Continuum Recruitment Pty Ltd v Chief Commissioner of State Revenue

NCAT Administrative and Equal Opportunity|2024-02-06

Introduction

This is an application to the Tribunal under s 55 of the Administrative Decisions Review Act 1997 (NSW) (ADR Act) for a review of the decision of the Chief Commissioner of State Revenue to impose penalty tax in respect of assessments of payroll tax for the financial year ending 30 June 2022 and for each of the months November 2022 through to March 2023 (decisions under review). The payroll tax assessments are not in dispute.
The Applicant seeks penalty tax be remitted in full (or not imposed) because it says it fell behind in attending to its payroll tax obligations due to financial difficulties the Applicant suffered as a result of the COVID-19 pandemic and because the Applicant's director and both of his young children were suffering health issues which caused significant emotional and financial strain. The Applicant says that, as a business, it is unable to afford the penalties imposed.
The Respondent submits that penalty tax should be imposed and not be remitted as, he submits, the Applicant did not take reasonable care to comply with its payroll tax obligations, the tax default was not caused solely by circumstances beyond the Applicant's control and there are no other circumstances warranting remission.
The Applicant objected to the decisions to impose penalties by an objection lodged on 18 May 2023 and the Respondent disallowed that objection by notice dated 19 June 2023.
The decisions are administratively reviewable by the Tribunal by virtue of s 96 of the Taxation Administration Act 1996 (NSW) (TAA).
Section 100(3) of the TAA makes it clear that in reviews of this nature by the Tribunal the Applicant has the onus of proving its case. This requires the Applicant to prove all matters necessary for the Tribunal to answer the statutory question in its favour on the balance of probabilities. Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [28] - [31].
In conducting the review, the Tribunal is required to determine the correct and preferable decision having regard to the material before it and the applicable law: s 63 of the ADR Act.

Materials Before the Tribunal

The Applicant relied upon a bundle of documents filed with the Tribunal on 1 September 2023 and a written statement of Mr Shane Doyle, director, filed on 10 October 2023. Mr Doyle was not required for cross examination.
The Respondent relied upon a bundle of documents filed pursuant to s 58 of the ADR Act and written submissions filed on 18 September 2023.

Payroll Tax Act 2007 (NSW) (PTA)

Payroll tax is payable by an employer on all taxable wages within 7 days after the month in which those wages were paid or payable, or for the month of June, within 28 days after the end of the month: ss 6-9 of the PTA.
Employers who are registered as an employer under the PTA must lodge a return relating to each month other than June within 7 days of the end of the month. They must also, within 28 days after the end of June, lodge a return relating to that month and to the adjustment of payroll tax paid or payable by the employer for the financial year closing in that month: s 87 of the PTA.

Taxation Administration Act 1996 (NSW) (TAA)

Section 26 of the TAA provides that if a tax default occurs, the taxpayer is liable to pay penalty tax in addition to the amount of tax unpaid.
Section 27 of the TAA provides, relevantly: 27 Amount of penalty tax (1) The amount of penalty payable for a tax default is, subject to this Division - (a) 25% of the amount of tax unpaid, or … (3) The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that - (a) the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law, or (b) 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) but not amounting to financial incapacity.
Sections 28 and 29 of the TAA provide for the reduction of the amount of penalty tax where the taxpayer has made a disclosure either prior to or during an investigation. However, those provisions have no application where the taxpayer was registered and the tax default involved a failure to lodge a return as required or pay tax by the date required under the relevant taxation law: ss 28(2) and 29(2) of the PTA.
Section 33 of the PTA provides: 33 Remission of penalty tax The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

Facts

The following facts emerge from the evidence and are not in dispute unless otherwise indicated.
In July 2022 the Respondent, on three separate occasions, emailed the Applicant advising that certain documents which had been sent to the Applicant at a Lavender Bay address had been returned undelivered and requesting the Applicant update its postal address in the Respondent's online portal.
The Applicant did not lodge its 2022 payroll tax annual reconciliation return by 28 July 2022.
On 21 November 2022 the Respondent issued a Payroll Tax Estimate Notice to the Applicant for the period 1 July 2021 to 30 June 2022. Penalty tax was imposed in respect of the tax unpaid for that financial year ($29, 779.44) in the amount of $7,444.86.
The Applicant did not lodge returns within 7 days of the end of the month for any of the November 2022 through to March 2023 months.
Payroll Tax Estimate Notices were issued to the Applicant in respect of the following months imposing an amount of penalty tax in respect of the unpaid tax amounts as follows: 1. Assessment dated 9 January 2023 of payroll tax of $16,079.46 in respect of the period 1 - 30 November 2022: penalty tax imposed $4,019.87; 2. Assessment dated 19 January 2023 of payroll tax of $17, 687. 41 in respect of the period 1-31 December 2022: penalty tax imposed $4,421.85; 3. Assessment dated 10 February 2023 of payroll tax of $19,456.15 in respect of the period 1-31 January 2023: penalty tax imposed $4, 864.04.
Each of these assessments (as well as further Overdue Payroll Tax Notices) were issued to the Lavender Bay address, the Applicant not having updated its postal address in the Respondent's portal.
According to the Respondent's Client Notes Report, on 27 February 2023 an officer of the Respondent telephoned Mr Doyle, the Applicant's director. That officer advised Mr Doyle that the 2022 annual reconciliation was outstanding and that the above assessments were outstanding. Mr Doyle told the officer that he had thought that the Applicant's account was up to date. Copies of the assessments were emailed to the Applicant on 27 February 2023 noting that Mr Doyle had advised in the telephone call that the postal address the assessments had been sent to was incorrect. The Applicant was again requested to update its mailing address in the Respondent's portal.
The Applicant updated its address in the Respondent's online portal to its current address at Cammeray on 28 February 2023 and the following further Payroll Tax Estimate Assessment notices were issued to that address: 1. Assessment dated 10 March 2023 of payroll tax of $21,401.77 in respect of the period 1- 28 February 2023: penalty tax imposed $5,350.44; 2. Assessment dated 14 April 2023 of payroll tax of $23, 541.95 in respect of the period 1-31 March 2023: penalty tax imposed $5,885.49.
On 9 May 2023 the Applicant sent an email to the Respondent requesting a waiver of the penalty tax amounts which request was declined.
On 18 May 2023 the Applicant lodged an objection in respect of the penalty tax amounts which was disallowed by the Respondent on 19 June 2023.

Applicant's statement and submissions in support of remission

In Mr Doyle's statement and in submissions to the Tribunal at the hearing Mr Doyle made the following submissions.
Mr Doyle said that he understands the importance of paying taxes promptly and is disappointed in himself for not addressing his payroll tax obligations sooner.
He said that, like many others, his business and family faced a myriad of difficulties as a result of the Covid 19 pandemic - its financial impact was significant, disrupting the Applicant's income and increasing its expenses. Mr Doyle was also dealing with the stress of trying to maintain employment for the Applicant's employees many of whom had been with the company for many years. The business was severely affected with a significant decrease in revenue and clients, bad debts and a loss of employees. This placed an enormous burden on the business and increased Mr Doyle's workload threefold, making it challenging to fulfill day-today obligations, including tax payments.
Mr Doyle explained that his family has also had to cope with the emotional and financial strain of having two children with significant medical conditions. He said that the combination of these health issues drained his family's financial resources and was emotionally draining, leaving them struggling to manage their day to day responsibilities. In his submissions at the hearing Mr Doyle said that one of his daughters had been "in and out of hospital" and has had some significant challenges as she has just started at school.
In his email requesting the Respondent to remit penalties, Mr Doyle said that he himself had also been getting "constantly sick" however no further details of the nature or extent of Mr Doyle's illness have been provided to the Tribunal.
Mr Doyle said that the Applicant had not been advantaged as a result of not paying its payroll tax on time as, he said, the tax amounts were sitting in an account earning no interest.
Mr Doyle said that "with everything going on" managing his daughter's medical condition, he "took his eye off the ball" and the tax payments were missed. He conceded that he "prioritised" matters "wrongly".
Mr Doyle said that after one of his employees had left, he was the only person in the business in a position to ensure the payroll tax amounts were paid. He said that with people leaving the business he had a lot to manage. He said he should have brought someone in to "cover" (which I understood to mean attend to the Applicant's payroll tax responsibilities) but that was "secondary to what was going on". He said that he "got matters sorted as quickly as [he] could".
Mr Doyle said that he understands that the Applicant has met its outstanding payroll tax obligations (although that is disputed by the Respondent), but that the business is unable to afford the penalties.

Consideration

It is not in dispute that there was a tax default by reason of the non-payment of each of the payroll tax amounts assessed. By virtue of s 26 of the TAA the Applicant is liable to pay penalty tax in addition to the amounts of unpaid tax.
Section 27(1) of the PTA provides that, subject to this division, the amount of penalty tax is 25%. Section 27(3) of the TAA provides that the Respondent, and therefore the Tribunal, may determine that no penalty tax is payable in respect of a tax default if satisfied either that the taxpayer took reasonable care to comply with its obligations or that the default occurred solely because of circumstances beyond the taxpayer's control but not amounting to financial incapacity. Further s 33 of the TAA provides that the Respondent, and therefore the Tribunal may remit penalty tax by any amount in such circumstances it considers appropriate.

Reasonable care

The reasonable care test "calls upon a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer in fulfilling the taxpayer's tax obligations". The relevant factual inquiry is "whether the taxpayer made the reasonable attempts a person in the position of the taxpayer ought to have taken so as to comply with the provisions of a taxation law": Aurora Developments Pty Ltd v FCT (No 2) (2011) FCR 457 at 465 at [36] - [38]; Taras Nominees Pty Ltd v Federal Commissioner of Taxation (2014) 94 ATR 751 at [197].
In RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue (2004) 55 ATR 445 at [23] the Tribunal stated: In each case, it is essentially a question of fact whether the taxpayer has taken reasonable care in attending to its tax obligations. Factors that would indicate that a taxpayer took reasonable care include reasonable attempts to comply with the tax law, reasonable professional and other inquiries to ensure compliance, reliance on professional advice or on official published views of the tax law. Factors which indicate that a taxpayer failed to take reasonable care include oversight or forgetfulness to meet with obligations, failure to maintain adequate records and procedures to prevent errors from occurring, not seeking professional advice and errors in complying with the law.
The Respondent has issued Commissioner's Practice Note CPN 024 which sets out guidelines as to when the Respondent may reduce interest and penalty tax under various different taxation laws and Ruling PTA 036 "Payroll tax: interest and penalty tax" which deals specifically with the remission of interest and penalty in respect of payroll tax defaults.
In CPN 024 the Respondent sets out a list of factors which, in his view, may be relevant in determining whether reasonable care has been taken. That list includes the following factors: a. being honest and forthright when dealing with the Chief Commissioner b. cooperation with the Chief Commissioner c. the default is attributable to calculation errors d. making diligent efforts to understand and comply with the law e. maintaining appropriate and proper recording systems in accordance with normal practice i.e., systems that minimise the risk of tax default, allow reconciliation of the tax paid or payable with returns required to be lodged and fulfil the taxpayer's obligation under the taxation laws to maintain records for the purposes of Revenue NSW investigations or audits f. taking reasonable steps to be aware of and comply with his/her taxation obligations and to be familiar with the legislative requirements g. applying any relevant revenue rulings in good faith h. seeking professional advice[4] or private rulings for uncertain or complex matters where no revenue ruling applies, or where circumstances differ from those described in a revenue ruling i. acting promptly to seek advice[5] or provide information once made aware, from any source, that the taxpayer might have a tax liability j. the taxpayer has used and reasonably relied on data, statements or other information provided by a third party. Meeting one or more of these examples does not necessarily mean that reasonable care has been taken; all relevant factors leading to the tax default will be taken into consideration.
As the Tribunal said in Laviva Nominees Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 84 the Tribunal is not bound by the Chief Commissioner's Guidelines, however there is a benefit in uniformity of application of tax laws.
Here, the Applicant was clearly aware of its obligations to lodge payroll tax returns. Mr Doyle conceded that he "took his eye off the ball" and "prioritised" his various obligations "wrongly".
In July 2022, on three separate occasions, the Respondent requested the Applicant update its mailing address in its records. The Applicant failed to do so until February 2023 when Mr Doyle was telephoned by an officer of the Respondent. As a result, numerous assessments and overdue tax notices were sent to an incorrect mailing address. No explanation was provided by the Applicant for this failure (other than the general submission that Mr Doyle was having difficulty attending to day to day responsibilities). Nor was any evidence given by the Applicant as to the steps it did take when, in February 2023, it became aware of its outstanding obligations.
On the evidence before it, the Tribunal cannot be satisfied that the Applicant made diligent efforts to comply with its obligations, maintained appropriate systems to minimise the risk of default or acted promptly once made aware of its outstanding obligations. The Tribunal cannot be satisfied that the Applicant made the reasonable attempts a person in the position of the Applicant ought to have taken to comply with its obligations. Indeed, Mr Doyle conceded in his submissions that he should have arranged for someone to assist him to comply with the Applicant's payroll tax obligations. That would have been a step that a person in the position of the Applicant might reasonably have taken to seek to comply with its obligations. The Applicant did not take that step.
The Applicant has the onus of proof in these proceedings. The Applicant has not established on the evidence that it took reasonable care to comply with its tax obligations.

"solely because of circumstances beyond the taxpayer's control"

CPN 024 also sets out examples of circumstances which might be considered to be beyond the control of a taxpayer as follows: a. natural disasters such as fire or flood b. computer system breakdowns including third party systems such as electronic funds transfer systems c. illness or death of a principal taxpayer d. Revenue NSW fault affecting receipt of payment, including processing problems e. circumstances where it is impossible to lodge or pay on time (excluding financial incapacity including hardship)
In Tacey v Chief Commissioner of State Revenue [2016] NSWCATAD 255 at [51] the Tribunal said (in relation to a similar, although shorter, list which appears in PTA 036) that while the list was not exhaustive "the examples give an idea of the significance of the event required to take circumstances outside the applicant's control".
Section 27(3)(b) expressly excludes financial incapacity as a relevant circumstance beyond the taxpayer's control.
The circumstances the Applicant submits led to its failure to comply with its obligations were the illness of Mr Doyle's daughters, his own illness and the difficulties the business was experiencing as a result of the covid pandemic, both in terms of the financial impact on the business and the significantly increased workload placed on Mr Doyle.
The evidence before the Tribunal is extremely limited. It consists of Mr Doyle's one page statement (supplemented briefly at the hearing) and documents which support the financial impact the covid-19 pandemic had on the business.
While the Tribunal accepts Mr Doyle's evidence that his daughters suffered from a medical condition which placed financial and emotional strain on the family, there is no evidence as to the nature or timing of their illnesses or how this impacted Mr Doyle's ability to comply with the Applicant's obligations. Nor is there any evidence as to the nature or extent of Mr Doyle's own illness or how that may have affected his ability to meet his obligations. On the state of the evidence the Tribunal simply cannot be satisfied that these factors together with Mr Doyle's increased workload as a result of the pandemic, which the Tribunal accepts were circumstances beyond the Applicant's control, solely caused the Applicant's tax default. By Mr Doyle's admission, he "wrongly prioritised" his obligations and should have engaged someone to assist the Applicant meet its obligations. As the ACT Civil and Administrative Tribunal said in Commissioner for ACT Revenue v G Kalsbeek Pty Ltd [2015] ACAT 90 at [42], factors such as those are clearly part of the cause for the Applicant's failure to comply with its obligations and cannot be regarded as being beyond the control of the Applicant though its director.
Again, the Applicant has failed to discharge its onus of proof to establish that its failure to comply with its obligations was caused solely because of circumstances beyond its control.

Section 33 of the TAA

Section 33 confers a broad and unfettered discretion to remit penalty in "such circumstances as the Chief Commissioner considers appropriate".
In Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue (2019) 109 ATR 879 Ward CJ said at [301]: I do not consider that this general discretion should be exercised where there has been a finding that reasonable care has not been established and in the absence of some special circumstance to warrant the exercise of the discretion notwithstanding the absence of a finding of reasonable care.
However, the Court of Appeal noted in Commissioner of State Revenue v Downer EDI Engineering Pty Ltd (2020) 103 NSWLR 772 at [150], that this was a matter of discretion, not power.
The Applicant has submitted that the business is unable to afford to pay the penalty tax amounts. However, as noted above s 27(3)(b) of the TAA specifically excludes financial incapacity as a matter that can be taken into account to determine no penalty tax is payable in respect of a tax default. As the Tribunal said in Silverbrook Research Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 65 at [33] "policy would also dictate that it is not a ground for any remission of penalty under s33". As the Tribunal explained in Tacey at [52], hardship matters are within the province of the Hardship Review Board, not this Tribunal.
The Applicant has failed to show any other ground warranting remission of penalty under s 33 of the TAA.
While the Tribunal accepts that the Applicant and Mr Doyle and his family were facing difficult challenges, the evidence is that for a period of many months the Applicant disregarded its payroll tax obligations and it failed to respond to repeated requests from the Respondent to comply. It is to be noted that the payroll tax assessments which were issued and in respect of which penalties were imposed are estimated assessments because the Applicant had not (and, the Tribunal was informed by the Respondent's representative at the hearing, still has not) supplied to the Respondent the actual payroll figures for the periods in question in order for the correct amount of payroll tax for those periods to be confirmed. In those circumstances, in my view it would be inconsistent with the objectives of the penalty scheme in the TAA (namely to encourage compliance and deter non-compliance) for penalty tax to be remitted in full or in part.

Conclusion

The burden rests on the Applicant under s 100(3) of the TAA to demonstrate why penalty tax should not be imposed or should be remitted. The Applicant has failed to discharge this burden. It has not demonstrated that it took reasonable care or that its tax defaults were caused solely by circumstances beyond its control which would justify no penalty being imposed under s 27 of the TAA. Nor has it established any other basis upon which it would be appropriate to remit penalty tax under s 33 of the TAA.
It follows that I find that the imposition of penalty tax at the rate of 25% for the payroll tax assessments issued for the financial year ending 30 June 2022 and for each of the months November 2022 through to March 2023 is the correct and preferable decision and the decisions under review should be confirmed.

Orders 1. The decisions under review are confirmed.

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

Amendments 23 February 2024 - Amount in paragraph 24(2) changed. 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: 23 February 2024

Relevant Legislative Provisions Payroll Tax Act 2007(NSW)

(2020) 103 NSWLR 772

At a glance

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Decision date

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Judgment (14 paragraphs)

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Legislation Cited (4)

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