District Court New South Wales Medium Neutral Citation: Deputy Commissioner of Taxation v Connell [2024] NSWDC 530 Hearing dates: 23 October 2024 Date of orders: 4 November 2024 Decision date: 04 November 2024 Jurisdiction: Civil Before: Andronos SC DCJ Decision: (1) Judgment for the plaintiff against the defendant in the sum of $850,992.03. (2) The defendant is to pay the costs of the plaintiff assessed on the ordinary basis. Catchwords: TAXES AND DUTIES — Administration — Collection and recovery — Directors and former directors Legislation Cited: Corporations Act 2001 (Cth) Superannuation Guarantee (Administration) Act 1992 (Cth), s 6, s 33, s 39 Taxation Administration Act 1953 (Cth), Sch 1, s 16-70, s 16-75, s 16-150, s 269-10, s 269-15, s 269-20, s 269-25, s 269-30, s 350-10, s 350-12, s 350-20 Category: Principal judgment Parties: Deputy Commissioner of Taxation (plaintiff) Robert Naughton Connell (defendant) Representation: Solicitors: HWL Ebsworth Lawyers (plaintiff) File Number(s): 2023/00260325 Publication restriction: Nil JUDGMENT 1. In these proceedings, the plaintiff, the Deputy Commissioner of Taxation (the DCT), seeks judgment against Robert Naughton Connell, the defendant, in respect of tax-related liabilities. The tax was primarily payable by Semantic Software Asia Pacific Ltd (SSAPL), a company of which the defendant was a director, and which has since gone into liquidation. Pursuant to s 269-20 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the TAA), the DCT says that the defendant has become liable to pay a sum equal to that liability as a penalty. The sum claimed is now $850,992.03. 2. The defendant had participated in the proceedings and filed a defence on 2 November 2023. His former solicitor filed a notice of ceasing to act on 15 October 2024. An affidavit affirmed by Salmaan Shah, one of the plaintiff's solicitors, on 22 October 2024 satisfied me that he had had a conversation with the defendant on 17 October 2024 and that an email had been sent to an email address associated with the defendant that day, confirming that the defendant was aware of the hearing and that he did not intend to defend the proceedings. On the basis of that conversation and email, I am satisfied that the defendant was aware of the hearing date, but nevertheless did not attend to defend the proceedings. For more abundant caution, the defendant was called outside court but did not appear. The hearing therefore proceeded ex parte. 3. The DCT relied on the affidavits of Namitesh Prasad, Venus Shakuntala Lakshman and Salmaaan Shah. The DCT also relied on certificates under s 350-10(3) of Sch 1 to the TAA dated 15 March 2024, 15 March 2024 and 18 October 2024. 4. A certificate under s 350-10(3) is a statement or averment about a matter in the plaintiff's complaint and stands as prima facie evidence of the matter: s 350-20(1) of Sch 1 to the TAA. Where a certificate specifies that an amount is payable to the Commissioner under a taxation law, it is prima facie evidence that the amount is payable from that time and that the particulars are correct: ss 350-10(3) and 350-12 of Sch 1 to the TAA. Legislative framework 1. The DCT has proceeded under the director penalty regime in Division 269 of Schedule 1 to the TAA, the purpose of which is to ensure that a company meets its obligations to pay, relevantly, amounts withheld under Division 12, in accordance with Subdivision 16-B (PAYGW Obligation) and the superannuation guarantee charge (SGC) (the SGC Obligation), or promptly goes into administration under the Corporations Act 2001 (Cth) (the CA) or into liquidation. 2. The PAYGW Obligation requires an entity to withhold an amount from various payments, including those paid to employees and office holders. The withheld amount must be paid to the Commissioner, in accordance with s 16-70(1), by the due days set out in s 16-75 of Sch 1. 3. An employer who has a superannuation guarantee shortfall in any quarter must lodge a superannuation guarantee statement in accordance with s 33 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGAA). Under ss 6 and 39 of the SGAA, the Commissioner may make an assessment of an employer's liability to pay the SGC if the employer has not lodged a superannuation guarantee statement for a quarter pursuant to s 33, and the Commissioner is of the opinion that the employer is liable to pay the SGC for that quarter. The Commissioner must give written notice and the SGC is payable on the day the assessment is made. 4. Under s 269-10(1) of Sch 1 to the TAA, a director must cause a company to comply with its obligations to pay amounts withheld under Division 12, in accordance with sub-division 16-B, on the due day, as defined. A director must also cause the company to pay to the Commissioner the SGC in accordance with the SGAA. The due day for payment of the SGC Obligation is the day by which the company must lodge a quarterly superannuation guarantee statement under s 33 of the SGAA, even if the charge is not assessed under that Act on or before that day. 5. Section 269-15 imposes an obligation on directors to cause the company to comply with its relevant obligations. Under sub-s (2), the directors' obligation continues until the company complies with its obligation, an administrator is appointed under ss 436A, 436B or 436C of the CA, or the company begins to be wound up within the meaning of the CA. 6. A director is liable to pay a penalty if the director's obligations under s 269-15 are not complied with by the due day. In other words, the director will suffer a penalty if he or she does not cause the company to comply with its obligations by the due day. 7. Where a person becomes a director after the due day, s 269-20(3) applies. That provision states that a director will be liable to pay a penalty to the Commissioner if, after the due day, he or she became a director, began to be liable under an obligation under s 269-15 and 30 days later, the director was still under that obligation. The amount of the penalty is equal to the unpaid amount of the company's liability: s 269-20(5). 8. It can be seen, therefore, that the penalty regime, as it applies to incoming directors, allows such directors a period of 30 days to cause the company to comply with its outstanding obligations, appoint an administrator or put the company into liquidation. If none of these options are taken, the director becomes personally liable to pay a penalty equal to the outstanding obligations. 9. For the DCT to bring penalty proceedings against a director, it must first serve a Director Penalty Notice (DPN). A DPN must be served more than 21 days prior to the commencement of any enforcement proceedings and set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation: s 269-25(1). The penalty will be remitted if, within 21 days of service of a DPN, the director stops being under the obligation because the company's liability has been discharged, an administrator has been appointed or a winding up has commenced. 10. In some circumstances, however, a penalty will not be remitted, even if an administrator is appointed or the winding up of a company has commenced. These provisions, set out in the table in s 269-30(2), are described as the "lockdown provisions". The penalty will not be remitted if: 1. In respect of a PAYGW Obligation, the company does not notify the Commissioner within three months of the due day, either under s 16-150 of the amount the company is obliged to pay or under s 389-5 of the amount the company is obliged to withhold; and an administrator is appointed or a winding up has commenced after three months after the due day; or 2. In respect of a SGC Obligation, an administrator is appointed or a winding up is commenced after the due day and the company's liability for SGC exceeds any amount reported by the company in a superannuation guarantee statement lodged, pursuant to s 33 of the SGAA, before that date. Facts and disposition 1. On the evidence before me, I am satisfied of the following matters: 1. SSAPL was incorporated on 7 November 2008. Withholding Amounts 1. On 16 November 2016, SSAPL notified the Commissioner of a PAYG Withholding Amount of $72,448.00 for the period 1 September 2016 to 30 September 2016. The due day in respect of such amount was 25 November 2016. 2. On 3 January 2017, SSAPL notified the Commissioner of PAYG Withholding Amounts of $67,946.00 for the period 1 October 2016 to 31 October 2016 and $59.019.00 for the period 1 November 2016 to 30 November 2016. The due days in respect of such amounts were 21 November 2016 and 10 January 2017, respectively. 3. On 4 April 2017, SSAPL notified the Commissioner of a PAYG Withholding Amount of $66,126.00 for the period 1 December 2016 to 31 December 2016. The due day in respect of such amount was 28 February 2017. 4. On 8 February 2018, SSAPL notified the Commissioner of PAYG Withholding Amounts of $62,183.00 for the period 1 February 2017 to 28 February 2017 (due day 21 March 2017), $122,655.00 for the period 1 April 2017 to 30 April 2017 (due day 22 May 2017), $71,007.00 for the period 1 May 2017 to 31 May 2017 (due day 21 June 2017), $102,811 for the period 1 June 2017 to 30 June 2017 (due day 11 August 2017), $23,376 for the period 1 July 2017 to 31 July 2017 (due day 21 August 2017), $1,866 for the period 1 August 2017 to 31 August 2017 (due day 21 September 2017), $27,967.00 for the period 1 September 2017 to 30 September 2017 (due day 13 November 2017), $594.00 for the period 1 October 2017 to 31 October 2017 (due day 21 November 2017) and $16,478 for the period 1 November 2017 to 30 November 2017 (due day 21 December 2017). 5. On 28 March 2018, SSAPL notified the Commissioner of PAYG Withholding Amounts of $499 for the period 1 January 2018 to 31 January 2018 (due day 21 February 2018) and $29,716 for the period 1 February 2018 to 28 February 2018 (due day 21 March 2018). 6. On 22 November 2018, SSAPL notified the Commissioner of a PAYG Withholding Amount of $22,110 for the period 1 June 2018 to 30 June 2018 (due date 13 August 2018). 7. The Withholding Amounts totalled $841,448.00. This sum was reduced to $763,997.49 by virtue of payments received by the Commissioner and credits allowed. 8. On 13 July 2018, SSAPL notified the Commissioner of PAYG Withholding Amounts of $34,983 for the period 1 March 2018 to 31 March 2018 (due date 14 May 2018), $37,473 for the period 1 April 2018 to 30 April 2018 (due date 28 May 2018) and $22,192 for the period 1 May 2018 to 31 May 2018 (due date 21 June 2018). Superannuation Guarantee Charge 1. On 3 July 2018, the Commissioner issued to SSAPL its first SGC notice of assessment in the sum of $51,410.91. On 12 November 2018, the Commissioner issued to SSAPL a second SGC notice of assessment in the sum of $43,911.35. The Commissioner assessed SSAPL's superannuation guarantee shortfall and the SGC payable on the shortfall for each of the quarters commencing on 1 January 2015 (due date 28 May 2015) and 1 April 2018 (due date 28 August 2018) as $95,322.26. 2. After making allowance for payment subsequently received in the sum of $9,405.72, the balance due was $85,916.54. Bringing of the present claim 1. The defendant became a director of SSAPL on 1 December 2018 and ceased to be a director on 17 February 2021. 2. A liquidator, Andrew John Scott, was appointed to SSAPL on 15 July 2021. 3. SSAPL failed to pay to the Commissioner the following sums by the relevant due days: 1. Actual amounts withheld under PAYG Withholding provisions in the sum of $763,997.49; and 2. SGC in the sum of $85,916.64. 1. Of the unpaid amounts, the following are subject to the lockdown provisions referred to above: 1. In respect of the PAYG Obligation, the amount of $401,397, because in respect of that amount, SSPAL did not notify the Commissioner within three months following the due day, under s 16-150, of the amount SSAPL was obliged to pay; and 2. In respect of the SGC Obligation, the amount of $85,916.64, being the amount by which SSAPL's liability exceeded the amount reported by SSAPL on its superannuation guarantee statements lodged before the due date, pursuant to s 33 of the SGAA. 1. Written notices of the penalties were given to the defendant on 13 March 2019, 18 March 2019 and 15 April 2019. The present proceedings were not commenced until 16 August 2023. 2. SSAPL did not discharge its liability and the defendant did not cause it to do so. 3. Further, there was no appointment of an administrator and SSAPL was not placed into liquidation within 21 days after notice of the penalty was given to the defendant. However, SSAPL has since gone into liquidation on 15 July 2021. This was, on any view, after the defendant's liability crystallised. 4. By way of a certificate dated 21 October 2024 and filed in court, the amount of the penalty due by the defendant was established as $850,992.03. 1. On the basis of the above facts, I am satisfied that the plaintiff has made good its cause of action and I find that the defendant is liable to pay to the Commissioner, as a penalty under s 269-20, the sum of $850,992.03. Orders 1. The orders of the Court are: 1. Judgment for the plaintiff against the defendant in the sum of $850,992.03. 2. The defendant is to pay the costs of the plaintiff assessed on the ordinary basis. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 November 2024