Deputy Commissioner of Taxation v Fitzgerald

An entity's liability to pay PAYG withholding amounts

1. All references in this judgment to legislative provisions are to Schedule 1 to the TAA 1953 unless otherwise indicated.
2. Pursuant to s 16-70, an entity that withholds an amount under Division 12 under the PAYG withholding rules is required to pay the amount withheld to the Commissioner of Taxation ("the Commissioner") in accordance with Subdivision 16-B. An entity is required to pay an amount withheld by the due dates set out in s 16-75.

Director's liability to cause a company to pay PAYG withholding

1. Subdivision 269-B, headed "Obligations and penalties", contains provisions dealing with directors' obligations to cause a company to pay, amongst other liabilities, the PAYG amounts withheld by the company, a director's liability to penalty and the recovery of penalties by the Commissioner.
2. Section 269-15 provides that directors of a company, from time to time, must cause the company to comply with its obligations and that they continue to be under their obligations until either (a) the company complies; (b) an administrator is appointed; or (c) the company is wound up.
3. Section 269-20(1) imposes a penalty on a director in respect of a director's un-met obligation under s 269-15 to cause payment to be made to the Commissioner. The amount of the penalty is equal to the unpaid amount of the company's liability under its obligations under s 269-15: s 269-20(5).
4. A penalty payable by a director under Division 269-B is a tax related liability and is a debt due to the Commonwealth, payable to the Commissioner, and recoverable by the plaintiff: s 250-10(2), item 139 and s 255-5.
5. Pursuant to s 269-25(1), the Commissioner is required to give to a director 21 days' notice prior to commencing proceedings to recover a penalty.
6. A notice is validly served even if it is not in fact received by the addressee if s 269-50 is complied with: Deputy Commissioner of Taxation v Rojas (No 2) [2013] NSWDC 9.
7. Service of a notice pursuant to s 269-50 is effected by the act of posting a notice to such address of a director as is found in the Australian Securities Investment Commission's ("ASIC") records: Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58; 239 FLR 29 at [10].
8. Notice under s 269-25 is given at the time the Commissioner posts the notice to the director (s 29 of the Acts Interpretation Act 1901 (Cth) having no operation): s 269-25(4).
9. Section 269-30 provides for a penalty to be remitted if before or within 21 days after the Commissioner gives a notice under s 269-15, a director is no longer under the obligation imposed by s 269-15.
10. However, importantly, a penalty cannot be remitted to any extent because a director ceases being under an obligation as a result of the events in s 269-15(2)(b) or (c) (an administrator is appointed or the company begins to be wound up) where: (a) the company failed to lodge business activity statements within 3 months of the due date; and (b) an administrator is appointed or the company begins to be wound up after 3 months after the day on which the company was obliged to pay the underlying liability to which the estimate relates.

The plaintiff's evidence

1. Pursuant to Part 2-5, the company of which the defendant was a director, HBO EMTB Employment Services Pty Limited ("the company"), was required to withhold amounts of PAYG withholding and remit them to the Commissioner in accordance with Subdivision 16-B. In the period 1 August 2013 to 31 August 2014, the company withheld amounts for the purposes of the PAYG withholding provisions in Division 12 of Part 2-5 for amounts totalling $1,965,485 in the amounts and for the periods below (as summarised in the plaintiff's submissions): The Amount Withheld Period of Withholding (The initial day was a day falling within this period) Due Day Amount Withheld ($) Page Reference (Exhibit RM-1 of the March Affidavit) First 1 August 2013 to 31 August 2013 23 September 2013 133,728.00 6 Second 1 September 2013 28 October 2013 286,186.00 7-8 to 30 September 2013 Third 1 October 2013 to 31 October 2013 21 November 2013 137,740.00 9 Fourth 1 November 2013 to 30 November 2013 23 December 2013 134,931.00 10 Fifth 1 December 2013 to 31 December 2013 28 February 2014 131,262.00 11-12 Sixth 1 January 2014 to 31 January 2014 21 February 2014 132,543.00 13 Seventh 1 February 2014 to 28 February 2014 21 March 2014 130,304.00 14 Eighth 1 March 2014 to 31 March 2014 26 May 2014 131,750.00 15-16 Ninth 1 April 2014 to 30 April 2014 21 May 2014 137,156.00 17 Tenth 1 May 2014 to 31 May 2014 23 June 2014 136,693.00 18 Eleventh 1 June 2014 to 30 June 2014 25 August 2014 137,505.00 19-20 Twelfth 1 July 2014 to 31 July 2014 21 August 2014 150,541.00 21 Thirteenth 1 August 2014 to 31 August 2014 22 September 2014 185,146.00 22 Total $1,965,485.00

1. As a director, the defendant was under an obligation to cause the company to remit each of the first to thirteenth amounts withheld by the company. The defendant failed to do so.
2. As a consequence of the defendant's failure to comply with his obligation, he became liable to a penalty in an amount equal to each of the first to thirteenth amounts, totaling $1,965,485 ("the penalty"), which became due on each of their respective due dates.
3. Ms Mederos in her March affidavit deposes that on 20 March 2015, the plaintiff gave notice of the penalty to the defendant pursuant to s 269-25 ("the DPN notice") (Aff, [17]). The DPN notice was posted to the defendant at XX3 - XX5 XXXX, Balmain NSW 2041, being the address of the defendant which appears on the records of ASIC as at 19 March 2015 (Aff, [19]).
4. Ms Mederos in her March affidavit also establishes that the company was wound up on 9 September 2015 and that no agreement has been reached between the plaintiff and the defendant pursuant to s 255-15(1), being a provision relating to the making of agreements with the Commissioner to pay by instalments.
5. The plaintiff has produced a certificate under s 255-45 which certifies that the defendant is liable in the amount of $1,965,485 (Aff George, Annexure A). The certificate operates as prima facie evidence that the defendant is liable for a director's penalty in the amount of $1,965,485.
6. As at 4 July 2016, no payment had been made by the defendant so the whole amount of $1,965,485 is due and owing (Aff George, [4]).

The pleading in the defence

1. The defence filed by the defendant on 27 October 2015 (which was prepared by a solicitor when the defendant was legally represented) is largely a denial of the plaintiff's claim.
2. The defendant pleads, in answer to the whole of the statement of claim, that: (a) he did not receive from the Commissioner notice of the penalties under s 269-25; and (b) by reason of which, he was not given the opportunity to appoint an administrator of the company under ss 436A, 436B or 436C of the Corporations Act 2001 (Cth) within 21 days of being given notice of the penalties under s 269-25. (D [12].)
3. The defendant pleads that the plaintiff is precluded from commencing and maintaining these proceedings and that the defendant is not liable to the plaintiff for the said penalties, interest thereon or costs (D [13]).

Service of notice

1. The defendant owns a property at XX5 XXXX Street, Balmain and his wife owns the adjoining property at XX3 XXXX Street, Balmain. The defendant's address is shown on the ASIC register as XX3 to XX5 XXXX Street, Balmain. An alternative remedial therapy business is operated at the premises on XX3 XXXX Street, Balmain.
2. Since the defendant filed his defence, he has recalled that on or about 7 May 2015 he received the DPN notice dated 20 March 2015 addressed to him. The DPN notice was given to the defendant by his neighbour whose name he does not know who runs the alternative therapy business next door to where he actually resides (Aff, [3]).
3. On or about 7 or 8 May 2015, the defendant instructed the accountant of the company, Mr David Fisher, to advise him and communicate with the plaintiff about reaching an agreement on a payment program of the company's obligation (Aff, [4]).
4. The defendant says that much later, when he sought legal advice, he realised that he had missed out on what he believed to be his right to have the penalty the subject of the DPN notice remitted by placing the company under administration, because 21 days had elapsed since the DPN notice had purportedly been served upon him, even though he did not receive the DPN notice until on or about 7 May 2015 (Aff, [5]).
5. In these circumstances, the defendant submitted that he finds it totally unjust that he should be personally subjected to a liability of a significant amount, well beyond his financial capacity, in circumstances where he was deprived of his right to avoid such a liability which primarily belongs to the company. He also submitted that, not being a lawyer, he cannot see nor understand how there can be justice in this huge amount of liability being imposed on him as a penalty in circumstances where he was not given the opportunity to remedy the situation nor obtain legal advice.
6. The defendant has admitted receiving the DPN notice. However, he submitted that the DCT had not provided proof of service of the DPN and referred to Ms Mederos' March affidavit where she deposed that she posted the envelope that purported to contain the DPN notice and a covering letter (Aff, [19]) but he says that she does not give evidence of the actual posting. The defendant says that in particular, Ms Mederos does not state that she or another person walked to the specified Australia Post mailbox and dropped the envelope in it. The word "posted" is, in the defendant's opinion, a shortcut and an inadmissible statement of what might have taken place and is not evidence of a physical delivery of the envelope by and on behalf of the plaintiff to an Australia Post mailbox.

Section 269-50

1. Section 269-50 reads that a notice under s 269-25 may be given by the Commissioner by leaving it at, or posting it to, an address that appears, from information held by ASIC, to be, or to have been within the last 7 days, the place of residence or business of the director.
2. Ms Mederos actually deposes that she made a copy of the documents in respect of PAYG withholding liabilities of the company which remained unpaid and placed the original notice and letter into a postage envelope with a 70 cent postage stamp affixed to it addressed to the defendant at XX3 − XX5 XXXX Street, Balmain 2041 being the address of the defendant which appeared on the ASIC search. She then sealed the envelope and posted it in a locked Australia Post mailbox located at the corner of Kororoit Creek Road and Victoria Street, Williamstown, Victoria (Aff, 10/3/2016, [19]). There is also a file note to this effect (Aff, 10/3/2016, 34).
3. The defendant made oral submissions that he had instructed his accountant to change his address on the ASIC register. No evidence was produced to show that this was so, however this is not to the point. There is no change of the defendant's address recorded on the ASIC register.
4. In DCT v Gruber (1998) 43 NSWLR 271; 143 FLR 432 the Court of Appeal referred to s 222AOF of the Income Tax Assessment Act 1936 (Cth), the predecessor to s 269-25. It is in similar terms to s 269-50. Stein JA (Powell JA and Sheppard AJA agreeing), in referring to s 222AOF, stated (at 277): "In so far as Graham A-J may have held that the relevant information in the Australian Securities Commission documents must "appear" to the Commissioner, that is that an officer of the appellant must personally sight the Australian Securities Commission documents, I am unable to agree. Such a construction has no foundation in the words of s 222AOF(1) nor in policy or logic. It reads words into the section without warrant. It seems to me that it did "appear" from the documents lodged with the Australian Securities Commission that the respondent was a director of the company and that XX XXXX Road was his place of residence as at the date of each notice. I do not see why the on-line search (ASCOT) of the Australian Securities Commission documents, which are company extracts from the Australian Securities Commission data base, is not sufficient. Further, the fact that the documents also showed another address does not detract from the compliance with the requirements of the section."
5. In my view service of the DPN notice on the defendant complied with s 269-50.
6. Although the defendant actually received the DPN notice on 7 May 2015, the DPN notice is deemed to have been given to the defendant on 20 March 2015: s 269-25(4).
7. So far as the delay in receipt of the DPN notice is concerned, the defendant alleges that because he has missed out on what he believed to be his right to have the penalty the subject of the DPN notice remitted by placing the company under administration, he was not entitled to achieve remission of the penalty other than through payment of the amounts withheld: s 269-30. In order to have the penalty remitted in this way, the company would have to have been placed under administration, at the latest, three months after 22 September 2014 (the last day upon which a PAYG withholding amount was due by the company), that is, by 22 December 2014, a period well before the DPN notice issued. Therefore the delay between delivery of the DPN notice and the defendant's receipt of it did not affect his right to achieve remittance by placing the company under administration as the time to do so had well and truly passed.

Conclusion

1. For the reasons given, it is my view that the defendant does not have a defence to the claim. The result is judgment is entered in favour of the plaintiff in the sum of $1,965,485.
2. Costs are discretionary. Costs usually follow the event. The defendant is to pay the plaintiff's costs on an ordinary basis as agreed or assessed.

JUDGMENT (1) Judgment is entered in favour of the plaintiff in the sum of $1,965,485.

The Court orders that: (2) The defendant is to pay the plaintiff's costs on an ordinary basis as agreed or assessed.

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: 14 July 2016