P D and D D Robinson Pty Ltd v Deputy Commissioner of Taxation
[1998] FCA 837
•15 JUNE 1998
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 15 of 1997
BETWEEN:
P D & D D ROBINSON PTY LTD
FIRST APPLICANTDARCY DANIEL ROBINSON
SECOND APPLICANTPAULA DIANNE ROBINSON
THIRD APPLICANTAND:
DEPUTY COMMISSIONER OF TAXATION
RESPONDENTJUDGE:
FINN J
DATE OF ORDER:
15 JUNE 1998
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1. The application be dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 15 of 1997
BETWEEN:
P D & D D ROBINSON PTY LTD
FIRST APPLICANTDARCY DANIEL ROBINSON
SECOND APPLICANTPAULA DIANNE ROBINSON
THIRD APPLICANTAND:
DEPUTY COMMISSIONER OF TAXATION
RESPONDENT
JUDGE:
FINN J
DATE:
15 JUNE 1998
PLACE:
BRISBANE
REASONS FOR JUDGMENT
It is important in this application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“the ADJR Act”) to emphasise that complaint is not made by the three applicant-taxpayers, P D & D D Robinson Pty Ltd (“the company”), Darcy Robinson and Paula Robinson, that the respondent, the Deputy Commissioner of Taxation, gave inadequate reasons for its decision to refuse to remit various penalties imposed by the Income Tax Assessment Act 1936 (“the ITA Act”). As will become apparent, the applicants are asking for inferences to be drawn concerning what the respondent’s reasons actually were. But they have eschewed the path of seeking to ascertain them directly by, for example, seeking a statement of reasons or else an additional statement under s 13 of the ADJR Act. Equally it is fair to say that in cross-examination the actual reasons and reasoning process of the person who took the decision in question, a Mr Tonissoo, were explored only lightly.
The Background Circumstances
The ITA Act setting
The remission decisions the subject of this application relate (a) to additional tax and penalties on unpaid company Group Tax remittances; and (b) to additional tax and interest in respect of income tax payable by all three respondents.
Insofar as the Group Tax is concerned the penalty provision is s 221F(12) of the ITA Act, and the remission provision is s 221N. The former of these provides:
“221F(12) [Penalty where amount remains unpaid] Where an amount (in this subsection referred to as the ‘principal amount’) payable to the Commissioner by an employer other than the Commonwealth because of subsection (5) (including that subsection as varied by subsection (7)), remains unpaid after the time by which it is required to be paid:
(a)the principal amount continues to be payable by the employer to the Commissioner; and
(b)the employer is liable to pay to the Commissioner, by way of penalty:
...
(ii) in any other case:
(A)an amount (in this subparagraph referred to as the ‘relevant penalty amount’) equal to 20% of the principal amount; and
(B)an amount at the rate of 16% per annum on the sum of so much of the principal amount as remains unpaid and so much of the relevant penalty amount as remains unpaid, computed from that time.”
For convenience in exposition the penalty imposed in sub-paragraph (b)(ii)(A) will be referred to as the “culpability penalty”; that referred to in (b)(ii)(B), as the “late payment penalty”.
Section 221N provides, insofar as presently relevant:
“221N(1) [Late payment penalty] Where an amount (in this section referred to as the ‘late payment penalty’) is payable by an employer by virtue of paragraph 221EAA(1)(b), subparagraph 221F(12)(b)(i) or sub-paragraph 221F(12)(b)(ii)(B) in relation to another amount (in this subsection referred to as the ‘principal amount’) that has not been paid and:
(a) the Commissioner is satisfied that:
(i) the circumstances that contributed to the delay in payment of the principal amount were not due to, or caused directly or indirectly by, an act or omission of the employer; and
(ii) the employer has taken reasonable action to mitigate, or mitigate the effects of, those circumstances:
(b) the Commissioner is satisfied that:
(i) the circumstances that contributed to the delay in payment of the principal amount were due to, or caused directly or indirectly by, an act or omission of the employer;
(ii) the employer has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; and
(iii) having regard to the nature of those circumstances, it would be fair and reasonable to remit the late payment penalty or part of the late payment penalty; or
(c) the Commissioner is satisfied that there are special circumstances by reason of which it would be fair and reasonable to remit the late payment penalty or part of the late payment penalty;
the Commissioner may remit the late payment penalty or part of the late payment penalty.
221N(2) [Other penalties] The Commissioner may remit the whole or part of any amount payable by an employer by virtue of paragraph 221EAA(1)(a), subsection 221EAA(2) or sub-subparagraph 221F(12)(b)(ii)(A).”
I note in passing that it is s 221N(2) that applies to the culpability penalty (ie the 20 per cent imposed by s 221F(12)(b)(ii)(A)) and that, as in the present case in relation to the company, it is the Commissioner’s practice automatically to remit the 20 per cent down to 4 per cent.
Insofar as income tax is concerned the relevant late payment penalty and remission section is s 207 and the late payment interest and remission section is s 207A.
Section 207, insofar as presently relevant provides:
“207(1) [Additional tax] If any tax remains unpaid after the time when it became due and payable or would, but for section 206, have become due and payable, additional tax is due and payable by way of penalty by the person liable to pay the tax at the rate of 8% per annum on the amount unpaid, computed from that time or, where, under section 206, the Commissioner has granted an extension of time for payment of the tax or has permitted payment of the tax to be made by instalments, from such date as the Commissioner determines, not being a date prior to the date on which the tax was originally due and payable.
...
207(1A) [Remission of additional tax] Where additional tax is due and payable by a person under this section in relation to an amount of tax and:
(a) the Commissioner is satisfied that:
(i)the circumstances that contributed to the delay in payment of the tax were not due to, or caused directly or indirectly by, an act or omission of the person; and
(ii)the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances:
(b) the Commissioner is satisfied that:
(i)the circumstances that contributed to the delay in payment of the tax were due to, or caused directly or indirectly by, an act or omission of the person;
(ii)the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; and
(iii)having regard to the nature of those circumstances, it would be fair and reasonable to remit the additional tax or part of the additional tax; or
(c)the Commissioner is satisfied that there are special circumstances by reason of which it would be fair and reasonable to remit the additional tax or part of the additional tax.
the Commissioner may remit the additional tax or part of the additional tax.”
I would note again in passing that s 207(1A) and s 221N(1) share a similarly structured discretion. Nonetheless they are directed to penalties imposed on tax debts of quite different characters.
Section 207A for its part provides, relevantly, that:
“207A(1) [Interest payable] If any tax remains unpaid after it became due and payable or would, but for section 206, have become due and payable, the person liable to pay the tax is liable to pay, by way of penalty, interest to the Commissioner, at such annual rate or rates as are provided for by section 214A, on the amount unpaid, computed from the time or date from which additional tax on the amount is computed for the purposes of section 207.
...
207A(4) [Commissioner’s discretion] The Commissioner may, in his or her discretion, remit the whole or any part of the interest payable by a taxpayer under this section.”
The Taxation Obligations of the Applicants at the Time of the Remission Request
In January 1997 when the remission request decisions were taken the amounts outstanding from the applicants were as follows - and I here quote directly from Mr Tonissoo’s affidavit:
“P D & D D ROBINSON PTY LTD - First Applicant
Description Amount Particular Tax Relevant Section
Group Tax $12,440.53 Primary Tax
$78,658.87 Late Payment Penalty S221F(12)(b)(ii)(B)
$ 5,715.70 Culpability S221F(12)(b)(ii)(A)
$96,815.10Income Tax Nil Primary Tax
$11,234.84 Late Payment Penalty S207(1)
$ 1,469.46 Late Payment Interest S207A(1)
$12,704.30DARCY DANIEL ROBINSON - Second Applicant
Description Amount Particular Tax Relevant Section
Income Tax $ 7,341.56 Primary Tax
$ 1,047.66 Late Payment Penalty S207(1)
$ 1,082.41 Late Payment Interest S207A(1)
$ 9,471.63PAULA DIANNE ROBINSON - Third Applicant
Description Amount Particular Tax Relevant Section
Income Tax $ 8.52 Primary Tax
$ 97.03 Late Payment Penalty S207(1)
$ 105.55”
The Factual Setting
I should preface what follows by noting that the Australian Taxation Office (“the ATO”) maintained a running computer record of notes of communications, dealings etc with the applicants. This record is known as the “Narrative” and will be so referred to in these reasons.
(i) In 1989, when conducting a business of industrial cleaning, the company failed to pay the Commissioner group tax deductions made from employee salaries and wages. The company nonetheless continued to trade. A Mr Geraghty of that office had the primary conduct of the company’s file (and later those of Mr and Mrs Robinson) from the time of the default in 1989 until January 1996 when those files were taken over by Mr Tonissoo.
(ii) Protracted negotiations were conducted, and proposals made, for the payment of the company’s tax obligations over the ensuring years. Rather than allow the company to go into liquidation, Mr Robinson’s proposals involved payment of the company’s debts out of his and his wife’s own assets. The proposals centred in the main on the realisation and/or development of various pieces of real estate.
(iii) The issue of penalties was to the fore from the outset. References to them recur across the Narrative. Significantly, and early in the course of dealings, in the 23 May 1990 Narrative record Mr Geraghty noted a telephone conversation with Mr Robinson as including (inter alia) the following:
“I said from the ATO’s point of view a [lump sum payment] would obviously be of benefit and may lead to partial reduction of AALP [additional amount for late payment] in any event would give a lower AALP amt than time pay’t scheme.”
I would note in passing that while small payments were made from time to time, the various schemes evolved to effect payment were aimed at securing a lump sum payment.
(iv) In April 1991 the ATO instituted winding up proceedings against the company. This action was later compromised. I would note, though, that it was merely the first of a series of proceedings initiated against either the company or the Robinsons personally. The others, all related to the nonpayment of the tax debts relevant to the present proceeding, were:-
(a) plaints against both Mr and Mrs Robinson on 20 July 1995;
(b) a plaint against the company on 15 December 1995;(c)bankruptcy notices and, on 15 May 1996, creditor’s petitions against Mr and Mrs Robinson; and
(d)a Corporations Law statutory demand against the company of 29 June 1996.
As to the statutory demand, application was made to this court for orders setting aside the demand and for judicial review of the decision to issue it. That proceeding as also the two creditor’s petitions were discontinued in consequence of a payment of $87,000 to the ATO. The following additional comment should be made of the various proceedings. In an affidavit filed by Mr Robinson in the creditor’s petition against him he described his and his wife’s “asset position” as including:-
“(iii) Land (Football Club) situated at Lemke Road, Zillmere -
The registered proprietor of this property is Module Two Pty Ltd. I and my wife, Paula Robinson, own one half share between us in Module Two Pty Ltd.
The value of the property at Lemke Road is approximately $2.75 million. Amount owing on property - approximately $480,000.00.
Equity in property owned by Module Two Pty Ltd - $2,270,000.00 approximately.
Equity in property of myself and my wife, Paula Robinson, $1,135,000.00 approximately.”
(v) On 14 April 1992 Mr Robinson informed Mr Geraghty that he had bought the assets of the football club referred to above. No reference appears then to have been made to the fact that the purchaser was another Robinson company, Module Two Pty Ltd.
(vi) Development proposals/property realisation provided the basis for projected offers to pay the tax debts up until 1995. These yielded no fruit to the ATO. In that year, as I have noted, legal proceedings began again. In July 1995, after the issue of the plaints, Mr Robinson and his accountant, Mr Kibsgaard had a meeting with Mr Geraghty. There is a clear divergence in the evidence as to what transpired at that meeting.
(a) The Robinson/Kibsgaard version (for which no contemporary notes were made) was according to Mr Kibsgaard that:
“It was agreed then that if the sum of $75,000.00 was paid by my clients then, that would cover the whole of the company’s income tax, the group tax, directors’ personal tax, and interest and that there would be no penalties on the company’s debt. This would then finalise the account, apart from the smaller issue of penalties on the individuals. At the same time from what Mr Geraghty had said, I believed that he had the authority to make the decision. He asked me to assist him in dealing with his superiors by assisting him in writing up the submissions so that he could add them to his file.”
(b) Mr Geraghty’s version (based upon the Narrative) was, as expressed in the Narrative of 28 July 1995, that:
“It was agreed Mr Robinson will approach his bank seeking $75000 loan to clear all prime tax, culpability penalty on company group tax account and part fit penalties. Letter of intent to be sent. Copy of final approval for development to be forwarded also as well as detailed statement why additional tax should be remitted on group tax account. This will stress delays in development of land at Bracken Ridge caused by B.C.C. and why lump sum payments were not made when expected - eg from sale of unit at Taigum. From re-financing for new home.”
(vii) On 4 September 1995 Mr Geraghty wrote to the company in terms (inter alia):
“I refer to the interview of July 28th 1995 attended by Mr Darcy Robinson director of the above company, Mr Paul Kibsgaard the company [and its directors’] Taxation agent and the above named officer. It is also noted a subsequent phone conversation between the latter and Mr Kibsgaard took place on August 25th 1995 in respect of matters raised at that interview.
It is noted that the information requested at that interview is yet to be forwarded to the above named officer.
Written confirmation of the intention of the directors to approach their bank for a $75000 loan to clear the balance of Income tax outstanding on their accounts as well as the remaining Unremitted Tax Instalment deductions of the company and portion of accrued penalties on these accounts is required.
In addition, a submission is yet to be forwarded in respect of remission of penalties accrued on the company’s group Tax account.
...
Unless the above named officer receives the above information by close of business September 11th 1995 this office will enter Judgement against the directors in respect of their Income tax debts and commence appropriate legal action to recover the debt of the company.”
The loan was not raised but negotiations with the ATO continued. Bankruptcy notices were issued in December 1995 and, later, the statutory demand against the company.
(viii) In 1996 a contract was signed for the sale of land owned by Mr and Mrs Robinson. This led to the payment of $87,000 which resulted in the discontinuance of the legal proceedings to which I earlier referred. The terms proposed by the ATO and accepted by the company’s solicitors were contained in a letter from the Australian Government Solicitor of 20 August 1996. It stated (inter alia) that:
“1. Immediate payment of the funds available to your client, being not less than the $87,000.00 previously referred to but hopefully sufficient to clear the prime tax debt;
2. Funds will be applied to clear the judgment debts and enable the dismissal of the Creditors Petitions on 29 August 1996, subject to an order for payment of the petitioner’s cost in accordance with the appropriate scale (a draft bill of costs will be prepared and forwarded to you prior to the hearing date);
3. The balance available will be credited firstly to the company’s group debt and section 221F(12)(b)(ii)(A) penalty amount (approximately $38,000.00) and thence to the company’s income tax, being the oldest debts outstanding;
...
5. Your clients will forthwith bring any proposed application for remission of penalties applied pursuant to the ITAA.”
(ix) On 20 November 1996, Mr Kibsgaard submitted a written request for remissions on behalf of the company and Mr and Mrs Robinson. It stated (inter alia):
“Ref: - Mr Darcy Robinson
Mrs Paula Robinson
D.D. & P.D. Robinson Pty LtdDear Sirs,
We have been requested by the above mentioned taxpayers to seek a review of the penalties that have been assessed on their accounts.
The taxpayers have prepared a summary of this matter and we have attached a copy.
We make this application with the support of Income Tax Ruling IT 2171. These taxpayers have at all times been aware of their debt to the tax office and have chosen to make every effort to source funds to settled this matter. Whilst these amounts should have been paid on the due dates they could have taken the step of voluntary liquidation but chose to attempt to keep trading so as to eventually settle their debt.
The tax office has shown on numerous occasions that it was prepared to allow these attempts to run their course and that legal action at these times would return the tax office a nil result. From our dealings with your office about these taxpayers we were also under the assumption that if the primary tax was paid that penalties would be withdrawn. This matter had been brought up in numerous discussions with your office.
...
The basis of this appeal is that these taxpayers were allowed to continue to trade because the probability of repaying this debt was reasonable. They have made numerous efforts to source these funds and they have been in constant contact with your office during this time. All these attempts were very time consuming (dealing with consultants, prospective buyers, investors and local council) and it could not be carried out in the time frame set by the tax office. All surplus funds available have been paid into your office with the taxpayers not utilising any funds for their own purposes.” (Emphasis added)
I note in passing that IT 2171 referred to in the letter relates solely to the s 221N remission of group tax penalties.
The Refusal of the Remission Request
It was Mr Tonissoo who dealt with the request. A letter communicating the refusal of the request was written on 9 January 1997. It only purported to provide “a brief outline of the reasons for the refusal”. Mr Tonissoo stated in oral evidence that such “letters are very limited” - “we try and give them sort of an overall, a quick knowledge of why - why the remission went the way it did”.
Because of the submissions made by the applicants it is necessary to set out the substance of the letter in full. It reads:
“TAX INSTALMENT DEDUCTIONS: Mr Darcy Robinson
Mrs Paula Robinson
P.D. & D.D. Robinson Pty LtdI refer to your representations of 20th November 1996, requesting remission of penalties for late remittance of tax instalment deductions.
As you are aware, deductions from salary and wages are not taxation debts in the conventional sense but rather moneys which belong to employees and which are in transit to the taxation office. In essence, the deductions must be regarded as being in the nature of trust moneys held on behalf of employees.
Where an employer pays salary or wages to an employee, the employer is required to deduct tax instalments at the rate prescribed in the income tax regulations. An employer who fails to pay amounts deducted from salary and wages by the 7th day of the month succeeding the month in which the deductions were made is liable to a statutory penalty or prosecution.
Remission of the late payment penalty is available under S 221N(1) of the Income Tax Assessment Act and the guidelines for decisions are laid down by the Commissioner of Taxation in Income Tax ruling IT 2171.
Under S 221N(1) of the Income Tax Assessment Act the Commissioner may remit all or part of the late payment penalties if he is satisfied that the circumstances that contributed to the delay in payment were not due to, or caused directly or indirectly by, an act or omission of the employer and that the employer has taken reasonable action to mitigate, or mitigate the effects of, those circumstances.
Paragraph 30 of IT ruling 2171 outline the circumstances over which the employer has no control, including flood, fire or other natural disaster, serious ill health of the employer, mail strike etc., which may have led to the failure to pay by the due date. Such circumstances would be viewed in the light of their effect on the physical ability of the employer to pay the deductions, bearing in mind that moneys should normally be available for payment.
The request for remission of penalties for late payment of Tax Instalment deductions on behalf of P.D. & D.D. Robinson Pty Ltd has been considered and refused. A brief outline of the reasons for refusal is set out below.
The ground for the request for remission were identified as:
(a)The choice by the directors to continue to trade in order to pay the debts rather than liquidate the company and enter into personal bankruptcy.
(b)Leniency on behalf of the Australian Taxation Office to allow attempts by the directors to pay the liabilities rather than take legal recovery action.
(c) All attempts were made to raise the funds to pay the liabilities.
CONSIDERATION:
(a) The choice by directors to continue to trade their company in any circumstance must be considered a business decision. Having now paid liabilities that should have been paid by their due dates cannot be seen as a redeemable act solely on the basis that there were alternatives available which would have provided less funds for creditors. This was a decision was made by the employer and cannot be considered under S 221N(1) as a reason for non payment.
(b) The Australian Taxation Office treats each case on its own merit in relation to outstanding liabilities. In each situation a decision is made on the information provided in relation to the proposal. By allowing the company time in which to raise finances this office in no way forgoes its legislated right to impose penalties at the statutory rate. This leniency cannot be considered under S 221N(1) as a reason for non payment.
(c) Further attempts to raise funds with which to pay the outstanding liabilities cannot be considered under S 221N(1) as a reason for non payment. Information lodged with the Federal Court of Australia in June 1996 by Mr and Mrs Robinson’s legal representation further suggests that all attempts to secure funds were in fact not undertaken. The information states Mr and Mrs Robinson were shareholders in a company with considerable assets. This information was never divulged to the Taxation Office and no attempts were made to secure funds from these shares. However, as stated, these attempts are not applicable for the current remission request.
Income Tax Ruling 2171, on which you base your application, does not relate to penalties having accrued on personal or company Income Tax. The relevant ruling for this liability is Income Tax Ruling 2570 however the grounds covered in this application would not be considered applicable for remission when applied to ruling 2570.”
Mr Tonissoo’s Evidence
Though the request by Mr Kibsgaard referred only to IT 2171 (that concerned with group tax), Mr Tonissoo has stated that he regarded the requests as referring to both group and income tax (ruling IT 2570 relates to the latter) and dealt with them accordingly, albeit he directed most of his attention to s 221N(1) because of the terms of Mr Kibsgaard’s letter and the grounds there stated. He accepted that his letter quoted from IT 2171 and it was reflected in the items considered significant or not. He also stated that for the purposes of considering the remission he reviewed the Narrative. Insofar as the reference to the Federal Court proceedings in para (c) of the “Consideration” part of the letter was concerned - this was in fact a reference to Module Two Pty Ltd - he indicated in oral evidence first, that he did not consider it necessary to the actual decision, but secondly, he regarded “remission ground (c)” of the letter as possibly not a “truthful statement” in light of the disclosure in those proceedings of that company’s assets. He was previously unaware of the company’s existence. He denied - and I accept - that there was discussion with Mr Robinson and Mr Kibsgaard that remission would be granted in return for early payment. He said he made it clear to them from the outset that “remission was granted on the basis of a written request applying to the rulings”.
It was, though, in his affidavit that he most expanded upon his reasons and his reasoning processes. Given the submissions made by the applicant it is necessary to set out the relevant part of the affidavit in full. It reads:
“13. Having considered the letter [requesting remission] I summarised the reasons for the remission request as being:
(a)the choice by the Robinsons to trade in an attempt to pay creditors rather than enter bankruptcy and place the company into liquidation, reducing payments to creditors;
(b)the fact that the Australian Taxation Office had allowed this time to repay and therefore were agreeable to the time frame that the repayment took;
(c)the Robinsons had taken all steps available to pay the outstanding amounts.
14. Mr Kibsgaard stated in his application that the request was made under ruling IT 2171.
15. I decided to consider each reason as a separate issue and relate the reason to the relevant ruling. Mr Kibsgaard had requested the remission under the specific ruling (IT 2171) and therefore I considered each reason stated against the content of that ruling. At the same time I was aware of the similarities between IT 2171 and IT 2570 and considered both the Group Tax penalty position and Income Tax penalty position. The first reason, being a decision to pay his debts rather than liquidate the company and his personal assets, did not relate to circumstances that would have played a part in the amounts not being available for payment at the time of deduction. Therefore, I decided that this reason could not be considered as a circumstance outside the control of the person responsible for payment. It was more an attempt to rectify the situation after having originally failed to pay. The areas on first reading that may be considered applicable were ref. 26(b) relating to mitigating circumstances and ref. 26(c) relating to special circumstances [these references in the ruling relate to sub-paragraphs (b) and (c) of s 221N(1)]. Giving further consideration to ref. 26(b) and specifically ref. 26(b)(ii), I did not consider that the person responsible for payment had taken any reasonable action to mitigate the circumstances that contributed to the delay in payment. More so the person responsible for payment made claim that in retribution he had taken all steps possible to repay the outstanding amounts. In considering 26(c) I noted the definition of “special circumstances” in ref. 35(i) and (ii) [of the ruling]. It was my opinion that the circumstances defined in these references did not include attempts to improve the position of creditors through long-term payment plans. I believe it was the intention of the ruling and s 221N(1) of the ITAA to relate reasons for remission to the circumstances relating to the reasons for non-payment at the time of deduction, not relating the decision to the attempts to repay the debt.
16. Having read the narrative and considered the history of the matter, I noted that the company had regularly been late in paying Group Tax deductions. I was unable to see, either from the narrative or from ... Mr Kibsgaard’s letter, that any steps had been taken to fix up what was a constant problem.
17. The second reason I considered in the same light as the first reason. The fact that the ATO allowed Mr Robinson to continue attempts to repay the debt was not relevant to the reasons the payments were not made as they fell due. The ATO did not at any time grant Mr Robinson an extension of eight years to repay the amounts. Officers dealing with the case made decisions to defer recovery action based on each circumstance as it was presented. However, the assumption on the part of the ATO would always have been that penalties continued to accrue at the statutory rate. After referring to the narratives of the case I could not see that there had ever been any statement made on behalf of the ATO that penalties would be remitted. Again, I did not see that this reason fell within the Act or Rulings relating to those Acts.
18. The third reason related to the fact that they had done everything possible to repay the debt as soon as was possible. Having referred to the narratives I found that on numerous occasions arrangements had been defaulted without contact. I felt from a perusal of these narratives that Mr Robinson made attempts to repay amounts in response to recovery action initiated by the ATO. There were further tax instalment deductions missing during the negotiation period and while he was paying other outstanding amounts. This was considered when reviewing whether steps had been taken to mitigate the circumstances relating to the reason for non-payment. The 1995/96 income tax liability for both Mr and Mrs Robinson due in May 1996 was also paid late.
19. In this area I further considered the affidavit lodged by Mr Robinson in the Federal Court in relation to the sequestration hearing in 1996, proceedings no. 313 of 1996. Now produced and shown to me and marked “PAT3” is a true copy of that affidavit dated 20 June 1996. In this affidavit, Mr Robinson revealed assets in P.D. & D.D. Robinson Pty Ltd and holdings in a further company with substantial assets (Module Two Pty Ltd) that had never been revealed in negotiations with this office. The holdings, if liquidated, would have provided enough funds to clear the liability to the ATO. I believed that taking the defaulted arrangements into account and the reluctance to reveal his full financial position, all steps to clear the debt appear not to have been taken. Again I also felt that there is no reference within the rulings to remit penalties for having paid outstanding amounts within the shortest possible time.
20. Having considered these matters I concluded that no remission of the per annum component of the Group Tax penalties was warranted and that no further remission beyond the standard remission from 20% to 4% was warranted in relation to the culpability component of the penalty.
21. I also felt that the matters in the letter when considered with IT 2570 did not justify a remission of the Income Tax penalties for the company, Mr Robinson or Mrs Robinson.
...
24. As I have indicated above I did have regard to s 221N(2) and s 207 and s 207A of the Income Tax Remission Provisions. I directed most of my attention and my response to Mr Kibsgaard to s 221N(1) but certainly considered s 221N(2), s 207 and s 207A.”
The Witnesses
Mr Robinson and Mr Kibsgaard gave evidence for the applicants. In critical matters of detail I have not found their evidence to be particularly reliable. They have not kept contemporary notes for the admittedly lengthy period of present concern; their recollection clearly was faulty on occasion which led both of them to give quite inconsistent evidence on significant matters as, for example, whether penalties would be paid at all or would, in contrast, be negotiated if the primary tax debt was paid. While I reject their evidence where it is inconsistent with that of Mr Geraghty and the record of the Narrative, I do not find their evidence to have been untruthful. Rather I consider that Mr Robinson may well have come to believe what he wished to believe and that his “understanding” so informed may have affected Mr Kibsgaard in turn. Be this as it may, I do not accept in particular that the alleged agreement of July 1995 was ever entered into. Of that meeting of that day I prefer the account of Mr Geraghty. It is consistent with the Narrative and with subsequent events including the terms of Mr Geraghty’s letter of 4 September 1995. I should add I reject Mr Kibsgaard’s assertion that from “numerous meetings” prior to the July meeting he had the understanding from Mr Geraghty that no penalties would be applied if the debt was cleared. His evidence on this was quite unconvincing - and, surprisingly for a professional adviser, quite unsupported by diary or other notes.
The principal witnesses for the respondent were Mr Tonissoo and Mr Geraghty. I have already referred to Mr Tonissoo’s evidence. I would have to say I considered him to be a reliable witness. Mr Geraghty’s evidence did not rise significantly above the Narrative. I should say that I accept that document as the most reliable account of events and discussions in this proceeding.
The Application
Some considerable part of the application has been abandoned in light of the evidence that has emerged. As I now understand it, the application proceeds on the following grounds:
The Respondent:
(a) has misconstrued s 207(1A)(b) and 221N(1)(b), ITA Act;
(b) failed to pay any regard to s 207(1A)(c) and 221N(2) ITA Act;
(c)misdirected himself as to the nature and extent of the remission request and thereby failed to take relevant considerations into account;
(d)if he considered the Robinson’s personal circumstances at all, gave them colourable as opposed to real consideration;
(e) failed to consider proportionality of penalty to debt;
(f) breached the rules of natural justice:(i)by not satisfying the company’s legitimate expectation that no penalties would as a matter of discretion be payable if the primary tax debt was paid; and
(ii)by reliance upon the information concerning Module Two Pty Ltd in the Federal Court proceedings without giving notice of this adverse consideration to the applicants prior to the decision.
Grounds (a) to (e) are based primarily upon inferences I am asked to draw from the letter refusing the remission request. Notwithstanding that that letter is said in written submission to disclose a “cursory, wrong-headed consideration” of the applicants’ request, I again repeat that the applicants have disclaimed - as I consider they were obliged to - that any part of their case is founded upon inadequacy of reasons.
I should emphasise that I accept Mr Tonissoo’s characterisation of the letter and its purpose. It was “limited”, purporting to give no more than a “brief outline of reasons”. Importantly it was not such a reasons statement as s 13 of the ADJR Act envisages. And such was never asked for.
The Natural Justice Claims
These can be disposed of quickly.
The Legitimate Expectation
That penalties were payable, but that application for remission could be made, are recurrent themes across the Narrative. While I am prepared to accept that somewhat varying impressions may have been communicated or entertained from time to time concerning the likelihood of some level of remission being granted - I imply nothing about the reasonableness thereof - the evidence I am prepared to accept does not support a finding that Mr Robinson (or his agent Mr Kibsgaard) was led reasonably to expect that, or else that it was agreed that, no penalties would be payable if the primary group tax debt was paid.
I have already found the alleged July 1995 agreement is not proved. I equally have rejected Mr Kibsgaard’s evidence of his understanding and its genesis. For the rest, counsel for the applicants relies upon particularly the Narrative entry of 23 May 1990 (quoted in the Factual Setting, above) and what I will describe as the “incentive to pay”. As to the May representation it is at best equivocal; it only suggests a possible partial reduction of the late payment amount if a lump sum payment was made; it is the highwater mark of the alleged representations on this matter that I am prepared to accept; and I do not consider that, given the subsequent history of the relationship between the parties (especially of communications and of proceedings initiated), such representation as is contained in the 23 May 1990 communication could in any way give rise to a legitimate expectation subsisting until January 1997 that the penalties would be remitted.
The so-called “incentive factor” does not assist the applicants. They have submitted that given that the company had the option to go into liquidation, the ATO had to provide an incentive to induce payment and the holding out of remission of penalties is a reasonable explanation of Mr Robinson’s decision to pay and not to liquidate.
There is simply no evidence upon which I can rely to explain why the Robinsons paid the company’s debts. At best I am being asked to infer that remission of penalties provided the reason. That is not an inference I am prepared to draw. It may be one possibility. There is a range of others. I merely instance for example without suggesting it was the case here, that a person might not wish a company’s affairs to be examined by a liquidator. I am unprepared to speculate as to why the Robinsons decided as they did.
Module Two Pty Ltd
This ground is not founded on any allegation of bias in Mr Tonissoo. Rather it seeks to assert a right to be informed of an adverse consideration “personal to the applicants” - cf Kioa v West (1985) 159 CLR 550 at 587 - which they have not addressed in their application. That consideration here was the information relating to the asset position of the Robinsons as a result of their shareholding in Module Two Pty Ltd - information, the letter refusing the remission request stated, “was never disclosed to the Taxation Office”. And it was properly to be characterised as “adverse information” in that, as recorded in the Narrative on 27 June 1996, Mr Tonissoo observed that:
“With this sort of equity in Co’s we had no knowledge of, the issue of penalty remission seems unlikely, there appeared always an ave of borrowing.”
I emphasise at the outset that the information was supplied to the respondent by Mr Robinson in his affidavit in the bankruptcy proceedings in this court. It did not come from “another source”: cf Kioa v West, above, at 587; it was his own information: cf Sinnathamby v Minister for Immigration and Ethnic Affairs (1986) 66 ALR 502. Given the actual claims made on behalf of the Robinsons in the remission request - that they chose “to make every effort to source funds to settle this matter” - it was in my view entirely appropriate for Mr Tonissoo to use the Module Two Pty Ltd information to suggest such may not have been the case. It is not to the point that he had a like thought months earlier. A claim was made by Mr Robinson. His own information quite properly could be used to question it and in the manner in which it was used. This involved no procedural unfairness.
Further, it was the case that though Mr Robinson had disclosed to Mr Geraghty his acquisition of the assets of the Football Club, no disclosure was made of this company in the matter nor was any disclosure made which would suggest such an asset position was likely to be, or was, achieved. I accept Mr Tonissoo’s evidence that he was unaware of the existence of the company until he learned of it via the bankruptcy proceedings.
In the event, then, I am not satisfied that a breach of natural justice occurred on either of the bases advanced by the applicants.
Grounds (a) - (e)
Before considering these, two matters require mention. The first is to reiterate the actual status of the letter refusing the remission request. It is not, and cannot appropriately be approximated to, a s 13 reasons statement. While in its language and tenor it draws upon the language of the ruling IT 2171, it does not and cannot be taken to embody the totality of Mr Tonissoo’s reasons for the various decisions he says he took and which I accept he did take. I am, though, being asked by the applicant in part at least to infer his unstated or unrevealed reasons - and to infer that they disclose the alleged reviewable ills complained of. That process of inference is not one in which I am prepared to engage save if the inference in question has a clear and cogent foundation in the reasons and reasoning process Mr Tonissoo has accepted he had and engaged in, in his evidence. The situation is not one analogous to that referred to in the joint judgment in House v The King (1936) 55 CLR 499 at 505 where it was observed that in circumstances where a reasoning process was not apparent, a court would nonetheless review an exercise of discretion “on the ground that a substantial wrong has in fact occurred”.
An actual statement of reasons was never sought from the ATO. And the errors etc of which, by inference, complaint is made can hardly be said to have been put to Mr Tonissoo in cross-examination. Importantly, as I have already outlined, Mr Tonissoo gave evidence of his reasons and reasoning processes though he did not describe them fully. To the extent that there remain silences on matters, the appropriate and proper response in the particular circumstances of this case is not a ready resort to inference but is, rather, a preparedness to acknowledge that we could, but do not, know the reasons in their entirety. The applicants had the right and the opportunity to ascertain those reasons. They failed to do so. They cannot here use their failure to their own advantage.
Further, I should indicate that, with the letter itself (a) having a limited purpose, (b) being formulaic in expression, and (c) being manifestly parsimonious in what it revealed of Mr Tonissoo’s reasons and reasoning, I attribute far greater significance to his affidavit evidence on these matters than I do to the letter itself. Again he was not taxed in cross-examination on that evidence. And his credit was not put in issue.
The second matter to which I need refer is the ruling IT 2171. It is the case that its language is reflected in the remission refusal letter. There may well be a very real question as to whether the ruling is or is not consistent with the provisions of s 221N(1) of the ITA Act. On the premise that it is not, I am asked to infer that such ills as infect the ruling in relation to s 221N have been carried through into Mr Tonissoo’s reasons for decision because of the structure and language of the letter itself.
Again I should state that this is not a process of inference in which I am prepared readily to engage given Mr Tonissoo’s evidence of his reasons and reasoning, and given the failure to cross-examine him in any significant way on his understanding either of s 221N or of the ruling, or on how he applied them. I will need to return to this matter below.
The Grounds
Several of the grounds can be disposed of shortly. As to the claim that Mr Tonissoo misconceived the request and did not in consequence consider all of the various penalties in question the short answer is that his evidence - which I accept - is to the contrary. He conceded that the request itself and the reasons it advanced related essentially to s 221N(1) and that his main consideration was of the penalties related to group tax. Nonetheless he said he certainly considered s 221N(2), s 207 and s 207A of the Act. There is some textual support for this in the refusal letter in its reference to IT 2570.
For the reasons I have given above in relation to inferences, I reject the ground (d) claim that if Mr Tonissoo considered the Robinsons’ personal circumstances he gave them only colourable consideration. I simply do not know whether a reviewable error was committed in applying s 207 and s 207A of the ITA Act.
The grounds relating to s 207(1A) and s 221N(1) are, as I understand them, that I should infer from the text of the letter of refusal considered in light of the ruling IT 2171 that the only parts of the sections to which Mr Tonissoo looked were sub-paragraphs (1A)(a) and (1)(a) of the sections respectively, whereas the applicants were entitled to have their request considered under each of the three sub-paragraphs of the sub sections in question.
The inference is said to be based on errors in IT 2171 which, because of its erroneous exegesis of s 221N(1)(b) and (c), in effect pre-ordained that those sub-paragraphs would not be considered in a case such as the present.
I have set out Mr Tonissoo’s affidavit evidence above. Whatever the letter standing alone may or may not suggest about how and why the decisions were made as they were, the more detailed evidence given by Mr Tonissoo provides, in my view, the reasons and reasoning that I am prepared to accept was actually adopted in this matter. I have commented sufficiently above on the limitations of the letter.
In that affidavit evidence Mr Tonissoo clearly considered the various sub-paragraphs of s 221(N)(1); he related the grounds to them; and he rejected those grounds in consequence of the requirements of the various sub-paragraphs of the subsection. Whatever vice there may be in the exegesis of ruling IT 2171 - and I express no view on that - I am unprepared to infer that, because of the ruling, he was deflected from giving the proper and lawful consideration to the grounds raised by the applicants that s 221N(1) required. On the contrary. Mr Tonissoo did look to the ruling especially in relation to s 221N(1)(c). But he looked as well to the Act and he evaluated the grounds on their merits in light thereof. Significantly, the applicants have not challenged the reasons and reasoning in relation to s 221N(1) revealed in the affidavit.
At bottom, this ground of complaint in common with that in ground (b) simply ignores the totality of the evidence beyond the letter to the extent that that evidence encapsulates Mr Tonissoo’s reasons and reasoning. And when that totality is considered a proper basis does not exist in the distinctive circumstances of this matter for inferring that a reviewable error or omission has been made on the bases alleged in grounds (a) and (b).
The final ground advanced - ground (e) “proportionality” - relates as I understand it to the s 221N(2) as of course remission of the culpability penalty from 20 per cent to 4 per cent. The burden of this complaint is that Mr Tonissoo simply applied the guideline rigidly without addressing the particular circumstances of the applicants’ request. The short answer to this, as the respondent points out, is to be found in Mr Tonissoo’s evidence where he says he considered the grounds of appeal and he concluded that no further remission beyond the standard remission from 20 per cent to 4 per cent was warranted. I am, in consequence, not prepared to infer that consideration was not given to the particular circumstances of the applicants’ request.
In conclusion then, I do not consider that any of the grounds relied upon in the application have been made out. My order will be that the application be dismissed.
I certify that this and the preceding twenty-two (22) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn
Associate:
Dated: 11 June 1998
Counsel for the Applicant: J Logan Solicitor for the Applicant: Biggs & Fitzgerald Counsel for the Respondent: C Holmes Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 23-25 March 1998 Date of Judgment: 15 June 1998
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