K&W Childcare Pty Ltd v Commissioner for Act Revenue (Administrative Review)

[2020] ACAT 12

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

K&W CHILDCARE PTY LTD v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2020] ACAT 12

AT 55/2019

Catchwords:                ADMINISTRATIVE REVIEW – penalty provisions as amended Taxation Administration Act 1999 – failure to pay payroll tax – higher penalty rate does not apply – remission for part of the period due to incapacity

Legislation cited:        ACT Civil and Administrative Tribunal Act 2008 s 39

Education and Child Care Services National Law (ACT) Act 2011
Taxation Administration Act 1999 ss 31, 37, 82

Cases cited:Kessey v Commissioner for ACT Revenue [2019] ACAT 83

List of

Texts/Papers cited:     Revenue Circular GEN006.2, dated 6 July 2018

Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019, Legislative Assembly, 2019

Tribunal:  Senior Member L Beacroft

Date of Orders:  13 February 2020

Date of Reasons for Decision:         13 February 2020

AUSTRALIAN CAPITAL TERRITORY  )

CIVIL & ADMINISTRATIVE TRIBUNAL       )          AT 55/2019

BETWEEN:

K&W CHILDCARE PTY LTD

Applicant

AND:

COMMISSIONER FOR ACT REVENUE

Respondent

TRIBUNAL:Senior Member L Beacroft

DATE:13 February 2020

ORDER

The Tribunal orders that:

1.The decision under review is varied as follows:

(a)      The penalty tax to be applied is 25%.

(b)Penalty tax for the period 23 December 2016 to 30 April 2017 is fully remitted.

2.The decision under review is otherwise confirmed.

3.Pursuant to section 39 of the ACT Civil and Administrative Tribunal Act 2008 the names of the applicant, its director, and P are not to be identified. There is to be no public access to the file.

………………………………..

Senior Member L Beacroft

REASONS FOR DECISION

Background

1.K&W Childcare Pty Ltd[1] (the applicant) seeks review of a decision dated 11 June 2019 made by the Commissioner for ACT Revenue (the respondent) that disallowed part of an objection lodged by the applicant. The objection relates to a payroll tax assessment dated 13 February 2019 that included imposition of interest, and also included a penalty tax at the rate of 50% in the sum of $142,814.12. The respondent’s decision about interest is not a decision reviewable by the ACT Civil and Administrative Tribunal (ACAT), but the respondent’s decision about the penalty tax is a reviewable decision and is the subject of this review by ACAT. The applicant sought reduction of the penalty tax on various grounds to a rate of 25%, or, in the alternative, nil penalty tax.[2] The respondent denied the applicant’s claims.

[1] ‘K&W Childcare Pty Ltd’ is not the applicant’s real name. A pseudonym has been used to preserve the applicant’s privacy and the privacy of others.

[2] Application for review of a decision dated 25 June 2019

2.By way of background to the decision under review, on 30 November 2018 the respondent sent to the applicant’s accountant at the time, a section 82 notice under the Taxation Administration Act 1999 (the TAA) that requested a range of information and for the applicant to register for payroll tax if they were liable. After some exchanges between the principal of the applicant’s accountant, P, and the respondent, the applicant’s response was received by the respondent on 23 January 2019. P also lodged an ACT Payroll Tax Registration form with the respondent on 24 January 2019, which resulted in the applicant being registered for ACT payroll tax. On 13 February 2019 the respondent issued a Payroll Tax Notice of Assessment for the period from 2014/15 to December 2018, which imposed penalty tax at the 50% rate. The applicant then gained assistance from another accountancy firm and lodged an objection on 8 March 2019. This objection was in part allowed – the element that was allowed related to exempt wages that had been included in the assessment and which were then excluded by the respondent in calculating the payroll tax payable. The applicant’s objection to the interest and 50% penalty tax was disallowed, and the penalty tax is the subject of this review by ACAT.

3.In dismissing the applicant’s objection for the 50% rate of penalty tax, the Commissioner’s reasons for decision reference the prior version of section 31, and cases related to the prior version of this provision.[3] Both parties recognised in the proceedings before ACAT that in this case the relevant provisions of the TAA are sections 31 and 37 as amended, which are set out in more detail below at [7]. In this regard, the reasons for decision were incorrect.

[3] Reasons for decision dated 11 June, page 6

4.The case has other unusual features. The applicant is a company, and its sole director G was involved in a serious bicycle accident on 23 December 2016, causing head injuries. The evidence of G and his accountant P was that G was an engaged sole director, personally undertaking various tasks at various times for the applicant such as payrolls, PAYG and superannuation payments.[4] G’s accident led to his wife, Ms G, being appointed by ACAT as his guardian and financial manager on 7 February 2017, then appointed as his financial manager on 21 February 2017, with all such orders revoked by ACAT on 19 April 2017.[5] Ms G was also appointed the approved childcare provider instead of G, an appointment required under Commonwealth legislation necessary for a childcare centre to operate. She held this position until after the ACAT orders had been revoked and G satisfactorily completed certain tests.[6]

[4] Statement of [G] dated 15 August 2019 at [21], [24]; Statement of [P] dated 29 August 2019; Transcript of proceedings 2 October 2019, page 34

[5] Exhibit A4

[6] Transcript of proceedings 2 October 2019, page 82

5.Another unusual feature of this case concerns P’s evidence about his role in the tax default and his health. The principal of the applicant’s accountancy firm, P, admitted in his evidence that he was responsible for advice about payroll tax and that he had not provided advice about the payroll tax:

I was not aware that the applicant had approached or passed the payroll tax threshold or that it was required to register for payroll tax. Accordingly, no advice or information was provided by me to [G] or to the applicant in relation to payroll tax.[7]

[7] Statement of [P] dated 29 August 2019 at [27]; transcript of proceedings 2 October 2019, page 28

In his oral evidence P also explained that he had recently begun a process to have a significant health issue diagnosed that meant he was retiring, and had been suffering from symptoms from earlier in 2019 as far as he was aware: “I can’t seem to put together an argument”.[8] The Tribunal observed him to be confused at times in his oral evidence, for example he was not able to name the type of doctor he was seeing for health issues and he also contradicted himself at times.[9]

Law

[8] Transcript of proceedings 2 October 2019 page 21

[9] Transcript of proceedings 2 October 2019 pages 29-39, 53

6.The onus is on the applicant taxpayer to satisfy the Tribunal that the penalty tax should be reduced, providing evidence that is “logically probative in which the rule of evidence will provide a guide.”[10]

[10] Respondent’s outline of submissions dated 20 September 2019 [4], citing Sun v Minister for Immigration and Border Protection [2016] FCAFC 52 at [60] and others

7.The TAA sets out the circumstances where penalty tax may be reduced. In summary, 2019 amendments to sections 31 and 37 of the TAA result in the following changes to the laws applicable to this case:

(a)The base rate for penalty tax is 25% of the amount of tax unpaid (section 31(1)).

(b)The penalty “may” be increased to 50% if “satisfied” that certain circumstances existed (section 31(2)).

(c)The circumstances that “may” trigger a 50% penalty tax are where the tax default “was caused wholly or partly” by “delaying” the “payment of tax” or “delaying” the “provision of information required for the assessment of tax”, or “providing … incorrect, incomplete, or misleading information” (section 31(2)(a)), or where the tax default is a “second or subsequent” default (section 31(2)(b)).

(d)Section 37 is a broad unfettered provision that allows penalty tax to be remitted by any amount, only constrained by the subject matter, scope and purpose of the TAA.

8.The amended sections 31 and 37 of the TAA that apply in this case are extracted at the end of this decision.

9.The Revised Explanatory Statement (the Explanatory Statement) for the above amendments explained that they are for the “benefit of both taxpayers and administrators”, that they aim to achieve “realignment of the 25% penalty tax rate as the base default rate”, and that a “general remission power for interest and penalty tax is inserted for consistent application for all tax lines”.[11] It states that the amendments are expected to result in “fewer taxpayers being subject to the 50 per cent penalty tax rate”.[12]

[11] Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019, Legislative Assembly, 2019, page 5

[12] Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019, Legislative Assembly, 2019, page 5

10.The Explanatory Statement also says that the amendments are not expected to result in a change of outcome for those taxpayers currently subject to 50% penalty tax rate as set out in Revenue Circular GEN006.2, dated 6 July 2018 (the Revenue Circular).[13] The Revenue Circular is written on the basis of old laws, including prior versions of sections 31 and 37. It explains how the Commissioner “administers discretionary powers under penalty tax provisions”,[14] and that this involves applying such provisions “with the intent that the level of penalty should match the degree of culpability”.[15] It devotes considerable attention to explaining ‘reasonable care’, but this is a term that has less relevance to the amended versions of sections 31 and 37 since it is only used in section 31(5). Of significance here is that the term is not used in section 31(2) as amended; section 31(2) is a provision that allows penalty tax to be increased from the default of 25% to 50%, which is in contrast to the previous version of section 31(2). The Revenue Circular considers the circumstances that may demonstrate reasonable care or the lack of it, such as ignorance of the law, engaging an expert who did not take reasonable care, inadequate efforts by the taxpayer to comply with tax laws, inadequate systems to support compliance, and poor timeliness and responses to inquiries by the Commissioner.

Applicant’s contentions

[13] Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019, Legislative Assembly, 2019, page 5

[14] Revenue Circular GEN006.2, dated 6 July 2018, page 1

[15] Revenue Circular GEN006.2, dated 6 July 2018, page 3

11.The applicant contended that the “correct or preferable amount of penalty tax is not 50% but rather nil or alternatively a significantly lower rate than that applied”.[16]

[16] Applicant’s further submissions dated 7 November 2019 at [2]

12.In summary, the applicant contended that the purpose of the amended section 31(2) “was to narrow the circumstances in which 50% penalty tax would be levied”.[17] The applicant contended that the Explanatory Memorandum may be used to understand the amendment but it cannot be used to “re-write the statute”, and the plain words of the section support the applicant’s interpretation.[18]

[17] Applicant’s further submissions dated 7 November 2019 at [29]

[18] Applicant’s further submissions dated 7 November 2019 at [31]

13.In regard to section 31(2)(a), the applicant contended that the Tribunal must be satisfied that there was an intentional act that caused one of the circumstances in section 31(2)(a) before the discretion to impose penalty tax is enlivened [under section 31(2)]”.[19] The applicant contended that none of the circumstances set out in section 31(2)(a) existed in this case.

[19] Applicant’s further submissions dated 7 November 2019 at [33]

14.In relation to section 31(2)(b) and whether it applied, there was an issue about whether the applicant had a history of tax default, specifically a prior tax default for late payment of rates. The applicant contended that the payment in 2018 by the applicant of rates after their due date (being 15 March 2017) was not a tax default for the purposes of section 31(2)(b) since it involved an administrative error by the respondent.[20] Even if there has been a “technical tax default” in regard to rates by the applicant, the applicant contended that it is not the sort of tax default that section 31(2)(b) is designed to capture, the section is intended to “punish repeat offenders”.[21] The applicant also contended that the submission by the respondent that there has been many different payroll tax defaults by the applicant is “artificial”.[22] The applicant contended that penalty tax is levied as a “combined whole” for non-compliance in different tax years which is the result “of the same cause and arises out of the same course of events”.[23]

[20] Applicant’s further submissions dated 7 November 2019 at [17]-[24]

[21] Applicant’s further submissions dated 7 November 2019 at [23], [26]

[22] Applicant’s further submissions dated 7 November 2019 at [25]

[23] Applicant’s further submissions dated 7 November 2019 at [25]-[26]

15.The applicant contended that there are circumstances that support the exercise of discretion to remit the penalty tax in this case under section 37, including the unusual circumstance mentioned above [4] being G’s incapacity to attend to the affairs of the applicant due to his accident.[24]

[24] Applicant’s statement of facts and contentions dated 30 August 2019 at [36]

16.The applicant argued against the wide range of contentions raised by the respondent during the hearing.[25]

Respondent’s contentions

[25] Applicant’s further submissions dated 7 November 2019 at [3]-[16]

17.In summary, the respondent acknowledged that section 31 as amended broadens the discretion not to impose a 50% penalty tax and section 37 as amended removes express conditions for remitting penalty tax.[26] However, in interpreting these provisions the respondent contended that the TAA strikes a balance in its provisions “in favour of the protection of public revenue despite the possible hardship to taxpayers”, reflecting in part the “vulnerability of the tax system”.[27] Given the latter stated purpose and context of the TAA, the exercise of discretion under section 37 is “strictly constrain[ed]”, and the exercise of discretion under section 31 will reflect “the degree to which the conduct of the taxpayer [or agent] is inconsistent with… the Act”.[28]

[26] Respondent’s outline of submissions dated 20 September 2019 at [35], [59]

[27] Respondent’s outline of submissions dated 20 September 2019 at [19]

[28] Respondent’s outline of submissions dated 20 September 2019 at [21]

18.Considering section 31, in summary the respondent contended that the meaning of the words does not require an “intention”, especially in the context of section 31(4) which separately deals with an “intentional disregard “by the taxpayer”.[29] The respondent contended that a positive act is not required for section 31(2) to be enlivened, and that “being careless or reckless”, an “omission”, can enliven it.[30]

[29] Respondent’s outline of submissions dated 20 September 2019 at [39], [50]

[30] Respondent’s outline of submissions dated 20 September 2019 at [46]-[50]

19.The respondent contended that the objectives of section 31 are “achieved by specifically defining types of conduct where the section is engaged” and “otherwise leaving the Commissioner with a broad discretion whether to apply a 50% rate”.[31] The latter discretion is “to be exercised consistent with the subject matter, scope and purpose of the scheme” under section 31 and the TAA as a whole, and “only operates within the gap between nil penalty and the 75% penalty tax rate, reflecting the degree to which the conduct of the taxpayer was inconsistent with the objects and the purpose of s31”.[32] The respondent stated that “while the amendments [to section 31] were expected to result in fewer taxpayers being subject to the 50% penalty tax rate, they were not intended to materially change the circumstances in which a 50% rate would apply”.[33] The Explanatory Statement, by referencing the Revenue Circular, supports an interpretation of section 31(2) such that “the level of culpability …remains the same [as for the prior provision]”.[34]

[31] Respondent’s outline of submissions dated 20 September 2019 at [44]

[32] Respondent’s outline of submissions dated 20 September 2019 at [45]

[33] Respondent’s outline of submissions dated 20 September 2019 at [41]

[34] Respondent’s outline of submissions dated 20 September 2019 at [48]

20.The respondent also contended that it is appropriate to exercise the discretion to impose a 50% penalty tax rate where a taxpayer fails to take reasonable care as set out in the Revenue Circular. For example, in circumstances where the taxpayer has been ignorant of their tax liabilities, has not taken reasonable steps or not maintained proper systems, etc.[35] In this case, the respondent pointed to a range of circumstances that justify imposing a 50% penalty tax under section 31(2) and that justify not reducing the penalty tax to nil under section 31(5). These include: the applicant was “unaware of its obligations to register and pay payroll tax”; there is no evidence that the applicant “took steps to specifically inform itself as to its payroll tax obligations”; it is unreasonable that the latter circumstances occurred given the applicant was a “sophisticated taxpayer”; and given its nature, size and significant growth, and the applicant was aware following the ATO audit that its tax obligation processes were not “sufficiently rigorous”.[36] The respondent contended that the applicant’s sole director was an active director, including in the applicant’s tax affairs, and did not exercise reasonable care; nor did the applicant’s accountant exercise reasonable care and the “taxpayer is responsible for the conduct of their tax agent” even where that agent is negligent.[37] The respondent submitted that various circumstances set out in section 31 that trigger its application existed in this case.[38]

[35] Respondent’s final outline of submissions dated 7 November 2019 at [10]

[36] Respondent’s final outline of submissions dated 7 November 2019 at [11], [14]-[15], [17]-[18]

[37] Respondent’s final outline of submissions dated 7 November 2019 at [13], [31]-[39], [40]-[44]

[38] Respondent’s outline of submissions dated 20 September 2019 at [52]-[55]

21.In regard to G’s incapacitation from 23 December 2016 to April 2017, the respondent contended this incapacity has “little or no relevance to the exercise of the discretion” under the TAA[39] – the applicant’s affairs remained managed by “two managing directors and [Ms G]”, G stated the centres “largely ran themselves, although bills were not paid in a timely fashion”, the applicant is a company with significant resources, and “there is no connection between the incapacity and the tax default”.[40]

Findings

[39] Respondent’s final outline of submissions dated 7 November 2019 at [47]

[40] Respondent’s final outline of submissions dated 7 November 2019 at [46]-[47]

22.The Tribunal accepts the respondent’s contention that the highest purpose of the TAA is to protect public revenue. It also accepts that there may be a level of harshness to achieve this purpose, and that there is a balance struck in the TAA between hardship to taxpayers and protecting public revenue, in favour of the latter.[41] In the Tribunal’s view this is well illustrated by the legislation imposing the onus in these proceedings on the taxpayer and setting out a relatively high minimum default penalty tax of 25%. Not inconsistent with the highest purpose of the TAA, the TAA also sets out a framework of culpability by the taxpayer such that the circumstances and conduct associated with a tax default are relevant to an assessment of the culpability and the penalty tax payable.

[41] Respondent’s final outline of submissions dated 7 November 2019 at [17]-[19]

23.The applicant in this case is an incorporated entity. The respondent contended that Tribunal should not “lift the corporate veil to have a more beneficial application of s31 and 37”.[42] On this point, the Tribunal notes that the applicant company’s compliance or non-compliance must be led and undertaken by real persons. It finds that the circumstances and conduct of the applicant’s director who, for most of the relevant period, was the “sole shareholder and director and company secretary of the applicant”[43] are relevant to the application of the TAA. Also, the circumstances and conduct of the principal of the applicant’s accountancy firm are also relevant.

[42] Respondent’s outline of submissions dated 20 September 2019 at [64]

[43] Applicant’s statement of facts and contentions dated 30 August 2019 at [4]

24.The Tribunal finds that it is not satisfied there are grounds for a 50% penalty tax to be imposed nor is it satisfied there are grounds for a reduction of penalty tax to nil. It is satisfied that there are grounds to remit penalty tax to nil for the period from 23 December 2016 to 30 April 2017. Further details of the Tribunal’s findings are set out below.

25.The default penalty tax is 25%, and it applies in this case.

26.A key issue in the case is whether section 31(2) is enlivened, with the consequence that the higher 50% penalty tax is payable and not the default 25% payable under section 31(1). The Tribunal finds that there are not grounds in this case to exercise the discretion to increase the penalty tax to 50% under section 31(2).

27.The tax default was not caused wholly or partly by the applicant or his agent “delaying the payment of tax” (section 31(2)(a)(i)), “delaying the provision of information” (section 31(2)(a)(ii)) or providing “inadequate, incomplete or misleading information” (section 31(2)(a)(iii)).While the late payment of rates by the applicant is a tax default, in this case it is not of the nature of, and in circumstances where, it should be the basis for discretion to be exercised to increase the penalty tax to 50%. In this case the multiple failures to pay payroll tax, which technically may be multiple tax defaults, do not provide a basis for discretion to be exercised to increase the penalty tax to 50%.

28.The Tribunal notes the respondent’s contention that the Revenue Circular is and will continue to be highly determinative of when the discretion under section 31(2) is to be exercised. The Explanatory Statement says the amendments are “not expected to result in a change of outcome for those taxpayers currently subject to the application of the 50 percent penalty tax rate as the circumstances specified in the amendments are consistent with the circumstances for a failure to take reasonable care described in Revenue Circular GEN006.2 of 6 July 2018”.[44] But the Explanatory Statement also says that the amendments are expected to result in fewer taxpayers being subject to the 50 per cent penalty tax rate.[45] The latter two statements are somewhat difficult to reconcile. The Tribunal accepts the applicant’s contention that use of extrinsic material such as the Explanatory Statement must be used in conjunction with the meaning of the provision, and the Explanatory Statement can’t “re-write the statute”.[46] To the extent that the Explanatory Statement is less than clear, the Tribunal finds that the provisions themselves offer clarity.

[44] Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019, Legislative Assembly, 2019, page 5

[45] Revised Explanatory Statement, Revenue Legislation Amendment Bill 2019, Legislative Assembly, 2019, page 5

[46] Applicant’s statement of facts and contentions dated 7 November 2019 at [31]

29.The respondent contended that the overall effect of the amendments is as follows:

the level of culpability that is required to be satisfied for the purposes of s31(2) remains the same and hence why the amendments do not materially change the circumstances to which a 50% rate would apply.[47]

[47] Outline of submissions for the respondent dated 20 September 2019 at [48]

On this point, the Tribunal accepts that sections 31, 32 and 37 as amended continue to set out a framework of culpability. Section 31(2) is intended to cover a ‘level of culpability’ that sits between a nil or 25% tax on the one end of a continuum, and a 75% penalty tax on the other end. In regard to the ‘material circumstances’ that determine the level of culpability under section 31(2), the Tribunal agrees with the respondent that the Revenue Circular at the time the 2019 amendments were enacted offers guidance about what may or may not constitute the circumstances relevant to the specified circumstances set out in section 31(2). However, the Revenue Circular does not set out all circumstances that are relevant to that section being enlivened or not enlivened. Its relevance is confined to any of its content that relates to the specified circumstances set out in section 31(2). As time passes, the Revenue Circular will become less relevant given it is referencing old provisions of the TAA, and caselaw about the amended provisions will overtake it.

30.The Tribunal accepts the applicant’s contention that section 31 as amended means that “something more than a tax default alone is required to enliven the discretion to impose 50% penalty tax.”[48] Also, it accepts that the Explanatory Statement “makes it plain that the amendment was intended to result in fewer taxpayers being subject to the 50% penalty tax rate”.[49] The Tribunal accepts the applicant’s contention that the amendment to section 31(2) narrows the circumstances in which 50% penalty tax is levied compared to the prior provision where it was imposed for a failure to not take reasonable care.[50]

[48] Applicant’s statement of facts and contentions dated 7 November 2019 at [19b]

[49] Applicant’s statement of facts and contentions dated 7 November 2019 at [29]

[50] Applicant’s statement of facts and contentions dated 7 November 2019 at [29]-[30]

31.The Tribunal does not accept the applicant’s contention that section 31(2) necessarily requires a positive act or intention by the applicant,[51] and agrees with the respondent’s contentions in this regard.[52] The applicant’s contention in this regard is not consistent with the statutory scheme because, as the respondent points out, accepting it would leave section 31(4) with no practical effect.[53] The Tribunal finds that section 31(2) may be enlivened by an unintentional omission, by “ the taxpayer being careless or reckless”,[54] and section 31(2) may be triggered by behaviours and circumstances that are also relevant to a failure to take reasonable care as set out in the Revenue Circular.

[51] Applicant’s statement of facts and contentions dated 7 November 2019 at [19b], [31]

[52] Outline of submissions for the respondent dated 20 September 2019 at [49]-[51]

[53] Outline of submissions for the respondent dated 20 September 2019 at [39]

[54] Outline of submissions for the respondent dated 20 September 2019 at [46]

32.In summary, the Tribunal finds that the enlivening acts or circumstances under section 31(2) need to be individually or accumulatively of such a nature and significance that they are evidence of a culpability above that associated with nil (section 31(5)) and 25% (section 31(1)), but a culpability below that associated with 75% (where there is an “intentional disregard”, section 31(4)). This does not mean however that the circumstances required for section 31(2) to be satisfied are materially the same[55] as those circumstances set out in the Revenue Circular and hence materially the same as under the prior provision, as the respondent contended. Rather, the circumstances that enliven the amended section 31(2) may be the same as those set out in the Revenue Circular, but they may not be the same since the amended provision has different wording and the circumstances that enliven this section have been narrowed by virtue of the amended wording.

[55] Outline of submissions for the respondent dated 20 September 2019 at [48]

33.In this case, the Tribunal finds that the circumstances of the case are not of a nature to demonstrate a culpability above that associated with 25% penalty tax (section 31(1)). Considering each of the circumstances that together or separately might enliven the discretion to impose 50% penalty tax in the case, the Tribunal finds as follows.

Section 31(2)(a)(i), “delaying the payment of tax”

34.It is the Tribunal’s view that the delaying of payment needs to be more than any delay that led to the tax default itself. If it is interpreted otherwise, section 31(2)(a)(i) applies automatically to any tax default and has no role to play, which is not what was intended. It is not contested that the tax default came about by the applicant not paying the tax on time and not lodging returns on time, the question is whether these circumstances trigger this subsection in this case. The respondent contended that they do.[56] The Tribunal finds that the latter delays alone are not sufficient to trigger this subsection in this case – they are the omissions rather than delays that led to the tax default arising. In this finding, the Tribunal distinguishes this case from that in Kessey v Commissioner for ACT Revenue [2019] ACAT 83 at [63]. The Tribunal notes that the applicant paid the tax due in the re-assessment dated 11 June 2019 on time.[57]

Section 31(2)(a)(ii), delaying the provision of information required for the assessment of tax

[56] Outline of submissions for the respondent dated 20 September 2019 at [54]

[57] Statement of [G] dated 15 August 2019 page 53

35.The respondent argued that the applicant delayed the provision of information required for the assessment of tax by failing to register until 24 January 2019, after the respondent sent a reminder to do so.[58] The respondent also points to the applicant delaying in responding to its request for information (section 82 request) in that the applicant responded (after the respondent sent a reminder) on 23 January 2019, when the response was initially required by 14 January 2019.[59] The Tribunal does not find that the latter circumstance constitutes a delay for the purposes of this subsection. The duration between when the response was initially required (14 January 2019) and when it was received (23 January 2019) is not significant and P advised the respondent that he had posted it on 16 January 2019. Also, the reminder sent by the respondent on 17 January 2019 stated a revised due date of the 24 January 2019.[60] The Tribunal takes into account the evidence of P that he has been suffering from a health condition, not yet fully diagnosed but which has symptoms he became aware of in 2019, of such seriousness that it has led him to stop working during 2019.

Section 31(2)(a)(iii), providing incorrect, incomplete or misleading information”

[58] Outline of submissions for the respondent dated 20 September 2019 at [54]

[59] Outline of submissions for the respondent dated 20 September 2019 at [53]

[60] T-documents pages 36-84

36.There is no evidence that the applicant provided such information.

Section 31(2)(b), is “taxpayer’s second or subsequent tax default”

37.The Tribunal rejects the respondent’s contention that each failure of the applicant to pay its payroll tax liability on time (i.e. 7 days from the end of each month) in this case is a separate tax default for the purposes of section 31 and therefore the 50% penalty tax is payable.[61] Each failure to pay on time may be a tax default, but they arise from the same course of events, as the applicant contended, and are not the sort of tax defaults contemplated by section 31(2)(b). If the Tribunal were to find otherwise, it would mean that all taxpayers who have failed to pay a tax liability on time for more than one period would be subject to a 50% penalty tax, and the Tribunal finds that this is not what was intended by the amended provision.

[61] Outline of submissions for the respondent dated 20 September 2019 at [10]-[11]

38.The Tribunal does not find that the payment by the applicant of the rates is a tax default that enlivens section 32(2)(b). A series of ‘catch-up’ rates notices for the land purchased in 2014 were issued by the respondent on 20 December 2016, with a payment due date of 15 March 2017. This meant that the applicant had to pay a large rates bill unexpectedly, and at a time when G was subject to Orders of ACAT due to lost capacity as set out later below at paragraph [44]. In any case, the respondent advised the applicant in an email dated 14 February 2017 to “disregard the due dates on the notices”.[62] The applicant paid the rates bill in instalments, making full payment by 27 February 2018.

Section 31(5), nil penalty tax payable if “reasonable care” was taken

[62] Statement of [G] dated 26 September 2019, Attachment MG5; Applicant’s further submissions dated 7 November 2019 at [17]-[24]

39.There are no grounds for the penalty tax to be reduced to nil under section 31(5).The Tribunal is not satisfied that the applicant or its agents (G and P) took reasonable care to comply with the tax law (section 31(5)(a)), or that the tax default happened solely because of circumstances beyond the taxpayer’s control (section 31(5)(b)). The Tribunal accepts the respondent’s contentions in this regard.[63] In particular, the Tribunal finds that G was active in aspects of the business and P had a long history with the applicant, but neither exercised reasonable care. The applicant had an ATO audit around 2015 that showed employees’ superannuation payments were unpaid[64] and while a subsequent follow-up audit found no issues, the discovery of the initial mistake should have alerted G and P that there could be other deficiencies in the applicant’s systems and further compliance checks were prudent – but there is no evidence that this was done. In 2014 when the payroll tax began to be payable, the applicant more than doubled its employees when it opened the second child care[65] and in the Tribunal’s view this alone should have led the applicant to undertake a significant review of its operations and liabilities to ensure compliance with relevant laws – but there is no evidence that this was done. The standard for what is reasonable care is not low in this case, it is proportionate to the applicant’s circumstances, being a medium size business operating in a highly regulated industry with operational management staff. The applicant did not exercise reasonable care to the standard required in this case.

[63] Outline of submissions for the respondent dated 20 September 2019 at [22]-[27]

[64] Outline of submissions for the respondent dated 20 September 2019 at [52], referring to Statement of [G] at [50-51]; statement of [P] dated 29 August 2019 at [31]

[65] Statement of [G] dated 26 September 2019 at [9], [16]

40.The Tribunal notes that the applicant contended that it was P who failed “to provide advice for which he was retained”, and that the tax default “was the result of an oversight by the applicant’s accountant”.[66] There was no dispute between G and P that it was P who had responsibility for financial advice and tax compliance and that P did not advise G of the applicant’s payroll tax liability because he was not aware of it.[67] However, the Tribunal rejects the applicant’s contention that any failure by P to take reasonable care excuses the applicant.[68] On the contrary, in this case any failure by P provides support for a conclusion that the applicant failed to take reasonable care. The Tribunal also finds that G failed to take reasonable care given his significant involvement in the business, and this finding also supports the Tribunal’s conclusion that section 31(5) is not enlivened in this case.

Section 37, if appropriate in the circumstances, remit penalty tax by any amount

[66] Applicant’s statement of facts and contentions dated 30 August 2019 at [31]-[32]

[67] Statement of [G] dated 15 August 2019 at [26]-[30], [38]; Statement of [P] dated 29 August 2019 at [8]-[9], [27]

[68] Applicant’s statement of facts and contentions dated 30 August 2019 at [34]

41.The Tribunal finds that it is “appropriate in the circumstances” to remit the penalty tax to nil for the period when G was incapacitated. G was unable to perform his usual role in the applicant’s business following an accident on 23 December 2016 until when he regained sufficient capacity to manage his affairs and he was re-appointed and actively fulfilling the role of approved childcare provider which the Tribunal estimates to be 30 April 2017.

42.The respondent contended that section 37 as amended is directed at a “harsh outcome … [that] is not intended by the statutory scheme”, which the Tribunal accepts. While the Revenue Circular may have some relevance to what circumstances indicate when the discretion under section 37 is to be exercised, the Tribunal does not accept that “as a practical matter, there is no material change in the circumstances in which it would be appropriate to remit penalty tax” given the revised wording.[69] The respondent acknowledged that the amended section 37 of the TAA has a discretion to remit penalty tax that is “no longer subject to any express conditions”.[70] In the Tribunal’s view, the plain words of the amended section 37 provide clarity that the section is no longer limited to those specific circumstances set out in the previous provision; the discretion to remit penalty tax under section 37 is less constrained.

[69] Outline of Submissions for the Respondent dated 20 September 2019 at [61]

[70] Outline of submissions for the respondent dated 20 September 2019 at [59]

43.After G’s accident on 23 December 2016, ACAT appointed G’s wife as his guardian until 21 February 2017 and manager of his financial affairs until 19 April 2017.[71] During and after the time he was subject to the ACAT orders, G was removed as the approved manager of the childcare centres under the Education and Child Care Services National Law (ACT) Act 2011, and indeed there was a written direction that he not enter the childcare centres due to his incapacity.[72] The respondent argued that this period of G’s incapacity is of little or no relevance to remitting under section 37, in summary because it is not related to the tax default and also that the applicant had adequate capacity despite G’s incapacity. The Tribunal finds that G’s incapacity is relevant to the discretion to remit penalty tax under section 37 in this case for the reasons stated below.

[71] Exhibit A4

[72] Exhibit A4

44.The Tribunal finds that G’s incapacity is extraordinary given the significant role that G played in the applicant’s business, and G’s incapacity significantly undermined the applicant’s capacity. While P remained available and G’s wife was appointed in his stead, the Tribunal is satisfied that neither of these persons took up the role that G usually filled. Indeed, the Tribunal is satisfied that neither could replace G, given G’s background, experience, corporate memory, relationships, and qualifications. The Tribunal notes that G undertook some follow-up for the applicant in the period when the ACAT orders were in place, for example contacting the respondent about rates notices in early 2017 and paying bills. However, the Tribunal regards this as evidence of the difficulties and risks that the applicant was facing with G’s absence. The Tribunal accepts G’s evidence that he prematurely sought revocation of the ACAT orders due to concerns about unpaid overdue bills and his wife’s inexperience and lack of skills, and that he remained lacking in capacity in the applicant’s work until much later after 30 April 2017.[73] The Tribunal finds that the well-evidenced period of incapacity by G, from 23 December 2016 to 30 April 2017, significantly diminished the applicant’s capacity and on this basis the Tribunal remits fully the penalty tax for this period under section 37.

[73] Transcript of proceedings 2 October 2019, pages 78-84

45.There is another unusual feature to this case. The reasons provided by the respondent for the decision under review refer to the “pre-1 July 2019” versions of the relevant penalty tax provisions which had the effect of the reasons for the 50% penalty tax “not [being] stated in the reasons for the decision under review”.[74] This is a further circumstance that in the Tribunal’s view could be relevant to whether section 37 is enlivened. Given the findings above that support remitting penalty tax for a period of time, and that this issue was not fully canvassed by either of the parties during the proceedings, the Tribunal does not make a finding on this issue.

[74] Applicant’s statement of facts and contentions dated 30 August 2019 at [2], [15]

………………………………..

Senior Member L Beacroft

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 commissioner may increase the amount of penalty tax payable in relation to a tax default to 50% of the amount of tax unpaid if the commissioner is satisfied that the tax default—

(a)     was caused wholly or partly by the taxpayer (or a person acting on behalf of the taxpayer)—

(i)delaying the payment of tax; or

(ii)delaying the provision of information required for the assessment of tax; or

(iii)providing information required under a tax law that is incorrect, incomplete or misleading; or

(b)     is the taxpayer’s second or subsequent tax default in relation to a tax liability, or in relation to a similar or related tax liability.

(3)Subsection (2) applies to a tax default in the same way whether the tax default happened before or after the subsection commenced.

(4)The commissioner may increase the amount of penalty tax payable in relation to a tax default to 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.

(5)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).

37Remission of penalty tax

The commissioner may, if the commissioner considers it appropriate in the circumstances, remit penalty tax by any amount.

NoteThe commissioner’s decision refusing 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).

HEARING DETAILS

FILE NUMBER:	AT 55/2019
PARTIES, APPLICANT:	K&W Childcare Pty Ltd
PARTIES, RESPONDENT:	Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT	Mr B Buckland
COUNSEL APPEARING, RESPONDENT	Mr N Oram SC
SOLICITORS FOR APPLICANT	Meyer Vandenberg Lawyers
SOLICITORS FOR RESPONDENT	ACT Government Solicitor
TRIBUNAL MEMBERS:	Senior Member L Beacroft
DATES OF HEARING:	2 October 2019