Signium Pty Limited and Commissioner of Taxation (Taxation)

[2022] AATA 2824

Signium Pty Limited and Commissioner of Taxation (Taxation) [2022] AATA 2824 (5 August 2022)

Division: SMALL BUSINESS TAXATION DIVISION

File Number(s):2019/3720; 2021/1549      

Re:Signium Pty Limited

APPLICANT

AndCommissioner of Taxation

RESPONDENT

Decision

Tribunal:Deputy President Bernard J McCabe

Date:5 August 2022

Place:Sydney

The decision under review is varied as follows:

(a)reduce SGC from $2,888.66 to $2,434.78 for the quarter ending 30 June 2017;

(b)increase SGC from $2,566.10 to $2,673.81 for the quarter ending 31 December 2016;

(c)reduce SGC from $4,925.60 to $4,910.46 for the quarter ending 30 June 2016;

(d)reduce SGC from $2,262.33 to $2,221.45 for the quarter ending 31 March 2016; and

(e)reduce SGC from $1,573.50 to $1,448.00 for the quarter ending 31 March 2014;

(f)Reduce the penalty assessment from 35% to 25%.

........................[SGD]............................

Deputy President Bernard J McCabe

Catchwords: SUPERANNUATION guarantee charge assessments – penalty assessments – whether penalty assessments excessive – nominal interest of superannuation guarantee charge – superannuation shortfall assessments – decision under review varied

Legislation

Superannuation Guarantee Charge (Administration) Act 1992 (Cth)
Superannuation Guarantee Charge Act 1992 (Cth)
Taxation Administration Act 1953 (Cth)

Secondary Material

PS LA 2011/28

REASONS FOR DECISION

5 August 2022

Deputy President Bernard J McCabe

1. Signium Pty Ltd (‘Signium’) operates a pig-farming business. The company is run by its general manager, Mr Robert Nakhla, and at relevant times it has employed two or three people. Like many small businesses, it is run on tight margins. Mr Nakhla has struggled to cope with the pressures of managing the company’s operations and attending to the other obligations of the company.

2. One of those obligations arises under our system of compulsory superannuation. The system is established by the Superannuation Guarantee Charge Act 1992 (Cth) and related legislation. The law requires every employer to make regular superannuation contributions on behalf of employees. The contributions must be made within a strict timeframe. If those payments are not made in a timely way and a shortfall results, the amount of the shortfall must be made up through the imposition of a superannuation guarantee charge (‘SGC’) that is collected by the Commissioner of Taxation.

3. The SGC assessment has a number of components including the amount of the shortfall for the relevant quarterly period, the nominal interest component, and an administration component. Amounts collected pursuant to the SGC in respect of the shortfall and interest are then paid to the superannuation funds of the employees who were not paid correctly. The nominal interest charge is designed to ensure the employee is not worse off because of the late payment or under-payment. Where a SGC is imposed and the employer has failed to provide information as required, the law provides for the automatic imposition of a penalty equal to double the amount of the SGC. That penalty also forms part of the SGC.

4. Signium, the applicant in this case, received a letter from the Australian Taxation Office on 4 August 2017 asking it to confirm the company was up to date with its superannuation obligations. The letter asked Signium to provide evidence confirming it had made the required contributions. The letter referred to types of evidence including payroll records, bank statements recording the payments, and receipts from the relevant super fund(s). If the contributions had not been made, the letter said the employer should complete and return the superannuation guarantee charge statements by 1 September 2017. The letter expressly warned that the employer should provide the information or the statements if it wished to avoid an audit.

5. Signium was able to provide some records in response to the request but acknowledged in its letter to the Commissioner dated 24 August 2017 that some contributions had not been made. Signium did not at that stage complete or provide a superannuation guarantee charge statement, notwithstanding the instructions contained in the letter from the Australian Taxation Office. Signium instead asked for time to deal with its obligations.

6. On 19 September 2017, the Commissioner informed Signium by letter that it was to be audited in respect of its superannuation obligations for the period 1 July 2013 to 30 June 2017. (The Commissioner’s decision to commence the audit is not a reviewable decision in the Tribunal, and I am unable to consider it in the course of these proceedings.) The audit took some time to complete. At the conclusion of the audit, the Commissioner issued 16 superannuation guarantee charge assessments including 15 default assessments issued pursuant to s 36 of the Superannuation Guarantee Charge (Administration) Act 1992 (Cth) (‘the Administration Act’) with respect to the following quarters:

Assessment #	Quarter Ended	SGC
1	30 September 2013	$5,399.57
2	31 December 2013	$5,307.14
3	31 March 2014	$5,103.51
4	30 June 2014	$5,069.68
5	30 September 2014	$5,567.21
6	31 December 2014	$5,464.39
7	31 March 2015	$5,246.76
8	30 June 2015	$5,204.69
9	30 September 2015	$5,395.73
10	31 December 2015	$5,288.54
11	31 March 2016	$5,129.31
12	30 June 2016	$5,024.65
13	30 September 2016	$4,877.82
14	31 December 2016	$4,772.93
15	31 March 2017	$4,593.74

1. The Commissioner also issued an amended assessment in respect of one employee for the quarter ending 30 June 2017 that was issued under s 37 of the Administration Act. The Commissioner also issued a penalty assessment at 200%.

2. Signium subsequently objected to the substantive and penalty assessments. The amounts of the shortfalls were reduced on objection and a decision was also made to remit all but 35% of the penalty. Both of these decisions are now before the Tribunal.

   Signium’s argument

3. Mr Nakhla feels aggrieved at the way the company was treated by the Australian Taxation Office throughout the audit process. He acknowledges there was a shortfall but says the audit process and the outcome for the company (and indirectly, for him as the person in charge of this small business) was much worse than it should have been because he felt the audit officers did not listen to him. He said he had to deal with several different officers resulting in him being asked to provide some of the same information two or three times. He complained that the process went on for years. His representative at the hearing, Mr Gupta, said if Mr Nakhla had been provided with the right assistance at the outset of the process, he would have been able to establish the company’s true liability quickly so it could make good on its obligations.

4. Mr Nakhla said in his oral evidence that the company had difficulty responding quickly to requests for information because its computerised records had been corrupted when the system contracted a virus. He said he was ultimately able to reconstruct the correct position from bank records which recorded payments of salary and payments to superannuation funds for the employees during the relevant periods. (I understand the records provided by the relevant superannuation fund confirm receipt of the amounts the applicant said it had paid.) On Signium’s reckoning, the company had a total shortfall of $29,899.03 for the relevant quarterly periods. Mr Nakhla included those figures in a spreadsheet provided to the Commissioner (T26 at p 148). Mr Nakhla said the Commissioner has never effectively engaged with that information. Mr Nakhla insists $29,899.03 is the correct (or more nearly correct) amount for which the company should be assessed.

5. There was also an argument at the hearing over the way in which the nominal interest component was calculated. Signium argues the nominal interest component was greater than it would otherwise be as the Commissioner’s officers did not assist Mr Nakhla to complete the superannuation guarantee statements at an early stage. Mr Nakhla accused the Commissioner of preferring to progress the audit, which took a long time. It was suggested the delay may have had the effect of inflating the amount of the nominal interest component.

6. The nominal interest component is calculated in accordance with s 31 of the Administration Act. Section 31 provides the nominal interest component is determined by applying the nominal interest rate to the total amount of the shortfall for a period:

   … from the beginning of the quarter in question until the date on which superannuation guarantee charge in relation to the total would be payable under this Act.

7. Section 46 of the Administration Act says the SGC becomes payable (for present purposes, at least) on the lodgement day for the superannuation guarantee statement – recalling that the statement was not lodged before assessments were ultimately issued in this case - or on the date on which a default assessment is made pursuant to s 36 of the Administration Act. Since the Commissioner issued 15 default assessments in this case, the nominal interest component is calculated in each of those periods from the beginning of the period through until the date of the assessments.

8. Signium disagrees with the calculation of the shortfall amounts and insists its figures are correct, or more nearly correct. It also says the amount of the nominal interest charge should be remitted given the delay occasioned by the audit. Lastly, Signium says the penalties should be further remitted. Mr Nakhla outlined the factors which support remission in his statement dated 15 June 2022 (exhibit one). Some of those matters arose after the assessments were issued.

   The Commissioner disagrees about the amount of the shortfall…

9. Ms Koch, who appeared for the Commissioner, took me to the spreadsheets annexed to the Commissioner’s statement of facts, issues, and contentions. She said those spreadsheets demonstrated the Commissioner’s (revised) calculations. She conceded information received since the date of the objection decision should lead to a variation of the objection decision in some minor respects in accordance with the calculations in the spreadsheets. She also said the Commissioner was satisfied it would be preferable and appropriate to reduce the rate of penalty from 35% to 25%.

10. Ms Koch said there were problems with Signium’s argument that the shortfall was only $29,899.03. To begin with, she said Signium had not correctly calculated the shortfall on a quarterly basis as required under s 19 of the Administration Act. The spreadsheets reproduced in annexure C of the Commissioner’s statement of facts, issues, and contentions demonstrated the shortfall for each employee and quarter by identifying the required contribution for the quarter, then subtracting the contribution paid by the due date. Ms Koch also pointed to problems in the applicant’s calculations of the super contributions relative to the earnings base for some of the employees which formed a part of its calculations. The spreadsheets in annexure D to the statement of facts, issues and contentions demonstrate the applicant’s figures did not include contributions in respect of at least two of the employees in several periods.

11. The Commissioner’s (re)calculation of the shortfall in his spreadsheets appears to be more thorough than the analysis prepared by Mr Nakhla. Ms Koch was able to present a detailed analysis that reveals shortcomings in the applicant’s figures. I am inclined to accept the Commissioner’s calculations which appear to be more thorough, and I therefore accept his conclusion. At a minimum, the applicant’s evidence – which includes some anomalies – has not satisfied me the correct assessment is $29,899.03 or another clearly identifiable figure.

    The Commissioner’s arguments on the shortfall interest component

12. Mr Gupta said it was problematic that the shortfall interest component was greater than it would have been if there had been more effective engagement with the applicant at an early stage. He argued early engagement would have removed the need for an audit and subsequent assessments which were issued after significant delay. There is no doubt that early engagement with the Commissioner in relation to these issues is desirable: that point was clearly made in the letter to Signium dated 4 August 2017 which asked for substantiation or remediation by filing superannuation guarantee statements. The fact remains the applicant’s contributions were not in order when they were supposed to be. Signium was unable to confirm the payments had all been made; indeed, Mr Nakhla acknowledged in his correspondence that the company was behind for a range of reasons, although the company did not at that juncture take the opportunity to respond (as the Commissioner had asked) by filing superannuation guarantee statements. It is difficult to fault the Commissioner’s decision to commence an audit in those circumstances. I am unable to say whether the audit was conducted as smoothly and expeditiously as one would hope; any complaint to that effect should be raised with the Inspector-General. 

13. Mr Gupta accepted during submissions that the shortfall interest component was not calculated or imposed in error. He nonetheless said the circumstances were such that the shortfall interest component should be remitted. Ms Koch argued I did not have the power to do that, and Mr Gupta was unable to refer me to a provision in the legislation that would permit the Commissioner (and subsequently me) to do as he asked. He initially suggested the Tribunal might have a power that the Commissioner did not, but he quickly (and properly) retreated from that proposition. The Tribunal steps into the shoes of the Commissioner in a review under Part IVC of the Taxation Administration Act 1953 (Cth). The Tribunal can do no more (or less) than the Commissioner is able to do.

    The outcome of the review of the SGC assessment

14. The recalculations that were included in the Commissioner’s statement of facts, issues, and contentions prompted the Commissioner to make concessions. The applicant has not otherwise persuaded me that a different amount should be assessed. Given those concessions the objection decision dated 3 May 2019, which deals with the SGC liability, should be varied as followed:

    (a)reduce SGC from $2,888.66 to $2,434.78 for the quarter ending 30 June 2017;

    (b)increase SGC from $2,566.10 to $2,673.81 for the quarter ending 31 December 2016;

    (c)reduce SGC from $4,925.60 to $4,910.46 for the quarter ending 30 June 2016;

    (d)reduce SGC from $2,262.33 to $2,221.45 for the quarter ending 31 March 2016; and

    (e)reduce SGC from $1,573.50 to $1,448.00 for the quarter ending 31 March 2014.

    The penalty assessment

15. That brings me to the penalty assessment. As I have already explained, the penalty was imposed automatically pursuant to s 59(1) of the Administration Act. The penalty was remitted to 35% during the review process pursuant to s 62(3) of the Administration Act. The Commissioner agrees that a further remission – to 25% - is appropriate now, and he has agreed the objection decision should be varied to that extent. But Signium says further remittal is warranted. The taxpayer bears the onus of establishing that the decision should be made differently.

16. The Commissioner referred me to Practice Statement PSLA 2011/28 which was in force prior to 5 December 2019. PSLA 2011/28 provides guidance to tax officers on the exercise of the discretion to remit the additional superannuation guarantee charge. That document suggests the decision-maker should approach the matter in three stages, with each stage potentially leading to partial remission. The matters to be considered at each stage are:

    ·the employer’s attempts to comply with its superannuation obligations in this case;

    ·the employer’s compliance history in relation to superannuation obligations and tax laws more generally;

    ·Other facts and circumstances suggesting it is appropriate to remit.

17. Both parties accepted the approach in PSLA 2011/28 was appropriate, and I see no reason to take a different approach in the circumstances.

18. Ms Koch pointed out the applicant had made some attempts to comply with its superannuation obligations in the relevant quarters. Those efforts warranted a 50% remission at the first stage under the framework in PSLA 2011/28, but she pointed out the applicant has been unable to provide further evidence suggesting its attempts at compliance were more determined or more effective. After reviewing the applicant’s compliance history, she agreed a further 10% of the penalty could be remitted at the second stage; the applicant’s compliance history was not the focus of the applicant’s evidence and submissions, so it difficult to see why it would be appropriate to take a different view.

19. That brings me to the third stage. Mr Nakhla initially explained to the Commissioner that he was experiencing cashflow challenges during the periods under review, and he referred to the corrupted records. Those considerations prompted a decision to reduce the penalty by an additional 15% during the audit and objection process. I agree the record-keeping problems in particular justified further remission since the impact of the computer virus plainly complicated the applicant’s attempts to discharge its obligations during the relevant quarters. During these proceedings, Mr Nakhla has also referred to his age, his current health conditions, the impact of Covid-19, drought in 2018-2019, bushfires in 2019 and floods in 2021. Those factors have combined to make the applicant’s business even more marginal in recent times. Mr Nakhla says those matters all count in favour of a more extensive exercise of the discretion. Ms Koch pointed out in her submissions that those factors have all arisen after the quarters in question and did not impact on the applicant’s ability to comply with its superannuation obligations at the time. She argued I should disregard those factors because they are irrelevant to the exercise of the discretion.

20. I agree the various factors the applicant has described during these proceedings do not explain or mitigate the failure to comply during the relevant quarters. While one might have sympathy for a struggling small business, the applicant has not satisfied me the outcome is harsh or otherwise inappropriate in circumstances where there has already been a significant reduction in the quantum of the penalty. A further reduction would also be inconsistent with the objective of the penalty regime: if the penalty were entirely remitted, the lesson would not be communicated. But even if I were to have regard to the current circumstances of the applicant and (to the extent they are relevant) Mr Nakhla, it is not clear it would be appropriate given the objectives of the penalty regime to remit more than 75% of the penalty.

21. One must not lose sight of the fact that the compulsory superannuation regime exists for the benefit of employees. Superannuation contributions are part of an employee’s entitlements and a failure to make those contributions in a timely way is a serious matter. While one can have sympathy for a small business that is struggling in the face of difficult external circumstances and internal challenges, that does not excuse the failure to discharge the obligations in a timely way. Signium has already benefitted from a very significant reduction of those penalties, and it has been accepted a further reduction is appropriate, but I am not persuaded that any reduction beyond that is warranted.

    Conclusion

22. The objection decision is varied in accordance with these reasons.

I certify that the preceding twenty‑eight (28) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

.......................[SGD]..................................

Associate

Dated: 5 August 2022

Date of hearing:	8 July 2022
Counsel for the Applicant:	Mr S Gupta
Counsel for the Respondent:	Ms A Koch

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