DJG Consulting Pty Ltd as Trustee for the David Gerrans Family Trust and Commissioner of Taxation (Taxation and business) - [2025] ARTA 84

DJG Consulting Pty Ltd as Trustee for the David Gerrans Family Trust and Commissioner of Taxation (Taxation and business) [2025] ARTA 84 (5 February 2025)
Applicant/s:  DJG Consulting Pty Ltd as Trustee for the David Gerrans Family Trust
Respondent:  Commissioner of Taxation
Tribunal Number:                2023/4809

Tribunal:General Member C Willis
Place:Melbourne
Date:5 February 2025

Decision:The Tribunal affirms the decision under review.

...............................[SGD]..........................................
General Member C Willis
Catchwords
TAXATION – PAYG withholding obligations – salary and wages payments made from bank account of entity other than employer – administrative penalties – false or misleading statement – whether applicant took reasonable care – whether applicant liable for administrative penalties on basis of recklessness – whether penalty should be wholly or partly remitted – objection decision affirmed
Legislation
Taxation Administration Act 1953 (Cth), paragraph (b) of section 14ZZK; Schedule 1, subsection 6-5(2), sections 12-35, 284-75, 284-85, 284-90, 298-20
Cases
BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164
CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086
Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54
Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483
Secondary Materials
Taxation Ruling TR93/8W: Income tax: foreign exchange gains and losses of a capital nature – realisation of gains and losses and the meaning of ‘eligible contract’ in Division 3B
Taxation Ruling TR2005/16W: Income tax: Pay As You Go – withholding from payments to employees
Law Administration Practice Statement PS LA 2012/5: Administration of the false or misleading statement penalty – where there is a shortfall amount
Statement of Reasons
INTRODUCTION

DJG Consulting Pty Ltd (‘DJG Consulting’) was incorporated in 2003 and is the applicant (‘Applicant’) in this matter in its capacity as the trustee of the David Gerrans Family Trust (‘DGFT’).
Mr David Gerrans (‘Mr Gerrans’), an accountant and registered tax agent, is the sole shareholder and director of DJG Consulting. Mr Gerrans is also a director and shareholder of other companies which act as corporate trustees of certain trusts that carried on businesses providing accountancy, tax agent and related advisory services.
In 2021 the Commissioner of Taxation (‘Respondent’) conducted audits of the Applicant and other entities controlled by Mr Gerrans (collectively, the ‘Gerrans Group’). The Respondent determined that the Applicant had PAYG withholding obligations, and therefore the Applicant was required to lodge business activity statements (‘BAS’) and remit amounts withheld accordingly. A ‘notice of estimate of liability for PAYG withholding liability’ for quarterly periods from 1 July 2016 to 30 June 2021 (the ‘PAYGW Assessment’) was issued to the Applicant. The Respondent also imposed administrative penalties on the Applicant in relation to those periods (the ‘Penalty Assessments’).
The Applicant disputes that it was the entity with the PAYG withholding obligations. It argued that another entity within the Gerrans Group, which was the legal employer of individuals who provided the accountancy and other services to clients, was subject to (and had complied with) those PAYG withholding obligations. The Applicant said that the payroll arrangements for the Gerrans Group had previously been discussed with the Respondent and the Respondent had not raised any particular concerns. The Applicant therefore believed that it should not be subject to administrative penalties.
The Applicant lodged an objection (‘Objection’) against the Penalty Assessments which was allowed in part by the Respondent (the ‘Objection Decision’). The Applicant now seeks the Tribunal’s review of the Objection Decision.
Although the Applicant maintains its view that it does not have PAYG withholding obligations, it did not object to the PAYGW Assessment. The PAYGW Assessment is therefore not subject to review by the Tribunal of itself, although the Respondent’s reasons for making the PAYGW Assessment are relevant to whether the penalties should have been imposed.
BACKGROUND
Gerrans Group entities and provision of advisory services
DJG Employees Pty Ltd (‘DJG Employees’) was incorporated in 2006. Mr Gerrans was a director of DJG Employees from June 2006 to May 2019 and is its sole shareholder.
From May 2019 to the current date Mrs Siobhan Russell (‘Mrs Russell’) was a director of DJG Employees. In addition to her directorship of this company, Mrs Russell stated that she was employed as a senior accountant by Mr Gerrans from around March 2005 to December 2022.
DJG Employees is the trustee of the DJG Employees Trust #4 (‘DJG Admin’). DJG Admin carries on a business of providing secretarial, employment and administrative services to professional practices and other commercial clients. DJG Admin employs individuals (the ‘Employees’) who provide accountancy, tax advisory and related services to clients.
In her witness statement[1] Mrs Russell explained that an Employee would enter into an employment contract with DJG Admin. Wages are paid to the Employees on a fortnightly basis and processed through DJG Admin’s MYOB data file. Payslips provided to Employees state that the employing entity is DJG Admin. Similarly, the TFN declarations of Employees refer to DJG Admin as the employer.
[1] See Witness Statement of Mrs Siobhan Russell dated 30 October 2024.
DJG Admin does not have a bank account, but the Applicant does. Wages, superannuation, workers compensation and other employment expenses for Employees were paid from the bank account of the Applicant. Mrs Russell said (and Mr Gerrans confirmed during the hearing) that Mr Gerrans did not want to open multiple bank accounts for group entities as transfers between bank accounts took time and generated bank fees.
DJG Admin was registered for PAYG withholding with effect from 1 July 2016 and was required to report PAYG withholding monthly. It is not in contention that the BAS lodged by DJG Admin disclosed PAYG withholding amounts referable to the salary and wages paid to the Employees.
The Service Agreement
The Applicant states that on 1 July 2016 it entered into a Service Agreement (the ‘Service Agreement’) with DJG Admin. It is not clear whether this document was given to the Respondent during the course of its review, audit and objection processes. The Applicant’s Objection suggests that it had been provided, although there was no clear evidence of this. The Respondent suggested that the Applicant may have referred to extracts of the terms of the Service Agreement during the objection process. The Respondent requested a copy of the Service Agreement in November 2023 after the Applicant filed their application for review with the Tribunal. The Applicant provided this in April 2024.
There are aspects of the drafting of the Service Agreement which are confusing. Words seem to be missing from clauses and there are other apparent typographical errors. The document refers to a ‘Partnership’ and ‘the Partners’ as recipients of various services although these terms are not defined. Mr Gerrans explained that at the time of entering into the Service Agreement he anticipated that additional people would join him as partners in a partnership to carry on his accountancy business (that is, the ‘Practice’ referred to), and the Service Agreement was drafted to contemplate this. Ultimately this did not happen.
The Recitals to the Service Agreement state:
The Parties are or will soon be carrying on an accountancy practice (“Practice”) … and desire to more effectively carry on the Practice by minimising its administrative requirements
Under the Service Agreement DJG Admin would, amongst other things:[2]
·Provide reception, clerical, accounting and other administrative staff to attend to the affairs of the clients of the Practice and maintain the financial records of the Practice.
·Reference check employees supplied to the Practice and ensure that prospective employees were fully qualified for the services required by the Practice.
·Provide managerial expertise as required for the proper and efficient conduct of the Practice.
·Have responsibility for the day to day data management of the Practice.
[2] Clauses 3.1(a) and 4 of the Service Agreement.
Further:
·The Applicant would pay fees to DJG Admin for the performance of the services. DJG Admin was also entitled to receive additional fees, allowances and reimbursement of expenses in relation to its services as agreed by the parties from time to time.[3]
·The parties were ‘able to pay the expenses directly to a third party on behalf of [DJG Admin] whenever it see [sic] fit’.[4]
·DJG Admin could not incur liability on behalf of the Partners except to the extent that it was authorised in writing by the Partners.
[3] Clause 2.3.
[4] Clause 2.4.
Review and assessment activities of the Respondent
Mrs Russell recalled that in 2011 she had discussions with a case officer from the Employee Obligations area of the Respondent in the course of a payroll obligations review of DJG Admin. Mrs Russell said that she provided extensive information to the Respondent about the payroll arrangements for DJG Admin, including copies of payroll reports, proof of superannuation payments, TFN declarations and group certificates. She had also provided bank statements of the Applicant evidencing payments to Employees from its bank account. She said that she confirmed with the Respondent at that time that DJG Admin did not have a bank account.[5]
[5] Paragraphs [7] to [10] of Mrs Russell’s witness statement.
Mrs Russell also recalled a further payroll obligation review conducted by the Respondent in 2015, during which she provided similar information to that which was provided in 2011. She said that the Respondent provided a letter in January 2016 confirming that their review was complete and no further action was required.[6] A copy of this letter was not provided to the Tribunal in this proceeding.
[6] Paragraph [11] of Mrs Russell’s witness statement.
Mrs Russell said that DJG Admin was then subject to a further payroll obligation review by the Respondent in 2019.[7] Mrs Russell recalled once again providing information about the payroll arrangements, including copies of bank statements for the Applicant indicating wages and superannuation paid to the Employees. Mrs Russell remembered that an officer of the Respondent commented on the name of the entity making these payments, and she explained the situation with the bank account. Mrs Russell’s evidence was that there was no indication from the Respondent at that time that there was a problem or that the Applicant or DJG Admin should change their approach or processes.[8]
[7] In March 2019 the Respondent notified the Applicant that it would be conducting an audit of DJG Admin’s employer obligations. See T38.
[8] Paragraphs [15] to [16] of Mrs Russell’s witness statement.
Between the time of the 2019 payroll review and early 2021, Mrs Russell said that DJG Admin was waiting on a reconciliation from the Respondent of payroll-related tax liabilities. She said that officers of the Respondent advised her at that time not to pay the outstanding liabilities until all review or audit activities were complete, at which time a payment arrangement could be negotiated for the total outstanding balance after any required adjustments were made.[9]
[9] Paragraphs [14] and [17] of Mrs Russell’s witness statement.
Mrs Russell said she was then advised in February 2021 that the Respondent was commencing an audit of the wider Gerrans Group, including a payroll obligations audit.[10]
[10] Paragraph [18] of Mrs Russell’s witness statement.
The Respondent confirmed that it commenced a review of various entities controlled by Mr Gerrans in February 2021, followed by audits of DJG Admin commenced in February 2021 and the Applicant in September 2021.
On 17 January 2022 the Respondent issued the PAYGW Assessment indicating PAYG withholding liabilities of $294,845 for the relevant periods.[11] A letter to the Applicant dated 18 January 2022 with accompanying Reasons for Decision set out the audit findings of the Respondent, including its position that the Applicant had PAYG withholding obligations giving rise to these liabilities.[12] A letter with revised Reasons for Decision was issued to the Applicant on 25 January 2022, after the Respondent became aware that the Applicant had lodged BAS for periods from April 2020 to June 2021.[13] Although the amount of the PAYGW Assessment remained the same, the change in reasons resulted in a reduction in the amount of penalties that had previously been imposed.
[11] T33.
[12] T36.
[13] T37.
The Respondent issued Penalty Assessments as follows:
·On 21 January 2022, shortfall penalty amounts totalling $129,508.60 for periods from 1 July 2016 to 31 March 2020.[14]
·On 28 January 2022, shortfall penalty amounts totalling $45,799.20 for periods from 1 April 2020 to 30 June 2021.[15]
[14] T34.
[15] T35.
These Penalty Assessments were based on the Applicant having made false or misleading statements, giving rise to a total shortfall amount of $294,845 reflecting the liabilities in the PAYGW Assessment. The Respondent determined that the shortfall amount arose from ‘recklessness’ on the part of the Applicant as to the operation of a taxation law and therefore the base penalty amount was 50% of the shortfall amount. The base penalty amount was further increased by 20% for each period ending after 30 September 2016 on the basis that base penalty amounts had been worked out for the Applicant previously under the same item (that is, that the conduct continued in subsequent periods).
The Applicant lodged their Objection against the Penalty Assessments on 29 July 2022. Their grounds of objection included:[16]
·There was an employer/employee relationship between the Employees and DJG Admin, but not between the Employees and the Applicant.
·An employment relationship does not need to be between the payer of salary or wages and the employee for section 12-35[17] to apply. It could apply where a parent company paid the wages of its subsidiary’s employees. This was how DJG Admin operated. The Applicant referred to clause 2.4 of the Service Agreement.
·The procedures adopted by the Applicant were in accordance with usual business practices and in reliance upon the Respondent’s guidance and advice, including recommendations of the Respondent in relation to prior audits and reviews.
·Lodgements of PAYG were made to the Respondent (albeit late on occasions).
·As a tax agent, the Applicant had taken care in preparing submissions of activity statements to the Respondent. The Applicant had not provided misleading information.
[16] T72.
[17] Section 12-35 of Schedule 1 to the Taxation Administration Act 1953, discussed further below.
On 18 October 2022 the Respondent made its Objection Decision to allow in part the Applicant’s Objection by remitting part of the penalties to:
·remove the 20% uplift previously applied to the base penalty amount, on the basis that there was not ‘an adequate indication as to the continuous infringement of [the Applicant’s] withholding objections’.[18]
·reduce the penalties for each period by a further 25% because ‘based on the circumstances of this case, the reasoning behind your objection and the overlap between multiple audits and objections may have contributed to the difficulties associated in sorting out your tax affairs … As such, the imposition of the penalties may have provided an unjust result.’[19]
[18] T2, paragraphs [61] to [62] of reasons accompanying Objection Decision.
[19] T2, paragraphs [63] to [64].
The Applicant was not satisfied with the partial allowance of its Objection and lodged an application with the Tribunal for review of the Objection Decision on 5 July 2023. Although its application was made after the time prescribed for seeking review of an objection decision, the Tribunal extended the time for making the application.[20]
[20] See order dated 19 July 2023 of Deputy President Rayment made under subsection 29(7) of the former Administrative Appeals Tribunal Act 1975 (Cth).
On 5 November 2024 the Respondent issued a ‘Notice of director’s liability to pay a penalty to the Commissioner of Taxation’ to Mrs Russell in her capacity as a director of DJG Employees. This notice related to PAYG withholding periods for the months of March 2021 and June 2021 to December 2021.
In addition to the T Documents and Supplementary T Documents[21] filed by the Respondent, the following materials were provided to the Tribunal:
·Applicant’s Statement of Facts, Issues and Contentions dated 9 October 2023, Updated Statement of Facts, Issues and Contentions dated 12 April 2024 and Further Updated Statement of Facts, Issues and Contentions dated 1 November 2024 (collectively, ‘Applicant’s SFICs’).
·Copy of the Service Agreement filed on 12 April 2024.
·Respondent’s Statement of Facts, Issues and Contentions dated 13 December 2023 and Updated Statement of Facts, Issues and Contentions dated 9 May 2024 (collectively, ‘Respondent’s SFICs’).
·Witness Statement of Mrs Siobhan Russell dated 30 October 2024.
·Further Supplementary Relevant Documents filed by the Applicant on 3 December 2024, comprising copies of bank statements dated 10 June 2019, superannuation expense cheques and the PAYG Director Penalty Notice relating to Mrs Russell.
·Further Supplementary Necessary Documents filed by the Respondent on 4 December 2024.
[21] A reference to T Documents or Supplementary T Documents is a reference to documents filed by the Respondent in accordance with section 37 of the former Administrative Appeals Tribunal Act 1975 (Cth) or section 23 of the Administrative Review Tribunal Act 2024 (Cth), as modified by section 14ZZF of the Taxation Administration Act 1953 (Cth).
RELEVANT LAW
Division 4, Part IVC of the Taxation Administration Act 1953 (‘TAA 1953’) provides for review by the Tribunal of decisions made by the Respondent on taxation objections.
On a review of an objection decision relating to an assessment, the applicant has the burden of providing that the assessment is excessive or incorrect, and what the assessment should have been: paragraph (b) of section 14ZZK.
Division 284 of Schedule 1 to the TAA 1953 contains provisions about the imposition of penalties for false or misleading statements. A person will be liable to an administrative penalty if they make a statement to the Respondent that is false or misleading in a material particular because of things in it or omitted from it: subsection 284-75(1). However the person will not be liable for a penalty if they took ‘reasonable care’ in connection with the making of the statement: subsection 284-75(5).
The amount of the penalty is based on the ‘base penalty amount’, which is determined by applying a percentage to a ‘shortfall amount’: sections 284-85 and 284-90. A shortfall amount will arise if a tax-related liability as worked out on the basis of a false or misleading statement is less than it would be if the statement were not false or misleading.
The percentage applied depends on the type of behaviour that resulted in the shortfall amount. The percentage is 50% of the shortfall amount if it resulted from ‘recklessness’ by the taxpayer or their agent as to the operation of a taxation law. The percentage may be higher (75%) if the shortfall amount resulted from an ‘intentional disregard of a taxation law’ or lower (25%) if it resulted from a ‘failure to take reasonable care’: see items 2, 1 and 3 in the Table in subsection 284-90(1).

Section 284-224 provides scope for the reduction of a base penalty amount where the taxpayer has treated a taxation law as applying in a particular way, and that way agreed with advice given to the person by the Respondent, general administrative practice under that law or a statement in a publication approved by the Respondent. The base penalty amount is reduced to the extent that it was caused by that treatment.
Where an administrative penalty has been imposed, the Respondent may remit all or part of it: section 298-20 of Schedule 1 to the TAA 1953. The TAA 1953 does not set out specific matters to be considered in exercising this discretion. However courts and tribunals have said they will look to whether it is appropriate in ‘all the circumstances’ to remit the penalty.[22] The power to remit must be exercised for a proper purpose, in accordance with the objects of the TAA 1953.[23]
[22] See, eg, Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 at [15] and [17] per Spender, Ryan and Emmett JJ; Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483 at [157] per Greenwood J (‘Sanctuary Lakes Pty Ltd’).
[23] Sanctuary Lakes Pty Ltd at [193] and [209] per Greenwood J
The Respondent has published guidance on its approach to imposition of penalties. Practice Statement PS LA 2012/5 ‘Administration of the false or misleading statement penalty – where there is a shortfall amount’ provides guidelines to be followed by officers of the Respondent, including in relation to the remission of penalties. Public ruling Miscellaneous Taxation Ruling MT2008/1 ‘Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard’ sets out the Respondent’s interpretation of these concepts as used in Schedule 1 to the TAA 1953.
The Tribunal is not bound to follow PS LA 2012/5 and MT2008/1, but the promotion of consistency of decision making supports the Tribunal taking this guidance into account, provided it is consistent with law and judicial authorities.[24] In any event, many of the factors outlined in the Respondent’s published guidance are also described in the relevant case law.
[24] Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50 at [54].
ISSUES AND CONTENTIONS
This proceeding involves a review of the Objection Decision relating to Penalty Assessments. The Applicant did not object to the associated PAYGW Assessment, and therefore it is not the subject of review. However the correctness of the Applicant’s position in relation to PAYG withholding obligations is relevant to the question of whether the Applicant made a ‘false or misleading statement’ such that an administrative penalty should be imposed.
Although the Applicant acknowledged (in both its Objection and submissions to the Tribunal) that section 12-35 can apply to payments of wages or salary to an employee made by a person other than the employer, the Applicant sought to emphasise that the employer/employee relationship existed between the Employees and DJG Admin, and not between the Employees and the Applicant.
The Applicant referred to clause 2.4 of the Service Agreement which provides that the parties to that agreement are able to pay expenses directly to third parties on behalf of DJG Admin whenever ‘it’ (presumably a reference to DJG Admin) sees fit. The Applicant contends that in accordance with clause 2.4 it settles the PAYG withholding liabilities of DJG Admin with the Respondent, on behalf of DJG Admin. DJG Admin does not have a bank account from which such amounts can be paid, which the Applicant does. The payments made by the Applicant are ‘constructive’ only in nature.
The Applicant also submitted that in preparing and lodging activity statements both the Applicant and DJG Admin followed advice and guidance that had been provided by the Respondent. This was in the form of both general public guidance (such as material on the Respondent’s website and public rulings issued by the Respondent) as well as advice and recommendations given by officers of the Respondent to DJG Admin specifically about its circumstances during the course of the 2011, 2015 and 2019 review and audit activities.
In relation to public guidance published by the Respondent, the Applicant contends that this material indicates that it is the employer entity which is responsible for compliance with PAYG withholding obligations. For example, the Applicant referred to information on the Respondent’s website under the heading ‘Payments you need to withhold from’.[25] This guidance only refers to ‘employers’ in the context of payments to employees.
[25] See Applicant’s SFIC at page 2 referring to >
In relation to specific advice given to DJG Admin, the Applicant referred to the evidence of Mrs Russell to the effect that the Respondent had long been aware that salary and wages for the Employees were being paid from the bank account of the Applicant, while the PAYG withholding amounts were disclosed on the activity statements of DJG Admin. Until the 2021 audit activities, the Respondent had not queried this approach or suggested that the Applicant and DJG Admin change its payroll procedures. The Applicant also notes that the officers of the Respondent who dealt with these matters were from the ‘employer obligation’ team and therefore were assumed to have specialist knowledge on these topics.
Although the Applicant did not lodge an objection against the PAYGW Assessment, Mr Gerrans expressed his view that the appropriate course would be for the Respondent to recognise that the PAYG withholding obligations relating to the Employees should be with DJG Admin, and consequently for no penalties to be imposed on the Applicant. Mr Gerrans did not dispute that there was an obligation to withhold PAYG withholding amounts for wages and salary paid to the Employees, but there was disagreement as to which entity in the Gerrans Group had that obligation. He viewed the position of the Respondent as unreasonably generating significant penalties.
In summary, the Applicant disagrees with the Respondent’s approach to applying section 12‑35, such that the Applicant says it did not make a false or misleading statement about a tax‑related matter, or alternatively the Applicant at least took reasonable care in connection with making statements to the Respondent. For similar reasons, the Applicant denies that any shortfall amount resulted from recklessness on its part.
The Respondent does not dispute that the Employees are employed by DJG Admin. Their position that the Applicant has PAYG withholding obligations does not rely upon whether the Applicant is the employer or not. The Respondent views this case as involving a straightforward application of the language of section 12-35. Therefore the Respondent believes that the Applicant made false or misleading statements by not disclosing PAYG withholding obligations or liabilities in its lodgements, and it did not take reasonable care when doing so.
The Respondent says that particularly in circumstances where the Applicant carries on a business of providing accountancy services and its current and former directors are qualified accountants (and a registered tax agent in the case of Mr Gerrans), the failure of the Applicant to report PAYG withholdings involves the making of false or misleading statements and demonstrates a level of recklessness that attracts corresponding administrative penalties.
CONSIDERATION AND ANALYSIS
Did the Applicant make a false or misleading statement?
The Respondent said that by lodging BAS that did not disclose PAYG withholding amounts (or incorrectly disclosed nil PAYG withholding amounts) the Applicant made a false or misleading statement in each BAS because it was required by law to withhold.
The Applicant’s SFICs contained extensive submissions on the case law relating to the identification of an employer/employee relationship in support of its contention that DJG Admin was the relevant employer of the Employees. The Applicant sought an ‘order’ from the Tribunal confirming that it is not the employer of the Employees.[26] However this contention is not disputed by the Respondent. Quite simply, the Respondent agrees that DJG Admin is the employer of the Employees, and not the Applicant. It is therefore not necessary to consider the question of identification of the correct employer entity further and the Tribunal does not need to make the order sought by the Applicant.
[26] See page 14 of Applicant’s Updated SFIC.
Section 12-35 of Schedule 1 to the TAA 1953 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).
An entity that withholds an amount under Division 12 of Schedule 1 must pay the amount to the Respondent under Subdivision 16-B: see subsection 16-70(1). An entity that must pay an amount to the Respondent under subsection 16-70(1) must notify the Respondent of the amount on or before the day on which the amount is due to be paid, regardless of whether it is paid: subsection 16-150(1).
It is not disputed that the Employees are individuals who are ‘employees’ and who are paid salary or wages. It is also not in dispute that amounts of salary or wages paid to the Employees are disbursed from the bank account of the Applicant. DJG Admin does not have a bank account.
Therefore the initial question is whether it is the Applicant or DJG Admin which ‘pays’ the salary or wages to the Employees for the purposes of section 12-35.
In various parts of the Applicant’s SFICs and in its Objection the Applicant (correctly) observed that for section 12-35 to apply to a payment, the employment relationship does not need to be between the payer and the employee. The Applicant gave as an example the situation where a parent company pays the wages of a subsidiary’s employees, and said that this was ‘identical’ to the practice employed by DJG Admin.[27]
[27] See for example page 5 of the Applicant’s Further Updated SFIC of 1 November 2023.
These statements initially give the impression that the Applicant is agreeing with the Respondent that the Applicant is the entity that ‘pays’ under section 12-35. However the Applicant further referred to clause 2.4 of the Service Agreement in support of a contention that the Applicant made payments to the Employees ‘on behalf of’ DJG Admin and the PAYG withholding obligations of DJG Admin were settled on its (DJG Admin’s) behalf by the Applicant. Put another way, DJG Admin was the ‘it’ referred to in the phrase ‘it pays’ in section 12-35, even if the funds moved directly from the bank account of the Applicant to the bank accounts of the Employees. The Applicant noted that the financial statements of DJG Admin record employee entitlements as liabilities of DJG Admin, and these matters are also reflected in the records of the Applicant.
The Applicant characterised the payments made to Employees as ‘constructive payments’ made by the Applicant at the direction of, and for the benefit of, DJG Admin, or that the Service Agreement contemplated an assignment or novation of payments or payment obligations. Mrs Russell also referred to her understanding that there was a ‘novation’ of obligations effected by the Service Agreement.
The Respondent pointed to the language of section 12-35 which expressly provides that an entity which pays salary or wages to a person as an employee must withhold amounts, regardless of whether the person is an employee of that entity or not.
The Respondent referred to the decision of the Federal Court in CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation.[28] This matter also involved the application of the PAYG withholding rules to a company (CLK Kitchens) which made payments of wages directly to workers, on behalf and at the direction of a second company (CLK Services, described as a ‘labour hire’ entity) which was the legal ‘employer’ of those individuals. CLK Services provided the services of the workers to CLK Kitchens, to work on projects for customers of CLK Kitchens. The workers were issued payment summaries by CLK Services, which reported PAYG withholding amounts to the Commissioner. The two companies had a common sole director and shareholder, and amounts paid to workers were treated as an advance from CLK Kitchens to CLK Services in the financial records of the entities.
[28] CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086 (‘CLK Kitchens & Joinery’).
Derrington J said:[29]
The question is one of the characterisation of the payment made. In the present case the payments by CLK Kitchens to employees effected a discharge of the wages or salary obligation which had arisen by reason of the employees providing consideration by undertaking work. The manner in which the discharge of liability arose was by the authorised transfer of money or credit from CLK Kitchens’ account to the employees’ accounts as is demonstrated by the bank statements. As the employees were credited with a sum on money a similar amount was debited in CLK Kitchens’ account. None of that is contentious. It should be kept in mind that the effect of this in discharging the wages liability arose only because CLK Kitchens was authorised by CLK Services to do so. The mere transfer of money was not enough. It was only the intercompany arrangement giving CLK Kitchens the authority to discharge the wages debts which cause the transfers of funds to have that effect …
The mere fact that the payments were made by CLK Kitchens on behalf of CLK Services and that, as a result, the credit balance between the two entities was altered, makes no difference as far as s 12-35 is concerned. The payment by CLK Kitchens discharged the wages obligation owed to the employees of CLK Services and was a payment of the wages. Indeed, the fact that CLK Kitchens was using its credit or financial facilities to discharge the debt supports the conclusion that it was paying the wages. It was not merely authorising the use of CLK Services’ money to discharge the debt, but was actually discharging the debt itself by use of its credit.
[29] Ibid, at [100] to [101].
On this basis Derrington J found that there was ‘no doubt’ that section 12-35 applied to the payments by CLK Kitchens to the employees of CLK Services, and CLK Kitchens was obliged to retain PAYG withholding amounts.[30]
[30] Ibid [109].
Even if I did not think that the language of section 12-35 was sufficiently clear of itself, the analysis and findings of Derrington J apply to the facts of this case. The Applicant’s argument that even though it disburses funds to the Employees, it is not the entity that ‘pays’ those amounts for the purposes of section 12-35 because it does so on behalf of, and in accordance with a contractual arrangement with, DJG Admin is inconsistent with the decision of the Federal Court. In fact, the existence of a direction or authorisation under the Service Agreement by the ‘employer’ entity (DJG Admin) to the ‘paying’ entity (Applicant) to discharge the wages obligations relating to the Employees from the financial facilities of the Applicant would support the conclusion that the Applicant was paying the wages for the purposes of section 12-35.
The Applicant queried the relevance of the CLK Kitchens & Joinery case on the basis that it involved ‘avoidance’ type behaviour where PAYG withholding liabilities were not paid, whereas in the current circumstances PAYG withholding amounts have been (or will be) remitted by one of the Gerrans Group entities such that there is no avoidance of tax. I did not read the analysis and propositions outlined by Derrington J as being confined to circumstances of tax avoidance or where amounts to be remitted to the Respondent were outstanding.
The Applicant referred to the financial statements of DJG Admin recording entitlements of Employees as liabilities of DJG Admin. This is not unexpected because (as agreed by the parties) DJG Admin is the employer of the Employees and thus legal obligations arising from the employment relationship sit with it. This matter is entirely consistent with the interpretation of section 12-35 put forward by the Respondent.[31]
[31] See also CLK Kitchens & Joinery at [57] where Derrington J observes that the employee’s entitlement at law is to have their employer pay their salary or wages or procure another person to pay it.
Similarly, the Applicant said that its own records also reflected these matters. Such records were not identified or submitted as evidence to the Tribunal. The Applicant provided copies of some 2019 statements for its bank account, as well as cheques drawn on that bank account relating to superannuation payments for Employees.[32] However the fact that amounts relating to entitlements of the Employees were paid from the Applicant’s bank account is not disputed by the Respondent, nor is this inconsistent with the Respondent’s interpretation of section 12-35. The reason why the Applicant paid amounts from its bank account to the Employees was because those individuals were ‘employees’, albeit of DJG Admin.
[32] See the Further Supplementary Relevant Documents filed by the Applicant on 3 December 2024.
The Applicant said that a public ruling issued by the Respondent supported its ‘constructive payment’ argument. Taxation Ruling TR 93/8 refers to the term ‘constructive payment’, however this is in the context of very different subject matter (realisation of foreign exchange gains and losses on contracts subject to particular statutory rules) and does not otherwise assist the Applicant. Further, it was withdrawn by the Respondent in 1996, long before the relevant BAS were lodged.
A few days prior to the hearing the Applicant also filed a copy of the PAYG Director’s Penalty Notice issued to Mrs Russell in her capacity as director of the trustee of DJG Admin. Mr Gerrans suggested that this notice was consistent with the Applicant’s position since the notice referred to PAYG withholding liabilities of DJG Admin for periods including those covered by the PAYGW Assessment issued to the Applicant. The Respondent explained that this notice was originally issued on the basis of BAS lodged by DJG Admin which self‑reported PAYG withholdings in DJG Admin for those period. Mrs Russell confirmed that there had been multiple outstanding BAS which DJG Admin lodged after the conclusion of the audit activities in early 2022. The Respondent confirmed that the liability under this notice had subsequently been reduced to reflect amounts that had been included in the PAYGW Assessment issued to the Applicant, consistent with the audit findings.[33] I do not believe the PAYG Director’s Penalty Notice issued to Mrs Russell suggests any acceptance by the Respondent of the Applicant’s position or otherwise supports the Applicant’s case.
[33] See email correspondence dated 4 December 2024 at ST235.
As mentioned, the Applicant did not lodge an objection to, or seek a review of, the PAYGW Assessment. However the question of whether the Applicant made a false or misleading statement is dependent on whether PAYG withholding obligations are imposed on the Applicant by section 12-35. For the reasons given above, the Applicant was subject to PAYG withholding obligations, including notification obligations to the Respondent,[34] in relation to the amounts of salary or wages it paid to the Employees. The Applicant acknowledges that it did not notify or report those amounts to the Respondent in its BAS (albeit because it believed another entity had done so). Therefore by omission, the BAS lodged by the Applicant for the relevant periods were, or contained statements, about the Applicant’s PAYG withholding obligations that were false or misleading in a material particular.
[34] Under section 16-150 of Schedule 1 to the TAA 1953.
Did the Applicant take reasonable care?

The Objection Decision did not directly address the question of whether the Applicant ‘took reasonable care in connection with the making of the statement’ for the purposes of subsection 284-75(5) such that the Applicant was not liable to a penalty under subsection 284‑75(1).[35]
[35] At paragraph 129 of the reasons for the audit position the Respondent simply stated that it did not consider that the Applicant had taken reasonable care, without further reasoning.
Much of the factual background and a number of contentions made by the parties are relevant to both the question of whether the Applicant took ‘reasonable care’ and whether there was ‘recklessness’ on its part, although these two concepts involve different degrees of behaviour.
The Explanatory Memorandum to the Bill which introduced Division 284 stated:[36]
Reasonable care requires a taxpayer to make a reasonable attempt to comply with the provisions of the ITAA and regulations. The effort required is one commensurate with all the taxpayer’s circumstances, including the taxpayer’s knowledge, education, experience and skill.
[36] See paragraph 1.69 of the Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No.2) 2000. See also Re Arnett and Federal Commissioner of Taxation (1998) 39 ATR 1095 at [8] per Senior Member Pascoe.
In its Practice Statement PS LA 2012/5 the Respondent says:
10D. The fact that a false or misleading statement was made does not automatically mean there was a failure to take reasonable care. An entity should be presumed to have taken reasonable care unless the facts or reasonable inferences suggest otherwise. There must be evidence that the entity’s attempt to comply has fallen short of the standard of care that would reasonably be expected in the circumstances before they are liable to a penalty.
10E. The effort required is one commensurate with or appropriate to the entity’s circumstances, including their knowledge, education, experience and skill. A higher standard of care is expected of an entity dealing with a matter that involves a substantial amount of tax or involves a large proportion of the overall tax payable.
It is relevant that the Applicant conducts a business of providing accountancy, tax advisory and related services. Mr Gerrans is a certified practising accountant of some years standing as well as a registered tax agent. Mrs Russell has also been a chartered accountant for many years, who described herself as having experience in relation to payroll administration matters. The standard of care or degree of effort that might be reasonably expected of entities associated with these individuals in relation to compliance with taxation laws would be higher than that expected of an ordinary member of the public without such qualifications and expertise.
While agreeing that they had particular knowledge and expertise of tax matters, the Applicant said that it was entitled to (and did) rely on public guidance published by the Respondent, as well as discussions between DJG Admin and officers from the Respondent’s specialist employer obligations team in 2011, 2015 and 2019. The Applicant said that this demonstrated reasonable care on its part in relation to the position it took on complying with PAYG withholding obligations.
In relation to the public guidance, TR 93/8 was withdrawn by the Respondent in 1996[37] and could not be treated as indicative of the Respondent’s position at the time the Applicant entered into the Service Agreement. Further, that public ruling dealt with very different subject matter. TR 2005/16[38] addressed the question of whether an individual was paid as an ‘employee’ and described indicators of whether a person was an employee at law. As mentioned, the Respondent does not dispute that the Employees are ‘employees’ and are employed by DJG Admin. This former ruling does not support the position of the Applicant, and expressly referred to an entity other than an employer making payments of salary or wages being subject to section 12-35.
[37] See notice of withdrawal TR93/8W dated 3 July 1996.
[38] This public ruling was also withdrawn, see TR2005/16W dated 14 December 2022.
Further, references to the term ‘employer’ in various publications of the Respondent on its website could not reasonably be taken to suggest that the Respondent is somehow limiting the statutory operation of section 12-35 to an employer entity as a general proposition.
In relation to previous reviews of the affairs of DJG Admin by the Respondent, from Mrs Russell’s evidence the Tribunal accepts that it is probable that there was engagement between DJG Admin and the Respondent around 2011 and 2015. It is noted that these discussions would have occurred prior to the Service Agreement arrangements being entered into. Mrs Russell’s witness statement lacked detail in many important respects, particularly in relation to the context and content of any recommendations or other communications from the Respondent relating to the circumstances of the Applicant. There was no contemporaneous documentation supporting her witness statement. Other than high level assertions that the Respondent was made aware of the circumstances of the bank account, it is unclear what information was provided to the Respondent by DJG Admin, particularly in relation to the obligations of the Applicant. This is not intended as a criticism of Mrs Russell as the Tribunal accepts that significant time has passed since the relevant events occurred.
Mrs Russell’s statements that DJG Admin participated in further engagement with the Respondent relating to payroll obligations in 2019 do align with correspondence provided by the Respondent[39] but again detail is lacking of any guidance given by the Respondent or efforts made by the Applicant to assure its compliance. The Applicant provided copies of bank statements dated 2019 and superannuation expense cheques from 2017[40] which it said were provided to the Respondent. This material only evidences the fact that amounts were paid from the Applicant’s bank account, which is not in dispute. It does not evidence any view of the Respondent arising from such material, or confirm whether it was even provided to the Respondent.
[39] See for example T38, letter from Respondent to DJG Admin notifying an employer obligation audit and requesting copies of bank statements.
[40] ST235.
Documentation relating to 2019 audit activities involving Gerrans Group entities, as attached to the Objection, were brought to the Tribunal’s attention by the Applicant. However this material relates to compliance obligations of entities other than DJG Admin or the Applicant,[41] or involves confirmation of superannuation guarantee payments.[42] The Applicant said that its own internal file note from October 2019 confirmed advice from the Respondent to DJG Admin that it should not pay any debt or lodge any activity statements until a number of other audit issues were resolved. However that file note reads[43] ‘don’t make payments or set arrangement up until objection completed’. It was not reasonable for the Applicant to assume that any of this material indicated that the Respondent was satisfied with its PAYG withholding compliance.
[41] See T73, T74, T75 and T76 which are letters from the Respondent advising audit activity in relation to DJG Employees Trusts #2 and #3.
[42] T79.
[43] T77.
At the hearing the Respondent’s representative said that although the Respondent did not directly challenge Mrs Russell's statements, it did believe that some of her recollections were unsatisfactory and that events may or may not have occurred as set out in her witness statement. The Respondent’s position was that it did not believe that these matters were of great moment.
Having regard to the knowledge and expertise of key individuals associated with the Applicant, a statutory provision that is clearly expressed and purported reliance by the Applicant on public guidance which had either been withdrawn or did not support its position, it is difficult to be satisfied that the Applicant made a reasonable attempt to comply with the PAYG withholding rules. The limited evidence relating to engagement between the Respondent and DJG Admin in 2011, 2015 and 2019 is not sufficient to for the Applicant to discharge its burden of proof.
Therefore the Tribunal is not satisfied that the Applicant took reasonable care in connection with statements made in its BAS or other lodgements with the Respondent relating to its PAYG withholding obligations for amounts it paid to the Employees.
Did a shortfall amount arise?
The BAS lodged by the Applicant for the relevant periods did not notify the PAYG withholdings it was required to make from salary or wages paid to the Employees according to law. Therefore its tax-related liabilities were less than they would have been had the Applicant correctly disclosed the required PAYG withholdings, and a shortfall amount arises.
The fact that a different taxpayer in the same group (DJG Admin) may have lodged activity statements reflecting PAYG withholdings from those salary or wage amounts does not alter this conclusion.
Was there recklessness by the Applicant?
The next question is whether the shortfall amount resulted from recklessness on the part of the Applicant.
The Federal Court has described the meaning of the word ‘recklessness’ as used in taxation legislation as follows:[44]
Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to a gross carelessness.
[44] BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164 at [77] per Cooper J.
The Respondent has accepted that recklessness does not always involve dishonesty, or an actual intention to make a false or misleading statement: see Miscellaneous Taxation Ruling MT2008/1 at paragraph 100.
The factual basis for these contentions is described in more detail above in relation to the finding that the Applicant did not take ‘reasonable care.’
The Applicant disagreed with the Respondent’s interpretation of section 12-35 and contended that the Applicant’s interpretation was consistent with relevant laws and accepted business practice. The Applicant also said that it relied upon general guidance and advice published by the Respondent which it viewed as supportive of its position. Mr Gerrans argued that because publications of the Respondent talked about ‘employees’ and ‘employers’, and there was no dispute that DJG Admin was the employer of the Employee, it was not reckless for the Applicant take the position that it did.
The Applicant had formed a belief that its position on PAYG withholding was sound based on the Respondent not raising any concerns during the course of previous review activities involving its related entity, DJG Admin. The Applicant contends that because these review activities were conducted by a specialist employer obligations team of the Respondent, the Applicant had particular reason to be assured that the approach it had adopted was compliant with relevant taxation laws.
In his examination of Mrs Russell, Mr Gerrans referred to personal challenges he faced from 2012 to 2019, when he says he relied on Mrs Russell to attend to matters such as the engagement between DJG Admin and the Respondent. Mrs Russell’s evidence was that the officers of the Respondent did not suggest that DJG Admin was doing anything wrong during these review activities, and therefore they continued with their existing approach. Mrs Russell agreed that if she had become aware of a concern, she would have referred it to Mr Gerrans for his attention.
The Respondent contended that the language of section 12-35 is clear and its interpretation is consistent with existing case authority. It also pointed to the specialist tax knowledge presumed to be held by Mr Gerrans, the sole director and shareholder of the Applicant, who is a certified accountant and registered tax agent, which makes the Applicant subject to a higher standard of care. The Respondent did not comment on any prior reviews of DJG Admin other than to indicate it did not believe they had great relevance to the current matters.
The Tribunal is not satisfied with the Applicant’s explanation for its failure to lodge BAS containing correct statements and information relating to PAYG withholding obligations. More particularly:
·For some taxpayers it might be appropriate to assume that in the absence of any active concerns raised by the Respondent during a review of their tax affairs, a position they have taken aligns with taxation laws. However this is not the case for a taxpayer such as the Applicant. The sole director and shareholder of the Applicant is an accountant and registered tax agent, and the business of the Applicant’s group includes the provision of tax advisory services. The Applicant had the knowledge and resources to undertake the necessary actions to ensure compliance with relevant taxation laws.
·The Applicant is purporting to rely on review activities of the Respondent relating to a different (albeit related) entity.
·In any event there is a lack of evidence as to what was actually discussed with and communicated by the Respondent during these review activities. It is also noted that any review activity in 2011 and 2015 took place prior to the establishment of arrangements under the Service Agreement.
·The public guidance and rulings of the Respondent which the Applicant said it relied upon do not actually support its position. The Applicant did not provide evidence of or otherwise explain the common business practices that reflected its approach.
·Section 12-35 and the related provisions providing for PAYG withholding obligations are not especially complex. The Federal Court considered these laws prior to the audit of the Applicant. The Applicant was better placed than most taxpayers to understand these laws.
·While the Tribunal is sympathetic to the personal challenges he may have been facing, Mr Gerrans’ suggestion that he was disengaged from business matters and relied upon Mrs Russell for an extended period raised further concerns for the Tribunal about the Applicant’s attention to taxation compliance matters rather than lessening the apparent risk taken.
These matters indicate that the Applicant demonstrated a high degree of carelessness, or was grossly indifferent, as to whether its position on the application of PAYG withholding rules was correct. A reasonable person in the Applicant’s position should have foreseen that there was a real risk that the approach it had taken was not correct, and made an effort to assure itself of compliance. This amounts to recklessness.
Section 284-224 should not operate to reduce the base penalty amount. For the reasons given above, the public guidance, publications and other advice referred to by the Applicant does not support or agree with the Applicant’s position.
Should the administrative penalty be remitted wholly or in part?
In its Objection Decision the Respondent exercised its power to remit part of the penalties imposed at audit in the Penalty Assessments.
The Respondent acknowledged that the audit processes involved multiple assessments being determined at the one time and there was inadequate indication to the Applicant of ‘continuous infringement’[45] of PAYG withholding rules. Accordingly it removed the 20% uplift previously applied to the base penalty amount for each period.
[45] T2, paragraph 61 of the Objection Decision.
The Objection Decision also acknowledged ‘overlap’ between multiple audit and objection activities. The Respondent accepted this may have contributed to difficulties experienced by the Applicant in sorting out its tax affairs which may have provided an unjust result.[46] The overlap and difficulties are not detailed, but this may have included instances of miscommunication and delay on the part of the Respondent detailed in the Applicant’s Objection. With several entities in the Gerrans Group being subject to reviews which covered different taxation laws, it also appears that new audits may have been commenced before objection processes for related entities had been finalised. The Respondent therefore reduced the amount of the penalties by a further 25% for each period.
[46] T2, paragraph 63 and 64.
The Tribunal may consider all the circumstances in determining whether it is appropriate to (further) remit the penalty. Administrative matters relating to the wider audit and objection processes were not canvassed before the Tribunal. The Respondent has accepted that there were some administrative deficiencies and already remitted a not insignificant portion of the penalties originally imposed. There is no basis for the Tribunal to disturb the Objection Decision in this regard.
The Applicant has not demonstrated a basis for any further remission of the penalties under the Penalty Assessments. The purpose of the penalties regime is to motivate taxpayers to take reasonable care in relation to their compliance with taxation laws. The position of the Respondent in this matter does not give rise to an unintended outcome, and is consistent with case authority which applies to other entities in like circumstances. The fact that another entity in the Gerrans Group may have previously reported PAYG withholding amounts does not lead to an unjust result as liabilities within the group can be reconciled to prevent duplicate withholdings.
CONCLUSION
The Objection Decision of the Respondent in relation to the Penalty Assessments is affirmed.