Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd

[2019] NSWSC 129

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:	Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd [2019] NSWSC 129
Hearing dates:	12 October 2018; 30 November 2018
Date of orders:	22 February 2019
Decision date:	22 February 2019
Jurisdiction:	Common Law
Before:	Ward CJ in Eq
Decision:	(1) Grant leave to the defendant to raise an additional question for separate determination, identified as Question 5, as follows: “Was the notice of estimate dated 16 January 2017 invalid by reason of an absence of delegated authority to issue it?” (2) Answer the questions reserved for separate determination as follows: (a) Question 1: Does not arise in light of the answer to question 5 but, had question 1 arisen, the answer would have been that the 2017 Statutory Declaration is not to the effect that the underlying liability never existed (within the meaning of s 268-40(4) of Sch 1 to the TAA) nor that a specified lesser amount is the unpaid amount of the underlying liability (within the meaning of s 268-40(2) of Sch 1 to the TAA). (b) Question 2:   Does not arise in light of the answer to question 5 (nor, had question 2 arisen, in light of the answer which would have been given to question 1). (c) Question 3:   Does not arise for determination in this case. (d) Question 4:   Does not arise for determination in this case. (e) Question 5: The notice of estimate dated 16 January 2017 is invalid and ineffective by reason of the fact that it was issued in breach of s 268-10(4) of Sch 1 to the TAA at a time when an earlier notice of estimate (the 2015 Estimate Notice) continued in force (that notice not having been validly revoked in accordance with the requirements of s 268-35(4) of Sch 1 to the TAA). (3)    The plaintiff is to pay the defendant’s costs of the determination of the separate questions.
Catchwords:	TAXES AND DUTIES – notice of estimate of liability for unpaid PAYG withholding amounts – s 268-40 and s 268-90 of Schedule 1 to the Taxation Administration Act 1953 (Cth) – whether previous notice of estimate revoked – meaning of “revoked” TAXES AND DUTIES – s 268-40(2) and s 268-40(4) of Schedule 1 to the Taxation Administration Act 1953 (Cth) – statutory declaration – meaning of “to the effect” – whether statutory declaration “to the effect” that a specified lesser amount is the unpaid amount of the underlying liability – whether statutory declaration “to the effect” that the underlying liability never existed
Legislation Cited:	Acts Interpretation Act 1901 (Cth), ss 25C and 29 Corporations Act 2001 (Cth), s 459E Income Tax Assessment Act 1936 (Cth), ss 222AFA, 222AGC, 222AGD, 222AHA and 263 Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth), Ch 2 Interpretation Act 1987 (NSW), ss 21 and 80 Payroll Tax Act 1971 (Qld), ss 16B, 16C, 16DA and 16E Social Services Act 1947 (Cth), s 14 Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth), Sch 1, Pt 1, Item 10, Sch 1, Pt 3, Item 58 Taxation Administration Act 1953 (Cth), ss 8, 8AAA-AAH, 8AAZF, 8AAZH, 263, 264, Sch 1 ss 11-5, 12-35, 16-70, 255-5, 255-10, 268-5, 268-10, 268-15, 268-20, 268-25, 268-35, 268-40, 268-55, 268-90, 269-15 and 269-25 Taxation Administration Regulations 1976 (Cth), reg 45 Uniform Civil Procedure Rules 2005 (NSW), r 28.2
Cases Cited:	Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41 Australia DIS Pty Ltd v DCT [2012] VSC 331; (2012) 268 FLR 184 Australia DIS Pty Ltd v Deputy Commissioner of Taxation [2012] VSC 331; (2012) 268 FLR 184 Baini v The Queen (2012) 246 CLR 469; [2012] HCA 59 Caan’s Pty Ltd v Beasley (1946) 71 CLR 210; [1946] HCA 5 Carltona Ltd v Commissioners of Works [1943] 2 All ER 560 Certain Lloyds’ Underwriters subscribing to Contract No IH00AAQS v Cross (2012) 248 CLR 378; [2012] HCA 56 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2 Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1; [1994] HCA 39. DCT v Meredith [2007] NSWCA 354; 2007 ATC 5353 Deputy Commissioner of Taxation v Jetbird Holdings Pty Ltd [2004] WASC 66; (2004) 183 FLR 448 Deputy Commissioner of Taxation v Roche [2013] WASC 302; (2013) 95 ATR 652 Dooney v Henry [2000] HCA 44, (2000) 74 ALJR 128 Ferella Pty Ltd v DCT [2013] VSC 573 Formosa v Police [2001] SASC 139; (2001) 33 MVR 239 Glenram Wine & Liquor Corp v O’Connell 295 NY 336 (1946) Goodin v Federal Commissioner of Taxation (2002) 50 ATR 220; [2002] VSC 241 In re Golden Chemical Products Ltd [1976] 26 All ER 543 James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644; [1955] HCA 75 King Gee Clothing Co Pty Ltd v The Commonwealth (1945) 71 CLR 184; [1945] HCA 23 Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79; [1988] HCA 34 Maritime Union of Australia v Minister for Infrastructure and Regional Development (2015) 238 FCR 464; [2015] FCAFC 187 Minister for Immigration and Citizenship v SZIZO (2009) 238 CLR 627; [2009] HCA 37 Nameless, Shameless and Legless Pty Ltd v 2 Roslyn Street Pty Ltd [2004] NSWSC 519 O’Reilly v Commissioners of State Bank of Victoria (1983) 153 CLR 1; [1983] HCA 47 Owendale Pty Ltd v Anthony (1967) 117 CLR 539 at 562, 611; [1967] HCA 20 Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79 Port Philip Scallops Pty Ltd v Minister for Agriculture (Vic) [2018] VSC 589 Power v Federal Commissioner of Taxation [2013] NSWCA 428; (2013) 284 FLR 42 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 R v Justices of Kent (1873) LR 8 QB 305 Re Australian Post-Tel Institute Pty Ltd v Commissioner of Pay-Roll Tax [2001] 2 Qd R 8; (1998) 40 ATR 91 Re Greaves; Public Trustee v Ash [1954] 2 WLR 557 Re Megaward Pty Ltd [2018] NSWSC 444 Re Plutus Payroll Pty Ltd [2017] NSWSC 1360 Re Reference under Section 11 of Ombudsman Act 1976 (1979) 2 ALD 86 Re Whitley Partners Ltd (1886) 32 Ch D 337 Rhodium Australia Pty Ltd v DFCT [2011] FCA 988 Roads and Maritime Services (NSW) v Desane Properties Pty Ltd [2018] NSWCA 196 Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252; [2010] HCA 23 Sharp v Deputy Commissioner of Taxation (1988) 18 FCR 475 SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 91 ALJR 936 Television Corporation Ltd v The Commonwealth; Amalgamated Television Services Pty Ltd v Postmaster-General (1963) 109 CLR 59; [1963] HCA 30 Transtar Linehaul Pty Ltd v DCT (2011) 196 FCR 271; [2011] FCA 856
Texts Cited:	R K O’Connor, “Commissioner’s discretion under the tax act” (1989) 24 Taxation in Australia 302
Category:	Principal judgment
Parties:	Deputy Commissioner of Taxation (Plaintiff) Armstrong Scalisi Holdings Pty Ltd (Defendant)
Representation:	Counsel: LT Livingston with DR Lewis (Plaintiff) D McGovern SC with A Russoniello (Defendant)   Solicitors: Australian Taxation Office (Plaintiff) McEvoy Legal (Defendant)
File Number(s):	2017/338082
Publication restriction:	Nil

Judgment

1. HER HONOUR: Before me for hearing on 12 October and 30 November 2018 were a number of questions for separate determination in advance of any other question in proceedings involving a dispute between the Deputy Commissioner of Taxation, as plaintiff, and Armstrong Scalisi Holdings Pty Ltd, as defendant.

2. The defendant carries on business as an accounting practice (T 12/10/18; 24.48) under the business name “CAP Accounting” (see T 12/10/18; 24.4; [15] of the statutory declaration made by its director, Mr Michael Lowe, on 23 January 2017 to which I will refer in more detail in due course).

3. In the proceedings, the plaintiff sues on a Running Balance Account Deficit Debt as at 8 November 2017 in the sum of $4,021,520.80 plus interest and costs. This followed service by the plaintiff of a Notice of Estimate of Liability (2017 Estimate Notice) assessing the defendant’s liability for Pay As You Go (PAYG) withholding amounts for the period 1 July 2009 to 31 October 2013. The plaintiff’s claim is for that amount (plus interest and costs) as a debt due and unpaid under s 8AAZH of the Taxation Administration Act 1953 (Cth) (TAA) (see statement of claim at [9]).

4. The defendant denies that there are any primary tax debts owed by the defendant (see defence at [3(b)]). The defendant further pleads: that, prior to 1 July 2011, it had only one employee, Mr David Salvatore Cassaniti; that, from 1 July 2011 until the end of the period to which the alleged debt(s) relate, it (again) had only one employee (Mr Cassaniti), who was employed by it in its capacity as trustee of the ASH Discretionary Trust (ASH Trust); that it has complied with all its obligations with respect to Mr Cassaniti; and that, at all material times, it “otherwise procured its labour requirements through the use of labour hire” and that the relevant labour hirers were the employers of the staff hired and paid and were responsible for paying the remuneration of the staff hired, such that, with respect to those staff, the defendant “has never been under any obligation to withhold PAYG from wages and/or to remit withheld PAYG to the Plaintiff” (see defence at [9(b)]).

5. I was informed by Senior Counsel for the defendant that the ultimate contest between the parties is as to whether or not the defendant was “really” paying moneys to labour hire companies which, in turn, would provide employees of its own to service the business of the defendant (see T 12/10/18; 6.13) (as opposed, as I understand it, to payments to employees as such). In that regard, the defendant’s case, broadly speaking, is that the 2017 Estimate Notice has wrongly treated payments made in respect of individuals (employed by other entities) as payments in respect of which the defendant should have withheld (and remitted to the plaintiff) amounts in respect of PAYG tax (see T 12/10/18; 12.32).

6. The plaintiff contends, by reference to the terms of the statute itself (see s 12- 35 of Sch 1 to the TAA) and relevant authority (see Re Plutus Payroll Pty Ltd [2017] NSWSC 1360 (Plutus Payroll)), that the relevant liability does not turn on whether the defendant was the employer of the staff in question; rather, that the liability to withhold and remit PAYG tax is imposed on the entity that makes the payments in question. The defendant’s response to that is that, for the withholding obligation under s 12‑35 to arise, the amount paid to an individual as an employee must be characterised as salary or wages in the course of an employer/employee relationship and that a payment made by a taxpayer to a contracting third party entity (say, for example, a labour hire provider or other commercial contractor) is properly characterised as (or by inference may be taken to be) a payment made under a contract for the provision of services and not a payment made by way of salary or wages (see T 30/11/18; 20.6).

7. At [9(c)] of the defence, without limiting the generality of its denial of liability, the defendant pleads that, to the extent that any component of the alleged debt balance is said to relate to any estimated debts (and, pausing here, as I understand it the whole of the claimed debt relates to the estimates of liability notified in the 2017 Estimate Notice), those debts have been revoked and/or otherwise reduced to nil pursuant to s 268-40 of Sch 1 to the TAA in circumstances where the defendant provided the plaintiff (within the requisite time) with a statutory declaration that the defendant says is to the effect of “verifying facts in the circumstances sufficient to prove that any alleged underlying liability never existed” (that being the statutory declaration dated 23 January 2017, to which I have earlier referred; “the 2017 Statutory Declaration”, made by Mr Lowe). I interpose here to note that in oral submissions, inconsistently with the pleading, the defendant argued that this was not a case where the alleged underlying liability is said never to have existed, but rather a case where the declaration is to the effect that a specified lesser sum is the amount of any unpaid liability (see T 30/11/2018; 19.18). The pleading, however, is not even to that effect – it expressly pleads (at [9(c)] of the defence) that the estimated debts are reduced to nil, as noted above.

8. On 7 June 2018, following the filing of the defendant’s defence in these proceedings and the request for and provision of particulars of the plaintiff’s claim, the defendant filed its notice of motion seeking the separate determination (in advance of the determination of all other issues in the proceedings) of four questions, those questions going to the issue as to the effectiveness of the 2017 Statutory Declaration to revoke (or to reduce to nil) the estimate in question by reason of the operation of s 268-40 of Sch 1 to the TAA (sub-sections (2)–(4) of which are extracted at [69] below).

9. It is not disputed by the plaintiff that if the 2017 Statutory Declaration complies with the requirements of ss 268-40 and 268-90 of Sch 1 to the TAA then the estimate is thereby revoked pursuant to s 268-40(4) of Sch 1 to the TAA or reduced to a specified lesser amount (though there may be some dispute about what that is in the present case) pursuant to s 268-40(2) of Sch 1 to the TAA.

10. By consent, on 20 June 2018, Davies J ordered, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW), that the following questions be determined separately from any other question in the proceedings:

1. Is the statutory declaration dated 23 January 2017 referred to in the Affidavit of Aris Zafiriou sworn 10 May 2018 a statutory declaration that answers the description in, and satisfies the requirements of, ss 268-40 and 268-90 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA)?

2. If yes to 1, is the consequence of the service of the statutory declaration on the plaintiff within 7 days after the Notice of Estimate was given to the defendant, that the estimate was thereby revoked pursuant to s 268-40(4) of Schedule 1 to the TAA or reduced to a specified lesser amount pursuant to s 268-40(2) of Schedule 1 to the TAA?

3. Is the plaintiff permitted to challenge, whether by leading evidence in rebuttal or by cross-examining the maker of the statutory declaration to test whether the statutory declaration answers the description in, and satisfies the requirements of, ss 268-40 and 268-90 of Schedule 1 to the TAA?

4. If yes to 3, should the plaintiff, before such cross-examination, first provide further particulars as to the facts, matters and circumstances relied upon by the plaintiff to allege that the statutory declaration does not answer the description in, and satisfy the requirements of, ss 268-40 and 268-90 of Schedule 1 to the TAA?

11. Of the above four questions, it was accepted in the course of the hearing that questions 3 and 4 do not arise in the present case (as the plaintiff did not seek to cross-examine the maker of the 2017 Statutory Declaration, Mr Lowe). In those circumstances, there is no utility in me here addressing those questions. It is more appropriate that any such questions (assuming they arise in the future) be answered with reference to the particular facts and circumstances of the case in which they arise. That course was not opposed by the parties (see the discussion at T 12/10/18; 4.47-5.18).

12. However, the parties did seek to agitate a further preliminary question. That additional question had been foreshadowed in the defendant’s written submissions filed 9 August 2018 (at [5] and [29]-[35]) and was reformulated, in terms satisfactory to the defendant, in the plaintiff’s submissions of 14 August 2018), as follows:

5.   Was the notice of estimate dated 16 January 2017 invalid by reason of an absence of delegated authority to issue it?

13. Unfortunately, what was not squarely raised in the defendant’s 9 August 2018 written submissions in relation to the proposed question 5 (those submissions being described by the defendant as “somewhat elliptical” on this point – see T 12/10/18; 8.16) was an issue raised by the defendant in oral submissions as to whether the 2017 Estimate Notice is not valid or has no effect because, at the time it was issued, there was an extant Notice of Estimate of Liability (one that had been issued in July 2015 – the 2015 Estimate Notice).

14. The belated articulation of that issue meant that the hearing of the separate questions could not be completed on 12 October 2018 (the defendant quite rightly accepting that the plaintiff should be given the opportunity to respond on that particular issue). Thus, the hearing was not completed until 30 November 2018, following the filing of supplementary written submissions by the plaintiff on that particular issue; the cross-examination by the defendant via telephone link of the officer at the Australian Taxation Office (ATO) who had prepared and issued the 2017 Estimate Notice (Mr Aris Zafiriou); and final oral submissions by both parties.

Summary

15. For the reasons that follow, I have concluded that the questions for separate determination should be answered as follows:

Question 1: Does not arise in light of the answer to question 5 but, had question 1 arisen, the answer would have been that the 2017 Statutory Declaration is not to the effect that the underlying liability never existed (within the meaning of s 268-40(4) of Sch 1 to the TAA) nor that a specified lesser amount is the unpaid amount of the underlying liability (within the meaning of s 268-40(2) of Sch 1 to the TAA).

Question 2:   Does not arise in light of the answer to question 5 (nor, had question 2 arisen, in light of the answer which would have been given to question 1).

Question 3:   Does not arise for determination in this case.

Question 4:   Does not arise for determination in this case.

Question 5: The notice of estimate dated 16 January 2017 is invalid and ineffective by reason of the fact that it was issued in breach of s 268-10(4) of Sch 1 to the TAA at a time when an earlier notice of estimate (the 2015 Estimate Notice) continued in force (that notice not having been validly revoked in accordance with the requirements of s 268-35(4) of Sch 1 to the TAA).

Background

16. By way of further background to the dispute, I note the following.

17. By letter dated 8 July 2015 the plaintiff served on the defendant a Notice of Estimate of Liability for PAYG withholding (PAYGW) amounts said to have been withheld by the defendant and not remitted to the Commissioner for withholding periods commencing on 1 July 2009 through to 31 October 2013 (the 2015 Estimate Notice). The covering letter with which the notice was served was signed by Mr Zafiriou in the name of Mr David Diment, the then Deputy Commissioner of Taxation (see T 30/11/18; 2.42) and the enclosed 2015 Estimate Notice bore a facsimile signature of Mr Diment (affixed by Mr Zafiriou – see T 30/11/18; 2.50), under which appeared the typewritten words:

David Diment

Deputy Commissioner of Taxation and

Delegate of the Commissioner of Taxation

18. Pausing here, there was an initial objection by the plaintiff to the admission of the 2015 Estimate Notice and covering letter on the basis of relevance (the proposed fifth question not then having been fully articulated). I admitted the documents provisionally, as Exhibit 1, subject to relevance. They are relied upon by the defendant for the purpose of its argument as to lack of authority on the part of the plaintiff for the issue of the 2017 Estimate Notice (see T 12/10/18; 6.45) and are clearly relevant to that issue (as the plaintiff in effect conceded). In those circumstances, the plaintiff now having had an opportunity to file supplementary submissions on that issue, the admission of Exhibit 1 into evidence is no longer to be treated as provisional.

19. Following service of the 2015 Estimate Notice, the plaintiff received from the defendant a statutory declaration within the seven day period specified in the legislation (see T 30/11/18; 3.5). In response to that statutory declaration (a copy of which was not tendered on this hearing), Mr Zafiriou prepared a letter dated 17 July 2015 which he sent to the defendant (see T 30/11/18; 3.9). The letter was again signed by Mr Zafiriou in the name of Mr Diment. In that letter (Exhibit 4), the defendant was advised that the statutory declaration was inconsistent with information held by the Commissioner and that the 2015 Estimate Notice “will not be revoked”.

18. At some point in 2016, a statutory demand was served on behalf of the Commissioner relying upon the 2015 Estimate Notice (see T 30/11/18; 6.24-33), following which the defendant commenced proceedings in this Court seeking to set aside the statutory demand. Those proceedings were ultimately resolved, with the Commissioner agreeing to pay indemnity costs in favour of the defendant (see T 30/11/18; 6.39).

19. Although there was some suggestion in the course of the cross-examination of Mr Zafiriou that another notice of estimate of liability had been issued in 2016 (see T 30/11/18; 6.41-50), that was later clarified by Mr Zafiriou (see T 30/11/18; 7.13), who said that there were two estimates (the 2015 Estimate and the 2017 Estimate) and two statutory demands “based on both of those estimates”. As I understand it, what Mr Zafiriou was seeking to convey by the reference to the two statutory demands being based on “both” of the estimates was that one statutory demand was issued following (and relying upon the debt arising from the issue of) the 2015 Estimate Notice and then a subsequent statutory demand was issued following (and relying upon the debt arising from the issue of) the 2017 Estimate Notice (this being what I consider emerges from his earlier evidence – see T 30/11/18; 6.44). The fate of the second statutory demand was not explored in cross-examination, but I can only assume that nothing relevantly eventuated from its service, since the next step after service of the 2017 Statutory Declaration to which I was taken (as to which, see below) was the commencement of these proceedings.

January 2017 Estimate Notice

22. As noted earlier, by letter dated 16 January 2017 (the 2017 Covering Letter), the 2017 Estimate Notice was served on the defendant. The 2017 Covering Letter was prepared by Mr Zafiriou (see T 30/11/18; 1.39-41) and signed by Mr Zafiriou in the name of Mr Robert Ravanello, Deputy Commissioner of Taxation (see T 30/11/18; 1.48-50). The 2017 Estimate Notice bore the facsimile signature of Mr Ravanello (affixed by Mr Zafiriou – see T 30/11/18; 2.30-32) under which there was a similar description of Mr Ravenello (as Deputy Commissioner of Taxation and Delegate of the Commissioner of Taxation) as the earlier description of Mr Diment contained in the 2015 Estimate Notice (see [17] above).

23. In his affidavit sworn 10 May 2018, Mr Zafiriou has deposed to the process by which he prepared the 2017 Estimate Notice (see [14]) and as to his satisfaction (evidence that was read by me as to his state of mind or state of satisfaction in that regard) that the summary of the defendant’s liabilities under s 16-70(1) in Sch 1 to the TAA for each of the relevant tax periods was an accurate and reasonable estimate of those liabilities, on which he relied in preparing the estimate notice (see [18]).

24. Mr Zafiriou was cross-examined in effect to suggest that the method of creation of the 2017 Estimate Notice was simply to “cut and paste” across to the later notice the detailed information that had been extracted in July 2015 for the earlier notice (a suggestion that Mr Zafiriou rejected “out of hand” – see T 30/11/18; 16.18). Mr Zafiriou explained that the word processing system did not enable that to be done and that it was necessary manually to reproduce the notice and to input again the figures (see T 30/11/18; 9.2-10; and the later explanation at 16.7-28). In particular, Mr Zafiriou said the following in that regard (see T 30/11/18; 8.33-8.43; 8.48-9.4; 9.32-9.44):

Q.    And can I put this to you, that what actually occurred in 2017 was simply to cut and paste across to the 2017 notice the detail information that had been extracted in July 2015 for the purposes of the preparation of the July 2015 notice, do you agree?

A.    In terms of the actual drafting, but not as to the thought process. At the end of the day I was required to give thought to whether or not the Commissioner's estimates at the time given they were making a new estimate notice was reasonable, so I had to reacquaint myself with all the material and that would be including AZ5 and the other records within the organisation, and then having concluded they were basically the same situation, therefore the same estimate amount issued. That is my position.

…

Q.    When you came to the January 2017 notice, one of the first steps that was taken was to access the July 2015 notice and transpose all of the information about withholding periods and amount of estimate to the 2017 notice from the ‘15 notice, is that right?

A.    No, because the system, the notices are templates. Unless you save the notice in a Word for Windows document or whatever you will not be able to transpose it. We didn’t do that.

Q.    Right?

A.    So we were required to manually reproduce the notice, so it was a manual input again of the figures, there was no cut and pasting. What I do is go back to the 2015 financial information, reran the PAYG analyser to make sure the information is still valid and then proceeded to manually transcribe the figures.

…

Q.    And in relation to the work that was done in July 2015, apart from the extract from the bank statement which is AZ5, what other information from 2015 did you use in constructing the 2017 notice of estimate?

A.    Insofar as hard documents zero, because apart from the bank statements, we need to, we went through again just to make sure that we were correct in looking at what is the majority of the outward goings then we went on to the computer programme which is called the analyser, which I referred to in one of my affidavits, I'm not sure which one now so I do apologise for that, and downloaded all the information within the Commissioner's possession and then provided me with a figure of gross wage, net wage and CID as lodged by the different various taxpayers or the employees, and then from there we went on to the job, so in terms of the actual hard core documents in 2015 it was only the bank statement.

2017 Statutory Declaration

25. On 23 January 2017 (and, as the plaintiff accepts, within the seven day period allowed under the TAA for such a response), Mr Lowe made the 2017 Statutory Declaration, to which 11 volumes of documents were exhibited (see T 12/10/18; 3.1; 12.6).

26. Emphasis is placed by the defendant on the relatively short period of time within which a taxpayer seeking to invoke the operation of s 268-40 must serve a statutory declaration as something that informs the construction to be placed on s 268-90, the provision which sets out the requisite contents of such a declaration. From a practical point of view, since the 2015 and 2017 Estimate Notices were broadly identical, one might infer that the relatively short timeframe for a response posed no insuperable difficulty for the defendant in the present case (since a statutory declaration to the earlier notice had been prepared and served in 2015 and hence much of the work in preparing the 2017 Statutory Declaration might be thought already to have been done). That said, I accept that, even if that was the case here, it does not detract from the nub of the defendant’s proposition that the shortness of the time period provided in the legislation within which a taxpayer can invoke the revocation/reduction provisions of the legislation is relevant when considering what the legislature contemplated would be required of a statutory declaration to be compliant with that process.

27. In the 2017 Statutory Declaration, Mr Lowe declared, inter alia, that: he has been a director of the defendant since 1 March 2016 ([1]); he has been the public officer of the defendant since 1 March 2016 ([2]); and, from about October 2011 to 31 June 2015, his service was contracted to the defendant as a manager ([3]). Mr Lowe declared that: he verified the sums withheld as PAYG during each of the relevant periods and the sums remitted to the Commissioner of Taxation ([7]); the amount specified in each BAS statement that covers the Notice Period (from 1 July 2009 - 31 October 2013) correctly identifies “the amount withheld and withholdable” by the defendant on account of PAYG ([8]); and that there is no amount of PAYG relating to the Notice Period that ought to have been and/or was withheld by the defendant and has not been remitted to the Deputy Commissioner of Taxation ([10]) (emphasis added). To the 2017 Statutory Declaration, Mr Lowe annexed a table that he declared correctly set out the amount (if any) of any PAYG liability of the defendant (see [9] and Annexure A).

28. Mr Lowe explained (from [14]) the role of the defendant, including that at all times during the Notice Period it had been the trustee of the ASH Trust (commencing in its role as trustee on 1 July 2011). (The Notice Period in fact commenced on 1 July 2009 but, as I understand it, the statement at [14] is to the effect that, at all times during the Notice Period after the establishment of the ASH Trust on 1 July 2011, the defendant had been the trustee of the said trust.)

29. Mr Lowe declared that, for the period from 1 July 2009 to 30 June 2011, the defendant operated a business in its own right under the business name CAP Accounting ([15]) and that, from 1 July 2011, it operated that business in its capacity as trustee of the ASH Trust ([16]).

30. Mr Lowe declared that the principal of the CAP Accounting office was at all relevant times Mr David Cassiniti ([17]) and went on to summarise the employment arrangements of the persons working in the CAP Accounting business, first, from 1 July 2011 to 22 May 2012 and then from 23 May 2012 to 31 October 2013 (see [19]). In summary, he declared that, from 1 July 2011, Mr Cassaniti was an employee of the defendant in its own right and then in its capacity as trustee of the ASH Trust; and that the staff of the CAP Accounting firm were employed by labour hire companies or other entities (see [4]; [41]; [46]; and the defendant’s oral submissions at T 12/10/18; from 24.1).

31. Mr Lowe set out details of the St George account that he declared the defendant had operated for the CAP Accounting business (to which I will refer as Account A), exhibiting what he said was a complete set of the bank account statements; and set out details from those bank statements of payments to Mr Cassiniti “and the hire companies” (see [23]). Other documents in relation to payments made by the defendant were exhibited to the 2017 Statutory Declaration. Details were provided of the withholding and remittal of tax from Mr Cassiniti’s payments (see [38]-[40]). Mr Lowe then set out details of “staff payments” to 30 May 2012 by Ultra Nova Financial Services Pty Ltd and by the trustee of the Ultra Nova Discretionary Trust; and details of other staff payments ([53]-[59]).

Response to the 2017 Statutory Declaration

32. By a letter dated 30 January 2017, signed, as noted above, in the name of the Deputy Commissioner, the defendant was advised (in similar terms to the 2015 letter responding to the 2015 Statutory Declaration), that the 2017 Statutory Declaration was inconsistent with information held by the Commissioner “and the number of employees known to the Commissioner” and, consequently, that the 2017 Estimate Notice “will not be revoked”.

33. As noted earlier, it appears that a statutory demand was issued (but not ultimately relied upon) in relation to the underlying liability estimated as owing in the 2017 Estimate Notice. These proceedings were subsequently commenced on 8 November 2017 by way of statement of claim. The defendant filed its defence on 13 December 2017 and in due course made an application for the separate determination of the questions as set out above, which led to the hearing before me (sitting in the Common Law Division for that purpose).

Mr Zafiriou’s position within the ATO

34. Before setting out the relevant statutory provisions, I note the evidence as to the position within the ATO of Mr Zafiriou, he being the person who had responsibility for the preparation and issue of the 2017 Estimate Notice and the subsequent correspondence in relation to the 2017 Statutory Declaration (and whose authority to issue the said notice is challenged on the present application).

35. Mr Zafiriou has sworn a number of affidavits in the proceedings. In his second affidavit, of 14 August 2018, he deposes that he is a director employed in the Debt section of the ATO and subject to the direction of the Deputy Commissioner ([1]).

36. Exhibited to that second affidavit is a copy of the Instrument of the Commissioner’s Delegations and Authorisations which was issued on 17 September 2015 (the Commissioner’s Delegation), by which the Commissioner delegated his relevant powers and functions under the TAA to the persons who from time to time hold, occupy or perform the duties of the position of Second Commissioner of Taxation or of an Officer in the Senior Executive Service employed by the ATO (see [5]).

37. In particular, by reference to the Commissioner’s Delegation (Schedule 1, read with Appendix 1), it can be seen that the Commissioner delegated, pursuant to s 8 of the TAA, his powers and functions under the TAA to the persons who from time to time hold, occupy or perform the duties of the position of: (a) Second Commissioner of Taxation or (b) an Officer in the Senior Executive Service employed by the ATO. The Commissioner’s powers and functions so delegated are those specified in column A of Appendix 1 to the instrument of delegation, except the powers and functions specified in column B of Appendix 1. In Appendix 1, the Commissioner identified in column A the TAA and Div 268 of Sch 1 of the TAA was not identified as an exception. Hence, the Commissioner’s Delegation includes the Commissioner’s powers under ss 268-10 and 268-35 of Sch 1 to the TAA. (Relevantly, for the purposes of the defendant’s general authority argument, the delegation was not expressed as a delegation to “the office of Deputy Commissioner”.)

38. Also exhibited to Mr Zafiriou’s second affidavit is a copy of a Service Delivery Instrument of General Authorisation (the Deputy Commissioner’s General Authorisation) executed by the then Deputy Commissioner (Mr Ravanello), the authorised delegate of the Commissioner for Service Delivery, on 30 October 2015, by which certain officers employed by the ATO were authorised to exercise the Deputy Commissioner’s power and functions under the TAA (see [6]).

39. In particular, the Deputy Commissioner’s General Authorisation stated that, in the exercise of the powers and functions delegated to the Deputy Commissioner by the Commissioner’s Delegation, and of the powers and functions he exercised in his own right, the Deputy Commissioner authorised all officers (a) from time to time holding or occupying or performing duties in Service Delivery business and/or (b) who exercise powers and functions in relation to any matters arising in Service Delivery “to exercise in the name of the person from time to time holding, occupying or performing the duties of the Deputy Commissioner of Taxation, Service Delivery”:

•   all the powers and functions delegated to the office of Deputy Commissioner of Taxation, Service Delivery by Schedules 1, 4 and 5, and Appendix 1 to the Instrument of the Commissioner’s Delegations and Authorisations signed 17/09/2015; and

•   the powers and functions which the Deputy Commissioner of Taxation, Service Delivery, exercises in his or her own right;

•   subject to the limitations identified in Schedules 2 to 9 of this instrument.

40. The interpretation section of the Deputy Commissioner’s General Authorisation includes provision (cl 5.5) that the instrument is to be construed in broad terms and the meaning is not limited to the exact words used in the legislation. Schedule 1 sets out a table of the legislation containing powers and functions covered by the instrument. The exceptions to the authorisation in relation to the TAA do not include the Deputy Commissioner’s powers and functions under the statutory provisions here under consideration. Schedule 2 to the instrument relates to the authorisations for Executive Level 2 Officers (and again does not exclude the powers and functions here under consideration (i.e., those under Div 268 of Sch 1 to the TAA), from the authorisation to exercise “in the course of their duties in the name and on behalf of the person from time to time holding or occupying or performing the duties of Deputy Commissioner of Taxation, Service Delivery, all the Deputy Commissioner’s power and functions”).

41. In the context of the 2017 Estimate Notice, Mr Zafiriou deposes in his second affidavit that Mr Ravanello was the Deputy Commissioner for Service Delivery and that he, Mr Zafiriou, performed duties within the Debt business line of the ATO (which forms part of the Service Delivery business line) (see [7]), exhibiting documents in relation to Mr Ravanello’s appointment in 2016 and his position as a Deputy Commissioner and Officer in the Senior Executive Service employed by the ATO (an SES Band 2 officer) as at the date of issue of the notice (see [8]).

42. Mr Zafiriou deposes that, as at the date of issue of the 2017 Estimate Notice, he was acting as an Assistant Commissioner for the Debt business line (within the Service Delivery business line of the ATO) (see [9]).

43. In his 25 September 2018 affidavit, Mr Zafiriou gives further detail as to the way in which the 2017 Estimate Notice was prepared: namely, by use of a Pay As You Go Analyser program (PAYG Analyser) collating all the PAYGW data associated with a specified taxpayer to cross-check the lodged income tax returns of the individuals referred to in the defendant’s bank records (see [4]-[6]) and by the use of an Integrated Core Processing System (the ICP System) to obtain an office copy of the income tax returns received from individuals identified by the PAYG Analyser program (see [7]-[8]). He then sets out the results of some of the searches he conducted (from [11]).

44. The upshot of Mr Zafiriou’s searches was that he formed the view that there was a discrepancy between the withholding reported by various entities to which he refers in his statutory declaration (Caiman Pty Ltd; the trustee for the Aleksandra Holdings Discretionary Trust; Ultra Nova Financial Services Pty Ltd; the trustee for Darlinghurst Financial Services Trust; and the trustee for ACS Building Services Trust) and the withholding claimed by individuals who reported receiving salary and/or wages from those entities in their income tax returns (see [14]; [20]; [27]; [32]; [38]). In cross-examination, he accepted that, served with the 2017 Statutory Declaration, there were documents that purported to say that some of the said entities were withholding amounts (see T 30/11/18; 14.22-42), but he clearly did not accept the correctness of those documents.

45. In cross-examination, it was made clear by Mr Zafiriou that the 2015 Estimate Notice was not formally revoked prior to the issue of the 2017 Estimate Notice, in the sense of there being any formal consultation process or decision recorded to that effect (see, for example, his evidence at T 30/11/18; 4.28; 4.32; 5.22); and that his understanding was that it was the issue of the 2017 Estimate Notice itself which in effect rendered void the old (2015) Estimate Notice, by replacing or superseding it (see, for example, his evidence at T 30/11/18; 4.42; 4.45; 5.5; 5.14; 5.22; 5.26; 6.12). His evidence was that this was the intention of the Commissioner (see T 30/11/18; 5.10) – though he elsewhere made clear that, in raising the 2017 Estimate Notice, he did not consult with either the Deputy Commissioner or the Commissioner and he agreed that, so far as he knew, neither of them had turned his mind to the quantum of the estimate or was in any way involved in the preparation of the estimate (see T 30/11/18; 11.41; 11.45; 11.50).

46. As to his authority to issue the notice, Mr Zafiriou’s understanding (the relevance of which for present purposes is by no means clear to me) was that, as at 16 January 2017, by reason of his level at the ATO (executive level number 2), he was the subject of a delegation from the Commissioner and that he was also authorised by the Deputy Commissioner to sign the notice of estimate (see T 30/11/18; 12.38-13.1), and said that (see T 30/11/18; 12.5-8):

A.    … I say that I’ve got delegation to do certain things and I’m also authorised by the Deputy Commissioner to do certain things so it’s a combination of both delegation and authorisation.

Relevant legislation

47. The obligation to withhold amounts referable to PAYG tax from salary or wages is imposed by s 12-35 of Sch 1 to the TAA, which relevantly provides that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). [emphasis added]

48. As adverted to above, the plaintiff emphasises that the obligation to withhold is imposed upon the entity which pays salary, wages, commission, bonuses or allowances to an individual as an employee, irrespective of whether or not the entity is the employer of that individual.

49. The obligation upon the withholding entity to remit to the plaintiff the amounts so withheld is relevantly imposed by Div 16 of Sch 1 to the TAA; in particular, by s 16-70.

50. Div 268 of Sch 1, which was introduced into the legislation with effect from 1 July 2010, deals with estimates and recovery of PAYG withholding liabilities. It is not disputed that the provisions in this Division enable the Commissioner to make an estimate of, inter alia, amounts not paid as required under the PAYGW provisions (Part 2-5) and to recover the amount of the estimate (see s 268-1) as a separate and distinct liability from the underlining liability (see s 268-20(2)).

51. The stated object of Div 268 is, relevantly, “to enable the Commissioner to take prompt and effective action to recover ... amounts not paid as required” by the PAYGW provisions (see s 268-5).

Predecessor “estimate” regime

52. Before turning to the particular provisions of Div 268 under consideration in the present case, I note that the defendant drew attention to the predecessor to Div 268, that being the “estimate” regime in Pt VI, Div 8 of the Income Tax Assessment Act 1936 (Cth) (ITAA), which was introduced in 1993 and contained ss 222AFA to 222AMB. The stated purpose of that estimate regime (similar to that of the regime which replaced it) was to promote the timely and efficient recovery of amounts that had not been remitted to the Commissioner despite a liability to withhold and remit them under provisions such as s 12-35 of Sch 1 to the TAA (s 222AFA(1) of the ITAA).

53. The defendant places weight on various statements contained in the 1993 Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth) (at Chapter 2) (the Explanatory Memorandum), including the statement that, before this regime, the Commissioner could recover such amounts from the payer but first had to establish the exact amount of the liability, by which time the “efficient and timely recovery of the unremitted deductions” was often frustrated.

54. The estimate regime under the ITAA enabled the Commissioner to estimate the amount which a payer was liable to remit on account of its withholding obligations, and to demand payment of that estimate (s 222AHA(1) of the ITAA). The payer had the opportunity to declare that no amount was remitted to prove that there was no withholding obligation (ss 222AGC(1), 222AGD(1) and 222AHC(2) of the ITAA).

55. The Explanatory Memorandum further stated (at 25) that:

In practice it will be most unusual for the Commissioner to estimate precisely the actual unremitted amounts. Of course the estimate could be reduced to the actual unremitted amount when the person liable, upon being notified of the estimate by the Commissioner, declares what the actual unremitted amount was.

56. The defendant argues that the Explanatory Memorandum is of considerable assistance to an understanding of the scope, impact and intention of the 2010 legislation, which effectively mirrored the regime provided for under the ITAA (including references to the new regime enabling the Commissioner to recover debts earlier and more effectively; and to obtain prompt recovery through estimates).

57. The defendant notes that (at p 20 of the Explanatory Memorandum) it is said that the key feature of the new regime would enable a Commissioner to make an estimate of unremitted amounts when time for payment has passed and to take action to recover that estimate if the Commissioner is not advised of the actual amount. It is said that, as the Commissioner is only interested in collecting the actual unremitted amounts, a person will be given an opportunity to inform the Commissioner of the actual amounts deducted. At p 24 of the Explanatory Memorandum, it is noted that decisions about estimates are not reviewable under the Administrative Decisions Judicial Review legislation. The person who becomes liable under the estimate has the right to vary the amount of the estimate by completing a statutory declaration.

58. The defendant submits that the legislation, understood in the context of the Explanatory Memorandum and the statutory purpose of the Commissioner only being interested in the actual liability, supports the approach that the defendant says is mandated under Div 268 of the TAA: namely, that of looking at the statutory declaration and, if satisfied of its compliance with s 268-90(2) and s 268-40(2), for the automatic reduction of the liability to nil (or, I would add, where some lesser amount of unpaid liability is specified, to that specified lesser amount).

Introduction of Division 268 in July 2010

59. On 1 July 2010, the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) repealed Pt VI of the ITAA, including the estimate provisions in the former Div 8 of Pt VI, and added the new estimate provisions (which came into force on 1 July 2010) as Div 268 of Sch 1 to the TAA (Sch 1, Pt 1, Item 10 of the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth)). Sch 1, Pt 3, Item 58 of the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) provided that an existing estimate remains in force from the commencement time of the new regime as if it had been made under s 268-10 in Sch 1 to the TAA.

60. Pursuant to s 268-10(1), the Commissioner may estimate the unpaid and overdue amount of a liability (defined as the “underlying liability”) under s 16-70 in Sch 1 (the requirement to pay to the Commissioner amounts withheld under the PAYGW rules). The amount of the estimate must be what the Commissioner thinks is reasonable (s 268-10(2)) and in making the estimate the Commissioner may have regard to anything he or she thinks relevant (s 268-10(3)).

61. Pursuant to s 268-10(4), while the estimate “is in force” the Commissioner must not make another estimate relating to the underlying liability. (Pausing here, the defendant argues, and I accept, that it is clear from s 268-10(4) that there must only be one estimate in relation to each underlying liability for each withholding period at any particular time.) Section 268-10(5) provides that the estimate is in force if: (a) the Commissioner has given notice of the estimate; (b) the estimate has not been revoked; and (c) the liability has not been discharged.

62. Pursuant to s 268-15, the Commissioner must give written notice of the estimate and the notice must: identify the underlying liability; specify the date of the estimate; set out the amount of the estimate; state that the amount of the estimate is due and payable; and explain how the recipient may have the amount of the estimate reduced or the estimate revoked. The section makes clear that a single notice may relate to two or more estimates but if so it must comply with sub-s (2) (the provision specifying the contents of the notice) in relation to each of them.

63. Despite s 29 of the Acts Interpretation Act 1901 (Cth), a notice under sub-s (1) is taken to be given at the time the Commissioner leaves it or posts it (s 268-15(4)) (rather than when it is delivered in the ordinary course of post – see DCT v Meredith [2007] NSWCA 354; 2007 ATC 5353), a matter to which the defendant points in the context of what is to be expected of a statutory declaration made in response to the notice of estimate.

64. Pursuant to s 268-20, the amount of the estimate is due and payable when the Commissioner gives a notice of estimate in accordance with s 268-15 and (see sub-s (2)), liability to pay the amount of the estimate is separate and distinct from the underlying liability and for all purposes. Pursuant to s 268-25, the recipient of the notice is liable to pay the unpaid amount of the estimate even if: the underlying liability never existed or has been discharged in full; or the unpaid amount of the underlying liability is less than the unpaid amount of the estimate. (Note 1 to this section states that “[s]ection 268-40 revokes the estimate if you give the Commissioner a statutory declaration, or file an affidavit, to the effect that the underlying liability never existed”.)

65. Sub-division 268-D, headed “[r]educing and revoking estimates”, contains a series of provisions as to how an estimate may be reduced or revoked; when reduction or revocation takes effect; and the consequences of reduction or revocation. Relevantly, there are a number of ways in which the statute provides for the reduction or revocation of estimates, including by the Commissioner in the exercise of his or her powers under s 268-35 and by the operation of s 268-40(1).

66. Section 268-35 (“How estimate may be reduced or revoked – Commissioner’s powers”) provides, relevantly, as follows:

Reduction

(1)   The Commissioner may at any time reduce the amount of the estimate, but is not obliged to consider whether or not to do so.

(2)   If the Commissioner reduces the amount of the estimate under subsection (1), he or she must give you a written notice that:

(a)   identifies the underlying liability; and

(b)   sets out the reduced amount of the estimate   .

Note: The estimate is taken always to have had effect as reduced: see section 268-55.

Revocation

(3)   The Commissioner may at any time revoke the amount of the estimate, but is not obliged to consider whether or not to do so.

(4)   If the Commissioner revokes the amount of the estimate under subsection (3), he or she must give you a written notice that:

(a)   identifies the underlying liability; and

(b)   states that the estimate has been revoked.

Note: The estimate is taken never to have been made: see section 268-55

67. Sub-section (5) sets out the principles to which the Commissioner must have regard in exercising the power under s 268-35 (as well as the effect of reduction or revocation on liabilities). These principles include: that the estimate is of the unpaid amount of the underlying liability as at a particular time; and that the purpose of reducing the amount of the estimate is to bring it closer to the unpaid amount of the underlying liability as at the time the estimate was made.

68. Section 268-40 contains the procedure whereby the recipient of a notice can itself take steps to effect a reduction of the amount of the estimate or the revocation of the estimate. The section applies as set out in the three scenarios outlined in the table to sub-s (1). Item 1 of the table, relevant in the present case, is where the Commissioner gives notice of the estimate and the recipient gives the Commissioner a statutory declaration for the purposes of s 268-40 either within seven days after the notice is given by the Commissioner or within such longer period as allowed by the Commissioner. Item 2 of the table is where the recipient is a party to proceedings before a court that relate to the recovery of the unpaid amount of the estimate and the recipient files an affidavit for the purposes of s 268-40 and serves a copy on the Commissioner within 14 days after the recipient first takes a procedural step as a party to the proceedings or within such longer period as allowed by the court. Item 3 relates to the scenario where a statutory demand was served and provides for the filing and service of an affidavit only.

69. Section 268-40 goes on to provide:

Reduction

(2)   The amount of the estimate is reduced if the statutory declaration is to the effect, or the affidavit verifies facts sufficient to prove, that a specified lesser amount is the unpaid amount of the underlying liability.

Example: Subsection (2) will apply if the statutory declaration etc. is to the effect that the underlying liability has been discharged in full (and therefore the unpaid amount of the liability is nil).

(3)   The amount of the reduction is the amount by which the unpaid amount of the estimate (just before the reduction) exceeds the amount specified.

Note:   The effect of subsection (3) is to reduce the unpaid amount of the estimate to the amount specified.

Revocation

(4)   The estimate is revoked if the statutory declaration is to the effect, or the affidavit verifies facts sufficient to prove, that the underlying liability never existed.

70. The content of the requisite statutory declaration or affidavit, for the purposes of s 268-40, is set out in s 268-90(2), which relevantly provides that in a case covered by paragraph 268-10(1)(a):

... the statutory declaration or affidavit must verify the following facts:

(a)   whichever of the following are applicable:

(i)    the sum of all amounts you withheld under Division 12 during the relevant period, or the fact that you did not withhold any such amounts during the period;

(ii)    the sum of all amounts you were required to pay under Division 13 (Alienated personal services payments) during the relevant period, or the fact that you were not required to pay any such amounts during the period;

(iii)    the sum of all amounts you were required to pay under Division 14 (non-cash benefits and accruing gains) during the relevant period, or the fact that you were not required to pay any such amounts during the period;

(b) what has been done to comply with Division 16 (Payer’s obligations and rights) in relation to the amounts referred to in paragraph (a).

71. Pursuant to s 268-55(2), if the amount of the estimate is reduced, the estimate has effect, and is taken always to have had effect, as if the original amount of the estimate had been the reduced amount. Pursuant to s 268-55(3), if the estimate is revoked, the estimate is taken never to have been made.

72. Amounts due and payable under an estimate notice may be recovered in accordance with Pt 4-15 of Sch 1 to the TAA (formerly, s 222AFA(5) of the ITAA). General interest charge accrues on these amounts while they remain outstanding (see ss 8AAA-8AAH, s 8AAZF of the TAA). An estimate of payable amounts is a “tax related liability” (s 250-10(1), Sch 1 to the TAA, Item 138) and, as such, a debt due to the Commonwealth and payable to the plaintiff (s 255-5, Sch 1 of the TAA). Similarly, the general interest charges are debts due and payable to the Commonwealth and to the plaintiff (s 250-10(2), Sch 1 of the TAA, Items 70, 125, 130 and 135).

73. Section 268-20 describes the nature of a liability to pay an estimate, the amount of which becomes due and payable upon the Commissioner giving the notice. The amount of the estimate is separate and distinct for all purposes from the underlying liability. The Commissioner may take proceedings to recover the unpaid amount of the estimate as well as the unpaid amount of the underlying liability or both and the discharge of one liability discharges the other liabilities.

Questions for Determination

74. As, logically, questions 1 and 2 do not arise if question 5 is answered in the manner for which the defendant contends, I will deal first with question 5.

Question 5

Was the notice of estimate dated 16 January 2017 invalid by reason of an absence of delegated authority to issue it?

75. As noted above, the 2017 Estimate Notice bears the facsimile signature of Mr Ravanello, who is described as Deputy Commissioner of Taxation and Delegate of the Commissioner of Taxation. Both the estimate and the notice itself were prepared and issued by Mr Zafiriou (see [13]-[17] of his affidavit sworn 10 May 2018), in the manner noted above.

76. Section 8(1) of the TAA permits the Commissioner to delegate to a Deputy Commissioner or any person his powers and functions under a taxation law. A delegation of powers and functions must be in writing and may be in general terms or as specified in the instrument of delegation. Section 8(1) provides that:

The Commissioner may, either generally or as otherwise provided by the instrument of delegation, by writing signed by the Commissioner, delegate to a Deputy Commissioner or any other person all or any of the Commissioner’s powers or functions under a taxation law or any other law of the Commonwealth or a Territory, other than this power of delegation. [emphasis added]

77. Where a delegated power or function is exercised or performed by a delegate, it is deemed to be exercised or performed by the Commissioner for the purposes of the relevant taxation law. (I have noted above the evidence as to the Commissioner’s Delegation that was in place at the relevant time.)

78. It is also relevant to note regulation 45 (headed, “[p]resumption as to signatures”) of the Taxation Administration Regulations 1976 (Cth), which provides as follows:

(2)   A document bearing the name (however produced) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner in the place of the person’s signature is taken to have been duly signed by the person, unless it is proved that the document was issued without authority.

(3)   A document given under a taxation law that purports to be signed by the authority of the Commissioner is as effective for all purposes under the taxation laws as if it had been signed personally by the Commissioner.

(4)   Any notice that, under a taxation law, is to be given to an entity by the Commissioner may be given to the entity by an officer who is authorised by the Commissioner to do so.

79. In written and oral submissions, the defendant raised a number of points as to the authority issue (see from T 12/10/18; 9). Those may be summarised as follows.

80. First (raised for the first time in oral submissions as noted above), that the existence of the 2015 Estimate Notice precluded the issue of the 2017 Estimate Notice.

81. Second, that the document in question bore a facsimile stamp of the Deputy Commissioner of Taxation’s signature (which it is submitted was affixed without requisite authority).

82. Third, that if Mr Zafiriou was himself exercising delegated authority from the Commissioner, then (by signing the document or affixing the facsimile signature in the name of the Deputy Commissioner rather than of the Commissioner) the execution of the document was invalidated by the act of the delegate himself (because he should have signed in the name of the Commissioner). In other words, it is submitted that, if exercising the authority that the defendant accepts was delegated to someone in Mr Zafiriou’s position by the Commissioner, Mr Zafiriou had to signify either that he was a delegate of the Commissioner and signing in that capacity or (and preferably, in the defendant’s submission) that he was signing in the name of the Commissioner “to signify that that was his statutory requirement”) (at T 12/10/18; 9.36).

83. Fourth, that only the Commissioner had authority to issue the notice.

84. In elaboration or clarification of the second of those four points, it was said (see T 30/11/18; T 9.42-47) that:

if he affixed the facsimile stamp to the document under authority, a purported authority, from the Deputy Commissioner there was no authority to, there was no power to authorise the officer to affix the facsimile signature because of the fact there was already ample delegated authority and therefore no necessity for the triggering of the authorisation from the Deputy Commissioner

85. I address those issues and the plaintiff’s response thereto, as follows.

Extant 2015 Estimate Notice? 

86. As adverted to earlier, the defendant contends that the 2017 Estimate Notice is invalid because an earlier estimate (contained in the 2015 Estimate Notice) had not been revoked under s 268-35, and hence continued to be “in force”, at the time of the issue of the 2017 Estimate Notice, such that the Commissioner was precluded from making another estimate relating to the underlying liability, and therefore that the making of the estimate the subject of the 2017 Estimate Notice (the 2017 Estimate) was beyond power by reason of s 268-10(4) (which I have set out above).

86. The defendant notes in this regard that: an estimate is capable of generating a statutory liability, distinct from the true liability of the recipient to PAYGW (s 268-20(2)) and that liability arises when the Commissioner issues a notice of estimate (s 268-20(1)). The defendant argues that it follows that the giving of notice is an essential ingredient in the imposition of the statutory liability, noting that once the statutory liability exists, the liability is separate and distinct for all purposes (s 268-20).

87. The defendant submits that it is clear from Div 268 that: the recipient of the notice (as well as liquidators, others potentially affected by the statutory liability and the ATO officers themselves) must be able to rely upon the notice, which is required, inter alia, to set out the amount of the estimate and to explain how the amount may be reduced or the estimate revoked (see s 268-15(2)); and emphasises the need for precision of language and certainty in this context.

88. The defendant argues that the giving of a notice of revocation is necessary for the “undoing” of the imposition of statutory liability that arises from the issue of the notice of estimate and says that this is required as part of the orderly operation of the relevant provisions, the giving of the notice of revocation being the time from which the statutory liability is taken never to have arisen (s 268-55(3)).

89. By reference to Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [91] (Project Blue Sky), the defendant argues: that the language, subject matter and objects of the TAA “do not suggest any legislative purpose to put taxpayers at any one point in the oppressive situation of multiple estimates, giving rise to multiple alternative amounts recoverable from them at the election of the Commissioner”; that the existence of multiple estimates at any one time would be productive of confusion rather than the achievement of the object of Div 268; and that the clear condition in s 268-10(4) restraining the power to make an estimate in s 268-10(4) serves the purposes of Div 268 (namely, to facilitate collection of PAYGW when the amount of the estimate is not put in dispute by information in reply to the notice as to the true underlying liability). The defendant notes that there is no mechanism within Div 268 that could be used to reconcile conflicting liabilities that would potentially arise from multiple estimates.

90. The defendant points to the fact that the TAA provides various modes of reduction and revocation and argues that it therefore does not contemplate revocation of estimates outside those modes. (Pausing here, the plaintiff does not suggest that any revocation was effected other than by exercise of the Commissioner’s power under s 268-35.)

91. The plaintiff’s principal submission on this aspect of the authority issue is that the 2015 Estimate Notice was revoked (and thus s 268-10(4) did not prevent the making of the estimate in the 2017 Estimate Notice) because the covering letter with which it was served satisfied the notification requirements of s 268-35(4). However, if (which is denied), there was any failure to satisfy the notification requirements of s 268-35(4), the plaintiff submits that this did not render invalid the revocation of the 2015 Estimate Notice under s 268-35(3) (and hence there was nothing to preclude the issue of the 2017 Estimate Notice) because “[t]he statutory language does not make the written notice indispensable to the validity of the revocation”.

Plaintiff’s principal submission that the 2015 Estimate Notice was revoked

93. As to the plaintiff’s principal submission, the plaintiff contended as follows.

94. First, that the requirement of s 268-35(4)(a) (that the written notice must identify the underlying liability) was satisfied by the statement in the 2017 Covering Letter to the effect that the enclosed notice informs the recipient of the amount of the estimate made in respect of each withholding period. It is said that the terms of the first paragraph of the 2017 Covering Letter sufficiently identified the underlying liability, including by referring to each withholding period set out in the 2017 Estimate Notice (which the plaintiff accepts were the same withholding periods as had been set out in the 2015 Estimate Notice). (No issue was taken by the defendant as to compliance with the requirement under s 268-35(4)(a).)

95. Second, the plaintiff submits that the requirement of s 268-35(4)(b) (that the written notice state that the estimate has been revoked) was satisfied by the statement that the 2017 Estimate Notice “replaces” the 2015 Estimate Notice. (The defendant cavils with this proposition.)

96. Reference is made by the plaintiff in this regard to the decision of the Court of Appeal in Power v Federal Commissioner of Taxation [2013] NSWCA 428; (2013) 284 FLR 42 (Power), where consideration was given to the provisions in Div 269 of Sch 1 to the TAA (which deal with director penalty notices); in particular, to s 269-25, which provided that the relevant notice “must ... state” that the recipient is liable to pay an amount under “this Division”. In Power, the notice issued by the Deputy Commissioner did not state, in express terms, that the liability was under Div 269, although the notice identified the liability as arising under s 269-15, that section being part of Div 269.

97. Emmett JA (with whom I agreed) identified the first step, in construing whether the notice complied with s 269-25, as being to identify the purpose of the provision and the second step as being to consider whether the notice achieved the legislative object and thus whether a statement that the liability was under Div 269 was part of what the provision “primarily required”. His Honour identified the principal object of Div 269 as being to prompt a director of a company to ensure that the company meet its PAYGW obligations or go into voluntary administration or liquidation. His Honour considered that one way in which the legislative object was achieved was by requiring the notice to be given before the Commissioner commenced proceedings, in the expectation that this would prompt compliance with the obligation imposed by s 269-15. His Honour considered that the inclusion of a specific reference in the notice to “this Division” would not advance that object, nor was this its own separate object; indeed, that to require a reference to “this Division” would be to thwart that object. His Honour considered that there was no necessity for the notice to explain the legislative scheme of Div 269; and that it was enough that the notice “simply indicate” that the amount must be paid under a scheme created by Div 269.

98. The plaintiff submits that, in the present case, the object of Div 268 is relevantly similar, namely to prompt action by the taxpayer to whom a notice is addressed; and that, as was the case in Power, strict compliance with a particular form of words (here, an insistence on use of the verb “revoke”) does not aid that object.

99. It is submitted that s 268-35 fulfils a particular role in the legislative scheme provided by Div 268; its object being to relieve the taxpayer wholly or in part of the burden of an estimate. The plaintiff notes (see s 268-35(5) to which I have referred at [67] above) that Div 268 is directed to a situation where the Commissioner does not know the precise amount of the underlying liability, so there is an inherent risk that the amount of the estimate could be wrong or liable to change in the event that new information becomes available; and thus that reduction or revocation of an estimate allows the Commissioner to vary the estimate to be, or to be closer to, the actual amount of the underlying liability (including in response to information provided by the taxpayer).

100. The plaintiff submits that insistence on a precise formulation of words would not assist that object; rather, that such an approach would potentially thwart that object if it led a taxpayer to believe that an estimate had been revoked, but it might later be argued that what otherwise appeared to be a notice of revocation (or reduction) was legally ineffective for want of compliance with a precise verbal formulation, such that the estimate would still be in force and would have continued to accrue the general interest charge under s 268-75.

101. The plaintiff notes that the alternative analysis by Emmett JA in Power was that, even leaving aside the object of the legislation, all that the notice must do was to make “sufficiently clear” that the liability was one that arises under Div 269 and “effectively calls attention” to it. His Honour considered that the reference to the specific section within Div 269 left the taxpayer no worse informed than if the notice had used the specific words “Division 269”. The plaintiff also refers to the conclusion reached in that case by Barrett JA that the notice, when viewed in context, stated by “reasonable intendment” that the liability arose under Div 269. The plaintiff observes that, in respect of the provisions there under consideration, his Honour construed the word “state” as synonymous with “intimate”.

102. The plaintiff argues that, by parity of reasoning, all that the notice under s 268-35(4) was required to do in the present case was to make it sufficiently clear, or effectively call attention to the fact, that the 2015 Estimate had been revoked. It is submitted that the word “replaces” in the 2017 Covering Letter performed that function – both on the natural and ordinary meaning of the word and in the statutory context of revocation of estimates.

103. As to its natural and ordinary meaning, the plaintiff submits that the word “replace” means “to fill or take the place of; substitute for”; and that use of this word would have conveyed to any reasonable reader that the 2015 Estimate had been revoked, as its place had been taken and it was substituted for by another estimate – thus the 2015 Estimate was no longer in legal existence.

104. As to the statutory context in which the word was used, the plaintiff accepts that s 268-10(4) provides that the Commissioner “cannot make another estimate relating to the underlying liability” if an earlier estimate “is in force”. It is submitted that the 2017 Covering Letter identified that the 2015 Estimate had been in force until the date of the 2017 Covering Letter and that it further identified that the Deputy Commissioner was making a new estimate (to be found in the 2017 Estimate Notice). The plaintiff argues that, having regard to the circumstances that: the Commissioner had the power to revoke the existing estimate; the Commissioner’s power to make a new estimate depended on the existing estimate being revoked; and the Deputy Commissioner expressed himself as making a new estimate; the only reasonable inference from the use of the word “replaces” was that the 2017 Covering Letter was revoking the 2015 Estimate (an argument, I interpose to note, that was criticized by the defendant as displaying circulatory of logic).

105. Finally, the plaintiff points to s 25C of the Acts Interpretation Act which provides that “substantial compliance” is sufficient where an Act of the Commonwealth Parliament prescribes compliance with a particular form and to the equivalent New South Wales provision (s 80 of the Interpretation Act 1987 (NSW)). The plaintiff submits that even if (which it denies is the case), the 2017 Covering Letter did not strictly comply with s 268-35(4)(b), it substantially complied with that provision as it “communicated the substance of the requisite information” to the defendant.

106. The defendant, in response, argues that there is a difference in meaning between “revoke” and “replace”. It says that these words are not equivalent: that “revoke” means “annul/cancel” or make void by recalling or taking back (in other words, in effect, that the estimate ceases to exist); whereas “replace” means “interchange” or “supplant” (in other words, that there are then two estimates – first, the earlier estimate, which continues to exist and is interchanged with or supplanted by the later estimate, and, second, the later estimate itself).

107. It is submitted by the defendant that the plaintiff must show that the earlier estimate has been revoked (otherwise he has breached a constraint on the power to make a new estimate). The defendant argues that the necessary precision was not present in the documents relating to the 2017 Estimate Notice. It argues that this invalidates the purported revocation (the defendant referring here to Television Corporation Ltd v The Commonwealth; Amalgamated Television Services Pty Ltd v Postmaster-General (1963) 109 CLR 59 at 71, 83; [1963] HCA 30; King Gee Clothing Co Pty Ltd v The Commonwealth (1945) 71 CLR 184; [1945] HCA 23; and Caan’s Pty Ltd v Beasley (1946) 71 CLR 210 at 227-228; [1946] HCA 5).

108. The defendant submits that the authorities show that a notice may be a nullity if it fails to meet a requirement made essential by the legislation in question or could reasonably mislead as to what is necessary to comply with the notice (referring to Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79; [1988] HCA 34; James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644; [1955] HCA 75), and says that the consequences here (if the recipient is in any way misled or capable of being misled or has doubt about its obligations to comply) are that the recipient is “shackled with a ‘construct’ liability that may be wildly inaccurate”.

109. The defendant submits that the decision in Power does not assist the plaintiff in that, in Power, there was “no real uncertainty” on the information stated in the notice regarding the source of the taxpayer’s liability; whereas here it is said that the statutory basis for “putting aside” (i.e., replacing) the earlier estimate was left uncertain and ambiguous by the 2017 Estimate Notice.

110. In that regard, it is submitted that the plaintiff’s conduct in issuing estimates for the same periods in the same amounts on both 8 July 2015 and 16 January 2017 respectively, created the “spectre of uncertainly” for the taxpayer. The defendant says: that it was left in a “real state of uncertainty” as to precisely where it stood in relation to the earlier notice (and why); that, to the reader of the 16 January 2017 letter, the plaintiff “had just ‘replaced’ an old notice with a new notice which restated and refreshed precisely the same liabilities, without reaching any state of satisfaction that the earlier estimates should be revoked”; and that there is no (evidentiary) basis for the plaintiff’s submissions that both the taxpayer and the Commissioner had assumed that the earlier estimate had been revoked.

111. The defendant further argues that s 25C of the Acts Interpretation Act has no application to the circumstances of this case, noting that no form is prescribed in Div 268 (and referring to Power at [42]) and argues that there has not been “substantial compliance” as the letter did not convey to the reader that the earlier notice of estimate was discharged (because that liability was just refreshed), nor that the earlier estimates were “gone as a matter of law” (as the same amounts were just restated).

112. Pausing here, I note that in reply to the submission by the defendant that s 25C does not apply because no form is prescribed, the plaintiff says that this takes too narrow a view of the operation of s 25C, referring to the decision of Einstein J in Nameless, Shameless and Legless Pty Ltd v 2 Roslyn Street Pty Ltd [2004] NSWSC 519 at [36], a case concerning the New South Wales equivalent of s 25C of the Acts Interpretation Act.

Plaintiff’s alternative submission that if there was a failure to comply with s 268-35 it does not invalidate the revocation

113. As to the plaintiff’s alternative argument (that if there was a failure to comply with s 268-35(4) it did not invalidate the revocation), the plaintiff points to the language of s 268-35, which it is said provides for two separate but interrelated steps in relation to the revocation of an estimate: firstly, that the Commissioner may, at any time, revoke an estimate as outlined in sub-s (3); and, second, that, if the Commissioner revokes an estimate, he or she must give written notice as there described in sub-s (4).

114. It is submitted that the plain language of s 268-35 contemplates that “revocation precedes notification” and, therefore, that the Commissioner may validly revoke an estimate without having provided the written notice to the taxpayer (or with only having provided a written notice that fails sufficiently to comply with s 268-35(4)). It is submitted that the statutory language of s 268-35 does not make the written notice indispensable to the validity of the revocation.

115. The plaintiff calls in aid, in support of the proposition that revocation can be effective under s 268-35(3) even if the Commissioner fails to give notice as required by s 268-35(4), the language used in s 268-10(5) (which contains the definition of “in force” and provides, relevantly, that the estimate continues to be in force if the estimate has not been revoked). The plaintiff argues that there is a clear juxtaposition in the language used in the latter provision – between paragraph (a), which imposes a requirement that the Commissioner has given the taxpayer a notice, and paragraph (b), where such a requirement is absent (and all that is there required is that the estimate has not been revoked); and argues that the contrast in language is deliberate and provides an important indication as to the content of the notification requirement in the former provision.

116. The plaintiff argues that the construction for which he contends (i.e., as to the two-step process for revocation) does not cause any practical difficulties arising from any possible gap in time between the revocation of the estimate and the giving of a written notice to the taxpayer because s 268-55(3) provides that the effect of a revocation is that the estimate “is taken never to have been made”. It is submitted that, therefore, even if there is a gap in time between revocation and notification, the estimate is taken never to have been made so there is no anomaly that would arise such as from accrual of the general interest charge during that gap in time.

117. I interpose here to note that, in response, the defendant reiterates its argument that an essential ingredient of undoing the imposition of the statutory liability arising from an estimate notice is the giving of notice upon which the recipient (and others potentially affected by the statutory liability) may rely. The defendant reiterates its submission that the clear intent of the legislature is that, at any one point in time, there may only be one estimate in force so that those potentially affected by the statutory liability have certainty and may make decisions or take action in relatively short timeframes to discharge the liability or seek to reduce/revoke it.

118. Returning to the plaintiff’s submissions, the plaintiff relies on what was said by the plurality in Project Blue Sky Inc at [91] to the effect that whether breach of a condition relating to a statutory power means that a purported exercise of the statutory power is invalid and of no effect depends on whether such a result is consistent with the legislative purpose, to be determined having regard to the language, subject matter and objects of the legislation. Reference is made to the decision in Minister for Immigration and Citizenshipv SZIZO (2009) 238 CLR 627; [2009] HCA 37 where failure by the Refugee Review Tribunal to comply with a notice requirement under the provisions of the Migration Act 1958 (Cth) did not invalidate the Tribunal’s decision, it there being said (at [34]) that “the manner of providing timely and effective notice of hearing” was not an end in itself (in circumstances where all six applicants in fact appeared at the hearing and it was admitted that there was no procedural unfairness caused by the non-compliance to any of them).

232. The defendant, in response, says that Account B is manifestly a trust account (pointing to the bank statements which show that this account is styled “Armstrong Scalisi Holdings P/L T/A CAP Accounting - Trust A/C).

233. It is submitted (though I was taken to no evidence as to this; it seemingly being a matter that the Court is asked to infer from the title of the account) that the trust account is money held on behalf of clients and dealt with only in accordance with their instructions; and that payments therefrom satisfy the obligations of the defendant as a trustee and have the character of trust dispositions, whether or not they are paid to or at the direction of the client (drawing an analogy between the position of a trustee and that of a bank honouring a direction from an employer in relation to the payment of the employer’s staff). The defendant argues that the operator of a trust account does not have a withholding obligation under s 12-35 for the following reasons.

234. First, that the amounts paid take their character from the terms of the trust or the bank accounts, and are not in the character of “salary, wages, commission...”. Second, that they are not payments “‘to an individual as an employee”; rather that they are payments to their beneficiary and account holder respectively; (it is said that, applying s 11-5(1) of Sch 1 of the TAA, in determining whether the trustee has paid an amount to its beneficiary, and when the payment is made, the amount is taken to have been paid to the beneficiary when the trustee applies or deals with the amount in any way on the other’s behalf or as the other directs). Third, that the law recognises that the beneficial owner of the money in the account has the liability, although the account is held in the name of another (referring to Transtar Linehaul at [101], where employees were paid out of a particular account with money beneficially owned by Transtar Linehaul). Fourth, that there is no analogy between the position of a trustee (or bank) to its “client” with the position of Transtar Linehaul (as payer) to Transtar Express (as employer), since the Transfer entities were related companies and Transtar Linehaul (payer) was receiving payment for the services Transtar Express’ employees were providing (referring to Transtar Linehaul at [100]).

235. As to the complaint made by the plaintiff that the 2017 Statutory Declaration did not deal with Account B the defendant points to the statement in the Statutory Declaration (at [6]) by Mr Lowe that he was “unable so much as to guess as to how the Deputy Commissioner came to his estimates”. The defendant argues that there is nothing obvious about the need for the matter of the 2017 Statutory Declaration to cover not only the defendant’s position in relation to the staff of CAP Accounting, but also in relation to its clients’ staff and submits that it is unlikely that the operator of a trust account would have to hand within seven days the evidence required to be included in the statutory declaration as regards the staff of its clients. Further, it says that there is no obligation to disclose.

236. The third matter noted by the plaintiff is that, while the relevant period commenced on 1 July 2009, the 2017 Statutory Declaration deals principally with a period commencing on 1 July 2011. It is submitted that, in important respects, the 2017 Statutory Declaration is silent as to the period 1 July 2009 to 30 June 2011 (see at [14] and [19]). Noting that the defendant’s position is that, prior to 1 July 2011, the defendant had only one employee (as pleaded in its defence at [9]), the plaintiff nevertheless points to the numerous references in the Account B Statements to “wages” in the period from 1 July 2009 to 30 June 2011.

237. In response, the defendant says that this is a misstatement of the effect of the 2017 Statutory Declaration, which it says explains the treatment of CAP Accounting staff starting from 2009 at various points (referring, by way of example, to [19(a)(ii)], [25]-[26], [41]-[45], [46]-[48], [53]-[54]).

238. Fourth, the plaintiff submits that the absence of detail with respect to the period from 1 July 2009 to 30 June 2011, and the absence of any reference to the Account B Statements for the entire period, calls into question whether the maker of the 2017 Statutory Declaration was sufficiently knowledgeable with respect to the defendant’s affairs to be able properly to verify the matters described in sub-ss 268-90(2)(a) and (b), or to give the declaration to the effect required by sub-ss 268-40(2) and (4). It is noted that: Mr Lowe was only appointed a director on 1 March 2016 (2017 Statutory Declaration at [1]), while the Relevant Period was 1 July 2009 to 31 October 2013; Mr Lowe stated that his services were contracted to the defendant as a manager commencing in about October 2011 (2017 Statutory Declaration at [3]), more than two years after the Relevant Period commenced (and it is submitted that it is not clear what knowledge, if any, Mr Lowe had of the defendant’s operations prior to October 2011); and that the 2017 Statutory Declaration is silent as to what steps, if any, Mr Lowe took to obtain all the relevant information necessary to inform himself of the defendant’s affairs during the Relevant Period.

239. Insofar as the plaintiff here calls into question whether the maker of the 2017 Statutory Declaration was sufficiently knowledgeable, the defendant points out that it was not free to choose who made the statutory declarations this being prescribed by s 268-90(3), and that Mr Lowe is both the defendant’s director and public officer (see statutory declaration at [1]-[2]). The defendant also notes that Mr Lowe explains the basis on which he has made the declaration (see at [13]) and that it is supported by a collation of 11 volumes of relevant exhibits.

240. The defendant emphasises the difference in language in s 268-40, namely, the use of the phrase “to the effect” with reference to a statutory declaration, compared to the phrase “verifies sufficient facts to prove” with reference to an affidavit. The defendant submits that the fact that, where there is an affidavit, the affidavit must verify “sufficient facts to prove” the matters referred to in the section is something which reflects the curial nature of the affidavit (in discharge of the functions of the court, including that a standard of proof must be applied on the balance of probabilities in a civil case), referring to what was said in Transtar Linehaul at [75]); in contrast with the non-curial context in which a statutory declaration may be given.

241. The defendant submits that the fact that s 268-90 requires specific facts to be “verified” in the context of a statutory declaration dealing with other general matters, does not operate to heighten the standard to be applied to the statutory declaration. It emphasises the difference between the curial and non-curial paths to the revocation or reduction of an estimate under Div 268, as recognised in Transtar Linehaul.

242. The defendant accepts that “in certain isolated instances” (around 30 transactions) Sch 1 to the 2017 Statutory Declaration discloses the fact that there was no withholding by it of relevant amounts referable to payments made by it to various individuals (see T 30/11/18; 19.4; 22.1). Senior Counsel for the defendant said, in the course of final submissions at T 30/11/18; 19.13-22:

We agree that the statutory declaration and exhibits in substance included indications of amounts which were paid from the bank account in the isolated instances where there was no withholding of any amount but the schedule demonstrates and explains that were payments in respect of which there was no withholding and it identified those payments. In short, it does not detract from the statutory declaration being to the effect that a lesser amount is the unpaid amount of the liability because the question is looking at the non remitted amount which was required to be withheld on the one hand and the looking at amounts which were withheld and whether they were remitted or not.

254. The defendant again emphasises that there is no obligation under the TAA for the taxpayer to explain why it was that any amounts disclosed as not having been withheld were not withheld.

255. The defendant’s position was that (see from T 30/11/2018; 19.24-50):

There is a clear distinction in the language of the section starting at section 12 particularly moving through to section 16. For example, under section 16‑25 subsection (2) an entity must not fail to pay to the Commissioner an amount required to be paid. Under section 16‑25 subsection (1) an entity must not fail to withhold an amount required by division 12 and then an offence is created being an offence of strict liability under section 16‑25 subsection (3) where there is a failure to withhold.

In relation to what we call the isolated instances as identified in that schedule 1 they don’t prove that we failed to satisfy the requirements of section 268‑90 rather and in truth, we actually satisfied the provision because we’ve not only identified the amounts in respect of which there has been no withholding but in the case of Mr David Cassaniti which is the employee that we accept was the subject of withholding and remittal that in his instance there was withholding and remittals to the Commissioner. In short, we are not required we submit by legislation to disclose why there was no withholding and put, positively, we have disclosed the withholding in relation to David Cassaniti and what happened in relation to that withholding in terms of division 16. We understand there is no contest as to those facts which were disclosed in the statutory declaration.

If those facts are accepted, it becomes an evaluative process required by section 268‑40 subsection (2) or subsection (4) as the case may be to determine whether the statutory declaration or the affidavit verifies facts sufficient to prove that there was no unpaid amount of underlying liability that was not remitted to the Commissioner or that the underlying liability never existed.

256. Ultimately as to the “around 30 transactions”, in respect of which the defendant accepts there was no withholding, it says that it did not have to do anything other than disclose that those amounts were not withheld. It is submitted that “if they were considered as somehow falling afoul the provisions and therefore demonstrating that there were admissions that there were amounts that should have been remitted under Division 16 and have been withheld, then it is only those amounts that would be the amounts that would be taken into account as part of the estimate liability that would be able to be maintained by the Commissioner” (T 30/11/18; 22.2). (Pausing here, the argument that simply to disclose that amounts were not withheld is sufficient for the purposes of s 268-90 does not address the ultimate question as to whether s 268-40(2) or (4) is satisfied.)

257. As to the bank records disclosing payment to the third party labour hire companies, it was said (T 30/11/18; 20.1-14):

The second category is the bank records disclosing payments made to labour hire entities. My friend’s submission is, in effect, that because the defendant company is the ultimate economic payer of the money that is sufficient to require some explanation and statement in the affidavit or statutory declaration as the case may be.

The banking records disclose that the defendant made payments to third party entities and we’ve heard today from Mr Zafiriou that in relation to third party entities that are referred to as third party entities have a series of employees. There is simply no evidence that the employees directed that the defendant company to pay via the third party entities rather than the evidence discloses payment summaries and payment records of third party entities consistent with the fact that third party entities were the employers. It’s the third party that have the obligation to withhold from wages or salaries.

258. It is submitted in relation to this that (T 30/11/18; 21.1-14):

In any event, the real question is how far the section 268‑40 required a defendant to go. Section 268‑40 contemplates a study of the statutory declaration to see if it can be said that there are facts sufficient to prove ‑ in other words, of an adequate quality to satisfy the proposition that the underlying liability is less than the estimate or nil. As Robertson J said in the Transtar Linehaul case it is similar in a sense to a prima facie case. You are looking at the evidence also conditioned by the terms of the notice. So that the notice, which is required to identify the underlying liability, if it said: We say the underlying liability is your payments that have been made to UltraNova or Alexandra or the like, that might be that particularity of detail would condition a response that may or may not cause a taxpayer in a particular case to be alert to the need to disclose the facts that will establish that there was no obligation to withhold or to remit. Whereas here, of course, it is perfectly general and we submit that the facts that are disclosed are sufficient to satisfy section 268‑40.

259. As to the existence of the trust account (Account B), reliance is placed on Transtar Linehaul. It is said that (T 30/11/2018; 21.38-42) :

… Transtar Linehaul that was said to have had the PAYG withholding and the obligations. We say that case supports the contention we put that no mention at all was made of the trust account because none of the transactions pertaining to that account could relate to an obligation of the defending company to withhold and to remit.

260. It was submitted that the approach of Mr Zafiriou in “interpreting a number of transactions” was a matter of speculation and that, while this might be material in a contest as to the actual underlying liability, it is not sufficient to detract from the fact that the 2017 Statutory Declaration satisfies s 268‑90 and in turn that, on an evaluation of that material, it is sufficient to satisfy s 268-40.

Determination

261. The only issue of construction that arises in regard to question 1 for present purposes is as to the meaning of the phrase “to the effect” (in the context of s 268-40), i.e., that the requisite statutory declaration is to the effect either “that a specified lesser amount is the unpaid amount of the underlying liability” (if reliance is placed on s 268-40(2)) or “that the underlying liability never existed” (if reliance is placed on s 268-40(4)).

262. Pausing here, the 2017 Statutory Declaration does not, in terms, declare that some specified lesser amount is the unpaid amount of the underlying liability (in the words of s 268-40(2)). Rather, what Mr Lowe declares (at [10]) is that there is no amount of PAYG relating to the Notice Period that ought to have been and/or was withheld by the defendant and has not been remitted to the Deputy Commissioner. The defendant’s position (at least up until the concession in oral submissions as to the so-called “isolated transactions”) was that it was never liable to withhold PAYG amounts for staff other than Mr Cassaniti. It is, therefore, somewhat surprising that, in submissions in response to the plaintiff’s submissions, the defendant cast this as a case falling under s 268-40(2) and not s 268-40(4). However, ultimately nothing turns on this so I need not explore that disconformity further.

263. The relevance of the question of construction is as to what is required to satisfy the statutory requirement of a statutory declaration for the purposes of s 268-40 in the present case.

264. The phrase “to the effect” must be construed in light of the fact that s 268-90(2) provides that, in a case covered by paragraph (a) of s 268-10(1), the statutory declaration “must verify” the facts there set out. The juxtaposition of a statutory declaration “to the effect” specified in s 268-40 with the requirement in s 268-90 that the statutory declaration “verify” certain facts is not particularly helpful, but it is tolerably clear that what is there contemplated is that the statutory declaration be akin to an affidavit “verifying” certain facts, i.e., that the person making the statutory declaration attest (in the manner required for the making of a statutory declaration) in that way to the truth of the facts stated in the declaration.

265. In my respectful opinion, Robertson J in Transtar Linehaul was correct in observing that there is an equivalence in the requirement that the affidavit verify facts “sufficient to prove” and the requirement that the statutory declaration be “to the effect … that” the underlying liability never existed or some lesser specified sum was unpaid; and that the requirement in relation to the statutory declaration directs attention to the substance of the statutory declaration rather than to its form.

266. In common parlance, something is “to the effect” of something else if it is, in substance, the same as (though not necessarily identical to) that other thing. Commonly, when referring to something written or said, it is a phrase used to paraphrase or summarise the relevant content of what was written or said (such as the common formulation in affidavits that “words to the following effect” were said, which makes clear that what follows is not necessarily a verbatim account). (Whether the maker of the statutory declaration has correctly “verified” or declared the relevant fact is, of course, a different issue.) Logically, something will not be “to the effect” of A if it is better viewed as, or also consistent with being, to the effect of B, in circumstances where A and B are mutually exclusive.

267. A declaration “to the effect” that a state of affairs never existed (i.e., the underlying liability) or that a “specified” lesser sum was unpaid requires the maker of the declaration to attest to facts which would be sufficient, if accepted in a contested dispute, to establish that state of affairs or that specified lesser sum. By “sufficient”, I mean that, accepting the substance of the declared fact is true, the conclusion which would, on balance, follow is that some specified lesser sum is unpaid or that underlying liability never existed. The defendant’s position seems to be that, while acknowledging that a mere statement (or conclusion) without reference to the underlying facts would be insufficient, it is required to do no more than provide a declaration setting out facts showing what has been withheld and (by the omission of facts as to any other withholding) that no other sums have been withheld.

268. I accept that the 2017 Statutory Declaration (by verifying in that sense that particular amounts were withheld during the relevant period) must implicitly be taken to be “verifying” (in the sense of attesting to the truth of) the converse, i.e., that it is not the fact that the defendant “did not withhold any such amounts during the period” (see s 268-90(2)(a)(ii)). Therefore, I accept that the 2017 Statutory Declaration in that sense verifies the facts required by s 268-90(2) to be verified. However, the 2017 Statutory Declaration goes further and declares, in effect, that there was no liability to withhold any other amounts. That is made clear from the statement in the 2017 Statutory Declaration (at [10]) that there is no amount of PAYG relating to the Notice Period that “ought to have been … withheld” by the defendant (and “has not been remitted”).

269. I am not satisfied that the 2017 Statutory Declaration is “to the effect” that the underlying liability “never existed”. On the face of the Table in Sch 1 to the 2017 Statutory Declaration, payments were made, described as wages, to identified members of CAP Accounting staff (other than Mr Cassaniti) and the declaration makes clear the defendant’s position that no amounts were withheld by the defendant in relation to those payments.

270. Therefore, whatever may be the case as to the extent to which the plaintiff could properly test the 2017 Statutory Declaration by reference to other material (such as the Account B statements), and whatever might be said as to whether the defendant has properly complied with its obligations to remit amounts to the plaintiff under Div 16 or whether the maker of the 2017 Statutory Declaration was ultimately proven correct as to the facts so verified (see s 268-90(2)(b)), I consider that the plaintiff has established that the 2017 Statutory Declaration does not disclose facts upon which it can be concluded (and is as a matter of substance not to the effect) that the underlying (PAYGW) liability never existed.

261. I accept that the legislation does not impose a positive obligation on the taxpayer to disclose why it was that any particular amount disclosed (implicitly or otherwise) by the statutory declaration (or affidavit) not to have been withheld was not withheld. However, at a practical level, if a taxpayer is attesting to facts to the effect (or sufficient to prove, in the case of an affidavit) that the underlying liability never existed or that a specified lesser amount of the liability is unpaid (in this case said to be nil) and, on the material provided by the taxpayer, there is some doubt arising as to the characterisation of particular payments, then it may well be that there is a need for the taxpayer to verify facts to dispel what would otherwise be an available inference that amounts ought to have been but were not withheld. In the present case, that issue potentially arises in relation to amounts disclosed in the 2017 Statutory Declaration as paid out of the defendant’s Account A to the various third party entities (from which there was no PAYGW) but in respect of which the bank statements record descriptions such as “wages”, “Pay” and “Payroll” (see [23] of Mr Zafariou’s 10 May 2018 affidavit and Ex AZ-5 thereto; bank statements in Volume 1 of the volumes exhibited to the 2017 Statutory Declaration).

262. The verified facts in the present case disclose at the very least that amounts (described as wages) were paid by the defendant to individuals out of Account A, from which payments no amounts for PAYG tax were withheld. The defendant effectively conceded that this was the case in relation to the so-called “isolated transactions”. Thus, the 2017 Statutory Declaration does not verify facts to the effect that the underlying liability “never existed”. Nor am I persuaded that the 2017 Statutory Declaration discloses facts upon which it can be concluded (and thus I consider that as a matter of substance it is not to the effect) that the “specified” lesser amount unpaid of the underlying liability is nil. Since the only specified lesser amount in the 2017 Statutory Declaration is “nil”, it is apparent from the information in Table A on its face demonstrates that this is incorrect. Therefore, I cannot accept that the 2017 Statutory Declaration is to the effect that the amount unpaid of the underlying liability is nil (that being the position for which the defendant, at least in the declaration and in its pleading in these proceedings, though not perhaps in its final submissions, has contended).

263. Insofar as the defendant argues that there is no evidence that the payments made to third parties (i.e., the labour hire entities) were payments in the nature of wages or salaries to employees of those labour hire companies (and hence that the fact those payments are disclosed does not mean that the statutory declaration was not “to the effect” for which the defendant contends), the bank statements relating to Account A give rise to an inference to the contrary (there being numerous descriptions of payments to those entities as “wages”).

264. The defendant’s submission, as noted earlier, was in effect that it could be assumed that those were payments under a contract for services (i.e., not payments having the necessary character of payments to an employee in the course of an employment relationship – whether that employee be an employee of the third party or otherwise). The difficulty is that no contracts for services were exhibited to the 2017 Statutory Declaration, so one is left with a statutory declaration verifying that certain payments were made (described in the bank statements accompanying the statutory declaration as wages) to entities described in the statutory declaration as labour hire entities (from which one might equally infer that the payments were in respect of the provision of labour for which wages would be payable to an employee providing the services in question).

265. As to the existence of the trust account (Account B), this seems to me to be more problematic. The fact that material extraneous from that which was exhibited to the 2017 Statutory Declaration reveals payments out of a trust account to persons that might (or might not) have the character of payments of wages or salary to employees does not mean that the facts verified by the statutory declaration are not to the effect that the underlying liability never existed or that there was a specified lesser amount of liability that was unpaid. This raises the question as to the extent to which the plaintiff may have resort to other sources of information when assessing the substance or effect of the statutory declaration. As stated by Robertson J in Transtar Linehaul (at [85]) the expression “to the effect of” directs attention to the substance of the statutory declaration (rather than its form) and (at [86]) it is for the recipient of the statutory declaration to evaluate it in order to assess its substance or effect. I am inclined to the view that this enables the content of the statutory declaration to be assessed but does not necessarily enable its effect to be tested by reference to extraneous material. In such a case, where the underlying liability is disputed it would, as Robertson J noted (at [86]) be for a court to decide whether the statutory declaration was to the effect required by the statute (and hence for the existence and quantum of the disputed liability to be determined on a contested hearing). However, it is not necessary to make any concluded finding on this issue.

266. That said, by reference to the “isolated transactions” and the payments to third party entities described in the bank statements as “wages”, had I been satisfied that the 2017 Estimate Notice was validly issued I would have answered question 1 in the negative.

Question 2

If yes to 1, is the consequence of the service of the statutory declaration on the plaintiff within 7 days after the Notice of Estimate was given to the defendant, that the estimate was thereby revoked pursuant to s 268-40(4) of Schedule 1 to the TAA or reduced to a specified lesser amount pursuant to s 268-40(2) of Schedule 1 to the TAA?

277. The plaintiff’s submission is that Question 1 should be answered “No”; and says that it follows that Question 2 should be answered “Does not arise”.

278. The defendant’s submission is that the estimate was reduced to nil by s 268-40(2).

Determination

279. As is clear from the discussion in relation to question 1, had I concluded the 2017 Estimate Notice was validly issued, I would have answered this question “Does not arise” for the reasons as set out above, including my conclusion that the 2017 Estimate Notice was not validly issued.

Questions 3 and 4

280. As noted earlier, these questions do not arise for determination in the present case.

Conclusion

281. For the above reasons, I will answer the separate question as there indicated. That leaves two matters to be dealt with: costs and what directions are to be made for the proceedings as a whole.

282. As to costs, in the ordinary course they would follow the event unless either party wishes to make submissions on costs. I will so order.

283. As to the remaining conduct of the proceedings, to the extent that the plaintiff’s claim is predicated on the validity of the 2017 Estimate Notice as giving rise to a separate and distinct liability enforceable as a debt, it may be that the proceedings should now be dismissed. However, I will list the matter for directions to determine the appropriate course to be followed in that regard. It might be, for example, that the plaintiff will want to amend his claim in order now to seek to establish the actual liability for PAYGW amounts.

Orders

284. For the reasons set out above I make the following orders:

1. Grant leave to the defendant to raise an additional question for separate determination, identified as Question 5, as follows: “Was the notice of estimate dated 16 January 2017 invalid by reason of an absence of delegated authority to issue it?”

2. Answer the questions reserved for separate determination as follows:

1. Question 1: Does not arise in light of the answer to question 5 but, had question 1 arisen, the answer would have been that the 2017 Statutory Declaration is not to the effect that the underlying liability never existed (within the meaning of s 268-40(4) of Sch 1 to the TAA) nor that a specified lesser amount is the unpaid amount of the underlying liability (within the meaning of s 268-40(2) of Sch 1 to the TAA).

2. Question 2:   Does not arise in light of the answer to question 5 (nor, had question 2 arisen, in light of the answer which would have been given to question 1).

3. Question 3:   Does not arise for determination in this case.

4. Question 4:   Does not arise for determination in this case.

5. Question 5: The notice of estimate dated 16 January 2017 is invalid and ineffective by reason of the fact that it was issued in breach of s 268-10(4) of Sch 1 to the TAA at a time when an earlier notice of estimate (the 2015 Estimate Notice) continued in force (that notice not having been validly revoked in accordance with the requirements of s 268-35(4) of Sch 1 to the TAA).

3. The plaintiff is to pay the defendant’s costs of the determination of the separate questions.

**********

Amendments

25 February 2019 - Typographical errors to [27], [72], [83], [123], [187], [192], [193], [211], [238], [276]

Decision last updated: 25 February 2019