HVGY and Commissioner of Taxation

[2023] AATA 2009

HVGY and Commissioner of Taxation [2023] AATA 2009 (23 June 2023)

Division:SMALL BUSINESS TAXATION DIVSION

File Number(s):      2022/4126

Re:HVGY

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:23 June 2023

Place:Melbourne

The interlocutory application is refused.

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Deputy President Bernard J McCabe

Catchwords

Interlocutory application - request for section 37 documents - internal ATO application - where documents are said to establish exceptional circumstances - documents deemed not relevant at this stage of proceedings - application refused

Legislation
Administrative Appeals Tribunal Act 1975
Superannuation Guarantee (Administration) Act 1992
Superannuation Guarantee Charge Act 1992

REASONS FOR DECISION

Deputy President Bernard J McCabe

23 June 2023

1. The applicant in these proceedings has asked for a direction under s 37(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) requiring the decision-maker to provide additional documents in its possession or control that “may be relevant to the review of the decision by the Tribunal”. The Commissioner said he has already provided everything that may be relevant to the review in the T documents (including a second tranche of documents that were described as supplementary T documents), and he has supplied other documents in any event in response to a request from the applicant under the Freedom of Information Act 1982. The Commissioner resists the production of any further documents.

   The obligation to inform, the imposition of a penalty, and the power to remit

2. Employers are obliged make superannuation contributions in respect of their employees each quarter. The obligations are set out in the Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992 (the SGAA). Employers are also required to self-report any default in complying with that obligation in a given quarter by lodging a superannuation guarantee charge statement by the due date for that quarter. Part 7 of the SGAA sets out what happens in the event of non-compliance. In particular, an employer that fails to comply with the obligation to lodge the superannuation guarantee charge statement by the due date is liable to pay the unpaid amount together with a penalty equal to 200% of that amount: s 59(1). The penalty forms part of the charge.

3. The Commissioner ordinarily has a discretion to remit some or all of the penalty imposed pursuant to s 59. The discretion to remit is found in s 62(3). But special rules apply in relation to quarters prior to 1 January 2018 that limit the Commissioner’s discretion to remit. The more restrictive rules apply because employers had the benefit of an amnesty applicable to those periods which enabled them to provide the required information without penalty: s 74. Employers that failed to disclose the information after the amnesty lapsed (or only disclosed the required information after the Commissioner informed the employer he was examining or planning to examine the employer’s compliance) effectively receive less favourable treatment. Section 62(4) says the Commissioner may only remit half the charge (ie, 100% and not 200%) in such cases.

4. There is an exception to s 62(4) set out in s 62(5). That sub-section permits the Commissioner to remit the full amount of the penalty notwithstanding sub-section (4) if he is “satisfied there were exceptional circumstances that prevented the employer from…disclosing that information to the Commissioner” since the start of the amnesty period. Section 62(5)(b) extends the ‘exceptional circumstances’ discretion to situations where the employer did disclose the information but only after being prompted to do so by the Commissioner.  In those cases, the employer can still argue for full or further remission if they establish exceptional circumstances prevented the employer from disclosing before they were given notice of the Commissioner’s action.

   What happened in this case?

5. The applicant is an employer who apparently fell behind in making the minimum level of superannuation contributions in respect of its employees in several quarters between 2013 and 2018 – that is, quarters in which the employer could take advantage of the amnesty. The applicant also failed to comply with its obligation to self-report the shortfalls by lodging a superannuation guarantee charge statement by the due date applicable for each of the quarters in question. It follows the limits on the discretion to remit under s 62(4) appear to be engaged unless the employer can establish ‘exceptional circumstances’.

6. The applicant has not yet filed a statement of facts, issues and contentions. That would ordinarily be helpful when it argues the documents in question may be relevant to the review. Having said that, the applicant has made a reasonable fist of explaining its argument and identifying how it says the documents it seeks will shed light on the issues.

7. The applicant foreshadowed an argument that comes down to this: many businesses (including the applicant) experienced difficulty complying with their obligations under the SGAA during the Covid pandemic. They were not alone. The applicant suggests the Commissioner dropped the ball with respect to its compliance and enforcement program during the same period. He diverted resources to other priorities (dealing with Jobkeeper and Cashflow boost applications, for example) in the period between 1 January 2020 and 2 February 2021. During that period, the applicant says it was widely accepted and understood there would be a pause on compliance action. It was also widely accepted and understood that ‘early engagement’ activities would resume in advance of any compliance enforcement once the pandemic eased. That meant errant employers knew they would have the opportunity to comply with their obligations to supply information before compliance action commenced because the Commissioner would give them warning through an ‘early engagement’ process that preceded any audit action.

8. The applicant says the Commissioner did not resume early engagement activities as anticipated. The applicant says the Commissioner unexpectedly and precipitously sent a notice dated 2 February 2021 informing the applicant that the Commissioner was commencing an audit. The issue of the notice effectively foreclosed the possibility of remitting the penalties beyond 100% - unless there were exceptional circumstances.

   The controversy

9. The applicant says the Commissioner’s behaviour in publicly pausing compliance enforcement during the height of the pandemic and his subsequent failure to follow internal policies and procedures which required early engagement was potentially an ‘exceptional circumstance’ for the purposes of s 62(5). To make that argument, the applicant wants access to documents which describe the Commissioner’s internal processes and procedures and any records of its approach in the relevant period. It says the documents it seeks may be relevant to the review in the sense they may shed light on the review.

10. The request for documents outlined in paragraph [9] of the applicant’s submissions strikes me as being overbroad on its face, but the Commissioner has a more fundamental objection. The Commissioner says, in effect, that his internal policies and procedures are obviously irrelevant to the review. He points out the employer’s obligation to disclose the information in a timely way is imposed on the applicant under the legislation. That obligation exists independently of the Commissioner’s compliance activity. Even if there was a lull in the Commissioner’s compliance activity during Covid, the applicant’s obligation to self-report remained – and the Commissioner says the applicant was in breach of that obligation, notwithstanding the amnesty. Mr Pillay, who appeared for the Commissioner, conceded the applicant might be able to argue there were exceptional circumstances if it could establish it had a reasonable basis for assuming the Commissioner would not take further action without clear advance warning. To succeed in that contention, the applicant would presumably need to set out the basis of its understanding. The contents of an internal policy or procedure (or information about whether the Commissioner departed from it) would be neither here nor there, I was told: the only hope for the applicant would be if it could establish it was aware of publicly available information (or information provided to it in private by the Commissioner’s officers) which engendered a false expectation that compliance action would not commence without ample warning.

11. I note Mr Pillay points out the Commissioner sent an ‘early engagement’ letter to the applicant on 27 February 2020 and a further template letter warning about the end of the amnesty that was received on 5 August 2020. He says that evidence cannot be squared with any claim the Commissioner might have given the applicant false expectations about the Commissioner’s approach.

12. The Commissioner’s argument comes down to this: the documents the applicant seeks cannot be relevant to the review because it makes no difference whether the Commissioner complied with any internal policies and procedures. The issue in dispute between the parties appears to be whether there were exceptional circumstances that prevented the applicant from complying with its obligations before the Commissioner advised it was examining the applicant’s (non)compliance. The applicant can prove that with reference to evidence the applicant already has to hand.

13. The applicant says the Tribunal should not attempt to resolve the question of exceptional circumstances now. It says there are questions of statutory interpretation to be resolved. Even if I have doubts about the prospects for the applicant’s argument at this point, I should put them aside for now provided I am satisfied the documents may be relevant to the review – as opposed to being satisfied the documents are relevant.

14. I am not satisfied at this point that the documents in question may be relevant to the review, assuming they exist. The applicant presumably already has access to information about the Commissioner’s publicly expressed approach to compliance activities in the relevant period. It certainly can provide evidence of its understanding and any basis for that understanding. It should do so.

15. I do not rule out the possibility that the applicant will be able to demonstrate how the documents may be relevant to the review as the case unfolds. Once it files its statement of facts, issues and contentions and other evidence, the potential relevance might become clearer. For now, I am not satisfied it would be appropriate to make orders under s 37(2) of the AAT Act.

    Conclusion

16. The application for orders under s 37(2) of the AAT Act is refused.

I certify that the preceding 16 (sixteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President McCabe

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Associate

Dated: 23 June 2023

Date(s) of hearing:	6 June 2023
Counsel for the Applicant:	N Dodds
Solicitors for the Applicant:	Clayton Utz
Respondent:	ATO Litigation & Legal Services