Continuum Recruitment Pty Ltd v Chief Commissioner of State Revenue [2024] NSWCATAD 38
Background
The Applicant fell behind in attending to its payroll tax obligations. Between July 2022 and February 2023, the Respondent contacted the Applicant on several occasions to advise that documents sent by post had been returned undelivered, and that the Applicant’s postal address should be updated using the online portal. During this period, the Applicant did not lodge its 2022 payroll tax annual reconciliation, nor its returns within 7 days of the end of the month for the months from November 2022 to March 2023. A Payroll Tax Estimate Notice for the period 1 July 2021 to 30 June 2022 was issued to the Applicant with penalty tax imposed in respect of the unpaid tax for that financial year.
A further three Payroll Tax Estimate Notices were issued to the Applicant, imposing an amount of penalty tax in respect of the unpaid tax amounts for the November 2022, December 2022 and January 2023 months.
As the Applicant had not updated its postal address in the Respondent’s portal, those assessments were issued to the incorrect address. Following a telephone call with an officer of the Respondent on 27 February 2023, the Applicant updated its address on 28 February 2023, and further Payroll Tax Estimate Notices were issued to that address, imposing an amount of penalty tax in respect of the unpaid tax amounts for the February and March 2023 months.
On 9 May 2023, the Applicant emailed the Chief Commissioner requesting a waiver of the penalty tax amounts. The request was declined. On 18 May 2023, the Applicant lodged an objection in respect of the penalty tax amounts. On 19 June 2023, the objection was disallowed by the Chief Commissioner.
The Statutory Framework
Payroll tax is payable by employers on all taxable wages within 7 days after the month in which they were paid or payable (ss. 6-9 of the Payroll Tax Act 2007 (NSW) (“PTA”)). Monthly returns must be lodged within 7 days of the end of the month (except for June), and a return must be lodged within 28 days after the end of June, relating to that month and to the adjustment of payroll tax paid or payable for that financial year (s. 87 PTA).
The taxpayer is liable to pay penalty tax in addition to the amount of unpaid tax if a default occurs (s. 26 of the Taxation Administration Act 1996 (NSW) (“TAA”)). Section 27(1)(a) of the TAA specifies the amount of penalty tax is 25%.
The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if satisfied either that the taxpayer took reasonable care to comply with its obligations, or that the default occurred solely because of circumstances beyond the taxpayer’s control, but not amounting to financial incapacity (s. 27(3) TAA). Section 33 of the TAA further provides that the Chief Commissioner may remit penalty tax by any amount in such circumstances it considers appropriate.
While sections 28 and 29 of the TAA provide for the reduction of penalty tax where disclosure has been made by the taxpayer either prior to or during an investigation, the provisions do not apply where the taxpayer is registered under a taxation law, and the default involved a failure to lodge a return or pay tax by the date required under that taxation law (ss. 28(2) and 29(2) of the TAA).
Submissions
The Applicant submitted that the financial impact of the Covid-19 pandemic was significant, disrupting the Applicant’s income and increasing expenses. The business was severely affected with a significant decrease in revenue and clients, increase in bad debts and a loss of employees. This placed an enormous burden on the business and increased the workload of the Director, Mr Doyle, making it challenging to fulfil day-to-day obligations, including attending to tax payments. Mr Doyle also noted the emotional and financial strain of the significant medical issues of his two children. Mr Doyle submitted that the Applicant had not been advantaged by not paying the tax on time, as the tax amounts were in an account earning no interest. Mr Doyle submitted that he “took his eye off the ball” and conceded that he “prioritised” matters “wrongly”.
The Respondent submitted that penalty tax should be imposed and not be remitted as the Applicant did not take reasonable care to comply with its payroll tax obligations, and the tax default was not caused solely by circumstances beyond the Applicant’s control and there were no other circumstances warranting remission.
Decision
For the reasons outlined below, the Tribunal held that the Applicant had failed to discharge the burden under s. 100(3) of the TAA to demonstrate why penalty tax should not be imposed or should be remitted. The imposition of penalty tax for the relevant payroll tax assessments is therefore the correct and preferable decision.
“Reasonable Care”
The Tribunal held that the relevant factual inquiry prescribed by the reasonable care test in s. 27(3) of the TAA is “whether the taxpayer made the reasonable attempts a person in the position of the taxpayer ought to have taken so as to comply with the provisions of a taxation law” (Aurora Developments Pty Ltd v FCT (No 2) (2011) FCR 457 at [36] - [38]; Taras Nominees Pty Ltd v Federal Commissioner of Taxation (2014) 94 ATR 751 at [197]).
The Tribunal considered the guidelines issued by the Chief Commissioner in Practice Note CPN 024 and Revenue Ruling PTA 036.These guidelines outline factors relevant to determining whether reasonable care has been exercised by taxpayers. Such factors include honesty, cooperation, diligence in understanding and complying with tax laws, maintenance of appropriate recording systems, awareness of tax obligations, reliance on professional advice, and prompt action upon awareness of tax liabilities. However, meeting these factors does not automatically indicate reasonable care; all relevant circumstances leading to the tax default are considered.
The Tribunal found that the Applicant was clearly aware of its obligations, evidenced by Mr Doyle’s admission that he “took his eye off the ball.” The Tribunal also noted the failure of the Applicant to update its mailing address despite repeated requests, resulting in numerous assessments and notices being sent to the incorrect address.
The Tribunal was not satisfied that the Applicant made diligent efforts to comply with its obligations, maintained appropriate systems to minimise the risk of default, or acted promptly upon awareness of outstanding obligations. The Applicant therefore failed to establish on the evidence that reasonable care was taken to comply with tax obligations.
“Solely because of circumstances beyond the taxpayer’s control”
The Tribunal also considered the examples set out in CPN 024 of circumstances which might be considered to be beyond the taxpayer’s control, including natural disasters, computer system breakdowns, illness or death of a principal taxpayer, a Revenue NSW fault affecting receipt of payment, or circumstances where it is impossible to lodge or pay on time (excluding financial incapacity including hardship). The examples give an idea of the “significance” of the event required to take circumstances outside the Applicant’s control (Tacey v Chief Commissioner of State Revenue [2016] NSWCATAD 255 at [51]).
The Tribunal noted that the evidence before it regarding the Applicant’s circumstances was limited. In relation to the illness of Mr Doyle’s daughters, and his own illness, there was no evidence as to the nature and timing, or how this impacted Mr Doyle’s ability to comply with the Applicant’s obligations. Although the Tribunal accepted that these factors, and the increased workload as a result of the pandemic, were circumstances beyond the Applicant’s control, the Tribunal was not satisfied that they were the sole cause of the default. Mr Doyle admitted that he “wrongly prioritised” his obligations and should have engaged someone to assist the Applicant to meet its obligations. The latter factors were clearly part of the cause of the Applicant’s failure to comply with its obligations and cannot be regarded as being beyond the control of the Applicant through its director (Commissioner for ACT Revenue v G Kalsbeek Pty Ltd [2015] ACAT 90 at [42]).
The Tribunal found that the Applicant failed in discharging its onus of proof to establish that its failure to comply with its obligations was caused solely because of circumstances beyond its control.
Section 33 of the TAA
In considering the broad discretion under s. 33 of the TAA, the Tribunal found that the Applicant had failed to show any other ground warranting remission of the penalty. While the Applicant submitted that the business was unable to afford the penalty tax amounts, s. 27(3)(b) of the TAA excludes financial incapacity as a matter that can be taken into account to determine that no penalty tax is payable in respect of a tax default.
The Tribunal accepted that the Applicant, Mr Doyle and his family faced difficult challenges. However, the Applicant had disregarded its payroll tax obligations for an extended period and failed to respond to repeated requests from the Chief Commissioner to comply. It was particularly noted that the payroll tax assessments issued to the Applicant in respect of which penalties were imposed were estimated assessments because the Applicant had not supplied actual payroll figures to the Respondent for the periods in question, for the correct amount of payroll tax to be confirmed. The Tribunal found that it would be inconsistent with the objectives of the penalty scheme in the TAA (to encourage compliance and deter non-compliance) for penalty tax to be remitted in full or in part in these circumstances.
Orders
The decisions under review are confirmed.
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