Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Advance Pallets Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 128 Hearing dates: 25 November 2016 Date of orders: 26 April 2017 Decision date: 26 April 2017 Before: A R Boxall, Senior Member Decision: Confirm the decision under review Catchwords: Payroll tax – interest for late payment – remission of interest – penalty tax – remission of penalty tax – circumstances beyond the taxpayer's control Legislation Cited: Civil and Administrative Tribunal Act 2013, section 41 Payroll Tax Act 2007, sections 21, 22, 25, 26, 27, 86, 87 Taxation Administration Act 1996, sections 96, 100 Cases Cited: Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19 Commissioner of ACT Revenue v G Kalsbeek Pty Ltd [2015] ACAT 90 Levitch Design Associates Pty Ltd atf Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 Texts Cited: Revenue Ruling No PTA 036 version 2 Category: Principal judgment Parties: Applicant: Advance Pallets Pty Ltd Respondent: Chief Commissioner of State Revenue Representation: Counsel: A Rider, (Respondent) J Rutkowski, (Agent for the Applicant) Solicitors:Crown Solicitor's Office (Respondent) File Number(s): 1610186 reasons for decision Introduction 1. This review is undertaken in response to an application made by the Applicant on 22 March 2016 under section 96 of the Taxation Administration Act 1996. The Applicant asks the Tribunal to review the Chief Commissioner of State Revenue's (for convenience, the Commissioner) determination dated 17 February 2015, disallowing in part an objection made by the Applicant to an assessment of payroll tax, penalty tax and interest made by the Commissioner. 2. In brief, the history of the matter is as follows: 1. The Respondent issued payroll tax assessments dated 8 July 2014 in respect of each of the financial years 1 July 2010 to 30 June 2011, 1 July 2011 to 30 June 2012 and 1 July 2012 to 30 June 2013. 2. The Applicants lodged an objection dated 27 August 2014 to those assessments. 3. The Respondent wrote to the Applicant's then solicitors on 31 October 2014 stating that the objection was disallowed, but subsequently, for reasons which are not readily apparent, issued a further letter on 17 February 2015 in which: 1. he allowed the Applicant's objection in respect of the financial year 1 July 2011 to 30 June 2012, and issued an assessment that no payroll tax, penalty tax or interest was payable in respect of that financial year; 2. he disallowed the Applicant's objection to the assessment of payroll tax for the financial years 1 July 2010 to 30 June 2011 and 1 July 2012 to 30 June 2013; and 3. he disallowed the Applicant's objection to the imposition of penalty tax and interest in respect of unpaid payroll tax for the financial years 1 July 2010 to 30 June 2011 and 1 July 2012 to 30 June 2013. 1. Whatever the reason for this course of events, both the Applicant and the Respondent appear to accept that the operative decision was that communicated in the Respondent's letter of 17 February 2015, and to have proceeded at all times on that basis. 2. On 22 March 2016, some 11 months after the expiry of the statutory period for doing so, the Applicants applied under section 96 of the Taxation Administration Act 1996 for the review by the Tribunal of the Respondent's determination disallowing that objection. 3. The time for filing the application was extended retrospectively by the Tribunal to 23 March 2016 at an interlocutory hearing on 3 May 2016, pursuant to section 41 of the Civil and Administrative Tribunal Act 2013. 1. The application for review is limited to Respondent's decision to impose penalty tax and interest in respect of the financial years 1 July 2010 to 30 June 2011 and 1 July 2012 to 30 June 2013. In its application, the Applicant states that: "….We, Advance Pallets Pty Limited, have incurred additional payroll tax which we are happy to pay; however, wish [sic] to complain about the penalties applied in this situation based on the belief that we have met our previous obligations". Moreover, both the Applicant and the Respondent conducted the review hearing on this basis, namely that: 1. there is no dispute between the parties that the Applicant was liable to pay payroll tax in respect of the financial years 1 July 2010 to 30 June 2011 and 1 July 2012 to 30 June 2013; and 2. the only dispute is as to whether the Respondent properly imposed penalty tax and interest in respect of the Applicant's failure to register and lodge returns under sections 86 and 87 respectively of the Payroll Tax Act 2007, and to make timely payment of payroll tax, in respect of those financial years. 1. This review is conducted under the Taxation Administration Act 1996. Section 100(3) of that Act provides that in an application for review such as this "The applicant has the onus of proving the applicant's case ….". That is to say, the Respondent's decision must stand unless the Applicant can demonstrate, on the balance of probabilities, the deficiencies in it which the Applicant alleges. A differently constituted tribunal's reasons in Levitch Design Associates Pty Ltd atf Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215, at [27], outline a method of approach to this exercise, and these reasons respectfully adopt the methodology which they propose. Interest and penalty tax Interest 1. The Taxation Administration Act 1996: 1. provides in section 21 for interest to be paid on unpaid tax, including payroll tax; 2. sets out in section 22 the method for calculating interest, which is at a rate which is the sum of two rates: the "market rate component" and the "premium rate component"; and 3. in section 25, allows the Respondent to remit in individual cases either or both components, "… in such circumstances as the Chief Commissioner considers appropriate". 1. The Commissioner's discretion to remit interest is a wide one, which is unfettered in its terms. 2. In the present case, the Respondent: 1. in his original assessment, decided to apply only the market rate component of interest; and 2. confirmed that decision in his determination dated 17 February 2015 of the Applicant's objection dated 27 August 2014. 1. In doing so the Respondent referred to the decision of a predecessor tribunal, in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19, in which at paragraph [61] the tribunal: 1. explained the function of the market rate component, as being "… 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 …"; 2. drew the conclusion that because of this function, the market rate component "… could rarely, if ever, be waived …"; and 3. observed that in order to justify any remission of the market rate component, "… it would be necessary to show that in some way the Commissioner contributed to the default ..". 1. In his Revenue Ruling No PTA 036 version 2, the Respondent indicated that there are circumstances, in addition to those where he may have himself contributed to the tax default, in which he may be minded to remit interest, including where late payment was occasioned by what may be summarised as force majeure events - postal or DX delays or natural disasters, such as fire or flood. 2. Mr Anthony Attard is, along with his wife Mrs Carmen Attard, one of two shareholders in and directors of the Applicant. Mr Attard is also the sole secretary of the Applicant. This was the case at all material times, as is clear from the ASIC searches concerning the Applicant which are included in the documents provided under section 85 of the Administrative Decisions Review Act 1997. 3. The evidence provided by the Applicant was as follows: 1. Mr Attard is the principal executive of the Applicant, while Mrs Attard undertakes a range of administrative tasks in relation to the Applicant: see Mr Attard's affidavit dated 9 June 2016 (the Attard Affidavit), paragraphs 13 to 16. 2. In his oral evidence, Mr Attard expanded somewhat on this, stating that: 1. Mrs Attard's role is more secretarial than managerial in nature; for example, she does not deal with debtors or creditors, since there are other employees to do that, although she has some involvement with payroll matters; and 2. The Applicant has, in addition to Mr and Mrs Attard, two staff members undertaking administrative and office duties. 1. Mr Attard gave oral evidence that: 1. The Applicant's business had grown rapidly in the years preceding the financial year 1 July 2010 to 30 June 2011; and 2. Possibly in part as a result of his undiagnosed brain tumour, he had not communicated effectively with the Applicant's advisers concerning this development, and was unaware of the need to register for payroll tax purposes. 1. On 13 March 2014 Mr Attard was diagnosed with a brain tumour, which had significant and adverse effects on his management of the Applicant both before and following its diagnosis: see the Attard Affidavit, paragraphs 21 and 22. 2. During Mr Attard's illness: 1. Mr Attard was not medically able to continue to manage the Applicant in the way he previously had: Attard Affidavit, paragraph 23; and 2. This lacuna in management obliged the Applicant to engage a production management team to assist the Applicant in its business activities: Attard Affidavit, paragraphs 24 to 26. 1. According to Mr Attard's oral evidence: 1. this contracting arrangement was directed to ensuring the continuation of the Applicant's production and sales activities; and 2. Without Mr Attard's close involvement in the Applicant's wider management (which was prevented by his illness) other aspects of the Applicant's management have not been attended to as effectively as would otherwise have been the case. 1. The Applicant's argument was that interest on the unpaid tax should be remitted by the Respondent, because the non-payment was as a result of circumstances beyond the Applicant's control. 2. I reject the proposition that the market rate component should be remitted for that period. This is for several reasons: 1. Mr Attard's illness was neither a circumstance to which the Respondent contributed nor an overriding physical circumstance, such as those referred to by the Respondent in Revenue Ruling No PTA 036 version 2, which prevented payment of the tax. The Respondent has not, in its refusal to remit the market rate component of interest, acted inconsistently with its published policies on the matter. 2. In any event, it does not follow that where: 1. the taxpayer is a body corporate; 2. the taxpayer has two or more directors; and 3. the practically more dominant director is unable to perform his usual functions with his accustomed effectiveness so as to ensure that the taxpayer meets its taxation obligations, 1. the consequence is that the taxpayer's failure to meet its obligations is as a result of circumstances which support the remission of the market component of interest. 1. To accept a proposition along these lines unjustifiably blurs the clear legal distinction between the Applicant company, as a legal person, and its directors and managers. The Applicant has a management structure, and that one individual participant in the management structure is unable to perform his duties as effectively as he or the Applicant might wish does not alter the facts that the company continues to have both: 1. certain legal obligations which it must honour, as well as 2. a management structure through which its obligations can be met. 3. The Applicant chose to put in place a contract management arrangement to allow it to meet its production and sales obligations; at the same time as it was implementing that choice, it failed to establish temporary arrangements in relation to its payroll tax obligations. For the Respondent to remit the market component interest, would in effect be for the Government of New South Wales to subsidise, to the extent of the amount remitted, that choice by itself bearing the cost of the Applicant's late payment of tax in circumstances where the Applicant had both the means and the ability to pay the tax in a timely way. Remission of the market component of interest is therefore not justified. 1. In any event, it should be noted that the Respondent did recognise the practical difficulties in which the Applicant found itself as a result of Mr Attard's illness, by remitting under section 25 of the Taxation Administration Act 1996 the premium rate component of interest imposed under sections 21 and 22 of that Act. Penalty tax 1. Section 26 of the Taxation Administration Act 1996 provides that, in addition to any interest payable by the taxpayer, a taxpayer is liable to pay penalty tax in connection with a tax default. The failure to pay tax on time is a tax default. 2. Section 27(1) sets the amount of penalty tax payable at 25% of the unpaid tax, although: 1. section 27(2) allows the Chief Commissioner to increase the amount of penalty tax in certain circumstances, and 2. section 27(3) allows the Chief Commissioner to relieve taxpayer from the payment of penalty tax, if satisfied that either: 1. the taxpayer took reasonable care to comply with the relevant taxation law; or 2. the tax default occurred "… solely because of circumstances beyond the taxpayer's control (or if a person acted on behalf of the taxpayer, because of circumstances beyond either the person's or the taxpayer's control) …". 1. The Applicant seeks to have the Respondent determine not to require penalty tax. It says in essence that Mr Attard's illness, and the effect which his indisposition had on the management of the Applicant, amounted to circumstances beyond the Applicant's or Mr Attard's control which prevented it meeting its payroll tax obligations. 2. The Respondent adopts a different view. He says that while Mr Attard's illness is clearly a matter beyond his control, the Applicant has failed to demonstrate that Mr Attard's illness prevented the Applicant from meeting his obligation to pay payroll tax. 3. The considerations discussed above in relation to the remission of interest are relevant here, although it should be noted that section 27(3) expressly recognises that the occurrence of circumstances which affect a person who acts for a taxpayer may support a remission of penalty tax, and to some degree at least therefore blurs the distinction between a body corporate taxpayer and the natural persons who manage it. 4. In the present case: 1. The Applicant put in place a temporary management structure which allowed it to meet its production and sales objectives during Mr Attard's indisposition; it did not, however, do so in relation to its payroll tax obligations. 2. Despite Mr Attard's illness, it was able and chose to take effective steps to preserve the Applicant's production and marketing capacity, and thus its commercial base. This is what Mr Attard described in his oral evidence as ".. the care and maintenance of the business ..". 3. If it could do that for the commercial sub-structure of the business, then one must ask why it failed to take similar steps in order to ensure that it remained able to comply with its other legal obligations, including the Payroll Tax Act. 4. The Applicant has not demonstrated that this failure was the necessary and inevitable consequence of Mr Attard's illness, rather than the consequence of a choice – made inadvertently and by omission, perhaps, but nonetheless a choice – as to the scope of the supplemental management arrangements adopted to deal with the Applicant's temporary loss of Mr Attard's management skills. 5. This failure means, in the Tribunal's view, that the Applicant has not discharged the onus placed on it in this review under section 100(3) of the Taxation Administration Act 1996. 1. The Applicant referred the Tribunal to the decision of the ACT Civil and Administrative Tribunal, in Commissioner of ACT Revenue v G Kalsbeek Pty Ltd [2015] ACAT 90. In that decision, the ACT Civil and Administrative Tribunal accepted that the serious illness of a director of the taxpayer was a circumstance sufficient in itself to justify the remission of penalty tax which would otherwise have been eligible in connection with the taxpayer's failure to make timely payment of payroll tax. That decision is, however, not analogous to the present case. Mr Kalsbeek was the sole director and the sole shareholder of the taxpayer in that case; when he became seriously ill with Hodgkinson's disease, there was simply no other person, whether a director or a shareholder, who was formally enabled to fill the management gap caused by his indisposition. In the present case, however, the Applicant had another director and shareholder, in the person of Mrs Attard, who - unfamiliar as she may have been with corporate management - at least had the formal authority attached to her position as a basis for establishing temporary management arrangements. 2. None of this is to make any personal criticism either of Mr Attard or Mrs Attard. Mr Attard's illness was a serious one, and for Mrs Attard to devote herself to his personal well-being during his illness, rather than the affairs of the Applicant, was entirely understandable. In his letter of 17 February 2015 responding to the Applicant's objection, the Respondent recognised this when he stated that: 1. he accepted that "…there was no intentional disregard of the law and that the there was no intentional disregard of the law and that the [Applicant] had cooperated with the [Respondent] during the investigation .."; and 2. in recognition of that, ".. penalty tax was reduced from 25% to 20% …". Order 1. I confirm the decision under review. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 26 April 2017