Devonport Football Club Inc v Taylor, Warren - [1999] TASSC 18

[1999] TASSC 18

PARTIES: DEVONPORT FOOTBALL CLUB INC
v

TAYLOR, Warren

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  APPELLATE
FILE NO/S:  LCA 16/1997
DELIVERED:  26 February 1999
HEARING DATE/S:  8 December 1998
JUDGMENT OF:  Cox CJ
CATCHWORDS:

REPRESENTATION:

Counsel:
             Appellant:  G A Richardson
             Respondent:  I M Arendt
Solicitors:
             Appellant:  G A Richardson
             Respondent:  Australian Government Solicitor
Judgment category classification:
Judgment ID Number:  [1999] TASSC 18
Number of pages:  4

Serial No 18/1999
File No LCA 16/1997

DEVONPORT FOOTBALL CLUB INC
v WARREN TAYLOR

REASONS FOR JUDGMENT COX CJ

26 February 1999

The appellant Club was convicted on its own plea on two complaints, the first containing 312 charges of breaching the Income Tax Assessment Act 1936 (Cth), s221C(1A) (the "Income Tax Act") by failing to deduct from wages paid to an employee tax instalments as prescribed by the Regulations; and the second containing one charge of breaching the Tax Administration Act 1953 (Cth), s8Q(a) (the "Administration Act") by recklessly or knowingly incorrectly keeping records. On the first complaint it was fined $30,000 and ordered to pay a further sum of $5,000 pursuant to the Income Tax Act, s221C(1B); and on the second complaint it was fined $2,000 and ordered to pay $13,000 pursuant to the Administration Act, s8W(1)(d), together with costs of $35 on each complaint. In all, the appellant Club was ordered to pay $50,070. Six months' time was allowed for payment of the fines. The Club alleges that the penalties are manifestly excessive, that the time allowed to pay the fines was manifestly inadequate and that the learned magistrate erred in law in failing to give reasons for exercising his discretion to impose the penalties of $13,000 and $5,000 respectively.
The offences arose out of a scheme conceived and executed by a former manager of the Club with the knowledge and approval of its treasurer in order to save the Club money. Instead of paying wages to some casual employees and of paying certain permanent employees for overtime work at the award rates and deducting therefrom the tax instalments prescribed in respect of those payments, the Club paid its employees the net figure without deducting tax and without disclosing that fact in its records. The wages records showed a figure in respect of which the prescribed amount of tax had been deducted, but the employees were in fact paid a higher amount from which no tax was deducted. This scheme operated in respect of several employees over a period of approximately twenty-one months and on 312 occasions, at the time of paying wages, the Club, by its manager, failed to deduct tax in respect of the extra amount paid. Had proper award payments been made and tax deducted by the manager as it should have been, an additional sum of $13,738.92 would have been payable to the Commissioner of Taxes. This represented the saving to the Club which the scheme effected.
On a routine audit by officers of the Commissioner, it was discovered that wages cheques drawn exceeded those recorded in the wages book by $39,295. Officers of the Club were interviewed and the scheme became apparent. The Club is administered by a Board of Directors who act in an honorary capacity and the Board was not aware of the wrongful acts of the manager with the connivance of the treasurer, both of whom were no longer with the Club at the time of the prosecution.
Initially the Deputy Commissioner determined to impose an administrative penalty and sent a letter to the Club which included the following statement:
"Given the circumstances of your situation we have decided to impose penalties on this occasion. The total penalty is $12,765. Prompt payment of this amount is expected."
Advice attached to the letter stated that if an administrative penalty has been imposed and prosecution action is then undertaken, the administrative penalty will be remitted. Some three months later the Commissioner decided to launch these prosecutions.
In mitigation it was submitted that the Club had done nothing to cause this change of heart on the part of the Commissioner. Equally it was conceded that the Commissioner was fully entitled to determine that an administrative penalty was inappropriate and that the matter should proceed by way of prosecution. It was further submitted that although what the Club did was clearly wrong, the Board, apart from the treasurer, knew nothing of the practice being employed by the manager who administered its day to day operations, but that the Board merely received a report of the amount of wages paid. These two officers had not acted for personal gain, but in what they perceived to be the best interests of the Club. While conceding that the Board should have done more to confirm the accuracy of its records, counsel for the Club submitted that it had fully co-operated with the investigating officers and had made no attempt to cover up the breaches. He also stressed the fact that the Club had pleaded guilty.
Counsel pointed out that the Club was a non-profit community based organisation which had been in existence for 116 years and had a proud tradition of service to the Devonport community, with many Club members devoting extensive volunteer labour to its successful operation and providing coaching for junior teams in the district. To his submission that the Club's object was not to make a profit in the same way as a commercial venture does, the learned magistrate pointed out that players received payments and that the saving in tax effected by the scheme enabled the Club to meet the payments due to its players.
With respect to the Club's financial situation, counsel submitted to the learned magistrate that it owed approximately $64,000 by way of bank loans and had received on loan from various members and directors, who made the funds available to keep the Club afloat, a further sum of $194,000. In addition, there was owing a further sum of $33,000 in players' and members' debentures, largely created because of the inability of the Club to pay players in previous years. A further sum of $90,000 was said to be owed to the Devonport Council by way of loan advanced to build clubrooms and $40,000 was owing to the usual trade creditors. In 1995 the Club lost, on its overall operations, about $10,000 and the following year made a profit of $20,000. Counsel submitted that there was "very little margin for error within the Club and even when a small profit is made it has very little inroad into the major debts of the Club which are particularly significant". He accepted that financial difficulty does not justify the commission of the offences, but on the other hand submitted that financial difficulty is one of the matters that a court can properly take into account in imposing an appropriate penalty. He also pointed out that the offences had received massive publicity in the media and that that in itself was a punishment on the Club.
Under the Income Tax Act, s221C(1A), the penalty for the offence charged is a fine of $1,000, while s221C(1B) provides:
"221C(1B) Where a person (in this subsection referred to as the 'convicted person') is convicted before a court of an offence against subsection (1A) in relation to the refusal or failure of the convicted person or another person to make a deduction from salary or wages in accordance with that subsection, the court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding the amount of the deduction."
Under the Administration Act, s8R(1), the penalty for a first offence against s8Q is a fine not exceeding $3,000, while s8W(1) provides:
"8W(1) ¾ Where:
(a)a person (in this subsection referred to as the 'convicted person') is convicted before a court of:
(i)     …
(ii)an offence against subsection 8L(1) or section 8Q in relation to the keeping of any accounts, accounting records or other records (in paragraph (b) referred to as the 'relevant accounts') or the making of a record; and
(b)the court is satisfied that the proper amount of a tax liability of the convicted person or another person exceeds the amount that would have been the amount of the tax liability if it were assessed or determined, as the case requires, on the basis that the statement were not false or misleading, on the basis of the relevant accounts as they were kept or on the basis that the record were correct, as the case may be;
the court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding:
(c)     …
(d)     in any other case ¾ double the amount of the excess."
Counsel for the appellant, when before the learned magistrate, submitted in respect of special penalties or other payments that the court had power to order under the above sections, that a significant factor in whether or not to make such an order and, if so, in what amount, was the amount of tax lost to the Commissioner. He submitted that in respect of the financial year ending 30 June 1995, the Australian Taxation Office had written to each of the taxpayers in question and had urged them to resubmit returns showing the full amount of income received and that many of those affected had procured the correct information from the Club and had presumably done so with the result that the tax was recovered direct from them. In the following year, the Club had been required to provide group certificates which directly showed all payments and the taxation office was accordingly in a position to recover the tax from the taxpayers direct. These contentions were not conceded by the prosecutor, who said that the tax office had been unable to identify all the recipients of taxable income. In any event, he submitted, the penalty was leviable upon the offences of recklessly keeping records incorrectly and failing to deduct tax, whether or not the tax in question was ultimately received. The learned magistrate in handing down sentence, said:
"The Devonport Football Club has pleaded guilty to a complaint of recklessly or knowingly keeping incorrect records in relation to wages amounting to $39,295.00. It has also pleaded guilty to failing to make the required tax deductions from employees' wages for almost two years, there being 312 such charges. It has been frankly acknowledged that these offences were calculated and quite deliberate, and they amounted to a course of conduct designed with the express purpose of saving the club money it was liable for on a month by month basis as tax deductions. The culpability of the club is therefore of a high order and it cannot avoid liability by saying that the officials responsible for this disgraceful design are now no longer with them. Since the scandal was uncovered the club has, however, through its Board and proper officers, acted responsibly and co-operatively with the Taxation Office and has done all that could reasonably be expected of it to correct these wrongs. I accept that apart from this episode in its history it has rightfully attained a respected position in the community and that its values and activities have benefited the local community and that its involvement in the Statewide League has done much to make that competition viable. The publication of these proceedings may have cast a certain odium upon the club but its fundamental virtues should enable it to outlive this period and re-establish itself as a valued contributor to community life and as a source of strength in the Statewide competition. That said publication alone is not a sufficient deterrent in a case such as this where as I have said its level of culpability is of a high order. The law requires a penalty which not only will be seen to denounce these offences but which will act as a general deterrent to those who may be tempted, under tight financial pressure, to follow this Club's example. In determining penalty I have also had regard to the distinction drawn by Mr Richardson between a commercial organisation and a community based organisation such as this. But while both may not share the same devotion to profit making, what is a shared value is cost saving, as exemplified here. I have also, as best I could, taken into account the Club's ability to pay a fine. I note Counsel's submissions generally and I am grateful to Mr West for being referred to those authorities which he produced. There are convictions upon the complaints. I agree with the submission that penalty should be so structured as to impose an in globo penalty. In relation to the charge laid under the provisions of s8(q) of the Taxation Administration Act 1953 the defendant is fined $2,000.00 and pursuant to the provisions of s8(w)(1)(d) of that Act I order the defendant to pay to the Commissioner of Taxation the sum of $13,000.00. In relation to the charges laid under the provisions of s221(c)(a) of the Income Tax Assessment Act 1936 the defendant is fined $30,000.00 upon the complaint as a whole and I order the defendant to pay to the Commissioner of Taxation pursuant to the provisions of s221(c)(1)(b) the sum of $5,000.00. The fines and payments ordered amount to $50,000.00, I also order that the defendant pay the costs on the complaint of $35.00 on each complaint, a total of $70.00."
In my opinion, this appeal must succeed on the ground that the fines imposed on each complaint were manifestly excessive. While it was appropriate, in the circumstances of a sustained and deliberate avoidance of its responsibilities to make the necessary income tax deductions and of a reckless failure to keep accurate records, for the court to give emphasis to the deterrent aspect of punishment the imposition of fines totalling $32,000 was out of proportion to the criminality of the Club's offences and was, in any event, well beyond the Club's capacity to pay. It was within the learned magistrate's discretion on the first complaint to require that the appellant pay sums not exceeding in total the aggregate of the deductions which should have been made. As the appellant had evaded its responsibility to make those deductions for its own financial advantage, such an order would, in my opinion, have been entirely appropriate whether or not some (at best) of the tax payable which the deductions were intended to secure had in fact been paid direct by the tax payers. The amount the learned magistrate could have ordered on the first complaint, that is under the Income Tax Act, s221C(1B), was $13,738.92. In fact he ordered the payment of $5,000 without indicating how that sum was calculated or estimated. On the second complaint he ordered payment of $13,000 which approximates the same figure as the shortfall of deductions, purportedly pursuant to the Administration Act, s8W(1)(d). Before making any such order he had first to be satisfied in accordance with s8W(1B):
"… that the proper amount of a tax liability of the convicted person or another person exceeds the amount that would have been the amount of the tax liability if it were assessed or determined, as the case requires, on the basis that the statement were not false or misleading, on the basis of the relevant accounts as they were kept or on the basis that the record were correct, as the case may be".
The learned magistrate did not express himself to be so satisfied and had no reason to believe that the Club, as the convicted person, would have had any tax liability. While he had information to the effect that salaries to other persons should have had deducted therefrom instalments totalling $13,738.92, he had no information as to the tax liability of any of the individual salary recipients, some or all of whose total incomes may not have rendered them liable to payment of any tax. In consequence, the selection of a figure of $13,000 cannot be justified on this complaint, although, in my view, it would have been justified on the first complaint and had it been imposed thereon, it would be my opinion that any penalty under s8W(1) for avoided tax would have been an unwarranted duplication.
In my opinion, the sentencing process miscarried for the reasons I have given and it is appropriate that I exercise the discretion afresh. I accordingly allow the appeal and quash the orders of the learned magistrate. I confirm the conviction on both complaints and on the first complaint I impose an in globo fine of $6,000 and order, pursuant to the Income Tax Act, s221C(1B) that the appellant pay to the Commissioner of Taxation the sum of $13,000. On the second complaint, I impose a fine of $1,000. I order that the appellant pay the costs in the Court of Petty Sessions amounting to $70. I will give the appellant's counsel the opportunity to address in respect of time to pay.