 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 the 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 62070100.

Yours faithfully”

25. The terms of the above letter are in my finding no more than a request, in the words of President Peedom. 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 Taxation Administration Act1999. The letter states that the Revenue Office is “conducting an investigation of all employees who pay wages in the ACT”. This is a proper course for the Commissioner, but cannot amount to a “notice served on a person” pursuant to section 82(1). Certain formalities are required for such a notice. The notice must be directed to a certain person. That was done by writing to the “Company Secretary”. But the letter than becomes a generic request. The notice should refer to the power relied upon, being section 82(1) in this case. The notice should state that the named person is “required” to provide that information, and a time frame in which to do so. Then the notice should advise that failing to comply with the requirements of the notice may incur a penalty (in this case up to 50 penalty units) pursuant to section 82(4). This view is further supported by the questionnaire which is attached to that letter. At the end of the questionnaire there is a statement with respect to privacy and then the following sentence.
    
    

A failure to provide the requested information may result in the issue of a formal notice under section 82 of the Taxation Administration Act1999.

26. The letter of 13 December 2007 is best characterised as a request. The warning that a section 82 notice may be issued simply supports if not confirms at least to the recipient of the documents that the Commissioner will give consideration to commencing formal enforcement and investigation proceedings if the taxpayer does not do something about the matter immediately.
    
    
27. In the circumstances I find that no notice had been issued pursuant to section 82 of the Taxation Administration Act1999. Pursuant to section 82 of the Taxation Administration Act1999 the applicant did disclose to the respondent in writing sufficient information to enable the nature and extent of the tax default to be determined. The only issue in relation to that was with respect to the completion of the questionnaire which accompanied the letter of 13 December 2007. Ms. Hesling gave evidence that she completed the questionnaire but did not thoroughly review it. It was then sent to the respondent. Thereafter Mr. Paul Amalos who signed the letter of 13 December 2007 contacted Ms. Hesling seeking some further information. That information thereafter was provided promptly and the emails between those two people demonstrate that. As such I did not see anything that turns on that point.
    
    
28. In the circumstances I set aside the decision under review and determine that the amount of the penalty tax determined under section 31 is reduced by 80% pursuant to section 32 of the Taxation Administration Act1999.

………..……………………………..
Mr B Hatch
Senior Member

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A  FILE NO:      AT 09/27

APPLICANT:                DATAFLEX PTY LIMITED

RESPONDENT:            COMMISSIONER FOR ACT REVENUE

COUNSEL APPEARING:       APPLICANT:          MR J LARKINGS

RESPONDENT:      MR P WALKER

SOLICITORS:  APPLICANT:          WILLIAMS LOVE &

NICOL LAWYERS

RESPONDENT:      ACT GOVERNMENT SOLICITOR

OTHER:  APPLICANT:          

RESPONDENT:      

TRIBUNAL MEMBER/S:        MR B HATCH           SENIOR MEMBER

DATE/S OF HEARING:          10 SEPTEMBER 2009PLACE: CANBERRA

DATE/S OF DECISION:          12 NOVEMBER 2009PLACE: CANBERRA

PART B

RECOMMENDATION:

FULL REPORT ( )        CASE NOTE ( )        UNREPORTED DECISION ( )

COMMENTS: