1. At the hearing the Respondent's counsel referred to the record of a telephone conversation on 12 October 2011 (T7) between the Applicant's 'Admin Manager', Ms Paton, and an officer from the Respondent's office. In that conversation Ms Paton advised that the section 82 Notice was the 'first' she 'had heard' of payroll tax and that the Applicant's accountants (presumably Needhams) had never advised the Applicant about payroll tax.
2. The Tribunal concludes that the Applicant was not aware of its potential payroll tax liability at any time before the section 82 Notice. To that date, the Applicant had relied on Needhams to alert it to its tax liability. Needhams was either not aware of or, if it was, it had not at any time prior to the section 82 Notice alerted the Applicant to its obligation to register for, nor its liability to pay, payroll tax.
3. The parties agree that the Application before the Tribunal is limited to the review of that part of the determination that relates to the imposition of penalty tax. The Tribunal is authorized by the TAA and the ACAT Act to undertake a merits review of the determination in that regard. Neither the Applicant nor the Respondent is limited, in this application, to the matters set out in the grounds of objection (Section 108B of the TAA). The Tribunal is able to consider additional matters that either party might raise.
4. Pursuant to subsection 101(3) of the TAA the burden is on the Applicant to show that the objection should be sustained.

1. At the hearing the Applicant was represented by Mr Adam, and a Power of Attorney was filed confirming his authority to appear for the Applicant. Mr Paton, the sole director of the Applicant, also attended the hearing. The Respondent was represented by Dr Jarvis of Counsel, instructed by Ms Chandra from the ACT Government Solicitor's Office. Mr Cain from the Respondent's office also attended the hearing.
2. In considering this matter the Tribunal referred to the relevant legislation, the documents filed by both parties, including the documents filed by the Applicant with its initial application and documents tendered at the hearing. The Tribunal considered the Facts and Contentions filed by the parties and the documents filed in reply by the Applicant.
3. The Tribunal also considered the decisions relied on by both parties and the oral submissions made at the hearing.
4. The matter was heard on 26 October 2012. The Tribunal reserved its decision on that date. The Tribunal's decision is set out in these written reasons.

1. The documents which set out the Applicant's response to the November 2011 assessment are:

1. the Needhams' objection dated 12 December 2011; 2. the letter from Thomas Paton dated 5 July 2012, filed with the Applicant's application to the Tribunal;

1. the document entitled 'Submission by A Plus Plumbing & Building', which was filed in the Tribunal on 24 September 2012; and

1. the Applicant's 'Reply to Respondent's Statement of Facts and Contentions', filed in the Tribunal on 23 October 2012.
2. There were some additional oral submissions made on behalf of the Applicant at the hearing, however, Mr Adam, on behalf of the Applicant, advised that the Applicant primarily relied on the submissions set out in the documents which had been filed in the Tribunal. Mr Adam confirmed that the Applicant did not, in its application to the Tribunal, rely on the Needhams' objection.
3. The director of the Applicant, Mr Paton, advised that the Applicant was not aware of, and had not authorized, the Needhams' objection. It was submitted on behalf of the Applicant that the Needhams' objection did not set out the 'actual reason' for the Applicant's failure to meet its payroll tax obligations. The Needhams' objection referred to an 'oversight'. The Applicant submitted that in reality the failure resulted from "the complete failure by Needhams to adequately and professionally manage the [Applicant's] financial and tax obligations".
4. At some point after the Applicant received the Respondent's section 82 Notice and after the Applicant's tax default had become apparent, the Applicant engaged new accountants. Initially, this firm of accountants was engaged to conduct a review of the work Needhams had performed for the Applicant. The Applicant advised that when it became apparent that Needhams had failed to perform satisfactorily, these new accountants were engaged, and Needhams was terminated.
5. The Applicant asserts that if the Respondent had been advised of the matters which the Applicant now raises with the Tribunal, rather than the matters set out in the Needhams' objection, the Respondent may have exercised its discretion relating to the imposition or remission of penalty tax differently.
6. When considering the Applicant's objection to the November 2011 assessment and at the time of the 6 June 2012 Determination, the Respondent had before it only the Needhams' objection. The Respondent was not aware that the Needhams' objection was not endorsed by the Applicant, nor that there were other matters, subsequently raised by the Applicant in the Tribunal application, which the Applicant considered to be relevant to the Respondent's consideration of the Applicant's objection.
7. The Applicant submits:
   1. that the Tribunal can be satisfied pursuant to subsections 37(a)(i) and 37(b) of the TAA that the Applicant took "all reasonable steps to mitigate the circumstances that resulted in the liability for penalty tax" and it would be fair and reasonable to remit all or part of the penalty tax; and
   2. in the alternative, the Applicant says that the amount of penalty tax should be reduced pursuant to section 32 or section 33 of the TAA as the Applicant provided promptly the information requested in the Respondent's section 82 Notice, and the Respondent was able to make the payroll tax assessment based on information provided by the Applicant.

The Applicant made further submissions in relation to the operation of sections 32 and 33 which will be discussed below.

1. Whilst noting that the Applicant does not rely on the Needhams' objection, it is relevant that the Needhams' objection says that the Applicant's failure to meet its payroll tax obligation was an unintentional 'oversight' which resulted from an expansion in the Applicant's business. The Needhams objection stated that this expansion presented challenges to the Applicant's capacity to meet its obligations under various "Taxation Laws and Industrial laws", but that the Applicant had reorganised to 'accommodate the business growth'.
2. The Needhams' objection also stated that the Respondent's failure to provide education about payroll tax obligations meant the Applicant was not aware of its potential payroll tax liability and had not been able to 'provide for' this in its costing and cash flow. The Needhams' objection requested that the Respondent waive the penalty tax imposed. The Needhams'objection does not indicate that Needhams was responsible for the Applicant's failure to register for or pay payroll tax.
3. At the hearing, Mr Adam, for the Applicant, said the Applicant had attempted, without success, to contact Needhams about attending the Tribunal hearing. He also advised that the Applicant was pursuing other avenues of redress in relation to its concerns about the work that Needhams had done for the Applicant.
4. The Applicant submits, and the Respondent does not dispute, that after it received the section 82 Notice the Applicant -

1. promptly provided the information requested; 2. promptly applied for registration as an employer pursuant to the 2011 Act. [The Applicant's application for registration was received by the Respondent on 3 November 2012 and the Respondent confirmed the registration by letter date 8 November 2012 (T11).]; and

1. Promptly paid the payroll tax portion imposed by the assessment in November 2011.

Applicant's submissions in relation to section 37 of the TAA

1. In support of its submission that a remission of penalty tax should be granted pursuant to subsection 37(a)(i) of the TAA, the Applicant submits that it promptly took steps, after becoming aware of its payroll tax default, to ensure that it meets its future obligations in relation to tax and other legislative and company obligations, namely,
   1. it engaged a full time book keeper; and
   2. it engaged new accountants:
      1. to review its financial and accounting records;
      2. when it became apparent that there were deficiencies in the work done by Needhams, Needhams were dismissed and new accountants were engaged by the Applicant to undertake work formerly done by Needhams; and
      3. to attend regular meetings with the Applicant's management and administrative staff to educate staff about at company obligations etc and thereby reduce the opportunity for future non-compliance.
2. The Applicant submitted and the Tribunal accepts that the Applicant did not intentionally fail to register or pay payroll tax as required by the 1987 Act or 2011 Act. In these circumstances, the Applicant says that the Tribunal can be satisfied it would be fair and reasonable to remit all or part of the penalty tax.
3. The Applicant referred to the Respondent's Revenue Circular GEN006 (Exhibit 1), at paragraph 26, in relation to what is 'reasonable' for the purpose of section 37 of the TAA. Referring to the following specific examples given in the Circular, the Applicant noted as follows.
   1. With regard to paragraph 26(c) 'the reasons for the taxpayer's failure to meet their tax obligations, including the extent to which they attempted to comply and the processes instituted by them to ensure compliance with tax laws', the Applicant asserted that -
      1. it engaged and relied on Needhams who were accredited accountants to ensure that it met its tax and financial obligations; and
      2. the Applicant, at the hearing, also advised that it had engaged on several occasions in recent years a firm of business consultants who had met with the Applicant's employees and Needhams, as the Applicant's accountants, to provide advice on how the Applicant could meet the needs and obligations of its expanding operations. These consultants were not ACT based. They did not alert the Applicant to its payroll tax obligations.
   2. With regard to paragraph 26(d) 'the taxpayer's previous failure (if any) to comply with tax laws, including repealed tax laws', the Applicant said as follows.
      1. It had otherwise met its taxation, employer and environmental obligations. Notwithstanding this assertion the Tribunal notes that the new accountants appointed by the Applicant has advised the Applicant that there were other irregularities in the Applicant's financial records, apparently referable to Needhams' work. Given the Applicant's stated reliance on Needhams' advice, the Tribunal can accept that the Applicant believes it has met all of its other tax and legislative responsibilities, however it can be put no higher than that.
      2. No government organisation had ever challenged that the Applicant was honest and open in its conduct.

At the hearing, the Respondent confirmed that it was not aware of any prior matter concerning the Applicant that is relevant to the Tribunal's consideration of this Application. From the information available, the Tribunal accepts that the Applicant is normally open and honest in its dealings and operations.

1. In short, the Applicant submits that pursuant to subsections 37(a)(i) and 37(b) of the TAA, the Applicant has taken reasonable steps to mitigate the circumstances that resulted in its liability for penalty tax and it would be fair and reasonable for the Tribunal to remit all or part of the penalty tax imposed.

Applicant's submissions in relation to sections 32 and 33 of the TAA

1. The Applicant submits that the circumstances of the default and the Applicant's response to the Respondent's section 82 Notice are 'similar to the facts' in the matter of Commissioner for ACT Revenue v Dataflex Pty Ltd and ACT Civil and Administrative Tribunal [2011] ACTCA 14 ('Dataflex').
2. The Applicant submits that if the Tribunal does not reduce the penalty tax pursuant to section 37 of the TAA then it should do so pursuant to section 32 or section 33 of the TAA. The Applicant bases this submission on the following.
   1. The section 82 notice advised that the Respondent 'is conducting a payroll tax investigation of the' Applicant. The Applicant asserts that because the Respondent did not give prior notice of the possibility of an investigation being conducted, or simply request that information be provided to enable an assessment to be made, the Applicant was denied the 'benefit' of the operation of sections 32 and 33 of the TAA.
   2. The Applicant submits that these sections operate to "afford those who, once aware they have a liability, an opportunity to provide ACT Revenue in an open and timely manner the information required for an assessment". This approach would, says the Applicant, reduce the Respondent's administrative costs, increase the availability of funds to the Government, and the taxpayer would receive the benefit of a reduction or remission of penalty.
3. The Applicant says that 'procedural fairness' and the 'reasonable expectation that legislation will be applied by those delegated to make decisions in line with the legislation' support the conclusion that the decision under review should be set aside and the penalty tax reduced or remitted pursuant to section 32, 33 or 37 of the TAA.
4. The Applicant urged the Tribunal to take account of the following. The obligation to register and liability to pay payroll tax only arises when the relevant threshold of wages payments is reached. The Applicant's wages payments had been below the relevant threshold for much of its 10 years of operation. The Applicant submitted that it is therefore easier to understand why the Applicant was not aware of its payroll tax liability which first arose following a period of rapid expansion and which resulted in its wages payments increasing to beyond the threshold in the financial year 2009/2010.
5. In the letter of 5 July 2012, the Applicant's director also asserted that the Respondent had, in making decisions 'failed to take into account the adverse implications the decision would have on' the Applicant.

Respondent's submissions as to the rate of penalty tax

1. In the assessment, which was confirmed by the determination, the Respondent imposed penalty tax of 25% pursuant to section 31(1) of the TAA. The Respondent in its Statement of Facts and Contentions submits that the Tribunal should increase the level of penalty tax to 50% pursuant to section 31(2) of the TAA.
2. The Respondent submits that the payroll tax scheme requires 'self assessment'. The taxpayer must monitor its activities so that it registers when it becomes liable for payroll tax: Photo Corporation c Commissioner for ACT Revenue [1994] AAT 91_._
3. The Respondent submits that if an agent is engaged by the taxpayer the taxpayer remains liable and the taxpayer will need to adduce evidence as to the agent's activities: Jokhan v Commissioner for ACT Revenue [2012] ACAT 15, Steele v Commissioner for ACT Revenue [2010] ACAT 15, Touma v Commissioner of State Revenue [2012] NSWADT 2.
4. The Respondent submits that the Applicant's complete lack of knowledge in relation to payroll tax liability and thus total reliance on Needhams meant that the Applicant was unable to give relevant instructions to Needhams as the business expanded and the possibility of payroll tax liability arose.
5. The Respondent submits that Needhams' 'systems failed to react to the increase' in the Applicant's business and its consequent payroll tax liability.
6. The Tribunal notes that there was no specific evidence of what, if any, systems Needhams had in place to identify when payroll tax liability arose for its clients. The Applicant's liability for payroll tax arose in or about July 2009. The Applicant registered for payroll tax on or about 3 November 2011, subsequent to the section 82 Notice was sent in October 2011. Whilst the Tribunal is unable to say why Needhams' did not 'react' the Tribunal is prepared to accept that whatever the reason, the two year delay suggests that either the Applicant's or Needhams' systems or processes failed to identify when the Applicant's payroll tax liability arose; or if the liability was identified then no appropriate response occurred.
7. The Respondent submits that the period between winning tenders, which gave rise to the expansion of the business, and the consequent increase in wages payments, which gave rise to the payroll tax liability, would not have been so sudden as to excuse a two year delay in the Applicant's registration. The Respondent says that whilst the expansion of the business was beyond Needhams' control, the default arose either as a result of an 'oversight' (according to the Needhams' objection) or Needhams' incompetence (according to the Applicant's director) and neither of these explanations can be said to constitute a 'reasonable excuse'.

Respondent's submission in relation to remission of penalty tax

1. The Respondent submits that the remission of penalty tax should only occur in exceptional circumstances, and to do otherwise would undermine the taxation scheme and the operation of the TAA (Riverland Retreat v Commissioner of State Revenue (NSW) [2004] VCAT 1366, [34-35]; American Express International v Commissioner of State Revenue [2003] VSC 32; 59).
2. The Respondent submits that it would subvert the TAA if tax were remitted just because a taxpayer established that the default was attributable to the actions of an agent. Also that it is not 'exceptional', within the meaning of section 37 of the TAA, for a taxpayer to be 'let down' by an agent. (Steele v Commissioner for ACT Revenue [2010] ACAT 15; Dixon v FCT [2006] AATA 130; [2006] 62 ATR 1001; Talisco v Samey (1987) 18 ATR 420).
3. The Respondent concedes that the actions taken by the Applicant subsequent to the section 82 Notice, including replacing its accountant and educating its staff, might be seen as 'reasonable steps to mitigate .. the circumstances that led to the default' pursuant to section 37(a)(i) of the TAA. However, the Respondent submits that these actions do not justify a remission in penalty tax.
4. In support of this submission, the Respondent says that it was the Applicant's ignorance of its payroll tax obligations that led to its reliance on Needhams and its incapacity to give instructions to Needhams. Thus, it was the Applicant's ignorance of its payroll tax obligations which was the 'circumstance' which contributed to the default. It was the Respondent's investigation and section 82 Notice that alerted the Applicant to its obligation and thus, in effect, it was the Respondent's action which mitigated the circumstance of the Applicant's ignorance. Thus, the Respondent submits this cannot properly be characterised as steps taken by the taxpayer. The Respondent also says that similar circumstances in Steele did not constitute a 'reasonable step by the taxpayer'.
5. The Respondent submits that full remission of penalty tax in this matter would effectively put the Applicant in the same position as a taxpayer who established they had taken reasonable care to meet their tax liability, or who had established circumstances beyond the taxpayer's, or the agent's, control pursuant to subsection 31(6) of the TAA and that would be inappropriate in the circumstances of this matter.
6. The Respondent submits that to remit the penalty tax by 25% would put the Applicant in the same position as a tax payer who established a reasonable excuse pursuant to subsection 31(3) of the TAA and this would subvert the scheme of division 5.2.
7. The Respondent accepts that the Applicant was cooperative and accepts that this may justify some remission. However, the Respondent concludes, assuming the Tribunal accepts the submission that subsection 31(2) of the TAA applies, that the 'correct and preferable' decision would be a penalty tax, after any remission, of between 25% and 50%.

Respondent's submission in relation to section 32 and 33 of the TAA

1. The Respondent submits that neither the Payroll Tax Act nor the TAA require the Commissioner to give advance notice of an investigation to a taxpayer, and that thus there is no basis for the Applicant's submission that it was deprived of the opportunity to 'disclose' and thus be afforded the penalty tax reduction referred to in section 32 or section 33 of the TAA.

The rate of penalty tax to be imposed pursuant to section 31

1. As set out above, the Tribunal accepts that after receiving the section 82 Notice and becoming aware of its payroll tax obligations the Applicant reacted promptly in registering as is required. It also promptly and cooperatively provided the information required by the section 82 Notice.
2. The ACT Court of Appeal discussed the operation of Division 5.2 of the TAA in the Dataflex decision and stated at paragraph 16 that -

Liability to pay penalty tax arises whenever there is a tax default, that is, whenever a taxpayer fails to pay the whole or part of the tax, the taxpayer is liable to pay under a tax law.

1. The Applicant does not dispute that it defaulted in its payroll tax liability. Nor does it dispute the quantum of payroll tax assessed. The November assessment determined penalty tax was payable by the Applicant pursuant to subsection 31(1) of the TAA at the rate of 25%. This decision was affirmed by the determination. However, the Respondent submits that the Tribunal should, pursuant to subsection 31(2) of the TAA, increase the rate to 50%. The Respondent is entitled to make this submission pursuant to section 108B of the TAA.
2. The Tribunal is persuaded, by the Respondent's submissions and by the circumstances of this matter, that subsection 31(2) of the TAA applies. Payroll tax is 'self assessed' and requires the taxpayer to monitor its own operations to ensure that it identifies when it becomes liable, then to respond by registering as an employer and providing ongoing monthly returns and annual reconciliations.
3. The Applicant was completely unaware of its payroll tax obligations. The Applicant handed over responsibility to Needhams. As discussed above, there is no evidence that Needhams was aware of, or took any action to monitor or identify, the Applicant's payroll tax liability.
4. Ryan v Commissioner of State Revenue [2012] QCAT 314 is one of the decisions relied on by the Applicant in support of its application. In that decision, which concerned the first home buyer's concession scheme in Queensland, the Tribunal (at paragraph 37) accepted that "despite the obscurity of the provision" which led to the applicant's liability, the applicant could not "rely upon her ignorance of the legislation as an excuse". The Tribunal went on (in paragraph 38) to refer to the High Court decision in Ostowski v Palmer [2004] HCA 30, quoting Gleeson CJ and Kirby J -

"Professor Glanville Williams said that almost the only knowledge of the law that many people possess is the knowledge that ignorance of the law is not excuse when a person is charged with an offence. This does not mean that people are presumed to know the law. ... Rather, it means that if a person is alleged to have committed an offence, it is both necessary and sufficient for the prosecution to prove the elements of the offence, and it is irrelevant to the question of guilt that the accused person was not aware that those elements constituted an offence."

1. The Tribunal is satisfied that the default was caused, wholly or in part, by the Applicant's ignorance and Needhams' failure, given the Applicant's reliance on Needhams, 'to take reasonable care to fulfil' the Applicant's payroll tax obligations under either the 1987 Act or the 2011 Act.
2. Subsection 31(2) of the TAA does not apply if, pursuant to subsection 31(3), the Applicant, or Needhams, had a 'reasonable excuse' for the failure to take reasonable care. The Applicant's explanation was that it relied on Needhams and Needhams failed to take action or give advice to the Applicant in relation to its payroll tax obligations. Needhams did not provide direct evidence, but in the Needhams' objection it appeared to suggest that the rapid expansion of the Applicant's business led to the 'oversight', it is not clear by whom, of the payroll tax default. This 'oversight' persisted for more than 2 years.
3. In short, the Tribunal is not satisfied that the Applicant's reliance on Needhams, nor the information set out in the Needhams' objection, provides a 'reasonable excuse' for the failure by the Applicant, nor Needhams' on the Applicant's behalf, to take reasonable care to ensure that the Applicant fulfilled its payroll tax obligations. No other explanation or excuse is provided.
4. The Tribunal does not accept that the provisions of sub-section 31(6), whereby the Tribunal is authorised to exercise the discretion to impose no penalty tax, apply to this matter. The Tribunal is not satisfied that either the Applicant, who knew nothing of its payroll tax obligation, nor Needhams, who it seems made no effort to ensure the Applicant's compliance, "took reasonable care to comply with the tax law" - subsection 31(6)(a) of the TAA.
5. The only factor beyond the Applicant's control, which the Applicant relies on as having contributed to the default, is Needhams' incompetence. The Tribunal does not accept this as being a matter that would warrant the exercise of the discretion in subsection 31(6)(b) in the circumstances of this matter.
6. The Needhams' objection refers to the rapid expansion of the Applicant's business as an explanation for the "oversight" in relation to the Applicant's payroll tax default. The Tribunal accepts that Needhams had no control over the rate of expansion of the Applicant's business, but it is not clear what this had to do with Needhams' failure to advise its client about its payroll tax liability. Indeed, one would expect that the rapid expansion of a business, if Needhams knew of it, might be a situation in which an accountant would be alerted to potential payroll tax liability accruing, particularly where a business had not previously been liable. The Tribunal is not satisfied that either subsection 31(6)(a) or subsection 31(6)(b) applies.
7. The Tribunal considers that penalty tax should be applied at the rate of 50% pursuant to subsection 31(2) of the TAA.

Should there be a reduction of penalty tax pursuant to sections 32 or 33 of the TAA?

1. Sections 32 and 33 of the TAA do not involve the exercise of discretion. Those sections provide that the amount of penalty tax determined under section 31 of the TAA, if any, is to be reduced by the amount specified in section 32 or section 33 when particular circumstances exist.

1. The law as it related to the Applicant in the current proceedings was not obscure. Although the Tribunal accepts that the Applicant was ignorant of its payroll tax liability, the circumstances which led to the Applicant's default were not complex. In that regard the Applicant's situation is to be contrasted with the taxpayer's circumstances in Liquid Rock Construction Pty Ltd v Commissioner of State Revenue (Taxation) [2012] VCAT 2164. Liquid Rock is one of the decisions which the Applicant relied on in support of its application. The Tribunal in that decision discussed the difference between the provision in the Victorian legislation which is most similar to section 32 of the TAA. In doing so, the Tribunal referred to the ACT Court of Appeal's decision in Dataflex.
2. The Tribunal in the Liquid Rock decision (at paragraph 90) noted that in Victoria a taxpayer is entitled to 80% reduction in penalty tax if the taxpayer discloses the necessary information "before the Commissioner commences an investigation into a known or suspected tax default" (see section 31(1) Taxation Administration Act 1997 (Vic)). The Tribunal noted, at paragraph 86, that the Victorian Parliament could have "stated simply that the 80% remission of penalty would occur in the case of voluntary disclosure before the commencement of an investigation." The Tribunal then goes on at paragraph 87 to compare the Victorian provision with section 32 of the ACT TAA and to observe, by reference to the Dataflex decision, that this is what the legislature has done in the ACT.
3. The situation in the ACT is that if the Commissioner does give a taxpayer 'advance warning' that an investigation will be carried out at some time in the future, the TAA provides the opportunity for a tax payer to disclose information before that investigation commences and benefit from a 20% reduction in any penalty imposed pursuant to section 31 of the TAA. Nonetheless, the Commissioner is not thereby obliged to provide that advance warning.
4. In discussing section 32 and section 33 of the TAA, the ACT Court of Appeal in the Dataflex decision at paragraph 47 considered the question of whether the Respondent is obliged to inform a taxpayer before it commences an investigation:

We agree that the sections appear to indicate that generally the commissioner will inform the taxpayer that an investigation will be carried out before the commissioner embarks on [an investigation]. Nevertheless, there is no requirement that the Commissioner does so and in some, if not many, cases there will be good reason not to. .... the Commissioner [has] power to conduct a covert investigation.

1. The Court of Appeal went on in paragraph 49 to conclude that the term -

"investigation" in ss 32 and 33 should bear its ordinary or natural meaning of "the act or process of searching or inquiring in order to ascertain facts".

1. The Tribunal considers that, relevantly, the facts of the matter currently before the Tribunal are different from the facts in Dataflex. In Dataflex -
   1. the Court of Appeal concluded that the letter sent to the taxpayer requesting information from the taxpayer about its potential payroll tax liability was not a section 82 Notice; and
   2. the Court of Appeal said, at paragraph 55, there were two investigations referred to in the Respondent's letter requesting information from Dataflex -

one was a general investigation into the liability of employers. ... that [investigation] turned up information about Dataflex. The second was a specific investigation into whether Dataflex had a payroll tax liability. It was an investigation relating to Dataflex. In light of what was uncovered in the general investigation, the commissioner was informing Dataflex that it was going to carry out an investigation into its liability - hence the request for information "in order to determine whether [Dataflex] has a payroll tax liability". That was the investigation to be carried out. That investigation had not begun."

The taxpayer's accountant in Dataflex had identified and alerted the taxpayer

to the obligation to register for and provide information relevant to the assessment of payroll tax. The taxpayer had instructed the accountant to prepare the necessary documentation. The accountant was in the process of finalising those documents. All of this had occurred before the taxpayer received the letter from the Respondent requesting information. The accountant provided an explanation for a short delay in providing the documents to the Respondent. The Respondent's letter did not alert Dataflex nor its accountant to the payroll tax default, nor was it the Respondent's letter that prompted Dataflex, via its accountants, to take action to address the default.

1. In the current matter, the Tribunal is unable to say what prompted the Respondent to conduct the searches of the Applicant company on 5 and 6 October 2011 (T3, T4 and T5). From the information available, the Tribunal accepts that prior to the section 82 Notice, the Respondent did not contact the Applicant to inform it that 'an investigation relating to the [Applicant] is to be carried out' within the meaning of sections 32 and 33 of the TAA.
2. Unlike the situation in Dataflex, the Respondent's request for information on 7 October 2010 was by a Notice pursuant to section 82 of the TAA. It specifically stated that the Respondent "is conducting an investigation of the [Applicant] to determine it's (sic) liability to payroll tax".
3. The Tribunal finds that -

1. the Applicant provided the information requested in the section 82 Notice subsequent to receiving that Notice; 2. the Applicant was not aware of its payroll tax obligation until after it received that Notice; and

1. there is no evidence that, prior to the section 82 Notice, Needhams was aware of the Applicant's payroll tax obligations or, if it was, that Needhams had taken any steps to alert the Applicant to, or otherwise respond to, the Applicant's payroll tax liability.

For these reasons the Tribunal finds that section 32 of the TAA does not apply to reduce the penalty tax determined pursuant to section 31 of the TAA. There was no disclosure by the Applicant prior to being informed by the Respondent of the investigation.

1. The Respondent had not given advance notice to the Applicant that the Respondent intended to conduct an investigation. Thus, the question of whether section 33 of the TAA applies will depend on whether in the section 82 Notice the Respondent informed the Applicant that an investigation 'is to be carried out' and before the investigation began the Applicant disclosed 'to the [Respondent], in writing, sufficient information to enable the nature and extent of the tax default to be determined.'
2. The Respondent says that the investigation had already commenced by the time of the section 82 Notice. The Tribunal does not consider that the words used by the Respondent in the section 82 Notice - "is conducting a payroll tax investigation" - determines the matter. However, something had prompted the Respondent to undertake the searches on 5 and 6 October 2010 (T3, T4, and T5). These searches related exclusively to the Applicant. The Respondent then sent the section 82 Notice on 7 October 2010. The Tribunal considers that, in line with the Court of Appeal's conclusion in Dataflex, these actions fall within the usual meaning of the term 'investigation'.
3. The Tribunal accepts the Respondent's submission, which is supported by the Court of Appeal's decision in Dataflex, that the Respondent was not required to give the Applicant 'advance notice' prior to beginning the investigation. The Tribunal therefore finds that by the time the Applicant received the section 82 Notice, the Respondent had already begun its investigation into the Applicant's payroll tax liability. Whilst the Tribunal accepts that the Applicant promptly provided the information requested in the section 82 Notice, the Tribunal finds that section 33 does not operate to reduce any penalty tax determined pursuant to section 31 of the TAA.

Should there be a remission of all or part of the penalty tax pursuant to

1. The Tribunal is satisfied, pursuant to subsections 37(a)(i) and 37(b), that the Applicant has taken reasonable steps to mitigate the circumstances that resulted in the liability for penalty tax and that it is fair and reasonable to remit part of the penalty tax payable by the Applicant.
2. The Tribunal does not know what the terms were of the relationship between the Applicant and Needhams. It may be that the Applicant was totally reliant on Needhams in relation to various matters and that Needhams was aware of that reliance and had accepted responsibility for those matters. The Applicant has advised the Tribunal that it is exploring options and may take action in relation to what the Applicant says is Needhams' failure to provide the Applicant with an adequate level of service. The Tribunal is unable to comment on that matter.
3. The Tribunal accepts that the Applicant has taken steps to address aspects of its operations in an effort to reduce the likelihood of it failing to meet its payroll tax, and probably other, obligations in the future. Those steps are discussed above. The Applicant identified the need to engage new accountants. The Applicant also appears to have accepted that its failure to adequately inform itself was a factor which contributed to its payroll tax default. The steps the Applicant has taken include employing experienced staff, and engaging professionals to educate its employees and managers about taxation and other matters. The Tribunal considers that these steps should help to create a situation in the future where the Applicant's employees are better informed, and where necessary are more able to provide meaningful instructions to, and seek advice from, those whom the Applicant engages to provide services.
4. The Tribunal does not suggest that business people must be themselves experts in all areas affecting their business. The engagement of professionals or experts is a realistic and probably essential business decision. However, the Applicant's efforts to increase its staff's knowledge base, particularly in relation to areas such as payroll tax where 'self assessment' is involved, mean that the Applicant will not be totally reliant on service providers and thus more aware of its responsibilities and obligations.
5. The Respondent concedes that the Applicant has taken 'steps to mitigate' within the meaning of subsection 37(a)(i), but says that any remission should be partial only and should, after taking account of any remission, result in the imposition of penalty tax of between 25% and 50%.
6. The Applicant submits that the Tribunal should take into account the 'adverse implications' for the Applicant if penalty tax is imposed. The Applicant does not provide details of what those adverse implications are. The Tribunal accepts that it is inevitable that any penalty amount imposed will, presumably, have a negative impact on the Applicant. This is an intended consequence of a penalty and consistent with the aim of deterrence.
7. The Applicant relied on the NSW Court of Appeal decision of Moore Park Gardens Management Pty Ltd v Chief Commissioner of State Revenue [2006] NSWCA 115. Santow JA, with whom Handley JA and Bryson JA agreed, stated at paragraph 55 that "A revenue Act would not be expected to excuse the payment of interest or penalty tax by reference to cash-flow problems when it must be the taxpayer's responsibility so to order his or her affairs as to be able to meet the relevant obligations".
8. The Tribunal is mindful that in order to promote the scheme of taxation legislation and the TAA, taxpayers who comply with their obligations should be in a better position than those who do not. Other than in exceptional circumstances, the exercise of discretion such as that authorised by section 37 of the TAA, should not operate to place taxpayers who fail to comply with taxation laws, by failing to pay their tax liability in a timely fashion or otherwise, in the same position as taxpayers who fully comply with their obligations under taxation laws. Taxpayers who fully comply should be in a better position than those who do not. This outcome reflects the intention of the legislature and promotes compliance. It is also fair.
9. In this matter the decision makers in the assessment and the determination imposed penalty tax of 25% pursuant to sub section 31(1) of the TAA. The Tribunal has increased the rate of penalty tax payable pursuant to section 3(2) to 50% of the TAA. The Tribunal has made this decision because the Tribunal is of the view that this is the correct and preferable decision given the circumstances. It does not reflect that the Tribunal considers, as compared with the view of the earlier decision makers, that the Applicant is more culpable.
10. In relation to the exercise of the discretion afforded by section 37 of the TAA, the Tribunal is satisfied that:
    1. the Applicant was prompt and cooperative in its response to the Respondent's section 82 Notice, its investigation and request for information; and
    2. the Applicant promptly registered for payroll tax when it became aware of its obligation. It promptly paid the assessed amount of payroll tax. The Tribunal notes that the Applicant has not paid the penalty tax component of the assessment, but at the Applicant's request, the Respondent has agreed to stay enforcement action pending the outcome of this Application. No negative inference is drawn from this.
11. Although the Applicant says that the circumstances of this matter are analogous to the facts in Dataflex, there are some relevant factual differences. In Dataflex, before the Respondent had informed the taxpayer about an investigation which had already begun or was foreshadowed, the taxpayer's payroll tax default had been identified by the taxpayer's accountants. The taxpayer had given instructions to its accountants who were, acting on those instructions, in the process of taking positive steps to remedy the default. Had the Respondent done nothing, the taxpayer would have registered for payroll tax and submitted returns for assessment.
12. In the present case, the Tribunal is unable to say whether the Applicant's failure to meet its obligations under the 1987 Act and the 2011 Act was a result of its failure to provide adequate instructions or information to Needhams, or whether Needhams failed to provide appropriate advice to the Applicant. In any event it appears that the Applicant was not aware of its obligations until after it received the section 82 Notice. The Tribunal accepts the Respondent's submission that it was a result of the Respondent's section 82 Notice and the advice to the Applicant of the Respondent's investigation into the Applicant's payroll tax liability, referred to in the section 82 Notice, which led to the Applicant applying for registration and to the November 2011 payroll tax assessment.
13. In the present case, it seems that neither the Applicant nor Needhams was aware of, let alone in the process of remedying, the Applicant's payroll tax default. Had the Respondent not undertaken an investigation or sent the section 82 Notice it is mere speculation as to when the Applicant's default would have been identified.
14. The Tribunal is not persuaded by the Applicant's assertion that if it had been given advance notice of the Respondent's intention to carry out an investigation, the Applicant would have responded in the same way as it did in response to the section 82 Notice and the Applicant might then have had the benefit of at least the operation of section 32 of the TAA (80% reduction in penalty) and possibly full remission, by operation of section 37 or, perhaps, section 31(6) of the TAA. The fact is, the Respondent was not obliged to provide that advance notice and it did not did not do so in this matter. The Tribunal is prepared to take into account the Applicant's actions, but not what might have occurred had the Respondent acted differently, given the Respondent was not obliged to do so.
15. The Tribunal accepts that the Applicant has taken positive and reasonable steps to mitigate the factors which led to the payroll tax default. The Tribunal considers that these actions will be effective in reducing the Applicant's risk of future default in relation to payroll tax and possibly other obligations.
16. In order to balance the intended purpose of the penalty provisions of the TAA, being to encourage compliance and deter default, with the discretion available in section 37 of the TAA, which enables the decision maker to recognise that mistakes do happen and to take account, when imposing penalty, of a taxpayer's genuine efforts to address the reasons for the default and ensure future compliance, the Tribunal considers that the penalty should be remitted in part so that to total amount of penalty tax payable on the unpaid tax is 25%.
17. The Applicant's representative mentioned at the hearing that in conversations he and Mr Paton had had with other small business operators in the ACT, many whose total wage payments were below the threshold had reported that they were not aware of the payroll tax obligation that arises when the threshold is reached. Mr Cain, who was present at the hearing on behalf of the Respondent and whom the Respondent's counsel described as a senior officer, said that the Respondent would take account of the Applicant's representative's comments. The Respondent may consider increasing the availability to the business community of information about payroll tax obligations in the ACT.
18. The Applicant suggested in its submissions that the Respondent's procedures in relation to payroll tax investigations, and, in particular, its failure to provide advance warning of its investigation, had the effect of denying the Applicant procedural fairness. The Applicant further suggested that the internal documents used, such as the 'Compliance Procedure-Unregistered Entities" which sets out the procedure to be adopted by the Respondent's officers when considering an investigation into a payroll tax matter, meant that the Respondent was in some way attempting to avoid the application of sections 32 and 33 of the TAA by ensuring taxpayers were first advised after an investigation had begun.
19. In the decision of Moore Park Gardens Management Pty Ltd v Chief Commissioner of State Revenue [2006] NSWCA 115, Santow JA at paragraph 55 said that "A decision maker is entitled to have resort to rules which "guide" the exercise of discretionary powers" provided those rules are "consistent with the subject matter, scope [and] purpose" of the legislation.
20. The Tribunal is not persuaded that anything in the Revenue Circular GEN006 (Exhibit 1) or the document entitled 'Compliance Procedure-Unregistered Entities' is inconsistent with the policy and scheme of the payroll tax legislation or the operation of the TAA. If the only 'unfairness' the Applicant is referring to is the lack of 'advance' warning of the Respondent's investigation, the Tribunal has already indicated it is not persuaded by this submissions for the reasons set out above.

1. Pursuant to subsection 68(3)(c)(i) of the ACAT Act the Tribunal substitutes the following decision for the decision under review in relation to the penalty tax payable by the Applicant:
   1. penalty tax is payable on the amount of tax unpaid as set out in the Notice of Assessment dated 28 November 2011 in the sum of $157,736.66 at a rate of 50% pursuant to subsection 31(2) of the TAA; however
   2. the penalty tax amount calculated pursuant to subsection 31(2) is remitted in part pursuant to section 37 of the TAA so that the total amount of penalty tax payable is 25% of the amount of unpaid tax.

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )