Haley Somerset Ventris Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 167

CITATION: Haley Somerset Ventris Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 167

DIVISION: Revenue Division

APPLICANT PARTIES: Haley Somerset Ventris Pty Ltd RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 076030

HEARING DATES: 21 June 2007

SUBMISSIONS CLOSED: 29 June 2007

DATE OF DECISION: 30 July 2007

BEFORE: Verick A - Judicial Member

CATCHWORDS: Pay-roll tax - liability - Taxation Administration Act - liability to pay interest

MATTER FOR DECISION: Principal matter

Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Pay-roll Tax Act 1971 Taxation Administration Act 1996

Aquila Executive Search Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 24 CASES CITED: Chief Commissioner of State Revenue v. Incise Technologies Pty Ltd [2004] NSWADTAP 19 Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21

APPLICANT C P Ventris, agent REPRESENTATION: RESPONDENT H El-Hage, Solicitor Advocate

ORDERS: The objection decision under review is affirmed

REASONS FOR DECISION 1 The applicant seeks a review of the decision made by the respondent to disallow an objection to a pay-roll tax assessment for year ended 30 June 2004 issued by the respondent under the Pay-roll Tax Act 1971 ("the Act"). 2 The essential issue in dispute in this matter is whether the applicant is liable for pay-roll tax for the period 1 July 2003 to 30 June 2004. Background 3 Sometime in May 2006 the respondent made standard inquiries with the applicant to ascertain if it had complied with the provisions of the Act. On the basis of information received from the applicant, the respondent issued the applicant with a provisional assessment of its liability for pay-roll tax for the period 1 July 2003 to 30 June 2004 ("the relevant year"). 4 The applicant responded to the provisional assessment by way of a letter dated 12 July 2006 claiming that although the total amount of wages paid during the period 1 July 2003 to 30 June 2004 was $707,386.00, the amount included bonus payments totalling $193,340.00 due to C P Ventris, a director of the applicant in years 2001 ($93,340.00), 2002 ($50,00.00) and 2003 ($50,000.00). In the letter the applicant claimed that those bonuses were not actually paid until 2004 when the applicant's cash flow improved. On that basis, the applicant claimed that the wages paid for the relevant period were only $514,046.00. 5 On the 18 August 2006, the respondent issued a Notice of Assessment requiring the applicant to pay $7,106.62 in pay-roll tax and interest. The assessment was made on the basis that taxable wages totalling $707,386.00 were paid by the applicant for the period 1 July 2003 to 30 June 2004. Effectively, the respondent rejected the claims made by the applicant in its letter dated 12 July 2006. 6 In a letter dated 24 August 2006, the applicant objected to the assessment. In its objection, the applicant relied on similar grounds as set out in its letter of 12 July 2006 that, had the applicant paid the bonuses when they were in fact due in 2001, 2002 and 2003 and not when the cash-flow permitted the payment, the wages paid for the period 1 July 2003 to 30 June 2004 would have been $514,046.00 and below the threshold for pay-roll tax purposes. In addition, the applicant objected to the interest imposed in the assessment. 7 The respondent disallowed the objection on 22 December 2006. On 16 February 2007, the applicant filed an application at the Tribunal for a review of the objection decision. 8 At the hearing of this matter the applicant was represented by a director. The only documents before the Tribunal were those submitted by the respondent under section 58 of the Administrative Decisions Tribunal Act 1997. No independent evidence was produced by the applicant to support the applicant's claim that an amount paid in the relevant year was in respect of bonuses due in years 2001 to 2003. The Tribunal was also informed that the applicant did not hold any meetings nor kept any minutes or other documents about the bonuses. After hearing submissions, judgment was reserved pending any further documentation that the applicant could produce to support its case. 9 Subsequently, the applicant forwarded to the Tribunal an annexure which was a handwritten job sheet prepared by its accountant for the period "2001/02" in which some reference was made to "various schedules & minutes". In addition, some correspondence between the applicant and the Australian Taxation Office dated 22 November 2004 and 13 September 2004 were attached relating to prosecution action by the Australian Taxation Office for the failure by Mrs C Ventris, another director, to lodge income tax returns. Relevant Legislative Provisions 10 Section 7 of the Act is the charging provision, which imposes pay-roll tax depending on the relevant threshold for payment of pay-roll tax. Schedule 4 to the Act sets out the threshold. For the financial year commencing from 1 July 2001 and subsequent financial years, including the period 1 July 2003 to 30 June 2004 pay-roll tax is payable by an employer if "the total taxable wages and interstate wages paid or payable" during the relevant financial year exceed $600,000. 11 Liability for payment of pay-roll tax under s 8 is placed with the employer "by whom the taxable wages are paid or payable". 12 Section 3(1) of the Act defines " taxable wages" as "wages that, under section 6, are liable to pay-roll tax". Section 6 sets out the "wages" that are liable to pay-roll tax. It relevantly provides: "(1) The wages liable to pay-roll tax under this Act are wages that are paid or payable by an employer for services performed or rendered during a month or part of a month … " 13 Subsection 3AA(1) defines "wages" as "any wages, salary, commission, bonuses or allowances paid or payable (whether at piece work rates or otherwise and whether paid or payable in cash or in kind) to an employee as such". 14 Section 18 of the Act gives a power to the respondent to make assessments "in any case that pay-roll tax or further tax is payable by any employer". Submissions 15 The applicant's case was that the wages paid for the period 1 July 2003 to 30 June 2004 were "artificially high" because the wages paid included bonuses totalling $193,340.00 "held back" in respect of 2001, 2002 and 2003 financial years. The applicant accordingly, submitted that if the amount in respect of the "delayed payment of bonuses" were deducted from the total wages paid, the applicant would have no taxable wages in the relevant year. 16 The applicant has produced bank statements that indicate the following cash balances as at 30 June - 2001 - $46,696.07 2002 - $51,001.65 2003 - $67,264.50 2004 - $149,866.83 17 In relation to the bank cash balances, the applicant submitted as follows: "The purpose of these bank statements is to demonstrate that we did not have sufficient cash-flow during years 2001, 2002 and 2003 to both pay our on-going expenses and the bonuses. Year 2004 was our first 'good year' so we elected to pay out the bonuses of $93,340.00, $50,000.00 and $50,000.00 held back from years 2001, 2002 and 2003 respectively. With the benefit of hindsight and had we been mindful of the $600,000 PRT limit, then we would certainly have paid out the bonuses appropriately and well within the annual PRT limit." 18 The respondent in his written submissions accepted that "if the applicant can establish, by way of evidence, that the relevant bonuses were in fact 'payable… for services performed or rendered during a month' or months in 2001, 2002 and 2003 respectively (see s. 6(1)), those bonuses would be included within the total amount of taxable wages 'paid or payable' by the applicant for each of those pay-roll tax years (see cl. 4 of Sch. 4)." The respondent, however, submitted "the applicant has failed to provide any such evidence to the Chief Commissioner or the Tribunal to substantiate these matters." Findings and Decision 19 The principal issue in this matter is essentially a factual one. The onus under subsection 100(3) of the Taxation Administration Act 1996 ("the TA Act") is placed on the applicant in these proceedings to establish that the applicant in the financial years declared bonuses which were payable in those years but were in fact paid in the relevant year: see Aquila Executive Search Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 24, at para. [43]. 20 The applicant has unfortunately produced no evidence to support claims that any bonuses were payable in the years 2001 to 2003. The applicant may have rewarded a director in recognition for the services rendered in those years but for purposes of pay-roll tax the amounts were only "payable or paid' in the relevant year. The bank balances by themselves do not support the contention made by the applicant. On the contrary, a lack of cash flow in those years simply meant that the applicant was in no position to declare any bonuses. Bonuses were only declared by the applicant in the relevant year because it had cash reserves to do so. 21 The reference to "minutes" in the handwritten job sheet presented by the applicant does not assist the applicant in any way. At the hearing the agent for the applicant made it quite clear that the applicant did not hold meetings nor maintained any records of decisions taken by the applicant. The applicant produced a profit and loss statement for the financial year ending on 30 June 2001. There was no acknowledgement in the statement of any bonuses due or payable as claimed by the applicant for that year. 22 The correspondence with the Australian Taxation Office relating to the failure by a director to lodge income tax returns also has no relevance whatsoever with the pay-roll tax liability of the applicant. 23 The only evidence before the Tribunal was that the bonuses were actually paid in the relevant year. Under section 3AA(1) bonuses paid to an employee are "wages" for purposes of the Act. 24 There was no dispute that the total amount of wages paid in the relevant year totalled $707,386.00 which clearly exceeded the threshold of the $600,000 and made the applicant liable to pay-roll tax under the Act. 25 In a sense, the applicant has some justification to express dissatisfaction at the way the pay-roll tax law has operated. The applicant is a small family company and has never paid taxable wages prior to the relevant year and, with some better advice might have not incurred a pay-roll tax liability either in that year. Unfortunately, there is no discretion in the law to treat this one-off case or similar cases differently from those where there are ongoing payments of taxable wages. 26 The matter that remains is the imposition of interest by the respondent in the assessment made against the applicant. 27 Under s 21 of the TA Act, where a "tax default" occurs the Chief Commissioner is allowed to impose interest on a daily basis from the end of the last day when the payment of pay-roll tax was due until the day upon which the outstanding tax is paid. The applicable interest rate consists of a variable market rate component and a premium rate component. The market rate component is the Treasury Note yield rounded to the second decimal place unless a market rate of interest is specified by an order of the Minister made under s 22(2)(b) of the TA Act and published in the Gazette. A premium rate component is fixed by s 22(3) of the TA Act at 8 per cent per annum. 28 The Chief Commissioner is, pursuant to his powers found in s 25 of the TA Act, able to remit the market rate component or the premium rate component of interest, or both, by any amount in such circumstances, as the Chief Commissioner considers appropriate. 29 The market rate component, as was observed by the Tribunal's Appeal Panel in Chief Commissioner of State Revenue v. Incise Technologies Pty Ltd [2004] NSWADTAP 19, "is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due". The Appeal Panel went on to state as follows: "This, as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation." 30 In Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 the Tribunal explained the circumstances when the market rate of interest can be remitted as follows: "27 In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the 'tax default' is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes)." 31 In this matter, the applicant's liability was only established through inquiries made by the respondent. As there was a "tax default" on the part of the applicant the respondent was required by the law to impose interest. In the present matter, the respondent taking into account all the background and circumstances of this case only imposed the market rate interest. 32 The "tax default" in this matter was entirely due to the applicant's failure to register and lodge the necessary returns in relation to its pay-roll tax liability as set out in sections 12, 13 and 17 of the Act. No exceptional or special circumstances to justify any remission of the market rate imposed in this matter have been brought to the attention of the Tribunal to warrant any remission of the market rate interest. 33 For the foregoing reasons, having regard to all the material before the Tribunal, the correct and preferable decision on this application is to affirm the decision of the respondent. Order 34 The decision of the respondent on the objection is affirmed.