Darghaw Pty Ltd & Ors v Chief Commissioner of State Revenue

REASONS FOR DECISION

1. This is an application for review of decisions of the Chief Commissioner of State Revenue (the "Respondent") to assess interest and penalty tax charged on unpaid amounts of payroll tax. The Respondent's submission is that the applicants are liable for interest and penalty tax. The applicants disagree with the assessment of interest and penalty tax. The basis of that disagreement is their claim that the relevant tax defaults occurred as a result of the circumstances created by the COVID-19 pandemic and were outside the control of the applicants. The applicants also say that they took reasonable care.

Background

1. This matter comprises of applications for review of assessments of interest and penalties charged as a result of certain tax defaults. The tax defaults arose out of non-payments and underpayments of payroll tax payable under the Payroll Tax Act 2007 (NSW) ("Payroll Tax Act").
2. Under s 6 of the Payroll Tax Act, payroll tax is imposed on all "taxable wages". Liability lies with the employer by whom taxable wages are paid or payable (s 7). Payroll tax is payable by periodic return (s 9 and 87).
3. The assessments of interest and penalty tax were made against seven applicants ("Applicants"). The Applicants, the amounts of interest and penalty tax assessed ("Assessments") and the periods to which they relate are as follows: Applicant Amount of Interest and Penalty Tax assessed and period Caves Coastal & Bungalows as trustee for Bijoma North Operation Unit Trust $20,953.62 (January 2023 - July 2023) Oscars Hotel Pty Ltd as trustee for the Discretionary Trust $113,939.10 (July 2020 - July 2023) Oscars No. 1 Pty Ltd as trustee for Oscars No. 1 Trust $13,634.32 (July 2021 - May 2023) Darghaw Pty Ltd $105,837.81 (July 2020 - July 2023) Darghaw 2 Pty Ltd $157,885.82 (December 2020 - July 2023) Darghaw 3 Pty Ltd $128,142.14 (July 2020 - July 2023) Darghaw 4 Pty Ltd $138,558.79 (July 2020 - July 2023)

1. The Applicants operated hospitality businesses during the periods referred to above. Liabilities for payroll tax arose out of the taxable wages relating to those business operations between July 2020 and July 2023. Payroll tax was underpaid or paid late during this period.
2. The COVID-19 pandemic beginning in early 2020 affected the Applicants' businesses in various ways. During periods of mandatory lockdown, the businesses providing hospitality did not operate at all. These lockdowns ran from 23 March 2020 to 1 June 2020 and 26 June 2021 to 11 October 2021.
3. During the periods of lockdown, staff were mandated to work from home including staff administering the payment of payroll tax. The Applicants' evidence was that they did not, at the start of the pandemic, have the information technology systems in place to allow their staff to work from home. This impacted business functions.
4. During certain periods outside the times mandatory lockdowns were in force, the Applicants' businesses remained impacted by the COVID-19 pandemic in various other ways, including difficulties in finding adequate levels of staffing. The causes included illness of staff members. The Applicants also lost 100% of their former payroll staff during the period as well as 14 total staff members (70%) across their finance, accounts payable and payroll teams.
5. The Applicants gave evidence that they moved to a VPN system connected to a physical server in the office but it had a poor quality. This meant that head office teams including payroll tax and finance teams had difficulty collaborating and accessing key accounting and payroll systems.
6. The Applicants started to move all software and files onto the cloud. This coincided with staff needing to be laid off due to the pandemic as well as cash flow restrictions and interrupted access to systems. It took the Applicants about six months to transition to a cloud-based system and another six months or so until staff were effectively using it and close to achieving pre-pandemic productivity levels while working from home.
7. For parts of these periods, the Applicants were in receipt of various payments from government including "JobKeeper" and "JobSaver" payments. The Applicants describe circumstances of some confusion around passing these payments to staff and whether they attracted payroll tax, at a time when the Applicants had lost their experienced payroll team.
8. During the periods between July 2020 and July 2023, payroll tax continued to be paid but there were incidences of non-payment and underpayment of payroll tax. The liability for the underpaid and unpaid payroll tax is not itself in dispute in these proceedings. The calculations of the amounts of interest and penalty tax assessed for the periods in question are also not in dispute, if they are properly assessable. What is in dispute is whether interest and penalty tax should have been assessed.
9. In the case of each of the Applicants, numerous notices of assessment were sent by post to the street addresses known to the Respondent for each Applicant. These were street address in Stanmore, St Peters and Brighton-Le-Sands NSW. These notices were sent during 2021 and 2022. There were also some dealings between the Respondent and the Applicants addressing non-payment and late payment at the end of 2020, in mid 2021 and at various times in 2022. These dealings occurred by email or telephone. The evidence was that no responses were received by the Respondent, comprehensively addressing the specific revenue debts claimed by the Respondent until early 2023.
10. On 16 January 2023, the Respondent sent an email to the Applicants providing an account summary for each of the Applicants. On 9 February 2023, the Applicants sent an email to the Respondent attaching a payroll tax debt spreadsheet with comments on payments having been made. This was the first time that the Applicants responded to the Respondent's correspondence dealing with the relevant tax defaults in a comprehensive way. On 21 February 2023, the Applicants sent a further email to the Respondent regarding the payroll tax paid by the Applicants and the amounts owing.
11. Further correspondence was exchanged between 21 February 2023 and 21 April 2023. There appear to have been payments misallocated by the Respondent to the wrong account. In a telephone conversation between an officer of the Respondent and Ms Michelle Stewart acting for the Applicants, there was discussion about correct payment codes for automatic allocation of payments to the correct periods. Further correspondence and telephone conversations occurred between 16 June 2023 and 22 August 2023.
12. On 1 September 2023, the Respondent provided a breakdown of the interest and penalty tax incurred by each of the Applicants. On 18 September 2023, the Respondent wrote to the Applicants inquiring whether the Applicants required a payment plan.
13. On 1 September 2023, one of the Applicants wrote to the Respondent requesting a remission of interest and penalty tax imposed for the period December 2020 to July 2023. On 11 September 2023, the Respondent refused to do so.
14. On 25 September 2023, each of the Applicants lodged an objection to the decision of the Respondent to refuse the requests for the remission of interest and penalty tax. On 23 October 2023, the Respondent determining the objections lodged in respect of each of the Applicants, wholly disallowed them.
15. The Applicants had certain complaints concerning the Respondent. These complaints included difficulty in using its portal to identify amounts of unpaid tax as well as not receiving electronic notifications of payroll tax defaults. Instead, all communications came by means of correspondence in paper form to office premises which staff could not access during periods of lockdown. There were also errors according to the Applicants in some of the Respondent's calculations which took time to address.
16. The Applicants provided evidence of an increase in their total staff from 1,200 when the pandemic began, to 1,800 at the present time. The Applicants gave further evidence of certain structural improvements including the size of their payroll tax team from two to three staff. They were also looking to move onto a "more suitable" payroll system. A witness of the Applicants referred to the "inefficiencies within our previous systems for the size of Oscars".

Applicants' rights of review

1. Where tax has been assessed, s 86 of the Taxation Administration Act 1996 (NSW) ("Administration Act"), allows rights of objection to a taxpayer dissatisfied with an assessment. This is an internal review process under which the Chief Commissioner of State Revenue, the Respondent in these proceedings, must consider and determine the objection (s 91 of the Administration Act). On the facts at hand, that determination happened by 23 October 2023.
2. A taxpayer who is dissatisfied with the decision made upon the Respondent's determination of an objection, may apply to the Civil and Administrative Tribunal ("Tribunal") for an administrative review under the Administrative Decisions Review Act 1997 (NSW) of the decision of the Chief Commissioner of State Revenue. These circumstances have arisen in the present matter as set out above, so bringing the matter within the jurisdiction of the Tribunal.
3. The onus of proving their case lies with the Applicants (s 100(3) of the Administration Act).
4. The Tribunal, dealing with the taxpayer's application, may do one or more of the following under s 101 of the Administration Act: "(a) confirm or revoke the assessment or other decision to which the application relates, (b) make an assessment or other decision in place of the assessment or other decision to which the application relates, (c) make an order for payment to the Chief Commissioner of any amount of tax that is assessed as being payable but has not been paid, (d) remit the matter to the Chief Commissioner for determination in accordance with its finding or decision, (e) make any further order as to costs or otherwise as it thinks fit."

Consideration

1. In circumstances where a tax liability has not been discharged within the required period, a tax default arises. That tax defaults have arisen is not in dispute. The Respondent submitted that the tax defaults in the present matter, allowed him to assess interest and penalty tax on the unpaid payroll tax. The Applicants disagree.
2. Two matters, therefore, arise for consideration. They are whether; 1. interest can be assessed; and 2. penalty tax can be assessed.

Interest

1. The Respondent can assess interest at both the market rate and the premium rate (s 21 and 22 of the Administration Act). He has done so. The Assessments made included amounts of interest calculated at both rates.
2. The Respondent, however, has certain statutory powers to remit interest (s 25 of the Administration Act). That power is discretionary. The Chief Commissioner may issue guidelines setting out how interest must be remitted. If guidelines are issued, interest must be remitted only in accordance with the guidelines. Section 25 in its current form came into effect on 1 February 2024. The provisions allowing for the use of guidelines took effect from that date. The parties were in agreement that otherwise, the operation of s 25, as amended, did not differ from its operation before 1 February 2024.
3. The Respondent sets out in Practice Note CPN 024 ("CPN 024") how he will exercise his powers of remission. These guidelines were issued in June 2022 but remain current. Relevantly, they provide as follows: "When a tax default occurs, interest is calculated on the amount of unpaid tax calculated on a daily basis from the end of the last day for payment until the day it is paid. The Chief Commissioner may remit the market rate component or the premium component of interest, or both, by any amount depending on the circumstances affecting the tax default. Where the remission of interest is warranted, the amount remitted will, generally, be either both the premium and market rate or the premium rate only. … Circumstances outside the control of a taxpayer Where there is evidence that the default was outside the control of the taxpayer (or their representative), the Chief Commissioner may remit interest. Events over which a taxpayer has no control include but are not limited to: 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 cases of financial incapacity, taxpayers may apply for relief in the form of an extension of time to pay, including an instalment arrangement Reasonable care taken by the taxpayer Where there is sufficient evidence to prove that the default was within the control of the taxpayer (or their representative), but reasonable care has been taken to ensure the payment of the tax, the Chief Commissioner will usually remit the premium rate component of the interest. Events that may indicate that the taxpayer took reasonable care include (but are not limited to): 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 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 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. Note: Remission of the premium rate will only occur in special circumstances".
4. The Respondent in Ruling PTA 036 v3 ("PTA 036") also sets out his approach to the application of interest and penalty tax specifically to various payroll tax defaults. That ruling relevantly provides as follows: "A payroll tax default occurs when a taxpayer fails to pay tax in accordance with the Act. The TAA provides for interest and penalty tax to be applied to a tax default. The interest rate consists of a market rate component and a premium rate component. The market rate component is to reimburse the Government for the financing costs incurred due to the late payment of tax. The premium rate component of 8% per annum is imposed to deter late payments and ensure that a defaulting taxpayer is not advantaged when compared with a taxpayer who paid on time. Penalty tax is imposed, in addition to interest, on the amount of tax unpaid when a tax default occurs. For the purposes of applying interest and penalty tax, the Chief Commissioner of State Revenue (Chief Commissioner) categorises tax defaults as follows: • a late payment, or • a tax shortfall".
5. PTA 036 contemplates a remission of interest the following terms: "Remission The Chief Commissioner may remit interest in part or in full in such circumstances as the Chief Commissioner considers appropriate. Interest may be fully remitted for a late payment tax default if the Chief Commissioner is satisfied that the late payment occurred as a result of circumstances beyond the control of the taxpayer. Examples of circumstances when interest may be remitted in full include, but are not limited to: • official postal and DX delays • natural disasters such as a fire or flood".
6. Bathurst CJ in Chief Commissioner of State Revenue v Downer EDI Engineering Pty Ltd [2020] NSWCA 126 ("Downer EDI") considered the reach of the power in s 25 of the Administration Act to remit interest. His Honour did not think there was a relevant limit on the power of the Chief Commissioner to remit interest in s 25 of the Administration Act. The Applicants rely on what the Court of Appeal said, in submitting that there are no limits on the power to remit interest, to support their claim for remission of interest.
7. Each of the components of interest assessed, however, requires specific consideration. Those components are made up of interest assessed at the market rate and interest assessed at the premium rate. The rationale for the market rate of interest is described as follows in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 ("Incise Technologies") and why it should be waived only rarely, at [60]: "In our view the primary interest rate (the market rate component) 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. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. 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".
8. The approach of the Respondent, set out in CPN 024 and PTA 036 is that where the circumstances of non-payment were beyond the control of the taxpayer, remission of interest assessed at the market rate may be justified. The Tribunal in Incise Technologies laid emphasis on fault on the part of the Respondent as grounds for remission. This was a factor that was also found to be of relevance in Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21, at [27]. The Applicants accordingly submit that their tax defaults arose out of circumstances beyond their control, namely the impact of the COVID-19 pandemic. They submit that but for the COVID-19 pandemic, no tax default would have arisen. They point to their history of compliance before the COVID-19 pandemic, inviting the Tribunal to draw the conclusion that it was only because of the COVID-19 pandemic that circumstances of noncompliance arose. They also laid fault at the door of the Respondent, describing the difficulties they encountered with using his portal, difficulties in reconciling their calculations with those of the Respondent and not receiving notices from the Respondent during the period of default by email.
9. The initial question is whether the relevant tax defaults arose as a result of circumstances beyond the control of the Applicants. The Applicants and the Respondent were in agreement that the circumstances created by the COVID-19 pandemic were exceptional. Where they differed was on whether the relevant tax defaults arose as a consequence of the COVID-19 pandemic or whether they were a consequence of other factors.
10. The evidence establishes how the COVID-19 pandemic impacted the Applicants' businesses. Firstly, it affected their ability to receive correspondence in hard copy form. The Applicants' offices were closed during periods of mandatory lockdown. These periods ran from 23 March 2020 to 1 June 2020 and 26 June 2021 to 11 October 2021. The Applicants' submission was that their personnel were unable to attend their offices and collect notices of assessment and other correspondence sent by the Respondent in relation to unpaid payroll tax during the periods of mandatory lockdowns. They were also impacted by staffing shortages attributable to the impact of the pandemic. Their information technology system also took time to adapt to remote use.
11. The Respondent, however, submitted that the inability of the Applicants to attend their offices to collect their mail during the lockdowns was not the kind of "official postal and DX delays" that may have allowed full remission on the basis of events outside the Applicants' control. The Applicants had provided no evidence as to any steps they took to have mail redirected or collected from their offices during the lockdown nor to notify the Respondent that they could not receive postal communications and elect to receive electronic communications. In addition, reliance on postal issues during lockdown did not explain the Applicants' failure to pay payroll tax outside those periods when the majority of the tax defaults occurred.
12. In the Respondent's submission, the evidence demonstrated that the reason for the Applicants' tax defaults was not the pandemic but their failure to maintain adequate systems, including information technology systems and the staffing necessary to discharge their payroll tax obligations. These were matters within their control. In these circumstances, the Respondent submitted that tax defaults arising were not a consequence of circumstances beyond the Applicants' control.
13. To the extent that the tax defaults in question arose due to the non-receipt of mail during the lockdown period, I accept the Respondent's submission that this was not a matter outside the control of the Applicants. There was no evidence of steps being taken to ensure the receipt of mail, such as any request to the Respondent to deliver communications electronically.
14. Further, where non-compliance arose due to staff shortages, there was no evidence of steps taken to remedy these shortages. There was also evidence that staff were attending to the return of payroll throughout the period in question, although less than what should have been remitted. They were also communicating with the Respondent at various times in 2021 and 2022 in relation to payroll tax.
15. In these circumstances, I do not think that the circumstances surrounding the non-payment and underpayment of payroll tax lay outside the control of the Applicants.
16. The Applicants made submissions that there was fault on the part of the Respondent. They had difficulties using the Respondent's portal and understanding his system. I do not agree that fault of this kind, if any, on the part of the Respondent, is sufficient to allow for a remission of interest at the market rate. The relevant liabilities for payroll tax arise under law. They are liabilities of the Applicants. Only the Applicants controlled and had the information required for calculation of the tax, namely the amounts of "taxable wages". It is the Applicants who have the obligation to calculate and pay by return the payroll tax they owe based on that information. The Respondent will not have the information required to calculate the tax other than what is sourced from the Applicants. In these circumstances, where responsibility for discharge of obligations to return payroll tax by the due date lie with the Applicants, it is not clear how the difficulties they say they had with using the Respondent's portal can allow for a remission of interest. If the Respondents' system was unable to receive payments made, grounds for remission may be available. However, there was no evidence that this was the case.
17. There was evidence that payments made were in some cases not allocated to the correct account. However, there was no submission made or evidence produced that interest or penalty was assessed on any such amounts after they had been paid.
18. Further, the evidence indicates that some of the difficulties the Applicants encountered related to understanding how interest and penalty tax had been calculated. The obligation on the part of the taxpayer, however, is to calculate and return payroll tax. It is the failure to do so that gave rise to the tax defaults in question. Difficulties in understanding how interest and penalty tax was later calculated should have had no bearing on the taxpayer's ability to return payroll tax when due, regardless of difficulties in understanding how interest and penalty tax assessed later, was calculated.
19. I also do not see any fault on the part of the Respondent in sending correspondence in hard copy form and not electronically, in circumstances where no application had been by the Applicants for correspondence to be sent by email.
20. It cannot be said in these circumstances that the Respondent contributed to late payment or underpayment of payroll tax.
21. It is well accepted that interest at the market rate should rarely if ever be waived, because to do so would be to devalue the amount of tax payable. I see no reason to depart from this principle in the present case in light of the matters set out above. In circumstances where the non-payment and underpayment of payroll tax did not arise because of matters outside the control of the Applicants and in the absence of fault on the part of the Respondent, I find that there are no grounds for remission of interest at the market rate. It follows that the assessments of interest at the market rate are affirmed.
22. The purpose of the premium rate of interest differs from that of the market rate of interest. While the market rate compensates the Chief Commissioner for the time value of money that is paid late, the premium rate of interest extracts from the taxpayer something more. It is in the nature of a penalty (Southern Cross Community Health Care Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1317 at [443] per Emmett AJA). That difference informs the varying approaches to remission of each kind of interest. While remission of interest assessed at the market rate should be rare, the circumstances in which interest assessed at the premium rate can be remitted are not as restrictive, even if they may need to be "special circumstances".
23. The Respondent submitted that determining whether remission of the premium rate component is justified involved the question of whether or not the taxpayer took reasonable care to comply with their obligations. There is no express requirement in s 25 for considerations of "reasonable care" to be taken into account in determining whether to remit interest (unlike in the case of s 27 applying to the remission of penalties as discussed below). The Respondent's guidelines, however, state that "taking reasonable steps to be aware of and comply with his/her taxation obligations and to be familiar with the legislative requirements" will be a matter that goes to whether remission should be made.
24. That taking reasonable care is a relevant consideration in determining whether or not interest at the premium rate should be assessed, alongside various other considerations, is well accepted (Golden Age and Hannas the Rocks Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 249 ("Golden Age"), at [106]). What "reasonable care" to comply with taxation obligations means has been described as follows in Qualweld Australia Pty Ltd v Chief Commissioner of State Revenue [2014] NSWCATAD 227, following RVO Enterprises Pty Ltd ATF the R M O'Mara Family Trust v Chief Commissioner of State Revenue 2004 NSWADT 64, at [95]: "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 enquiries 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."
25. The decision of Richmond J in Golden Age is also relevant in considering remission of the premium rate of interest, having regard in particular to its penal character. His Honour held, in accordance with the decision in Downer EDI, that s 25 of the Administration Act, conferred on the Commissioner a broad discretionary power which is not subject to any limit. He went on to say, at [99]-[104]; "Section 25 of the TAA, both before and after its re-enactment, confers on the Commissioner (and on the Court standing in the place of the Commissioner under s 101) a broad discretionary power which is not subject to any limit: Chief Commissioner of State Revenue v Downer EDI Engineer Pty Ltd (2020) 103 NSWLR 772; [2020] NSWCA 126 at [151]. In the case of an unconfined discretionary power of this nature, the considerations which are relevant to its exercise are determined by reference to the subject matter, scope and purpose of the relevant statute, including the particular provision conferring the discretion: Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483; [2013] FCAFC 50 at [227] per Griffiths J (Edmonds J agreeing); Giris Pty Ltd v Federal Commissioner of Taxation ([1969] HCA 5; 1969) 119 CLR 365 at 384 per Windeyer J. In Chief Commissioner of State Revenue v Incise Technologies Pty Ltd [2004] NSWADTAP 19, the Appeal Panel observed at [60]-[61] that the market rate component is intended to compensate the Commissioner for not having the benefit of the tax payment from the time it was due, and so approximates the ordinary lending interest rates, whereas the premium rate is a form of penalty which operates as a disincentive to taxpayers to delay tax payments. The view that the premium component is penal in nature has been accepted in later decisions, see eg. Southern Cross Community Health Care Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1317 at [443] per Emmett AJA. In my view it is necessary to approach the remission question by recognising that the premium component is penal in nature and serves the purpose of both imposing a penalty and deterring taxpayers from delaying payment of duty in what is essentially a self-assessment regime. Consequently, the culpability of the taxpayer in failing to pay the duty liability by the due date is an important matter in the exercise of the discretion. ……… In Incise Technologies, the Appeal Panel identified (reflecting a submission made by the Commissioner in that case) four cumulative criteria which are relevant to the exercise of the discretion under s 25: (1) All principal tax that is owing and not in dispute has been fully paid; (2) There has been cooperation by the taxpayer in providing relevant information to the Commissioner so as to enable the Commissioner to issue assessments; (3) Such cooperation has occurred prior to any investigation being commenced by the Commissioner or, at the very least, within a reasonable time after the request for information had been made by the Commissioner; and (4) There has been no wilful default by the taxpayer in not paying tax on time". The Appeal Panel noted in Incise Technologies at [63] that the first of these criteria could be clarified to be "all principal tax that has been assessed and is not in dispute has been fully paid at the time of the request for remission of interest" and that while they were all relevant and appropriate matters for consideration, they were not exhaustive. That the four criteria are not exhaustive has been confirmed in subsequent cases, eg. Antegra Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 107 at [179] and Chief Commissioner of State Revenue v E Group Security Pty Ltd (No 2) [2022] NSWCA 259 at [105]- [106]".
26. The Court in Golden Age affirms the approach to remission set out in the earlier cases and concludes that it was appropriate to remit the premium component in full, in circumstances where all four of the above criteria were satisfied. The taxpayer was found to have taken reasonable care. The taxpayer had sought advice from a firm of solicitors and acted upon that advice. Non-payment of tax had occurred as a result of an oversight by the advisor.
27. The Respondent submitted that no reasonable care was taken in circumstances where; 1. the Respondent sent numerous communications to the Applicants drawing their attention to the overdue payroll tax, including details of penalty tax and interest imposed 2. the Applicants did not contact the Respondent about their outstanding payroll tax until February 2023 3. the Applicants did not update their contact details with the Respondent to enable them to receive correspondence by email 4. the Applicants provided no evidence that they made diligent efforts to understand and comply with the law, including seeking advice regarding the impact of JobKeeper and JobSaver payments on the payroll tax liability 5. The Applicants did not maintain adequate systems that enabled them to comply with their payroll tax obligations.
28. I understood the Applicants to rely on the "exceptional circumstances" created by the pandemic as the relevant context for determining whether they took reasonable care. The Applicants relied in particular on the impact of the COVID-19 pandemic on the hospitality industry specifically. This included the demands on their payroll system of dealing with JobKeeper and JobSaver payments. The Applicants submitted, in this regard, that it is open to an administrator and the Tribunal to provide some penalty relief where there are complex changes to the regulatory environment (Incise Technologies, at [78]). There was also evidence of errors made by government requiring the return of some of these payments because of initial allocations of excessive funding.
29. What are "exceptional circumstances" was described as follows in Hatziantoniou v Chief Commissioner of State Revenue [2024] NSWCATAD 17. The Tribunal said: "At [51] in RS, the Chief Commissioner submitted at [13] a summary by the Full Bench of the Full Court in Nulty v Blue Star Group Ltd [2011] F WAFB 975 of the meaning of "exceptional circumstances" within the context of an application made pursuant to s 365 of the Fair Work Act 2009 (Cth). "[13] In summary, the expression "exceptional circumstances has its ordinary meaning and requires consideration of all the circumstances. To be exceptional, circumstances must be out of the ordinary course. or unusual. or special or uncommon but need not be unique. or unprecedented. or very rare. Circumstances will not be exceptional if they are regularly. or routinely. or normally encountered. Exceptional circumstances can include a single exceptional matter, a combination of exceptional factors or a combination of ordinary factors which, although individually of no particular significance, when taken together are seen as exceptional. It is not correct to construe "exceptional circumstances" as being only some unexpected occurrence, although frequently it will be. Nor is it correct to construe the plural "circumstances" as if it were only a singular occurrence, even though it can be a one off situation. The ordinary and natural meaning of "exceptional circumstances" includes a combination of factors which, when viewed together, may reasonably be seen as producing a situation which is out of the ordinary course, unusual, special or uncommon."
30. The Applicants also argued that there were delays to which the Chief Commissioner contributed significantly. The Applicants submitted that debts continued to grow even while the Applicants were "correcting mistakes" made by the Respondent. These errors arose out of the Respondent's inability to accurately track and record debts and then to make the Applicants themselves responsible for doing so. The Applicants claim that additional amounts of interest accrued while errors made by the Respondent were being corrected by its personnel.
31. I accept the Applicants' submission that the context created by the pandemic is relevant to determining whether they took reasonable care. On the Applicants' evidence, their efforts to take reasonable care included changes made over a period of one year to allow their information technology system to be used remotely. On the evidence before the Tribunal, the Applicants' systems continued to function during the period when changes were made, including returning payroll tax, though not all of what was due.
32. However, most of the tax defaults arising are attributable to the period beginning in 2021 and ending in July 2023 rather than during the initial year of the pandemic. I therefore have difficulty in finding on the evidence, that the disruptions occurring in 2020 can explain the tax defaults that mostly occurred at a later time. It is also not clear how the claimed delays on the part of the Respondent actually contributed to the tax defaults that occurred, where the Applicant was the party responsible at law for calculating and returning the payroll tax due.
33. I accept that the introduction of JobKeeper and JobSaver added complexity to the administration of payrolls. However, in circumstances where the Applicants dealt with these payments on the basis that they did not attract payroll tax, I am unable to place significant weight on the additional work required to deal with these payments as a matter that explains why the tax defaults in question arose.
34. While l accept the evidence provided by the Applicants as to the impact of the pandemic on their businesses, I find no evidence of a plan to receive mail, either by collecting mail delivered to the Applicants' offices in hard copy or by asking for email delivery or to deal with staffing shortages. There was also a lack of responsiveness to the Respondent's correspondence until February 2023, long after the end of lockdowns. I am therefore unable to find, on the evidence described above, that even taking into account the impact of the pandemic and issues arising out of delays in administration of payroll tax, reasonable care was taken.
35. The description of what is "reasonable care" as set out in CPN 024 includes many of the matters taken into account in RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64. They include reasonable attempts to comply with the tax law, reasonable professional and other inquiries to ensure compliance and reliance on professional advice or unofficial published views of the tax law. Matters indicating a failure to take reasonable care include oversight or forgetfulness to meet obligations and failure to maintain adequate records and procedures to prevent errors from occurring.
36. Bringing to bear the matters set in RVO Enterprises on the questions at hand does not assist the Applicants' submission that reasonable care was taken. There was no evidence of professional advice taken or recourse to the published information provided by the Respondent. I accept that after February 2023, the Applicants co-operated with the Respondent in calculating the quantum of their tax debts. However, the evidence comprising the entire course of events commencing in 2020 does not allow me to conclude that the Applicants took reasonable care. The assessments of interest at the premium rate are therefore affirmed.
37. The Applicants submitted that the tax defaults in question would not have occurred "but for" for the COVID-19 pandemic. In these circumstances, the Applicants invited the Tribunal to accept that it could not have been any lack of reasonable care on the part of the Applicants that produced the tax defaults in question.
38. Where the task of the Tribunal includes identifying the cause or causes of the relevant tax defaults, that task is to determine whether tax defaults occurred because of matters outside the control of the Applicants or whether the tax defaults occurred despite reasonable care being taken. That determination must be made on the basis of the evidence presented to the Tribunal. On the facts at hand, I have concluded that the tax defaults in question occurred for the reasons set out above at [39], [40], [60] and [62]. It could be argued that "but for" these matters also, no tax defaults would have occurred, or alternatively that these matters were "new intervening causes", or the most "proximate" causes that explained the relevant defaults. However, abstract theories of causation are of limited use to the Tribunal in circumstances where its task is simply to make a determination based on the facts and circumstances of the matter. The evidence is that the tax defaults in question arose because of the matters described above, regardless of what test of causation is applied. The factors causing the tax defaults included the failure to take steps to receive mail, the failure to ensure that the payroll system (including staffing levels) was able to deal adequately with the return of payroll tax and the non-responsiveness of the Applicants to the Respondent during the period of 2020 to 2022.

Penalties

1. The Respondent's power to assess penalty tax arises under s 26 of the Administration Act. It is imposed in addition to interest. The Administration Act expressly provides that the imposition or remission of interest is not relevant to the imposition or remission of penalty (s 33(2); see also s 25(4)).
2. The amount of penalty tax payable for a tax default is relevantly set at a default rate of 25% of the amount of tax unpaid (s 27). Penalty tax was assessed at this rate.
3. The Respondent has the power to make certain variations to the amount of penalty tax. He may increase the amount of penalty tax in certain circumstances based on the degree of culpability of the taxpayer that are not presently relevant. The Respondent in addition has the power to reduce the amount of penalty tax by 20% if, after the Respondent informs the taxpayer that an investigation relating to the taxpayer is to be carried out and before it is completed, the taxpayer discloses to the Respondent, in writing, sufficient information to enable the nature and extent of the tax default to be determined (s 29).
4. The Respondent's guidelines as set out in CPN 024 are as follows: "Penalty tax is generally imposed after all the facts and circumstances surrounding the tax default are considered. In certain circumstances the Chief Commissioner may increase the rate of penalty tax or determine that no penalty tax is payable. A liability to penalty tax arises when a tax default occurs. Penalty tax is in addition to interest. The amount of penalty tax is 25% of the amount of unpaid tax or 50% if the taxpayer is a significant global entity within the meaning of the Income Tax Assessment Act 1997 of the Commonwealth. The Chief Commissioner may increase the amount of penalty tax to 75% of the unpaid tax if the tax default was caused wholly or partly by the intentional disregard of the taxation law. Penalty tax may be reduced if a taxpayer makes or voluntary disclosure of a tax default before or during an investigation. ….. The Chief Commissioner also has a general discretion to remit penalty tax by any amount in such circumstances as the Chief Commissioner considers appropriate (s 33 of the TAA). Where there is evidence that the taxpayer (or their representative) took reasonable care to comply with the taxation law, or the tax default occurred solely because of circumstances beyond their control (excluding financial incapacity), the Chief Commissioner will usually determine that no penalty tax is payable".
5. Ruling PTA 036 says that penalty tax at the rate of 25% will be assessed where a monthly return is not lodged for tax owing during the month. Interest at the market rate will also be assessed. The ruling also says that interest at the premium rate may be assessed where the assessment is not paid by the due date as shown on a notice of assessment.
6. PTA 036 contemplates a remission of penalty tax as follows: "A taxpayer is entitled to a 20% reduction in the penalty tax if the taxpayer voluntarily makes a written disclosure during an investigation into a known or suspected tax default which enables the Chief Commissioner to determine the nature and extent of the tax default. The penalty tax will be increased by 20% if the taxpayer hinders or conceals information during an investigation into a known or suspected tax default".
7. The Respondent has a power to determine that no penalty tax is payable in respect of a tax default under s 27(3)(a). He may exercise that power if satisfied that the taxpayer or a person acting on behalf of the taxpayer, took "reasonable care" to comply with a taxation law. The Respondent did not use his powers to remit penalty tax. The Applicant, however, considers that he should have done so.
8. In the absence of reasonable care having been taken by the Applicants (see [60]-[62]), I do not think that s 27(3)(a) has application in the present circumstances.
9. Section 27(3)(b) of the Administration Act provides that the Respondent may determine that no penalty tax is payable if a tax default occurred solely because of circumstances beyond the control of the Applicants or a person acting on behalf of the Applicants.
10. Section 27(3)(b) explicitly requires that the tax default be "solely" caused by circumstances beyond the control of the Applicants. In the Respondent's submission, this meant that the tax default needed to be a "necessary and inevitable consequence" of the circumstances beyond control (Advance Pallets Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 128).
11. A comparable provision fell for consideration in Commissioner for ACT Revenue v G Kalsbeek Pty Ltd (Appeal) [2015] ACAT 90. In this case, the ACT Civil and Administrative Tribunal said: "In order for the provisions of section 31(6)(b) to operate to avoid penalty tax, the cause of that failure to pay tax must first be identified. An outcome (the failure to pay tax) may have several causes, depending on the length of time of the obligation. This appeal tribunal must then be satisfied that the identified cause (or causes, where there are more than one) is the 'sole' cause of the failure. Unless all of the causes of the failure are identified and (in the case of a single cause), it is beyond the taxpayers control, or (in the case of multiple causes), all are beyond the taxpayers control the relief under section 31(6)(b) is not available. This necessarily involves consideration of all of the factors which the evidence shows contributed to the issue of the failure to pay payroll tax."
12. The evidence does not allow for a conclusion to be drawn that the Applicants' tax defaults were caused "solely" by circumstances beyond their control. I have found that the tax defaults in question arose for reasons other than matters outside the control of the Applicants ([39]-[40] above). That the relevant power can only be exercised when the tax default was caused "solely" by circumstances beyond the control of the Applicants, clearly precludes its operation in the present case. I am therefore of the opinion that the power of remission allowed under section 27(3)(b) has no application in the present matter.
13. A separate power to remit penalty tax is allowed under s 33 of the Administration Act. The Court of Appeal in Downer EDI considered that the power of remission under s 33 was not limited either expressly or by necessary implication by the mandatory reductions required by ss 28 and 29 of the Administration Act. Bathurst CJ said: " …. it does not seem to me that the power in s 33 of the TAA to remit penalty tax "in such circumstances as the Chief Commissioner considers appropriate" is limited either expressly or by necessary implication by the mandatory reductions required by ss 28 and 29. These mandatory reductions are a relevant matter for the Commissioner to take into account in considering whether to exercise the power to remit in s 33 but they do not limit that power. As the Chief Commissioner pointed out, in Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue Ward CJ in Eq stated at [301] that except in special circumstances, the general discretion under s 33 should not be exercised beyond the limits in ss 27(3) and 29 when the circumstances giving rise to a remission under s 27(3) of the TAA had not been made out. However that was a matter of discretion not power".
14. Despite the broad and unfettered discretion allowed under s 33, limits on its exercise may arise, in that that discretion cannot be exercised in a way that defeats the fundamental legislative objectives of the penalty scheme. In Bayton Cleaning Co Pty Ltd v Chief Commissioner of State Revenue [2019] 109 ATR 879, Ward CJ held that the discretion should not be exercised where there has been a finding that reasonable care has not been taken and in the absence of some special circumstance to warrant the exercise of the discretion, notwithstanding the absence of a finding of reasonable care.
15. The Respondent argued that there were no special circumstances to warrant a remission of penalty tax under s 33. The Applicants on the other hand relied on the broad discretionary power set out in s 33, submitting that regardless of the remarks of Ward CJ in Bayton Cleaning, each matter required consideration on its own facts and that the statements of her Honour did not establish a principle applicable in all cases.
16. I agree with the submission made by the Applicants that the discretionary powers set out in s 33 remain broad and unfettered. I also find myself in agreement with the proposition that in light of the broad and unfettered character of the discretion, no fixed rule can be brought to bear precluding an exercise of discretion in all circumstances where there has been an absence of reasonable care. However, in the circumstances of the matter, I do not consider that a full or partial remission of penalty tax under s 33 ought to be made. The absence of reasonable care on the part of the Applicants, though not determinative, remains relevant and persuasive. I place considerable weight on the long delays by the Applicants in engaging with the Respondent, together with the other matters I have found going to a finding of the absence of reasonable care.
17. I accept the evidence as to matters of fact provided by the witnesses of the Applicants by affidavit and orally, as to the challenges the Applicants faced following the onset of the COVID-19 pandemic. However, for the reasons set out above, that evidence does not allow me to find that interest or penalties should be set aside or reduced.
18. The Respondent has assessed penalty tax at the default rate. He has not imposed penalty tax at higher rates applicable where the taxpayer's degree of fault goes beyond a lack of reasonable care. I consider that the Respondent was correct in doing so on the basis of the evidence before the Tribunal.

Costs

1. The hearing of this matter had originally been set down for 27 June 2024 but was adjourned to 19 August 2024. At the hearing of the matter, the Respondent, sought an order that the Applicants pay his costs incurred as a result of adjournment of the hearing.
2. Section 60 of the Civil and Administrative Tribunal Act 2013 (NSW) provides as follows in respect of the costs relating to proceedings in the Tribunal. "60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following - (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36(3), (g) any other matter that the Tribunal considers relevant".
3. The Respondent's submission is that special circumstances warranting an award of costs have arisen. The Respondent claims that the Applicants have been responsible for prolonging unreasonably the time taken to complete proceedings. In addition, he claims that the Applicants have conducted the proceedings in a way that unnecessarily disadvantaged the Respondent.
4. The Respondent's submission in support of these claims is that it incurred costs of having to respond on multiple occasions to various requests for vacation of the hearing date or to have the matter determined on the papers. The Applicant's applied for the vacation of the hearing less than two days before the set date of 27 June 2024. The Respondent therefore seeks the costs it has "thrown away" in preparation for hearing on 27 June 2024. The Respondent also submitted that the Applicants did not respond to him about what witnesses were available for cross examination and this resulted in unnecessary costs of preparing for cross-examination.
5. The Applicants, on the other hand, submit that no special circumstances have arisen warranting a costs order against them. They submit that nothing "out of the ordinary" has occurred to warrant such an order. The Applicants indicated that the hearing had to be vacated where one of its witnesses became unavailable and two of the solicitors with day-to-day carriage of the matter terminated their employment with the Applicants' firm of solicitors.
6. I do not think that the difference in time of a few weeks between the original hearing date (27 June 2024) and the actual hearing date (19 August 2024) is, in the circumstances, material as regards questions of costs. Incurring costs of preparing for a hearing were necessary in any event, regardless of when the hearing would take place, unless the matter were determined on the papers as requested by the Applicants.
7. It is not clear to me what disadvantage the Respondent suffered as a result of the vacation of the original hearing date, other than some inconvenience.
8. The Respondent refers specifically to costs incurred by him in preparation for cross examination of witnesses who in the end were not called to give evidence at the hearing. I do not think that such circumstances are exceptional. It is not uncommon for witnesses identified during preparation for a hearing as being required to attend and give evidence, not to be called by the relevant party. There may be many bona fide reasons for a witness not being required to attend. The consequence may be a more efficient and timely handling of the matter. These are not circumstances that should ordinarily result in an order for costs.
9. Ms Michelle Stewart, who had given a statement during preparation for the hearing, was not called as a witness. However, Mr Tee Wimalasuriya gave evidence that covered similar ground and was available for cross-examination. I do not see any disadvantage to the Respondent arising out of these circumstances.
10. I do not therefore think that the order for costs sought by the Respondent is warranted.

Conclusions

1. For the reasons set out above, the Assessments are confirmed.

Orders 1. The assessments of the Respondent 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 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: 30 August 2024