Papacostas v Chief Commissioner of State Revenue [2006] NSWADT 57

CITATION: Papacostas v Chief Commissioner of State Revenue [2006] NSWADT 57

DIVISION: Revenue Division

APPLICANT PARTIES: Michael Papacostas RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 056058

HEARING DATES: 21/02/2006

SUBMISSIONS CLOSED: 02/21/2006

DATE OF DECISION: 02/27/2006

BEFORE: Block J - ADCJ (Judicial Member)

CATCHWORDS: Gaming machine tax – liability for the tax

MATTER FOR DECISION: Principal matter

Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Gaming Machine Tax Act 2001 Liquor Act 1982

FC of T v Swift 89 ATC 5101 CASES CITED: Giris Pty Limited v FC of T (1969) 119 CLR 365. Project Blue Sky Inc v Australian Broadcasting Authority (1998) 153 ALR 490

APPLICANT A Dlakic, solicitor REPRESENTATION: RESPONDENT B Baker, solicitor

ORDERS: The decision under review is affirmed

REASONS FOR DECISION Part A. Introduction and Background 1 The decision under review is the refusal by the Respondent of an application by the Applicant for a refund of gambling machine tax imposed under the Gaming Machine Tax Act 2001 ("the Act"). 2 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997 and it accepted as Exhibit A1 a witness statement by the Applicant dated 16 September 2005. As the Applicant was not required for cross-examination the content of Exhibit A1 can be accepted. Each of the parties furnished the Tribunal with comprehensive written submissions. 3 The relevant facts, which fall within a narrow compass, are not in dispute. It is convenient by way of commencement to refer to and include clauses 4 to 9 (inclusive) of the Respondent's Submissions under the head of "Factual Background" as follows: FACTUAL BACKGROUND 4. The applicant is the license holder of the Erskineville Hotel ("the Hotel"). The applicant's company, Araquara Pty Ltd, is the registered proprietor of the hotel. Prior to 20 August 2004, the applicant was the landlord of the hotel, but the hotel was run by A & D Hagan Pty Ltd and its then licensee. The applicant took possession of the hotel on 20 August 2004 after A and D Hagan and its then licensee defaulted on lease payments. 5. On 19 October 2004, DMS Data Monitoring Services issued a CMS Gaming Tax Invoice to the applicant in the sum of $28,354.22, representing tax payable for the period 1 July 2004 — 30 September 2004 ("the tax period"). The tax payable was debited directly from the applicant's nominated bank account by the Office of State Revenue on 21 October 2004. 6. On 11 October 2004, the applicant's solicitor requested that the Chief Commissioner refund the proportion of gaming tax collected for the period 1 July 2004 to 20 August 2004, being the period prior to the applicant obtaining the license for the hotel. The applicant claims that the amount in dispute is $13,225.26. 7. On 23 November 2004, the Chief Commissioner advised the applicant that he would not refund the requested amount. 8. The applicant lodged an objection on 10 December 2004, which was ultimately disallowed by the Chief Commissioner on 8 April 2005. 9. The applicant filed an Application for Review in this Tribunal on 18 May 2005. 4 I intend in this decision to use the definitions contained in the Respondent's Submissions quoted in the preceding clause. In addition the term "Lessee Company" refers to A & D. Hagan Pty Ltd; the term "Hagan" refers to Anthony George Hagan who, while the Lessee Company was the lessee of the Hotel, was the licensee; and the term "Company" refers to Araquara Pty Limited. 5 Under section 7 of the Act liability for tax is imposed (relevantly) on an hotelier. The term "hotelier" is defined by reference to the Liquor Act 1982 and means "the holder of a hotelier's license." The term "hotelier's licence" is defined in the same statute as a licence to sell liquor by retail on licensed premises. Section 7(4) of the Act refers to "the hotelier who holds the relevant hoteliers licence". In this matter and in respect of the tax period, the Company was the owner of the Hotel and, until 20 August 2004, the Lessee Company was the lessee; and Hagan was the licensee. It would appear then that Hagan was at that time a hotelier. This application was brought by the Applicant, no doubt because he was in respect of the tax period (and is) the hotelier, I refer in particular in this regard to clauses 1 to 5 (inclusive) of Exhibit A1 (noting that it has been reproduced in exactly the form in which it was submitted) as follows: - 1. I am the Managing Director of Araquara Pty Limited, which owns the Erskineville Hotel at 102 Erskineville Road Erskineville. Araquara Pty Limited has owned this property (freehold) since 1986. 2. I obtained a hoteliers license, alcohol license & gaming license on or about 1986/1987 when my company purchased the Erskineville Hotel. Apart from being the Director of the company that owned the freehold property I also ran the Erskineville as a pub/hotel for a period of about two years. 3. Since approximately 1988/1989 it has been leased to other companies, which paid me rent for use of the premises. A & D Hagan Pty Limited under a Deed of Assignment of lease, leased the hotel from my company Araquara Pty Limited from 9 May 1995 to 10 August 2004. 4. On or about 2003 the tenant company A & D Hagan Pty Limited went into receivership and later administration. The Receivers made an application to the New South Supreme Court to exercise a ten year option under the lease. When my company refused to allow an option to be exercised on the lease in 2003 to the receivers given previous breaches of the lease such as non payment of rent, breaches of covenants and the fact the A & D Hagan Pty Limited went into receivership, the Receivers commenced proceedings in the NSW Supreme Court seeking by way of Summons an order that the exercise of the option be permitted. Araquara opposed that summons. The matter was resolved with the tenant company's receivers and 10 August 2004 Araquara Pty Limited took possession of the Erskinville Hotel and I personally assumed the day to day running and management of the pub. I renewed my licences for gaming, hotel and alcohol. 5. The Data Monitoring Service which direct debits all hotels gaming tax payments was informed that I took possession of the pub under licence on 10 August 2004. The Data Monitoring Service directing debited Araquara Pty Limited Laiki Bank Account for the entire period of 1 July 2004 to 31 September 2004. I was only in possession of the Hotel since 10 August 2004. However the Chief Commissioner has refused to pay the money that has been direct debited from my account for the period of 1 July 2004 to 10 August 2004. During the time the Receivers of A & D Hagan Pty Limited were in possession of the hotel and Anthony George Hagan was the licensee of the Hotel. Annexed hereto and marked with the letter "A" is a copy of the Form B "Application by the Holder of a Liquor License to transfer it to another person or a company" which was the filed with the Liquor Administration Board so that the Transfer of license could be assigned to me. I draw the Tribunals attention to page 3 of that documents, which notes the name of the previous licensee. I was granted a transfer of all licenses by the LAB. 6 It was contended on behalf of the Applicant that the solvency of Hagan was relevant. Put in succinct terms, the Lessee Company went into receivership some months before the Company retook possession of the Hotel. It seems likely that a claim against the Lessee Company for a part of the tax would have been worthless. It would also not, on any basis, have been competent, because apart from any other considerations the Lessee Company was not a hotelier. However Mr Dlakic complained that the Respondent had not taken any recovery action against Hagan and that there was no evidence as to his, Hagan's, solvency or lack of it. 7 At a late stage of the hearing and almost in passing the Form B referred to in clause 5 of Exhibit A1 came to my notice. The question and answer in respect of question 16 reads as follows: "Question; What arrangements have you made with the proposed licence holder for the payment of any gaming duty which accrued while you were the licensee? Answer: Each licensee is liable for the gaming duty during their appointment at the time the duty becomes due" 8 Mr. Dlakic, when this occurred, commented that the form was executed by a person without legal knowledge. I accepted that statement at its face value at the time; however and when preparing this decision I noted that the affidavit by the Applicant forming part of the Form B was attested by Mr.Dlakic himself. Moreover the answer to question 16 does not appear to have been drafted by a person without knowledge. 9 The scheme of the Act is to impose the tax in respect of instalment periods (and which are quarterly periods) by reference to the gambling profits derived during those periods. In this matter the relevant instalment period is the tax period. Section 7(4) of the Act provides that the person liable is the hotelier who holds the relevant hotelier's licence at the time when the instalment became due. The tax falls due on the last day of the instalment period, and is payable within 21 days after the end of the instalment period. That tax is due on the last day of an instalment period (or in other words in arrears) is logical given that the tax is calculated by reference to the profits derived during that instalment period. 10 In this case then, and in respect of the tax period, the hotelier on the last day of the tax period was the Applicant; prior to 20 August 2004 the hotelier was Hagan. 11 It may be noted in conclusion as to this aspect that the Lessee Company acquired its leasehold interest in the Hotel by assignment and that at a prior time, the Hotel had been owned and operated, as it is at present, by the Company as owner and the Applicant as licensee. Part B The statutory provisions. 12 There are three sections of the Act which are of particular relevance. 13 Section 6 of the Act provides: 6 Tax on gaming machines (1) A tax is payable on profits from gaming machines kept in a hotel or on the premises of a registered club. (2) The tax is payable by the hotelier or registered club concerned. (3) In the event of a tax default (within the meaning of the Taxation Administration Act 1996) in respect of an amount of tax for which a hotelier is liable: (a) the hotelier, and (b) any person who, at the time the amount became due, was directly interested in the business, or the profits of the business, carried on under the hotelier's licence, are jointly and severally liable to pay the amount concerned, and section 45 of that Act applies accordingly. Note: Section 45 of the Taxation Administration Act 1996 provides for recovery of tax where two or more persons are jointly liable to pay it. 14 Section 7 of the Act provides: 7 Payment by instalments (1) For the purposes of this Act: (a) each tax year of a hotelier is divided into 4 periods of 3 months commencing on 1 July, 1 October, 1 January and 1 April, and (b) each tax year of a registered club is divided into 4 periods of 3 months commencing on 1 September, 1 December, 1 March and 1 June. (2) Quarterly instalments of tax are payable by a hotelier or registered club to the Chief Commissioner within 21 days after the end of each instalment period. (3) A hotelier or registered club must: (a) before the end of each such 21-day period, deposit the amount payable in a bank or financial institution, and (b) make such arrangements with the Chief Commissioner as enable the Chief Commissioner to access or appropriate that amount (such as by way of direct debit from the account of the hotelier or registered club concerned). Maximum penalty: 20 penalty units. (4) In the case of hoteliers, the liability to pay such an instalment lies with the hotelier who holds the relevant hotelier's licence at the time the instalment is due. 15 Section 11 of the Act provides: 11 Apportionment of liability for tax in certain circumstances (1) The Chief Commissioner may, in such manner as the Chief Commissioner considers appropriate: (a) apportion the liability for tax as between hoteliers: (i) in any case where there has been a change in the ownership of a hotelier's licence, or (ii) in such other circumstances as the Chief Commissioner considers appropriate, and (b) apportion the liability for tax as between registered clubs: (i) in the event of an amalgamation of a registered club under the Registered Clubs Act 1976 , or (ii) in such other circumstances as the Chief Commissioner considers appropriate. (2) Subsection (1) (a) does not affect the operation of section 7 (4). Part C Consideration of an of the statutory provisions and the submissions and contentions of the parties 16 Under section 7 (4) of the Act the person who is liable for the tax is the person who is the hotelier on the last day of the instalment period. 17 Section 11(1) (a) of the Act in its terms contains a discretion as to apportionment. Under section 11(1) (a) (i) apportionment is permitted where there has been a change in the ownership of an hotelier's licence; section 11(1) (a) (ii) provides in the alternative that apportionment is available when the Respondent considers it appropriate. 18 The effect of section 11(1) (a) is negatived to a considerable extent by section 11(2) which provides that section 11(1) (a) does not affect the operation of section 7(4). Put in other words section 11(1) (a) does not operate where section 7(4) does. This is the clear meaning of the words of the relevant provisions and no question of ambiguity arises. It is necessary then to consider what meaning is to be attributed to section 11(1)(a); as a matter of statutory interpretation a court (and this Tribunal) will endeavour to give a statutory provision meaning on the basis that it is not likely that the parliament included a provision which is entirely ineffective. The second reading speech in respect of the bill before it became the Act does not furnish any assistance. Section 11 was inserted at the committee stage and without opposition; the Hon Greg Pearce noted "the Opposition does not oppose this set of miscellaneous and other amendments to the bill". 19 "As a general principle, the courts have pointed out that they are not at liberty to consider any word or sentence as superfluous or insignificant. All words must prima face be given some meaning and effect." This sentence appears in clause 2.22 of Statutory Interpretation in Australia 5th edition by Pearce and Geddes; see also the cases referred to in that clause. Clause 2.2 then goes on to state that the principle is more compelling "if the word in question has been added by amendment. Nor can a court declare a section of an Act void for uncertainty no matter how difficult it is to interpret. These matters are however subject to the overriding consideration that it may be impossible to give a full consideration to every word…. In such cases the duty of the court is to give the words the construction "that provides the greatest harmony and the least inconsistency". Clause 2.2 contains references to a number of cases; a reference to Project Blue Sky Inc v Australian Broadcasting Authority (1998) 153 ALR 490 will suffice. 20 Ms Baker on behalf of the Respondent contended that it is possible to reconcile sections 7 and 11 of the Act and in particular by reference to the concept of recovery of the tax. If the Respondent had been unable within 21 days of the due date for payment, to recover the tax from the Applicant in respect of the tax period, because the Applicant, was insolvent or otherwise unable to make payment, he, the Respondent would have been entitled to use his discretionary powers under section 11(1)(a) so as to recover part of the tax from a prior hotelier. There is (indirect) support for this contention in section 6 of the Act which provides that in certain circumstances the Respondent can recover the tax from someone other than the hotelier, and in particular a person who was "directly interested in the business or the profits of the business carried on under the hotelier's licence." As to what is meant by this provision may not always be altogether clear given that the Applicant was the hotelier. Section 6 is not directly relevant; it applies when there is a tax default as referred to in the Taxation Administration Act 1996 and empowers the Respondent in those circumstances to seek recovery from a person closely connected with the business of the hotelier concerned. This leaves room for and supports the contention advanced by the Respondent and pursuant to which the Respondent has the power to use section 11(1)(a) to recover from a hotelier who is not the hotelier responsible under section 7(4), and where the latter cannot make payment. The Respondent's contention does indeed appear to offer a sensible solution as to the function of section 11(1) (a); the Act is after all a revenue statute and provisions which aid in the collection of the revenue are to be expected. 21 Mr Dlakic cited a number of cases as to the manner in which a discretionary power is to be exercised. He referred inter alia to FC of T v Swift 89 ATC 5101 and to Giris Pty Limited v FC of T (1969) 119 CLR 365. He quoted from those cases and others; it is not necessary for me to do so for one simple reason. Where section 7(4) applies section 11(1) (a) does not by force of section 11(2); there is in other words in these circumstances no discretionary power available to the Respondent. 22 Mr Dlakic contended that it was not fair that the Applicant should be liable for tax on another's profits (during the period 1 July 2004 to 20 August 2004 and falling within the tax period) and that such a result could not have been intended by the legislature. He referred in this context also to the concept of unjust enrichment, although in circumstances which do not appear to me to be apposite. 23 The essence of the Applicant's contentions would appear to be that if the Respondent has a discretionary power which aids recovery of tax then equally and as a matter of fairness that power should be exercised so as provide for a refund. –The flavour of the Applicant's contentions can be gauged from a part of his written submissions as follows: The Commissioner in Document 7 notes, in justifying the disallowance of the objection, that: "The Commissioner is charged with raising revenue and where there is doubt about obtaining the revenue, the exercise of the discretion would not be used. In this case there is a doubt about the revenue as the previous holder of a licence defaulted under the terms of the lease." It is respectfully submitted that this is a one-sided view of the Commissioner's responsibilities. Section 61 of the Taxation Administration Act 1996 stipulates that: "The Chief Commissioner has the general administration of this Act and the other taxation laws and may do all such things as are necessary or convenient to give effect to this Act and the other taxation laws." It is noted that the Act is a "taxation law" within the meaning of the Taxation Administration Act 1996 . The Act does not specify whether the Commissioner, in the exercise of his responsibilities, has to give more weight to the tax payer or revenue. It is submitted that it was surely not the intention of the legislature that the Commissioner, in exercising his duties under section 61 of the Taxation Administration Act 1996, avail himself of opportunities to unjustly enrich the State of New South Wales. Moreover, the Commissioner appears to have made superficial investigations in relation to the capacity of the previous licensee to pay the taxation liability. One can infer from Document 7 that the assumption made by the Commissioner arises out of the fact that previous licensee defaulted on its lease on the premises. It is submitted that the Commissioner's inference is an unsubstantiated assumption. Furthermore it seems that the Commissioner has not taken into account his power, under section 6(3) of the Act, to pursue, inter alia, the directors and/or shareholders of the previous licensee upon ordering the apportionment. Section 6(3) stipulates that: In the event of a tax default (within the meaning of the Taxation Administration Act 1996 ) in respect of an amount of tax for which a hotelier is liable: the hotelier, and any person who, at the time the amount became due, was directly interested in the business, or the profits of the business, carried on under the hotelier's licence, are jointly and severally liable to pay the amount concerned, and section 45 of that Act applies accordingly. It is submitted that the Commissioner could, upon refunding the disputed amount to the Applicant, pursue the previous licensee for payment. In the event of tax default by the previous licensee the Commissioner could then exercise his powers under section 6(3) (b). There is no evidence to suggest that the Commissioner could not successfully recover the taxation liability from the directors and/or shareholders of the previous licensee. Accordingly it is submitted that: the Commissioner has a broad responsibility to administer taxation laws which includes, but is not dominated by, the raising of revenue; there is no evidence to suggest that the Commissioner would not recover the dispute gaming tax liability from the previous licensee or such persons falling within section 6(3)(b) of the Act. 24 The contentions referred to in the previous clause are best described as confused. There was no tax default under the Tax Administration Act 1996 and section 6 cannot apply. 25 I have previously noted that the concept of unjust enrichment cannot be relevant. The Applicant's contentions do not deal in terms with the plain fact that pursuant to section 11(2), section 11(1)(a) does not apply where section 7(4) does and it clearly applied in respect of the tax period. A claim by the Respondent against Hagan would have been met with the defence that no such action was competent. The Applicant contends that a taxpayer cannot be liable for tax on the profits of another. That contention also cannot be accepted. 26 The Applicant has put (although in somewhat confused fashion) the fundamental proposition that if the Respondent has a recovery power that power must somehow apply to permit a refund. That contention is of course without foundation and ignores the plain wording of the relevant legislation. Nor is the solvency of Hagan relevant and whether on the basis alleged by the Applicant or at all. 27 The Applicant's contentions are in general terms without foundation. Tax is often payable by reference to a date and without reference to what might occur thereafter. Land tax is just such an example. Land tax is imposed by reference to land owned at midnight on a given 31 December, in respect of the immediately succeeding calendar year. Events which occur during that succeeding calendar a year are not relevant. There is nothing in the Act which suggests that the Respondent is obliged to seek to recover the tax or any part from any other person, in the manner for which the Applicant contends. Indeed, the Respondent cannot under the Act where the tax is paid by the hotelier in question, exercise powers of apportionment in the manner suggested by the Applicant. The fact that he has a power of apportionment is, on a proper construction of the Act, indicative only of the fact that it is a right to recovery only. Unfairness, as contended for by the Applicant, is not a relevant consideration. 28 Put in summary form the tax was paid for the tax period by the hotelier in accordance with the Act. There was no basis upon which the Respondent could or should, and whether pursuant to a discretionary power or otherwise, have sought to recover from anyone else. If the Respondent had sought to recover either from Hagan that claim would of necessity have failed. 29 It follows that the decision under review must be affirmed.