JAYANTI PALA and COMMISSIONER OF TAXATION
[2012] AATA 602
[2012] AATA 602
Division TAXATION APPEALS DIVISION File Number(s)
2011/4220-4222
Re
JAYANTI PALA
APPLICANT
And
COMMISSIONER OF TAXATION
RESPONDENT
DECISION
Tribunal Senior Member G Ettinger
Date 7 September 2012 Place Sydney The Tribunal affirms the objection decision.
........[sgd]......................................
Senior Member G Ettinger
CATCHWORDS
TAXATION AND REVENUE – income tax – PAYG amounts deducted and claimed, yet not remitted to ATO – whether administrative penalties correctly imposed – whether any penalties should be remitted in full or in part – decision under review affirmed
LEGISLATION
Taxation Administration Act 1953 ss 284-75, 284-80, 284-90, 284-220, 298-20 of Schedule 1
CASES
Re Taxpayers and Commissioner of Taxation (2011) 82 ATR 167; [2011] AATA 33
Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 66 ATR 1; [2007] FCA 345
SECONDARY MATERIALS
PS LA 2006/2 Administration of shortfall penalty for false or misleading statement
REASONS FOR DECISION
Senior Member G Ettinger
7 September 2012
SUMMARY
At the relevant time, for the tax years 2006, 2007, and 2008, the Applicant, Mr Jayanti Lal Pala, was the sole director and the only employee of Asean Pacific Consulting Pty Limited, later known as Tuesday Enterprises Pty Limited (the Company).
The Applicant was paid salary and wages from which the Company deducted pay as you go (PAYG) amounts. They were however not remitted to the Commissioner of Taxation (the Commissioner), as required.
Prior to the commencement of the hearing, but not prior to the audit carried out by the Commissioner, the Applicant conceded that the Company did not remit the Applicant’s PAYG withholding credits to the Commissioner. Accordingly the only issue before the Tribunal was to make the correct or preferable decision on the evidence, regarding whether the decision by the Commissioner imposing penalties, should be affirmed, varied or set aside.
I was satisfied from the evidence the Applicant knew that the PAYG amounts for the relevant financial years 2006, 2007, 2008 had not been remitted to the ATO. He is a qualified accountant who practised in accounting and related advisory roles for 20 years. He was also the sole director and the only employee, the controlling mind of the Company. On the basis of the above, I affirmed the decision under review. My reasons follow.
ISSUES
The issues before the Tribunal are:
(a)Whether the Applicant is liable to an administrative penalty of 75% for the relevant years 2006, 2007, 2008 pursuant to section 284-90 of Schedule 1 to the Taxation Administration Act 1953 (TAA) and an uplift of 20% on the penalties for income tax years ended 30 June 2007 and 30 June 2008 pursuant to the TAA, section 284-220 of Schedule 1.
(b)Whether any of the penalties imposed should be remitted in full or in part pursuant to the TAA section 298-20 of Schedule 1.
RELEVANT LEGISLATION
The relevant legislative enactment in this matter is the Taxation Administration Act 1953 (TAA), as it was at the relevant times.
A taxpayer is liable for an administrative penalty under section 284-75 of Schedule 1 of the TAA if the taxpayer, or their agent, makes a false or misleading statement to the Commissioner, and the statement results in a shortfall amount. Relevantly, there is a shortfall amount under subs 284-80(1) if:
a tax-related liability… worked out on the basis of the statement is less than it would be if the statement were not false or misleading.
Section 284-90(1) provides for a base penalty depending on the basis on which the tax shortfall resulted. If the shortfall, or part of it, resulted from a failure by the taxpayer to take reasonable care, the penalty is 25 percent of the shortfall amount. If the shortfall resulted from recklessness the penalty is 50 percent of the shortfall amount, and if the shortfall resulted from intentional disregard, the penalty is 75 percent of the shortfall amount.
The Commissioner, and the Tribunal standing in his shoes, may remit all or a part of a penalty pursuant to section 298-20(1) of Schedule 1 to the TAA, which states inter alia:
(1) The Commissioner may remit all or a part of the penalty.
(2) If the Commissioner decides:
(a) not to remit the penalty; or
(b) to remit only part of the penalty;
the Commissioner must give written notice of the decision and the reasons for the decision to the entity.
The Commissioner issued guidelines, as set out in Practice Statement Law Administration (PS LA) 2006/2, as to when this discretion may be exercised. PS LA 2006/2 provides at [137]:
A major objective of the penalty regime is to promote consistent treatment in respect of the rates of penalty imposed. The objective would be compromised if the penalties imposed at the specified rates were remitted without just cause, arbitrarily or as a matter of course.
According to PS LA 2006/2 penalty should be remitted where there would be unintended or unjust results but notes such cases would be exceptional.
BACKGROUND AND EVIDENCE
As already stated, the Applicant, Mr Pala, was the sole director and the only employee of Asean Pacific Consulting Pty Limited, to which a liquidator was appointed on 31 July 2008. He stated that the position was, that notwithstanding his wife had shares in the Company at one time, he was the controlling mind of the Company, and the sole employee of the Company. He told me that he engaged in accounting and related advisory activities as a consultant for 20 years. He is a trained accountant.
Mr Pala was paid salary and wages from which the Company deducted PAYG amounts. He told me that he calculated the amounts of salary to service the mortgage on his home which he owned jointly with his now ex-wife. I noted that the gross salary amounts were $80,000 in 2006, $100,000 in 2007, and $100,000 in 2008 as indicated in a letter of Jirsch Sutherland, the liquidator, to the Commissioner dated 3 March 2011. Tax said to have been deducted, amounted to $24,000 in 2006, $29,350 in 2007 and $28,600 in 2008. I noted however that no amounts were remitted to the Commissioner.
Mr Pala’s evidence, corroborated by Mr S Robertson, a chartered accountant, was that for the 2006 year, he took his bank statements and other summaries of income and expenses to Mr Robertson, who prepared his tax return on the basis of those. Mr Robertson also prepared a Statement of Financial Performance which was annexed to Mr Pala’s statement (Exhibit A1).
By way of mitigation, Mr Pala submitted that he was embroiled in Family Court matters from 2004 to 2008, and whilst he was mindful of his tax obligations, and consulted the liquidator regarding his obligations pursuant to the Corporations Law, he did not have the funds to meet them. He said that he fully intended to meet those obligations following the family law settlement, which according to him, did not, however, result well for him.
Mr Robertson’s evidence
In his statement, which is Exhibit A2, Mr Robertson stated that he had acted as a tax agent for Mr Pala for in excess of 15 years. Mr Robertson noted that in the 2006 company income tax return he inadvertently omitted the details of wages paid, emphasising that he had however done so in previous years.
Mr Robertson also gave oral evidence at the hearing. He corroborated Mr Pala’s evidence that for the following years, 2007 and 2008, he prepared the personal income tax returns on verbal instructions of the taxpayer, but without the benefit of company records. Mr Pala explained that was because certain documents were with the liquidator, and the rest were held by the Family Court. Accordingly, he had few documents left in his possession. He told me that the 2007 and 2008 figures were estimates, worked out at a meeting with the liquidator and then provided to Mr Robertson.
Mr Robertson stated at [8] of his statement:
It is my experience, having been a tax agent for nearly 30 years, that when a company pays wages with tax being deducted to employees, whether or not PAYG has not been remitted and/or the company goes into liquidation, the employee can properly include the income and tax deducted in his tax return, whether supported by a PAYG Tax Summary or not. I am unaware of a change in that policy by the ATO for the 2006, 2007 and 2008 years in circumstances such as the applicants [sic].
SUBMISSIONS AND CONCLUSIONS
The Penalty
Mr Mansfield, a solicitor who represented Mr Pala, submitted that the letter of Jirsch Sutherland to the ATO at Tribunal document, T8-61, dated 3 March 2011 detailing Mr Pala’s salary for 2006, 2007, 2008, and the tax deducted, stated that the wages had been paid, and the tax deducted. He submitted that the letter was not misleading because it did not say that the tax had actually been paid, only that it had been deducted, and in fact there was no question the tax had not been paid.
Mr Mansfield also argued that the preferable amount of penalty was 25 percent of the tax shortfall given that the non-payment of the PAYG was a failure by Mr Pala to take reasonable care to comply with the law. He submitted that it was not a case of recklessness which might attract a 50 percent penalty, or indeed intentional disregard of the law which attracts a 75 percent penalty. He also submitted that no uplift should be imposed. He submitted that the Commissioner had at first imposed a 50 percent penalty, and had without sufficient reason, increased that to 75 percent.
Ms Gatland, senior litigator of the Commissioner, noted in reply to Mr Mansfield, that the Commissioner had indeed revised the penalty of 50 percent first imposed on 11 March 2011 to 75 percent of the shortfall amount announced in correspondence dated 29 March 2011. She explained that whilst the issue first arose from cross matching documents, further information obtained caused the Commissioner to impose the higher amount. She submitted that the further information provided made it clear that the Applicant or his agent, being a chartered accountant, had the requisite knowledge of taxation law to know that PAYG for the relevant years had not been remitted. Ms Gatland submitted further that the Applicant could have made a voluntary disclosure between 11 March and 29 March 2011, an opportunity of which he did not avail himself.
Ms Gatland submitted that the 75 percent of the shortfall amount plus a 20 percent uplift fee was the penalty sought by the Commissioner from the Tribunal in order to maintain an even playing field for all taxpayers. She submitted:
· As the non-payment extended over the three years, the mistakes were not isolated record keeping or bookkeeping mistakes;
· Mr Pala made no voluntary disclosures either before or during the audit, even though he had engaged a tax practitioner to assist him;
· His previous compliance history was relevant. In that regard Ms Gatland tendered Orders of the Local Court dated 18 June 2008 indicating that Mr Pala was convicted on that date of an offence pursuant to section 8C(1)(a) of the TAA in that he did not provide tax returns for the years 2000 - 2006 in regard to a superannuation fund, as directed to do so (Exhibit R1).
The Tribunal
It is undisputed that Mr Pala did not pay any of the PAYG amounts to the Commissioner for the relevant years.
I am satisfied from his own admissions that Mr Pala knew his company did not have the funds to make the payments in the relevant years, and that both he and his advisors knew the PAYG amounts should be, but had not been paid.
I did not have evidence before me indicating that Mr Pala had informed the Commissioner or any other authority of his intentions regarding his tax obligations, and it is likely from the evidence before me, that he did not do so. Taking into account Mr Pala’s qualifications and work history, I reject Mr Mansfield’s submission that he was unable to keep records, and that he simply had in his mind an estimate of figures required to complete his tax return.
I reject Mr Mansfield’s submission that the letter of Jirsch Sutherland to the ATO (T8-61), dated 3 March 2011, detailing Mr Pala’s salary for 2006, 2007, 2008, and the tax deducted, stating that the wages had been paid, and the tax deducted, was not misleading because it did not say that the tax had actually been paid, only that it had been deducted. Argument that because the letter stated that the tax had been deducted, but without mention of whether it had been paid, and that it therefore was not misleading is semantics, particularly in the light of Mr Pala claiming a credit.
Accordingly, I have assessed whether the penalty should be 25 percent of the tax shortfall due to a failure by Mr Pala to take reasonable care to comply with the law, or whether he was reckless and should incur a 50 percent penalty, or indeed whether he was in intentional disregard of the law, attracting a 75 percent penalty.
I am mindful of the finding in the case of Re Taxpayers and Commissioner of Taxation (2011) 82 ATR 167; [2011] AATA 33 in which Senior Member Sweidan held that a 75% penalty was entirely appropriate. In that case, as in the present one, the Applicant was the sole shareholder and director of the corporations, and a businessman of considerable experience and a long-standing trained accountant.
I cannot accept that what occurred was due to poor record keeping. I preferred the argument of the Respondent, noting that Ms Gatland emphasised that the non-payment extended over three years, and that the mistakes were not isolated record keeping or bookkeeping mistakes; that Mr Pala made no voluntary disclosures either before or during the audit, and noting his previous compliance history and resultant conviction in regard to a superannuation fund. I have also noted the clarification Ms Gatland gave for the increase in the penalty imposed in March 2011.
Intentional disregard involves deliberate conduct and an appreciation that the conduct would flout the tax legislation: Price Street Professional Centre Pty Ltdv Commissioner of Taxation (2007) 66 ATR 1; [2007] FCA 345. According to PS LA 2006/2, to establish intentional disregard the facts must show that the taxpayer consciously decided to disregard clear obligations under a taxation law at [109] of the PS LA.
Given that Mr Pala knew precisely both on a personal and professional level that he was due to remit the PAYG amounts calculated and chose not to, places him squarely into the category of intentional disregard, with the resulting 75 percent penalty to apply. I am satisfied there is no reason to remit the penalty.
I have noted also the issue of the uplift, which in the present situation of my finding of intentional disregard of the law, should be affirmed.
DECISION
The objection decision is affirmed.
I certify that the preceding 33 (thirty three) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Ettinger.
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Associate
Dated 7 September 2012
Date of hearing 24 July 2012
Solicitor for the Applicant Mr P Mansfield, Mansfield Switzer Solicitors Solicitor for the Respondent Ms J Gatland, Australian Taxation Office
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