R v Smith

[2008] NZCA 371

IN THE COURT OF APPEAL OF NEW ZEALAND

CA275/2008
[2008] NZCA 371

THE QUEEN

v

GEOFFREY MARTIN SMITH

Hearing:27 August 2008

Court:O'Regan, Chisholm and Ronald Young JJ

Counsel:D G Hayes for Appellant

S J Mount and L L du Claire for Crown

Judgment:17 September 2008 at 3 pm

JUDGMENT OF THE COURT

The appeals against conviction and sentence are dismissed.

REASONS OF THE COURT

(Given by Chisholm J)

[1]        Following trial before Judge Maze and a jury in the Hamilton District Court the appellant and his wife were found guilty on 94 counts alleging offending between 2001 and 2006 against the Tax Administration Act 1994.  Of those counts 60 alleged that the appellant and his wife had knowingly failed to pay PAYE tax (s 143A(1)(d)), four alleged they had failed to file income tax returns with intention to evade (s 143B(1)(b) and (f)), and 30 alleged that they had failed to furnish GST returns with intention to evade (also s 143B(1)(b) and (f)).  At sentencing the Crown alleged that the unpaid taxes amounted to at least $570,000.  The appellant was sentenced to two and a half years imprisonment and his wife was sentenced to nine months home detention. 

[2]        The appellant appeals against both his conviction and sentence.  His conviction appeal alleges that the Judge misdirected the jury in several respects and that the jury’s verdict on six counts was against the weight of evidence.  The appeal against sentence is on the ground that the sentence is manifestly excessive.  Mrs Smith has not appealed. 

Background

[3]        Mr and Mrs Smith operated a partnership trading as “Trellis and Fence Warehouse” at Te Kauwhata.  This business sold trellis, fencing, posts and railing to the public.  From about 2001 it also sold kindling, primarily to Solid Energy in Huntly. 

[4]        An approach to IRD by an employee seeking information triggered an investigation by the Department in 2004.  Although the investigation initially concerned PAYE issues, it was later expanded to include the full taxation affairs of Mr and Mrs Smith and their partnership.  Those investigations gave rise to the 94 charges against Mr and Mrs Smith, all of which they denied. 

[5]        At trial evidence for the prosecution was given by seven former employees who said that they had been paid wages for their work with the partnership which they understood were net of tax.  The manager of Solid Energy gave evidence about payments his company had made to the partnership for kindling.  An IRD investigator gave evidence about her dealings with the Smiths and confirmed that, with the exception of six PAYE payments made between 2004 and 2006, IRD had not received any payments of PAYE, GST or income tax.  Based on the evidence of the former employees and Solid Energy, the Crown contended that the six PAYE payments received by the Commissioner were for amounts considerably less than the amounts payable. 

[6]        In defence of the PAYE charges, Mr and Mrs Smith contended that they did not employ any of the employees and they were accordingly under no obligation to file PAYE returns or to make any payments to the Commissioner.  The appellant gave evidence that the alleged employees were either independent contractors or were employed by Laverne Orchards, a company owned by his brother who had died in 2006.  The appellant said that six PAYE returns were filed on his brother’s behalf either because of his brother’s very poor health at the time or because his brother was overseas visiting family (he could not remember which it was). 

[7]        The defence in relation to the income tax returns was that Mr and Mrs Smith believed that there were taxation losses that could be carried forward for the relevant years.  And in relation to the GST returns the appellant’s evidence was that once the kindling wood business grew they had to borrow $250,000 for plant and equipment and they believed that the resulting GST refund would counteract any GST that would otherwise be payable. 

Grounds of appeal against conviction

[8]        It is alleged by the appellant that the trial Judge misdirected the jury when she told them that:

(a)The Crown did not have to prove the particular amount of PAYE that should have been paid (counts 1 - 60);

(b)The Crown did not have to prove the particular amounts of GST that should have been paid (counts 65 - 94); 

(c)The contents of certain invoices were “neutral”. 

Mr Hayes also contended that the first misdirection had a flow-on effect to the next ground of appeal, namely, that the jury’s verdicts in relation to the six counts in respect of which PAYE had been paid were against the weight of evidence. 

[9]       We now consider each of these grounds of appeal against conviction.  After that we will address the appeal against sentence.

Did the Crown have to prove the particular amount of PAYE that was payable?

[10]     Counts 1 - 60 allege that Mr and Mrs Smith knowingly applied or permitted the application of an amount specified in each count, being tax deductions from employees’ wages for a specified period, for a purpose other than payment to the Commissioner.  Each count relies on s 143A(1)(d):

143A   Knowledge offences

(1)       A person commits an offence against this Act if the person—

…

(d)Knowingly applies or permits the application of the amount of a deduction or withholding of tax made or deemed made under a tax law for any purpose other than in payment to the Commissioner;

….

In relation to each of these counts Judge Maze directed the jury that the Crown did not have to prove the particular amount of PAYE that had been misapplied and that a PAYE assessment was to be taken as correct unless and until the Commissioner issued an amended assessment or the Taxation Review Authority directed otherwise. 

[11]     Before trial Mr Hayes had attempted to have all the charges dismissed or stayed on the basis that the trial could not proceed until the assessment dispute process initiated by Mr and Mrs Smith had been completed and the actual amount of tax that was payable in relation to each count determined.  Judge Spear rejected that proposition and dismissed the application.  At the conclusion of Judge Maze’s summing-up to the jury Mr Hayes again raised that issue and also contended that she had misdirected the jury by telling them that the Crown did not have to prove a particular amount of tax.  Judge Maze responded that the specific amount of tax was not an element of the charges and she declined to revisit the matter.

[12]     Mr Hayes raised effectively the same issues before us.  Although the underlying theme is the same, there are in fact two questions: first, whether in respect of counts 1 – 60 the Crown was required to prove the particular amount of PAYE that should have been paid to the Commissioner;  second, whether the jury was required to take assessments before them as correct. 

[13]     We now consider the first question.  Under s 4A(2)(b) of the Tax Administration Act: 

A deduction is deemed to be made when payment is made of the net amount of any source deduction payment. 

A “source deduction payment” includes payment of salary or wages (see s OB 2(1) of the Income Tax Act 1994 which applies by virtue of s 3(2) of the Tax Administration Act).  And in terms of s 4A(2)(c) of the Tax Administration Act the amount of the deduction referred to in s 4A(2)(b) is deemed to have been applied for a purpose other than in payment to the Commissioner if the amount is not paid to the Commissioner by the relevant due date. 

[14]     Obviously the statutory purpose is to ensure that whenever there is a net payment of salary or wages the person paying those wages accounts to the Commissioner for the appropriate PAYE deduction by the relevant due date.  Anyone who knowingly fails to account to the Commissioner commits an offence under s 143A(1)(d).  Given that statutory regime the appellant’s argument that the Crown can only succeed if it proves that the person accountable has failed to account for the precise amount of the deduction is patently untenable. 

[15]     As Crown counsel pointed out, the appellant’s interpretation would defeat the statutory purpose in situations, which are by no means uncommon, where there are poor records or, indeed, where records have been destroyed or fabricated.  While the Crown could prove that employees were paid and that there had been a failure to account to the Commissioner for PAYE, it would be difficult, if not impossible, to prove the precise amount.  It could not have been Parliament’s intention that the Crown’s inability to prove the particular amount would provide an escape route for persons facing a charge under s 143A(1)(d). 

[16]     The appellant’s contention is also contrary to the general position at common law that value is not an element of an offence unless it is of the essence of the offence: see Richardson (ed) Archbold: Criminal Pleading, Evidence and Practice (56ed 2008) at [1-134].  Nothing in the Tax Administration Act suggests that the particular amount of a PAYE deduction is of the essence of a s 143A(1)(d) offence.  That conclusion is reinforced by the observations of the Full Court in R v Koura (1996) 2 NZLR 9 at 10 – 11 (CA) with reference to the theft of electricity. The Court said that the precise value need not be proved for trial purposes: what is required is proof that the value exceeded the relevant statutory threshold. Applying those observations to the present matter, it is only necessary for the Crown to prove that an amount of the PAYE deduction has been misapplied: it does not have to prove the precise amount of the deduction that has been misapplied.

[17]     Mr Hayes argued that unless the Crown was required to prove the particular amount of the deduction it would be impossible for an accused person to invoke the defence available under s 143A(4): 

No person may be convicted of an offence under subsection (1)(d) for knowingly applying or permitting the application of an amount of withholding or deduction of tax for a purpose other than in payment to the Commissioner, if the person satisfies the Court that the amount of the deduction or withholding has been accounted for, and that the person’s failure to account for it within the prescribed time was due to illness, accident, or other cause beyond the person’s control.

We do not agree.  In that situation it is for the taxpayer to satisfy the Court that the whole of the deduction has been accounted for and that the failure to account comes within the subsection.  If there is a dispute about the amount of the deduction it will be for the taxpayer to satisfy the Court that his or her calculation is right. 

[18]     We therefore conclude that Judge Maze was right when she directed the jury that the Crown did not have to prove a particular amount had been misapplied.  It was enough if the Crown proved that the appellant had misapplied an amount of the PAYE deduction, with the relevant knowledge. 

[19]     Turning to the second question, we are satisfied that the Judge was also right when she told the jury that the assessments before the jury were to be taken as correct.  Even though Mr and Mrs Smith disputed those assessments by way of the objection process, on the evidence before the jury the Commissioner’s assessments prevailed by virtue of s 109 of the Tax Administration Act which provides that, except in specified situations (which did not apply), “no disputable decision may be disputed in a Court … on any ground whatsoever”.  An assessment of tax is a “disputable decision”.  Thus, for the purposes of s 143A(1)(d), the jury was obliged to use the Commissioner’s assessments as the benchmark for determining whether or not there had been a misapplication of PAYE deductions.  This was unlikely to have been an issue on the facts of this case because the focus of the defence case was on the proposition that the appellant did not have employees and therefore had no obligation to deduct PAYE from their wages.  It may be open to an accused person to argue that he or she paid the amount of PAYE that he or she believed was the correct amount (the amount deducted from employees’ wages) and therefore did not knowingly fail to account for PAYE, even if the amount actually paid was less that the amount assessed.  But that possibility does not need to be explored on the facts of this case.

[20]     The first ground of appeal fails. 

Did the Crown have to prove the particular amount of GST that should have been paid? 

[21]     Counts 65 – 94 allege that Mr and Mrs Smith knowingly failed to provide GST returns for each specified period when required to do so by tax law with intention to evade the assessment or payment of tax.  Those counts rely on s 143B(1)(b) and (f).  

Section 143B Evasion or similar offence

(1)       A person commits an offence against this Act if the person-

…

(b)Knowingly does not provide information (including tax returns …) to the Commissioner … when required to do so by a tax law;

…

and does so-

(f)Intending to evade the assessment or payment of tax by the person … under a tax law;

Judge Maze directed the jury that if Mr and Mrs Smith traded with a GST component they had an obligation to file a return as a matter of law and the jury did not have to be satisfied that a particular sum was payable or even, indeed, that any tax was payable.

[22]     Mr Hayes alleged that the Judge’s directions were wrong.  He claimed that the Crown had to prove the amount of GST that was payable, or at the very least, that some GST was payable.  Otherwise, he submitted, the Crown would not be able to prove the evasion component of the charge.  He also argued that the appellant was entitled to rely on the available GST credits to counteract any GST that would otherwise be payable.

[23]     As it happens this Court has very recently considered similar issues in R v Fepuleai [2008] NZCA 339 with reference to s 143B(1)(b) and (f). The Court held:

[22]     … There had to be a knowing failure to make the GST returns with the intention of evading the assessment or payment of tax.  The intention of evading assessment is sufficient.  A GST registered person or company is obliged to file GST returns whether there is a net liability or a refund of tax.  See s 16, Goods and Services Tax Act 1985.  (The section was amended in 2006, but this filing obligation has always been in place.) 

[23]     At the trial and on appeal part of Mr Fepuleai’s argument was that he had been spending money on the workers for travel, accommodation and food, and so GST paid on goods and services purchased for the workers would likely offset the GST collected from the growers…

[24]     This is not a defence.  Even if his expectation was that his output matched (a highly improbable proposition) that did not relieve him from his statutory obligation while managing his companies of filing returns for his companies and thereby enabling the assessment or payment of tax.

…

[28]     It is no defence that the appellant may have had a true belief that he had paid out more than he had collected.  Such a belief… is irrelevant to the absolute obligation upon a GST-registered person or company to regularly file GST returns, whether or not there is a net liability or a refund of tax. 

We endorse those comments which effectively answer all the points raised by Mr Hayes.  We should also add that on the evidence in this case the GST credits available to Mr and Mrs Smith were only a fraction of the GST payable. 

[24]     The second ground of appeal fails.  

Did the Judge misdirect the jury when she said the invoices were neutral? 

[25]     During her summing-up the Judge said: 

Mr Hayes referred to Mrs Lucas [the IRD investigator] talking about a NOPA [notice of proposed adjustment] having invoices from Laverne Orchards attached and he posed the question for you “would you expect them to be produced, what do they say?”  I must say to you what I need to say in respect of each of those questions, which in a sense invites you to speculate.  You have to decide this case on the evidence you’ve got and you cannot speculate.  Neither counsel referred to the contents of these invoices and so they are neutral.  It is a piece of neutral information and I suggest it may be that it doesn’t take you anywhere at all.

Mr Hayes argued that it was wrong and unfair to the defence for the Judge to make these comments to the jury.  His submission was that it was for the jury, not the Judge, to assess the significance of the fact that IRD had possession of invoices from Laverne Orchards which had not been placed before the jury. 

[26]     It is important to assess the Judge’s observations in context.  Before trial Judge Maze conducted a voir dire about whether invoices purporting to have been prepared by the appellant’s deceased brother were admissible.  The invoices had been provided to IRD by the appellant in response to the Department’s notice of proposed adjustment.  After hearing evidence from Mr Smith and several other witnesses about the authenticity of the documents the Judge ruled that they were inadmissible.  This reflected the Judge’s conclusion that they were not reliable documents. 

[27]     Despite that ruling the IRD investigator mentioned during her re-examination that “invoices for Laverne Orchard came in”.  And Mr Hayes seems to have invited the jury to question why the invoices had not been produced by the Crown. 

[28]     Given that context the Judge’s comment that the jury were not entitled to speculate about evidence that was not before them and that the contents of the invoices were to be regarded as neutral is hardly surprising.  She was simply trying to neutralise the references to the invoices in a way that was fair to both sides.  This was achieved and there was no misdirection or unfairness. 

Were the verdicts on six counts against the weight of evidence?

[29]     The crux of this ground is that PAYE returns had been filed with IRD and payment made for each of the periods covered by the six counts.  Mr Hayes argued that the finding of guilt on those counts calls into question whether the jury properly considered those charges.  He also claimed that the jury must have ignored the evidence of Mr Porteous, the appellant’s former accountant, who said that he had prepared returns for 2002 and 2003 and had started the 2004 returns. 

[30]     We do not find anything untoward in the guilty verdicts.  Mrs Lucas, the IRD investigator, provided her calculations about the PAYE  she considered to be payable in relation to each of the six counts.  In each case this was considerably more than the amount actually paid.  Mrs Lucas’ calculations were based on the Solid Energy invoices.  For reasons already discussed in relation to the first ground of appeal, an offence against s 143A(1)(d) was committed if there had been a failure to account for any part of the PAYE deduction.  Clearly the jury accepted Mrs Lucas’ evidence that there was a shortfall in relation to each of the six counts and there is no foundation for the allegation that their verdicts were against the weight of evidence.

[31]     The final ground advanced by the appellant in support of his appeal against conviction also fails. 

Appeal against sentence

[32]     At the time of sentencing Mr Smith was 54 years of age.  His previous convictions included dishonesty offences.  Mr Mount provided us with an additional list of previous convictions including breaches of the Income Tax Act.  However, it appears that the additional list was not before the sentencing Judge and its accuracy is challenged by Mr Hayes.  Under those circumstances we have decided to ignore it. 

[33]     Judge Maze regarded the duration of the offending, premeditation, and “a distinct financial advantage” arising from it, as aggravating factors.  While expressing concern that the Department had, between the date of the trial and the date of sentencing, altered its estimate of the amount owed to the Department from $800,000 to $570,000, she observed that she could take note of the extent of the employment proved over the relevant period.  She told Mr and Mrs Smith that they had had plenty of time to “expose to the light of scrutiny” what they had been doing and the extent of it. 

[34]     The Judge noted that there was no tariff and that there were marked inconsistencies in the sentences imposed.  She said that she took guidance from two decisions, Zwiers v Commissioner of Inland Revenue DC CRI 2006-419-130 Judge Spear and Clemm v Commissioner of Inland Revenue (2005) 22 NZTC 19.495.  After considering the first case she concluded that it turned on its own very special facts (the implications of a prison sentence on the prisoner’s dependent child who suffered from medical disorders) and that it had little application.  As to Clemm, which involved seven charges of using documents with intent to defraud and 18 charges relating to underpayment of income tax and ACC levies by a solicitor over a period of six years, Judge Maze accepted that Mr and Mrs Smith were in a different situation.  However, she seems to have derived some guidance from the indication of Williams J that a starting point of four years after allowing for aggravating factors personal to the offender was appropriate. 

[35]     Having adopted a starting point of two and a half years imprisonment (the Crown had sought three and a half years), the Judge applied an uplift of six months to reflect the appellant’s previous convictions for dishonesty and then reduced the sentence by six months to recognise his “positive good character as identified by others who know you, albeit in a context different from that in which I have come to observe you”.  The end result was a sentence of two and a half years imprisonment. 

[36]     Mr Hayes argued that the Judge should have conducted a disputed facts hearing in relation to the amount of tax owed which, according to the defence at sentencing, was somewhere between nil and $100,000.  He claimed that there was no evidence before Judge Maze of the actual amount that was owing.  We do not accept those propositions.  In terms of s 24(1) of the Sentencing Act 2002 Judge Maze, as the trial Judge, was entitled to accept as proved any fact that was disclosed by evidence at trial.  She was not under any obligation to convene a disputed facts hearing, given that she had already heard the evidence presented to the jury. 

[37]     It was also argued by Mr Hayes that it was wrong for the Judge to rely on Clemm because it involved an entirely different situation.  Mr Hayes also noted that Mr Clemm had pleaded guilty at an early stage.  We do not accept that the Judge erred by referring to Clemm.  Having recognised that the factual situation in that case was different, Judge Maze adopted a significantly lower starting point for the appellant.  Moreover, the fact that Mr Clemm pleaded guilty is irrelevant to the starting point. 

[38]     Finally, we reject Mr Hayes’ submission that, looked at overall, the sentence imposed on the appellant was manifestly excessive.  As Judge Maze concluded, this was serious offending over a prolonged period (approximately five years) involving a substantial amount of unpaid tax.  The starting point of two and a half years, uplift of six months for his previous offending, and discount for the appellant’s good character were all within the range available to the Judge. 

[39]     There is no merit in the appeal against sentence.

Result

[40]     The appeals against conviction and sentence are dismissed.

Solicitors:           
Crown Law Office, Wellington