G Kalsbeek Pty Ltd v Commissioner for Act Revenue (Administrative Review)
[2015] ACAT 47
•9 July 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
G KALSBEEK PTY LTD v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2015] ACAT 47
AT 113 of 2014
Catchwords: ADMINISTRATIVE REVIEW – payroll tax – penalty for non compliance - accountant’s failure to advise on liability – whether Applicant unaware of payroll tax liability before receiving notice from ACT Revenue – whether ACT Revenue’s investigation had begun - mitigation of liability for penalty tax – whether taxpayer took reasonable care – whether there was a reasonable excuse for tax default – whether tax default happened because of circumstances beyond taxpayer’s control –unforeseen ill health
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 (ACT), s 68
Payroll Tax Act 1987 (Repealed) ss 2D, 6, 7, 16
Payroll Tax Act 2011, ss 7, 9, 10, 11, 86, 87,
Taxation Administration Act 1999, ss 25, 29, 30, 31, 32, 33, 34, 36, 37, 82, 101,107A, Schedule 1 section 1.2(a)
Cases cited:AES Wiring Pty Ltd and AKS Distributors Pty Ltd and Chief Commissioner of State Revenue [2012] NSWADT 11
A Plus Plumbing and Building Services Pty Ltd & the Commissioner for ACT Revenue [2012] ACAT 76
Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue [2014] ACAT 68
Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14
Hay v Commissioner for ACT Revenue [2014] ACAT 23
Moore Park Gardens Management Pty Ltd v Chief Commissioner of State Revenue [2006] NSWCA 115
RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) FCAFC 26
Scott and Anor v Commissioner of Act Revenue [2013] ACAT 73
Touma v Chief Commissioner of State Revenue [2012] NSWADT 2
Publications cited: Revenue Circular GEN006 Penalty Tax
Revenue Circular GEN006.1 Penalty Tax
Tribunal: Ms E. Symons, Presidential Member
Mr M. Sinclair, Senior Member
Date of Orders: 9 July 2015
Date of Reasons for Decision: 9 July 2015
ACT CIVIL & ADMINISTRATIVE TRIBUNAL AT 113 of 2014
BETWEEN: G KALSBEEK PTY LTD (ACN 120 083 534)
Applicant
AND: COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Ms E. Symons, Presiding Member
Mr M. Sinclair, Senior Member
DATE: 9 July 2015
ORDER
The Tribunal orders that:
Subject to Order 2, the Respondent’s decision is confirmed.
The Respondent’s decision that penalty tax is imposed for the following financial years:
01/07/07 - 30/06/08 $ 7,352.68
01/07/08 - 30/06/09 $27,416.48
01/07/09 – 30/06/10 $18,824.64
01/07/10 – 30/06/11 $20,561.96is set aside and substituted with a decision that no penalty tax is payable in relation to the Applicant’s tax default in each of those financial years.
……………………………….
Ms E. Symons – Presidential Member
for and on behalf of the Tribunal
REASONS FOR DECISION
Background
The Applicant is a registered company and an employer in the Australian Capital Territory (ACT) for the purposes of the Payroll Tax Act 1987 (repealed) (repealed Act) and the Payroll Tax Act 2011 (PT Act).
On 1 August 2013 the Respondent sent a notice pursuant to section 82 of the Taxation Administration Act 1999 (TA Act) to the Applicant requesting information, by way of completion of a questionnaire as to its payroll for years 2007/2008 to 2012/2013 and for July 2013 to determine its payroll tax liability. Prior to this the NSW Office of State Revenue had requested the Applicant and the Respondent provide information regarding the Applicant’s payroll tax returns. The Applicant completed a NSW Employers Questionnaire on 16 July 2013 in which it stated “all work is performed in ACT & only the ‘depot’ is located in NSW.”
The Applicant completed an ACT Payroll Tax Questionnaire on 5 September 2013. On 3 October 2013 the Applicant registered for payroll tax in the ACT.
On 17 April 2014 the Respondent issued Notice of Assessment (Assessment) (T161-165) setting out the Applicant’s liability for payroll tax for the financial years ending 30 June 2008, 30 June 2009, 30 June 2010, 30 June 2011 and 30 June 2012. The Assessment imposed Primary Tax of $198,463.73, Penalty Tax calculated at the rate of 50% - $99,231.86 and Interest of $67,562.90.
The Notice of Assessment advised the following Payroll Tax and Penalties payable:
(a) 2007/2008 – Tax $14,705.37 – Penalty Tax $7,352.68
(b) 2008/2009 – Tax $54,832.95 – Penalty Tax $27,416.48
(c) 2009/2010 – Tax $37,649.29 – Penalty Tax $18,824.64
(d) 2010/2011 – Tax $41,123.91 – Penalty Tax $20,561.96
(e) 2011/2012 – Tax $50,152.21 – Penalty Tax $25,076.10
(f) 2012/2013 – Tax Nil – Penalty Tax – Nil.
By letter dated 13 June 2014 (T168-172) the Applicant’s accountants, Papandrea Partners, Certified Practising Accountants, lodged an objection (Papandrea objection) to the Assessment and requested a “remission of penalties and interest imposed on the assessed periods.”
By Determination dated 28 November 2014 (Determination) the Respondent disallowed the Papandrea objection.
On 23 December 2014 the Applicant lodged with the ACT Civil and Administrative Tribunal (tribunal) an Application for Review of the Determination (Application). The Applicant seeks review of the decision to impose penalty tax at 50%.
In the reasons following, a reference to ‘ACAT’ or ‘tribunal’ refers to the ACT Civil and Administrative Tribunal generally, whereas ‘Tribunal’ refers to the panel of the tribunal hearing these matters.
Mr Geoffrey Kalsbeek was the sole Director and Shareholder of the Applicant. The expression “taxpayer” and/or Applicant are used in the following reasons, depending on the context.
The hearing
The matter was heard on 4 May 2015. Mr A. Freer, Solicitor of KJB Law, represented the Applicant. Ms K. Katavic of Counsel represented the Respondent. The Tribunal had before it the documents (T docs) (Exhibit R1) relevant to the decision under review. Geoffrey Kalsbeek, Director of the Applicant, had filed a Witness Statement dated 16 March 2015 (Exhibit A1). He was cross examined. The Respondent filed a Witness Statement by Lavine Truzette, a senior compliance officer with the Respondent dated 20 April 2015. She was not required for cross examination. Each party had filed a Statement of Facts and Contentions.
After hearing submissions from the parties the Tribunal reserved the decision. The reasons explain why the Tribunal has reached its decision(s) in this matter.
Agreed Facts/Issues
The Applicant, being a registered company and an employer in the ACT for the purposes of the repealed Act and the PT Act, did not register for payroll tax.
Between 1 July 2007 and 30 June 2012 the Applicant was liable to pay payroll tax.
Between 1 July 2007 and 30 June 2012 the Applicant did not pay its payroll tax liability.
On 6 June 2013 and 18 July 2013, the NSW Office of State Revenue requested the Respondent to provide information regarding the Applicant’s payroll tax returns.
On 1 August 2013, the Respondent sent a Notice to the Applicant pursuant to section 82 of the TA Act which stated “The ACT Revenue Office is conducting a payroll tax investigation of the Company to determine its liability to payroll tax….”
On 1 August 2013, the Respondent sent a Notice pursuant to section 82 of the TA Act to the NSW Office of State Revenue seeking information regarding the Applicant’s payroll tax liability.
On 19 August 2013 the Respondent received a response from NSW Office of State Revenue including a copy of the Applicant’s completed questionnaire, which showed wages paid in the ACT exceeded the ACT Payroll Tax thresholds.
On 6 September 2013 the Applicant returned the completed questionnaires required by the section 82 Notice.
On 3 October 2013 the Applicant registered for payroll tax in the ACT.
On 5 February 2014 the Respondent requested further information regarding the Applicant.
The Applicant’s accountant provided further information to the Respondent on 24 and 25 March and 8 and 17 April 2014.
On 17 April 2014 the Respondent issued the Assessment to the Applicant for the total of $365,258.49 comprising payroll tax of $198,463.73; penalty tax calculated at a rate of 50% - $99,231.86; and interest of $67,562.90.
On 13 June 2014 the Applicant objected to the Assessment.
On 28 November 2014 a delegate of the Respondent disallowed the objection.
Contested Facts/Issues
Whether the Respondent had commenced an investigation into the Applicant on 31 July 2013.
Whether the circumstances that led to the Applicant’s failure to pay payroll tax support a reduction or remission of all or part of the penalty tax.
Relevant Legislation
The repealed Act applies to the Applicant until 30 June 2011. From 1 July 2011, the PT Act applies. Both Acts are tax laws for the purpose of the TA Act and where there is a tax default the TA Act imposes interest (section 25) and penalties (sections 30 – 37).
The relevant sections of the repealed Act are:
2DWages to which this Act applies
This Act applies to wages that—
(a)are taxable in the ACT because of section 2E; and
(b)are not exempt wages under section 2F.
6Payroll tax liability
(1)Tax is payable by an employer in relation to wages to which this Act applies because of section 2D.
(2)If, in relation to wages paid in relation to the performance of work, payroll tax is paid by an employment agent, no-one else is liable to payroll tax in relation to the payment.
(3)The amount of payroll tax payable by an employer is calculated under division 2.3 (Liability to taxation—calculation of monthly payroll tax) and division 2.4 (Liability to taxation—calculation of payroll tax for financial year).
From 2006 onwards, if the total wages paid by an employer in a month exceeded the determined amount, pursuant to section 7 of the repealed Act the employer needed to apply to be registered under the Act and pursuant to section 7 was required to do so within 7 days of the end of the month.
Pursuant to section 16 of the repealed Act a registered employer was also required to lodge monthly returns and pay any interim tax payable.
The relevant sections of the PT Act are:
7Who is liable for payroll tax?
The employer by whom taxable wages are paid or payable is liable to pay payroll tax on the wages.
9When must payroll tax be paid?
(1)A person who is liable to pay payroll tax on taxable wages must pay the tax—
(a)within 7 days after the end of the month in which the wages were paid or payable, other than June; and
(b)within 21 days after the end of June in relation to taxable wages paid or payable in June.
(2)However, if the commissioner believes on reasonable grounds that a person may leave Australia before any payroll tax becomes payable by the person, the tax is payable on the day fixed by the commissioner by notice served on the person.
10Meaning of taxable wages
(1)For this Act, taxable wages are wages that are taxable in the ACT.
(2)However, exempt wages are not taxable wages.
Section 11 defines taxable wages.
Section 86 imposes an obligation on employers to register and subsection 87(2) mandates employers to:
(a)within 7 days after the end of each month except June, lodge with the commissioner a return relating to the month; and
(b)within 21 days after the end of June in each year, lodge with the commissioner a return relating to June and to the adjustment of payroll tax paid or payable by the employer in the financial year ending at the end of June.
Sections 30 to 37 of the TA Act, which relate to penalties, state
30Penalty tax in relation to certain tax defaults
(1)If a tax default happens, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid.
NoteA taxpayer may also be liable to pay penalty tax under the Land Tax Act 2004, s 19A (5) (Interest and penalty tax payable on land tax if no disclosure).
(2)Penalty tax imposed under this division is in addition to interest.
(3)Penalty tax is not payable in relation to a tax default that consists of a failure to pay—
(a)interest under division 5.1; or
(b)penalty tax previously imposed under this division.
31Amount of penalty tax
(1)The amount of penalty tax payable in relation to a tax default is 25% of the amount of tax unpaid, subject to this division.
(2)The amount of penalty tax payable in relation to a tax default is 50% of the amount of tax unpaid if the commissioner is satisfied that the tax default was caused wholly or partly by a failure by the taxpayer (or a person acting on behalf of the taxpayer) to take reasonable care to fulfil the taxpayer’s obligations under a tax law.
(3)Subsection (2) does not apply if the tax payer satisfies the commissioner that the taxpayer (or a person acting on behalf of the taxpayer) had a reasonable excuse for the failure.
(4)Subsections (2) and (3) apply to a tax default that happened before their commencement in the same way as they apply to a tax default that happened after their commencement.
(5)The amount of penalty tax payable in relation to a tax default is 75% of the amount of tax unpaid if the commissioner is satisfied that the tax default was caused wholly or partly by the intentional disregard by the taxpayer (or a person acting on behalf of the taxpayer) of a tax law.
(6)No penalty tax is payable in relation to a tax default if the commissioner is satisfied that—
(a)the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the tax law; or
(b)the tax default happened solely because of circumstances beyond the taxpayer’s control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person’s or the taxpayer’s control) but not amounting to financial incapacity.
NoteThe commissioner’s decision to impose penalty tax is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the taxpayer (see s 107B).
32Reduction in penalty tax for voluntary disclosure
The amount of penalty tax determined under section 31 is reduced by 80% if, before the commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out, the taxpayer discloses to the commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.
33Reduction in penalty tax for disclosure before investigation
The amount of penalty tax determined under section 31 is reduced by 20% if, after the commissioner informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is begun, the taxpayer discloses to the commissioner, in writing, sufficient information to enable the nature and extent of the tax default to be determined.
34Increase in penalty tax for concealment
......
36Time for payment of penalty tax
Penalty tax must be paid by a taxpayer within the period, of not less than 14 days, specified in a notice of assessment of the tax liability of the taxpayer.
37Remission of penalty tax
The commissioner may remit all or part of an amount of penalty tax payable by a person if satisfied that—
(a)either—
(i)the person has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax; or
(ii)the circumstances that resulted in the liability for penalty tax were exceptional; and
(b)it would be fair and reasonable to remit all or part of the penalty tax.
NoteThe commissioner’s decision to refuse to remit penalty tax payable by a person is an internally reviewable decision (see s 107, def internally reviewable decision), and the commissioner must give an internal review notice to the person (see s 107B).
Pursuant to section 107A and Schedule 1, section 1.2(b) of the TA Act, a decision to impose penalty tax pursuant to section 31 of the TA Act may be reviewed by the tribunal.
Where a taxpayer defaults on their tax liabilities, interest is payable and may be remitted (section 29 TA Act). However a decision about interest is not reviewable by the tribunal: section 107A and Schedule 1, section 1.2(a) of the TA Act and Scott and Anor v Commissioner of Act Revenue[1] (Scott).
Tribunal’s Jurisdiction and Powers
[1] [2013] ACAT 73
The burden of showing that an objection should be sustained is with the taxpayer, the Applicant in this case.[2] The Tribunal’s main task is to decide if the taxpayer has shown that the objection should be sustained.[3]
[2] Section 101(3) TA Act
[3] Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; Touma v Chief Commissioner of State Revenue [2012] NSWADT 2; Hay v Commissioner for ACT Revenue [2014] ACAT 23
Pursuant to section 68 of the ACT Civil and Administrative Tribunal Act 2008 the Tribunal may confirm, vary or set aside the decision being reviewed and, if the decision is set aside, the Tribunal may make a substitute decision or remit the decision back to the decision-maker in accordance with directions or recommendations.
Applicant’s Evidence and Contentions
The Applicant’s contentions are set out in:
(a)The Application; and
(b)The Applicant’s Statement of Facts and Contentions, in which it is contended the imposed Penalty Tax of 50% should be reduced to 40% or less, because:
i. the Applicant co-operated and disclosed its obligations before the Commissioner commenced their investigation of the Applicant’s Payroll Tax liability, thereby entitling the Applicant to a reduction in penalty tax under Section 33; and
ii. the work of the investigator was to merely obtain the Applicant’s contact details.
The Applicant further contended that it took reasonable care to fulfil its obligations under the TA Act or had a reasonable excuse for the failure, by engaging two different firms of accountants thereby attracting the application of Section 31(3) whereby the additional 25% Penalty Tax does not apply; and/or, attracting the application of Section 37 (1), as the Applicant took reasonable steps to mitigate the effects the circumstances that resulted in the Penalty.
The Applicant also contended that, due to the extraordinary circumstances of the Applicant, grounds existed to reduce or remit the Penalty tax, attracting the provisions of Section 37(2) and, pursuant to section 37(3) of the TA Act that it would be reasonable for that to occur.
In his Witness Statement (Exhibit A1), Mr Kalsbeek stated that he was the sole director of the Applicant; that the Applicant acknowledged that it was liable for payroll tax as assessed by the Respondent for the period commencing with the 2007/2008 financial year to and including the 2011/2012 financial year and that the Applicant disputed the rate of penalty tax imposed on the payroll tax liability.
Mr Kalsbeek set out in considerable detail in his Witness Statement his diagnosis of Hodgkin’s disease in around 2004 and the aggressive medical treatment between 2004 and 2009 for that disease, including chemotherapy and stem cell transplant procedures which were unsuccessful and radiation which proved to be ineffective. At this time he was placed on a bone marrow transplant list and advised he had only a limited chance of survival. In 2009 he suffered from a major depressive illness.
In 2006, due to his illness and treatment, Mr Kalsbeek stated that he was unable to manage the affairs of the company and effective control of the company was passed to senior employees. His business partner had moved to Queensland at this time. In cross examination he conceded that he had not ascertained if the senior employees had any experience dealing with the financial affairs of the Applicant. At that time he had not thought they would be running the business for a long duration. The Applicant also had accountants on whom Mr Kalsbeek said he relied to act on his behalf to assist the senior employees and ensure the Applicant’s continued operation and its compliance with all relevant requirements, including tax laws.
In cross examination Mr Kalsbeek said he had not considered suspending trade of the business when he suffered a relapse in 2006/2007 as the business had contractual commitments with builders.
When it subsequently became clear that he was going to be incapacitated for a long period he said he did not consider suspending the operation of the business because:
To be honest the business wasn’t really what I was thinking about mainly at that point of time. My family, my health and my family were though (sic) all up in the priority. When I was going through that it was a pretty bad time, you know personally, for a personal experience. My business, I know it was the bread winner for the family and everyone else but it wasn’t, I know its wrong but it wasn’t priority of what I had at that time.[4]
[4] Transcript page 9 lines 27-33
Mr Kalsbeek stated that in 2009 he sought alternative Chinese remedial treatments and in 2010 his illness went into remission. While he sought to resume active involvement in the Applicant company in 2010, due to the impact of his illness, his involvement was only in a limited capacity.
In 2011 he was able to return to work in a more hands on capacity. His Hodgkin’s disease remained in remission. At this time he stated it became clear that during his absence his financial advisors, despite the reliance placed on them during his absence, had provided limited guidance and advice in relation to the Applicant’s financial obligations or tax affairs. Mr Kalsbeek stated, over the next two years, he engaged new accountants, Papandrea Partners, and sought advice concerning the restructuring and rebuilding of the Applicant’s business. In cross examination he agreed that he had engaged Papandrea Partners because he was not happy with the services of the former accountants and to sort out the mess, including with the Australian Taxation Office (ATO). He knew Michael Papandrea and that his firm provided taxation services. He believed they had been given all of the Applicant’s financial records.
The following exchanges took place during cross examination[5]:
At the time that Papandrea Partners were assisting the applicant to sort out the obligations they’d had with the ATO, did Papandrea Partners advise the applicant about payroll tax obligations? - I’d say yes.”
“At the time that Papandrea Partners were assisting the applicant to undergo a business restructure and help sort out the obligations the applicant had with the ATO, there was no disclosure to the Commissioner for ACT Revenue in relation to payroll tax obligations by the applicant? - So you’re saying that I didn’t disclose anything or you’re saying that Papandrea didn’t disclose?
Both of you, neither of you. So neither yourself as the director of the applicant made a disclosure and Papandrea Partners did not make a disclosure on the applicant’s behalf, is that correct?- I’d say yes.
[5] Transcript page 10
The Applicant’s operations were significantly downsized in 2013.
Mr Kalsbeek stated that he recalled receiving a request for information from NSW Office of State Revenue (NSW request) in about June 2013 which the Applicant’s bookkeeper provided to the Applicant’s accountants who in turn provided the information to the NSW Office of State Revenue on 16 July 2013.
Mr Kalsbeek agreed in cross examination[6] that the Applicant was on notice by the NSW request that enquiries were being made about its liability to pay payroll tax in NSW and that nobody associated with the company contacted the ACT Revenue Office voluntarily to disclose the payroll tax obligations. He further said that, at that time, he had not as director made any enquiries with Papandrea Partners about the company’s ACT payroll tax obligations and Papandrea Partners did not advise the company to make a disclosure to the ACT Commissioner for Revenue.
[6] Transcript p. 14
Mr Kalsbeek agreed that the company received the ACT Revenue section 82 notice about 1 August 2013 and completed it on 5 September 2013. Prior to receiving the section 82 Notice he agreed “nobody associated with the applicant made any disclosure to ACT Revenue in relation to the company’s payroll tax obligations.” Mr Kalsbeek said the Applicant’s registration for payroll tax obligations on 3 October 2013 was the first time the Applicant had been registered for payroll tax in the ACT.
In re-examination, Mr Kalsbeek said the Applicant relied on its accountant’s advice and when they did advise to register the Applicant for payroll tax liability in the ACT the timeframe of attending to this was dictated by the time taken by the accountants preparing the documents.
He also said in re-examination the Applicant had supplied the documents requested by ACT Revenue to identify the nature and extent of any tax payable and he had entered into arrangements to pay those liabilities.
Mr Kalsbeek said his disease remains in remission however he continues to suffer psychologically from the impact of his illness. He continues to attend regular medical appointments to assist in ensuring his ongoing physical and mental health.
Mr Kalsbeek provided a report from his specialist, Dr Anne McDonald, Clinical Haematologist, dated 6 July 2011 which corroborated Mr Kalsbeek’s statements. The report stated that “Mr Kalsbeek has had valid medical reasons in the past which have caused him difficulty in continuing his usual employment or in managing his financial affairs” and “His future prognosis remains uncertain.”
Respondent’s Evidence and Contentions
The materials which set out the Respondent’s contentions are:
(a)The Respondent’s Statement of Facts and Contentions in which it is contended:
(i) there was no disclosure by the Applicant prior to the investigation commencing, therefore, the Penalty Tax should not be reduced in accordance with Section 33; and
(ii) the circumstances that lead to the Applicant’s failure to comply do not support the exercise of the discretion to reduce or remit the Penalty Tax under Section 31(2) or Section 37 due to:
(1)the Applicant failed to take reasonable care, so the provisions of Section 31(2) should apply to increase the Penalty Tax from 25% to 50%;
(2)the Applicant did not have a reasonable excuse for failing to comply with their Payroll Tax, so the provision of Section 31(3) should not apply, to remove the increase of the Penalty from 25% to 50%; and
(3)since he was unaware of his company’s obligations for Payroll Tax before he became unwell, his medical condition made no difference; and
(4)the Applicant should have ceased operations when the sole Director became unwell; and
(5)the Applicant did not obtain and rely upon any professional advice regarding its Payroll Tax obligations; and
(6)the Applicant failed to register for ACT Payroll Tax after the Director’s health had been restored, and the Director and his new accountants were on notice of a potential ACT Payroll Tax obligation, as a consequence of completing a Payroll Tax Questionnaire required by the NSW Office of State Revenue, in July 2013; and
(7)the Applicant’s circumstances were not exceptional, and it would not be fair and reasonable in the circumstances to reduce or remit the Penalty Tax, so the discretion in Section 37(a)(ii) and Section 37(b) should not be exercised.
(b)The Reviewable Decision Notice by the Delegate of the ACT Revenue Office on the Applicant’s Objection to the Commissioner’s decision to impose the Penalty Tax; and
(c)The Witness Statement of Lavine Truzette, a senior compliance officer of the Respondent which set out the facts of the investigation. Ms Truzette stated that she commenced the investigation on 31 July 2013 after receiving two requests for information from the NSW Office of State Revenue dated 6 June 2013 and 18 July 2013 and she searched a number of sites including the ACT Revenue Office, the ATO employee count data, the ATO BAS data, the ABN and the Applicant’s website which identified business activity in the ACT. The Respondent obtained a number of documents from these searches which indicated the Applicant was not registered for ACT payroll tax (ACT Revenue Office system), which identified amounts paid to the Applicant’s employees and their residential state (ATO) and amounts reported to the ATO were potentially above the ACT payroll tax threshold.
Consideration
Whether an investigation had commenced pursuant to Section 32 and Section 33 of the TA Act
The Applicant contended that the steps Ms Truzette outlined in her witness statement as having taken place around 31 July 2013 were, essentially, the Respondent performing some electronic searches, including a company search, which were presumably for the purposes of writing to the Applicant at its registered address and to corroborate the Applicant’s existence.
While it is true that these searches ultimately resulted in the Respondent sending the letter of 1 August 2013, the Applicant contended that no further action was taken by the Respondent until after the Applicant had responded to the 1 August 2013 questionnaire and had registered for payroll tax on 3 October 2013.
Turning to the actual wording in the Respondent’s letter dated 1 August 2013, the Applicant acknowledges that the letter refers to an ‘investigation’. However, the Applicant contended that although this statement is made, the reality is that it is the process that has been initiated, and the Respondent is waiting on any information supplied to assess the nature and extent of the tax liability that might exist. In support, the Applicant referred the Tribunal to an earlier tribunal decision in Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue[7] (BPI Pty Ltd) where that tribunal considered a notice the equivalent of the notice in the present matter and stated at paragraph [4]:
However the Commissioner was satisfied that the Applicant disclosed sufficient information between receiving the notice and before the investigation had begun to enable the tax default to be determined.”
[7] [2014] ACAT 68
The Applicant contended that, despite the issuing of the section 82 notice which asserted that an investigation had begun or was beginning, “in reality the correspondence issued invited or required the applicant to complete a questionnaire and display information to assess the nature and extent of the tax liability or payroll tax applicable.”[8]
[8] BPI Pty Ltd, p 27 lines 19 - 21
The Applicant further contended that this submission is consistent with the Respondent’s policy regime to provide some modest penalty mitigation where there is a voluntary provision of information, as in the present matter, after notification of the matter coming to the Respondent’s attention.
The Applicant also referred the Tribunal to the ACT Court of Appeal decision in Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal (Dataflex) [9] where the terminology used in the notice letter was considered. The Applicant submitted, that as the Court of Appeal had looked behind the assertion that ‘an investigation has begun’, this Tribunal should also look at the evidence to see if, in fact, an investigation has begun or whether the evidence supports a finding that in practical terms there has simply been a letter sent requiring full disclosure and that disclosure is provided to enable the taxpayer’s obligations to be ascertained. The Applicant submitted, in this situation it is open to the Tribunal to form the view that the investigation had not, at this stage, begun.
[9] [2011] ACTCA 14, at [54] – [59]
The Applicant invited the Tribunal to consider the practical steps taken by Ms Truzette which are set out in her Witness Statement in paragraphs 2 to 6, as being the evidence that enables the Tribunal to form the view that these are enquiries before the investigation has begun.
The Applicant’s contention that the work done by the investigator was merely to obtain contact details, seems to overlook that the investigator had already established, before the Section 82 Notice was issued, by accessing the records of the ATO, that the wages paid by the Applicant, appeared to be in excess of the level at which Payroll Tax was payable in the ACT, but only for the 2008/2009 year (T32) and for the 2009/2010 year (T31). This was sufficient to identify the likely obligation on the Applicant to register for Payroll Tax.
The Respondent submitted that the Tribunal should take particular notice of the following matters when considering whether or not an investigation had begun:
(a)The Applicant and its accountants had been on notice from, at the latest, 16 July 2013 when the applicant completed and returned the NSW Office of State Revenue’s Unregistered Payroll Tax Employers Questionnaire, which named the accountant as the contact person, and had not contacted the ACT Revenue Office about a potential payroll tax liability or made any such disclosure prior to the section 82 notice being issued;
(b)The very targeted interrogation of the material accessed by Ms Truzette which is detailed in her statement;
(c)The actual wording used in the 1 August 2013 letter in the opening paragraph:
i.The ACT Revenue Office is conducting a payroll tax investigation of the company to determine its liability to pay payroll tax;
(d)This wording is in the present tense and supports the Tribunal finding that the investigation was already underway;
(e)The wording in the 1 August 2013 section 82 notice to the applicant does not state or indicate that something further is to be carried out;
(f)The letter dated 1 August 2013 which the Respondent sent to the NSW Office of State Revenue was also issued pursuant to section 82 of the TA Act (NSW);
(g)The decision in A Plus Plumbing and Building Services Pty Ltd & the Commissioner for ACT Revenue[10] (A Plus Plumbing) considered the same wording in the section 82 notice issued to the applicant in that case and the applicant in the present case. While that tribunal did not find that the reference in the notice to “is conducting a payroll investigation” determined the matter, that tribunal considered the searches which that Respondent had conducted prior to issuing the section 82 notice and found that by the time that applicant received the section 82 notice the investigation had already begun; and
(h)The present case is not dissimilar to A Plus Plumbing and that tribunal’s findings could be equally applied in the present case.
[10] [2012] ACAT 76, at [75]
The Respondent had initiated enquiries with the NSW Office of State Revenue on 1 August 2013 (T57) and received a reply dated 19 August 2013 (T58 – T74) which included a copy of the NSW Revenue Office questionnaire completed by the Applicant. This questionnaire disclosed wages above the thresholds for the relevant years. These findings were established before the Applicant made any disclosures to the Commissioner.
As a consequence, the Tribunal concurs with the Respondent’s submission[11] that prior to the 1 August 2013 letter the Respondent has conducted a sufficiently targeted interrogation of the available data. It was not a superficial enquiry.
[11] Transcript page 34, lines 37 - 44 and page 35 lines 2-5
The Tribunal finds that from 16 July 2013, when the Applicant disclosed its interstate wages to the NSW Office of State Revenue, it had ample time to voluntarily disclose the relevant wage information for the assessment of payroll tax to the Respondent. Neither the Applicant nor the Applicant’s accountants made that voluntary disclosure between 16 July 2013 and 31 July 2013. Section 32 of the TA Act does not apply.
While the Respondent is not obliged to give advance warning of the commencement of an investigation[12], the Tribunal is satisfied that, in this case, the Respondent did not give advance warning to the Applicant that an investigation is to be carried out.
[12] Dataflex [2011] ACTCA 14, at [47]
The Tribunal has considered all of the evidence and the submissions, and is satisfied from the matters set out in Ms Truzette’s Witness Statement that the investigation had begun on 31 July 2013 and the letter dated 1 August 2013 confirmed that an investigation had begun. Section 33 of the TA Act does not apply.
Whether the circumstances that led to the Applicant’s failure to pay payroll tax support a reduction or remission of all or part of the penalty tax, pursuant to Sections 31(2), 31(3), 31(6) or 37 of the TA Act.
Section 31(1) imposes Penalty Tax of 25% in the case of a default and Section 31(2) increases the Penalty tax to 50% if the Commissioner is satisfied the default was caused wholly or partly by the Taxpayer (or a party acting on behalf of the Taxpayer) failing to take reasonable care. Section 31(3) provides that Section 31(2) does not apply if the Commissioner is satisfied the taxpayer had a reasonable excuse.
Section 31(2)
In order to assess whether a penalty tax of 50% is to be imposed pursuant to Section 31(2) the Tribunal is required to determine whether the Applicant took reasonable care. Evidence was provided that the Applicant throughout the relevant period employed a bookkeeper and maintained proper books and records, engaged accountants and filed income taxation returns. It was these books and records that allowed the Applicant to promptly complete the section 82 Notice questionnaires from which its tax liability was established, and to prepare the tax returns which identified to the Respondent’s staff the existence of a liability.
Counsel for the Respondent referred to Scott[13] where that tribunal referred to the statement by the NSW Administrative Tribunal in RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue[14] of the factors to be considered to establish whether a taxpayer took reasonable care:
...attempts to comply with tax law, reasonable professional and other inquiries to ensure compliance, reliance on professional advice or on official published views of the tax law. Factors which indicate that a taxpayer failed to take reasonable care include oversight or forgetfulness to meet with obligations, failure to maintain adequate records and procedures to prevent errors from occurring, not seeking professional advice and errors in complying with the law.
[13] At [35]
[14] [2004] NSWADT 64 at [23]
In A Plus Plumbing the tribunal referred[15] to the decision of Moore Park Gardens Management Pty Ltd v Chief Commissioner of State Revenue[16] where Santow JA said at paragraph 55 - “A decision maker is entitled to have resort to rules which ‘guide’ the exercise of discretionary powers ...” provided those rules are “consistent with the subject matter, scope [and] purpose” of the legislation.
[15] At [95]
[16] [2006] NSWCA 115
At the request of the Tribunal the Applicant provided the Respondent and the Tribunal with a copy of the Revenue Circulars in relation to Penalty Tax issued by the ACT Revenue Office. The Circulars provided are entitled Revenue Circular GEN006 Penalty Tax (effective 16 June 2011 to 23 February 2015) and Revenue Circular GEN006.1 Penalty Tax (effective from 24 February 2015) (the Circulars). The Tribunal is not satisfied that anything in the Circulars is inconsistent with the policy and scheme of the payroll tax legislation or the operation of the TA Act.
Each Circular states that the TA Act is intended to ensure consistency in the administration and enforcement of ACT taxation legislation. In paragraph 3 the purpose of Penalty (and Interest) provisions is expressed to include deterring non-compliance by making it unprofitable for taxpayers and promoting equity amongst taxpayers by ensuring those who meet their obligations are not disadvantaged in comparison to those that do not. In paragraph 4 the policy intent is expressed to be that the penalty should match the degree of culpability. Paragraphs 8 and 9 state the Commissioner will exercise the discretionary powers in accordance with the circular.
The Circulars, in the Attachment, provide examples of “circumstances beyond the taxpayer’s control”, “where the taxpayer took reasonable care” and “where the taxpayer did not take reasonable care”.
The examples in the Circulars of where the taxpayer took reasonable care include:
The taxpayer demonstrates that they took reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in their liability for penalty tax e.g.by keeping complete and accurate records, by seeking expert advice on uncertain and complex matters.
The Circulars provide examples of where the taxpayer did not take reasonable care including:
· The taxpayer did not know about the tax law or did not take reasonable steps to inform themselves of their tax obligations; and
· The taxpayer did not inform the Commissioner in writing within the required timeframe (or within a reasonable timeframe if none is specified) upon discovering their failure to comply with tax law.
The Payroll Tax law is complex. Evidence was provided that the Applicant retained and relied upon the services of accountants to assist the senior employees in looking after the affairs of the company while its sole Director was ill. However, the mere fact that accountants have been retained, cannot by and of itself constitute reasonable care, without more[17]. While it appears that the accountants let the Applicant down, the accountants were not identified and not called to give evidence.
[17] AES Wiring Pty Ltd and AKS Distributions Pty Ltd and Chief Commissioner of State Revenue [2012] NSWADT 11
Counsel for the Respondent referred the Tribunal to various authorities[18] which establish this does not necessarily relieve the taxpayer (the Applicant). These authorities are persuasive.
[18] Jokhan & Jokhan and Commissioner for ACT Revenue [2012] ACAT 15,[19]; Belconnen Premier Inn Pty Ltd v Commissioner for ACT Revenue [2014] ACAT 68, [41]
Accordingly, the Tribunal finds the Applicant did not take reasonable care, so the relief under Section 31(2) is not available.
Section 31(3)
The Applicant submitted, in the alternative,[19] that given that Mr Kalsbeek played a crucial role in the operation of the Applicant, including its tax obligations, Mr Kalsbeek’s sudden and debilitating illness and its impact on his ability to manage the Applicant’s business affairs constituted a reasonable excuse for the Applicant’s failure to comply with its obligations under the TA Act.
[19] Applicant’s Statement of Facts and Contentions at [15]
The Respondent contended[20] that the Applicant’s sole Director’s illness did not amount to a reasonable excuse, as it was open to the Applicant to engage alternative assistance and governance during the period during which the Director was unwell, ensuring a level of competency of such assistance was within the Applicant’s control.
[20] Respondent’s Statement of Facts and Contentions [57(d)]
The Tribunal has accepted Mr Kalsbeek’s evidence that he arranged for senior employees of the Applicant and the Applicant’s then accountants to look after the Applicant’s business during his unexpected illness, although at that time he was not expecting the illness to last for as long as it did. The Tribunal has already found in paragraphs 84 and 85 above that, while the accountants let the Applicant down, a failure by any person acting on behalf of the taxpayer is a failure by the taxpayer.
The Tribunal is not satisfied, in the particular circumstances of this case, that the Applicant had a reasonable excuse for failing to comply with its obligations under the TA Act.
Section 31(6)
Section 31(6) provides that no penalty tax is payable where the Commissioner is satisfied that (a) the taxpayer took reasonable care to comply with the tax law, or (b) that the default happened solely because of circumstances beyond the control of the taxpayer.
The Tribunal has considered reasonable care in paragraphs 77 and 82 above and found in paragraph 86 that the Applicant did not take reasonable care.
The next consideration is whether the default happened solely because of circumstances beyond the control of the taxpayer.
In the Circulars, circumstances beyond the taxpayer’s control include “An unforseen traumatic or significant event affecting the taxpayer’s health as to prevent them from meeting their tax obligations.
The Tribunal has referred above to Mr Kalsbeek’s evidence of his unforeseen and significant illness. Evidence was provided which corroborated his serious ill health from the commencement of the relevant dates up to some time in 2011. This evidence included his specialist’s medical report[21] which stated that he [had]:
...multiply relapsed nodular sclerosing Hodgkin’s disease” and “at the time of the last relapse of disease in 2009, Mr Kalsbeek suffered a major depressive illness in association with radiotherapy given at that time. Mr Kalsbeek was informed in 2009 that there was a significant possibility that treatment would be ineffective and that his life expectancy would be limited ... and .... was unable to cope with the financial aspects of his business.
The medical evidence was not challenged. The Tribunal accepts this evidence. Mr Kalsbeek’s multiply relapsed nodular sclerosing Hodgkin’s disease and depression was an unforeseen traumatic or significant event that affected Mr Kalsbeek’s health and management of financial matters of the Applicant.
[21] See paragraph 58 above
Counsel for the Respondent argued that by the time Mr Kalsbeek’s health had improved, he had engaged new accountants who professed to be competent in payroll tax and this occurred in 2011.
Counsel for the Respondent then contended that consideration of the taxpayer’s conduct may involve consideration of two distinct periods. The Applicant’s Solicitor, during the hearing, endorsed this approach.
Given that there is evidence of considerable and complex issues in the Applicant’s affairs to be sorted through by the new accountants including liquidity, structure and income taxation, it seems reasonable to the Tribunal to allow some time for the new accountants to get across the issues and put the Applicant’s affairs into order. The Tribunal considers a reasonable time would be to the end of the 2010/2011 financial year, being 30 June 2011.
The Tribunal therefore, will consider the following two periods:
a)The first period relates to Assessments issued from the commencement of the periods under review up to the 30 June 2011; and
b)The second period is from this date.
The Tribunal, in exercising the discretion, has regard to the requirement that any penalty tax should reflect the appropriate degree of culpability of the defaulting taxpayer.
The Tribunal finds there were circumstances beyond the control of the taxpayer, consistent with the example in the Circular as set out in [94] above, which warrant the exercise of the discretion under Section 31(6). Accordingly, the Tribunal finds that no Penalty Tax is payable on the Assessments issued prior to 30 June 2011.
This means that while the Tribunal finds that no Penalty Tax is payable for the years 2007/2008 to 2010/2011, the Tribunal is also satisfied and finds that for the subsequent years 2011/2012 to 2012/2013 Penalty Tax of $25,076.96 is payable by the Applicant.
This decision does not relieve the Applicant from the obligation to pay interest on late payment of the taxation liability, which ensures the Applicant is not in a more favourable position than a taxpayer who had paid their obligations on time.
Section 37
The section provides the Commissioner may remit all or part of penalty tax if satisfied: either the person has taken reasonable steps to mitigate, or to mitigate the effects of, the circumstances that resulted in the liability for penalty tax, or the circumstances that resulted in the liability for penalty tax were exceptional. In addition the Commissioner must be satisfied it would be fair and reasonable to remit all or part of the penalty tax.
No material was presented at the hearing concerning the operation of the relief under the mitigation provision, other than the facts that the Applicant maintained good records and engaged the services of an accountant.
The Applicant’s Solicitor submitted that Mr Kalsbeek’s circumstances, namely his medical condition were beyond his control and led to the penalties. The Tribunal has found, pursuant to subsection 31(6) of the TA Act, in the Applicant’s favour in relation to penalty tax imposed during the period 2007/2008 to 2010/2011. The Applicant also asks the Tribunal to find that the same circumstances were exceptional.
Counsel for the Respondent drew the Tribunal’s attention to the general deterrence factor in relation to penalty tax, referring to the decision in A Plus Plumbing, at paragraph 84:
The tribunal is mindful that in order to promote the scheme of taxation legislation and the Taxation Administration Act, taxpayers who comply with their obligations should be in a better position than those who do not. Other than in exceptional circumstances, the exercise of discretion such as that authorised by section 37 should not operate to place taxpayers who fail to comply with taxation laws, by failing to pay their tax liability in a timely fashion or otherwise, in the same position as taxpayers who fully comply with their obligations under taxation laws.
Section 37 provides for the exercise of a discretion to remit penalties in full or in part. Neither the Circular, nor the case law referred to during the hearing, provided guidance on when this discretion should be exercised on the grounds of ill health.
The Tribunal, in exercising this discretion must consider whether, pursuant to section 37(b), this is fair and reasonable. The Tribunal has already exercised the discretion available in section 31(6) in the Applicant’s favour. The question for the Tribunal is whether it is fair and reasonable to exercise the discretion for the remaining penalty tax of $25,076.96 for the 2011/2012 and 2012/2013 financial years.
Having considered all of the matters before the Tribunal, it is not satisfied that it is appropriate to exercise the discretion provided by section 37(a)(ii) for the penalty tax assessed for the 2011/2012 and 2012/2013 financial years. Mr Kalsbeek’s evidence was that his illness went into remission in 2010 and he was able to return to work in ‘a more hands on capacity’ in 2011. The Applicant subsequently changed accountants to Papandrea Partners. The Tribunal is not, therefore, satisfied that the Applicant’s circumstances which led to the continuing default in 2011/2012 and 2012/2013 were exceptional.
The Tribunal also finds, for the reasons set out above, that it is not fair and reasonable to exercise the discretion to remit all or part of the 2011/2012 and 2012/2013 penalty tax.
Conclusion
Having considered all of the matters before the Tribunal the order that the Tribunal is making is to set aside that part of the decision under review which imposed penalty tax for the financial years 01/07/07 – 30/06/08, 01/07/08 – 30/06/09, 01/07/09 – 30/06/10, and 01/07/10 – 30/06/11 and to substitute the decision that no penalty tax is payable in relation to the Applicant’s tax default for those financial years.
………………………………..
Ms E. Symons – Presidential Member
for and on behalf of the Tribunal
HEARING DETAILS
FILE NUMBER: | AT 14/113 |
PARTIES, APPLICANT: | G KALSBEEK PTY LTD |
PARTIES, RESPONDENT: | COMMISSIONER FOR ACT REVENUE |
COUNSEL APPEARING, APPLICANT | |
COUNSEL APPEARING, RESPONDENT | MS K KATAVIC |
SOLICITORS FOR APPLICANT | KJB LAW, SOLICITORS |
SOLICITORS FOR RESPONDENT | ACT GOVERNMENT SOLICITOR |
TRIBUNAL MEMBERS: | MS E SYMONS, Presidential Member |
DATES OF HEARING: | 4 MAY 2015 |
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