INCOME TAX - failure of company to remit group tax - liability of directors under s 221C(1A) of the Income Tax Assessment Act 1936 - effect of errors on validity of notice - whether notice misleading - severance - effectiveness of service

The respondent was the director of a company which failed to remit group tax pursuant to s221C(1A) of the Income Tax Assessment Act 1936 (the Act). The appellant sought to recover, by way of penalty from the respondent, an amount equal to the unpaid amounts of the company's several liabilities. Section 222ANA of the Act imposes a duty on directors to cause the company to meet its group tax obligations. The duty is enforced by penalties which can be recovered 14 days after the Commissioner gives a written notice to the director, if the company fails to meet its obligations to go into voluntary administration or liquidation in the meantime.

Two notices were sent to the respondent at the address provided in ASC documents. The notices contained a number of errors and the original of the notices was not received by the respondent. The respondent, who had earlier seen a copy of the first notice, received copies of the two notices some days after the appellant commenced proceedings to recover the penalty. Shortly after the commencement of proceedings an administrator was appointed to the company.

1. Separate notices can be given by one composite document;

2. Invalid portions of the first notice can be severed;

3. The notices in themselves, or with the accompanying letters, were misleading;

5. The notice must specify the `due date' of the unpaid remittances;

6. The second notice was invalid by reason of inconsistency or overlap with the first notice.

1. Separate notices can be given in one composite document provided the

notice separately includes the amount of each obligation and informs the

recipient that it is a notice in respect of each obligation.

2. A notice must be complete on its face and accurate in substance. The errors

in the notice affected the sense, nature and substance of the document and

3. While a notice does not have to be absolutely correct, it must fulfill its

statutory purpose. The statutory purpose is to accurately set forth the

amount of the penalty which must be paid. The error in calculating the total

amount of penalties payable was liable to mislead and rendered the notice

invalid. The second notice was also misleading and invalid by reason of

5. Since the liability imposed by s222AOC of the Act is dependant on

payments not being made by the `due date', they are a detail of the unpaid

STEIN JA: (1) This is an appeal from a decision of Acting Justice Peter Graham dismissing a claim by the Deputy Commissioner of Taxation (the appellant) against the respondent Jeffrey Norman Victor Gruber.

(2) Mr Gruber was a director of Aladdin Laundry Pty Ltd which was a group employer within the meaning of the Income Tax Assessment Act 1936 (the Act). The company was obliged to make deductions of tax from wages paid to its employees pursuant to s221C(1A) of the Act and remit that amount to the Commissioner of Taxation on a monthly basis. It is common ground that the company failed to remit to the Commissioner the amounts of the monthly deductions for the months of July 1993 to February 1994 inclusive and June to November 1994 inclusive. The monthly amounts of the relevant deductions are set out in his Honour's judgment at AB 18. The Act imposes obligations on directors in the event that a company fails to remit group tax.

(3) The procedure by which a director of a company may be made liable for a civil penalty in the amount of the unremitted group tax is governed by a number of provisions of the Act. Section 222ANA imposes a duty on directors to cause a company to meet its group tax obligations. While the duty is enforced by penalties, ss(2) provides that a penalty can be recovered only if the Commissioner gives written notice to the director. The obligations placed on directors are set forth in ss222AFB, 222AOA and 222AOB of the Act.

(4) If the requirements of s222AOB are not complied with, then s222AOC operates. This section provides as follows:

If section 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability under a remittance provision in respect of deductions:

(a) that the company has made for the purposes of Division 2, 3A, 3B or 4, as

The Commissioner is not entitled to recover the penalty from the director until the `end of 14 days after the Commissioner gives to the person a notice' that:

(a) sets out details of the unpaid amount of the liability referred to in section

(b) states that the person is liable to pay to the Commissioner, by way of

penalty, an amount equal to that unpaid amount, but that the penalty will be

remitted if, at the end of 14 days after the notice is given:

(ii) an agreement relating to the liability is in force under section

(iii) the company is under administration within the meaning of the

Before departing from the relevant provisions of the Act I should refer to other sections which pertain to service of a notice on the director. These are ss222AOF and AOG. They, so far as is material, provide:

222AOF. (1) If it appears from ASC documents that a person is, or has been within the last 7 days, a director of the company, the Commissioner may give the person a notice under section 222AOE by leaving it at, or sending it by post to, an address that appears from such documents to be, or to have been within the last 7 days, the person's place of residence or business.

Note: Sections 28A and 29 of the Acts Interpretation Act 1901 are also relevant

(a) lodged with the Australian Securities Commission under

section 242 or 335 of the Corporations Law of a State or

(b) lodged with a person under a law that, for the purposes of

the Corporations Law of a State or Territory, is a previous

law corresponding to section 242 or 335 of that Law.

(a) a penalty is payable by a person under this Subdivision; and

(b) section 222AOB is complied with at a time when the

Commissioner has not yet given the person a notice under section 222AOE, or within 14 days after the Commissioner gives the person such a notice;

(5) The appellant gave two notices to the respondent. They are annexed to this judgment and incorporated within it. The first is dated 10 February 1995 and is set forth at AB 72-73. It was accompanied by a letter of the same date addressed to Mr Gruber at 157 Fullers Road, Chatswood. The notice purported to cover the period 1 July 1993 to 30 November 1994. It is accepted by the appellant that there were two mistakes in the notice. First, the deductions for September 1994 were in fact the deductions for October 1994. Second, the stated `total amount you are liable to pay by way of penalty' was in error. The notice stated $582,662.81 whereas the correct figure should have been $453,487.08. Also, the notice did not, in relation to each monthly amount, specify the `due date' on which payment of that amount had been required.

The original of the notice was posted to the respondent at 157 Fullers Road, Chatswood on the date it bears. The respondent did not receive the original notice. Later, in March 1995, he received a copy either from his accountant or the Tax Office.

(6) The second notice is dated 12 September 1995. It was also posted to the respondent at the Fullers Road address on the date it bears and under cover of a letter of even date and is set forth at AB 63-64. The respondent did not receive this notice either since he had not resided at the address since 1988. This second notice encompassed only the months of September and October 1994 and totalled $61,035.18. Like the first notice, the notice did not specify the `due date' on which payment had been required.

The amounts deducted by the company from the wages of its employees were never remitted to the appellant. On 23 October 1995 an administrator was appointed to the company.

1. Whether separate notices can be given by the one composite document?

2. Whether the admittedly `invalid portions' of the first notice may be severed?

3. Were the notices in themselves (or with the accompanying letters) misleading?

5. Is it necessary to specify in the notice the `due date' of unpaid remittances?

6. Is it necessary to specify the Division under which the relevant deductions were

7. Was the second notice invalid by reason of its inconsistency or overlap with the

(8) While there is no express authorisation in the Act for a document to encompass a number of months of unremitted group tax we were informed that it is the common practice. This is hardly surprising. It would be inconvenient to have to give multiple notices, one in respect of each month of separate liability under s 222AOC. In this case 14 notices would have been necessary (July 1993 - November 1994). For my part I do not

see why a notice may not be a composite document provided that the notice separately includes the amount of each obligation and informs the recipient that it is a notice in respect of each obligation. However, having given a single composite notice it seems to me to be only reasonable that the Commissioner bear any consequences which follow. I will return to this later.

(9) On behalf of the appellant, Mr Slater QC submits that the two previously mentioned errors in the first notice (of 10 February 1995) can be severed and the notice survive. It is said that it remains a valid notice in respect of all of the amounts and months specified except for September and October 1994. It is conceded by the appellant that the notice is invalid as to those months (written submissions - para 21). However, it is contended that neither the misstatement of the September/October amount(s) nor the `gratuitous but irrelevant statement' about the total penalty payable prevents the notice satisfying the requirements of s 222AOE for each month other than September and October.

(10) I do not accept the submission that the errors can be `blue-penciled' out without affecting the sense, nature and substance of the document which remains. Having elected to proceed by way of a composite notice (as I believe the appellant was entitled) a recipient may reasonably expect it to correctly state the discrete liability in respect of each month. It did not. The recipient may have information of his own to check the accuracy of the material in the notice. However, here the amount said to be due for September 1994 was either overstated or was for the wrong month. The recipient is left to guess. I do not accept that it would have been `blindingly obvious' to the respondent that the October and September figures had been transposed. Nor do I see that the respondent's knowledge is a material factor. For example, a recipient may have no personal knowledge of the deductions. Such a notice needs to be complete on its face and accurate in its substance.

(11) The second error concerns the total amounts `you are liable to pay by way of penalty'. This was overstated by almost $130,000. I cannot regard the stated total amount of the penalty payable (printed in bold in the notice) as mere surplusage. The composite nature of the document, covering the period of months between July 1993 to November 1994, needed to be totalled to make it clear to the recipient what were the total of the penalties imposed on the director and liable to be paid by him. A recipient of such a notice will want to know what is the `bottom line'. Here the total amount payable was included but was in error and an error which was in favour of the Commissioner.

(12) In my opinion, neither of the admittedly erroneous portions of the first notice may be severed from the notice. While the `total' may not have been required to be stated in the notice (since the Act does not expressly contemplate a composite notice) nevertheless its inclusion by the appellant cannot be said to have been gratuitous and irrelevant.

(13) Senior Counsel for the Commissioner conceded that a notice can be invalid if it is relevantly misleading or capable of so being. However, it is submitted that on a most superficial consideration of the incorrect monthly amounts, no reasonable recipient would be misled by the erroneous `total amount' of penalties said to be payable. This submission is based partly upon the knowledge of Mr Gruber as a director and manager of the business at the time. It is said that the respondent supplied the appellant with the information as to the amounts of deductions and amounts unpaid. Accordingly, it could not be reasonably suggested that the respondent was liable to be or was misled by the error in the `total amount'. The statement was not, so it was submitted, objectively misleading.

(14) I disagree. In my opinion, the error cannot be ignored. A recipient either accepts the amount or amounts said to be due in the notice or is left to speculate. In any event, no reliance can be placed upon the respondent having supplied information to the appellant as to the amounts deducted and not remitted. The plain fact is, whatever information the appellant obtained from Mr Gruber, the figures in the appellant's notice were incorrect for September/October 1994 and the total of the penalties which the respondent was required to pay was also erroneous and liable to mislead.

(15) While a notice does not have to be absolutely correct (and one can well imagine some de minimis mistakes) the notice must fulfill its statutory purpose. That purpose is not merely to give the recipient the opportunity to check the accuracy of the penalties sought to be imposed by the notice. Rather it is to accurately set forth the amount of the penalty the recipient is to pay within 14 days or be sued by the Commissioner for that civil penalty. It seems to me that to any recipient the amount of the liability for the penalty is the most important aspect of the notice. It needs to be correct. It was not. Rather it was some $130,000 in excess of what it should have been had the `total' been accurate. The plain fact is that the notice overstated the amount of the penalty.

(16) I agree with Graham AJ that, bearing in mind that the Act may visit liability on persons who may only have been directors for part of a deduction period or became directors after the due date for payment, they had the right to know precisely what liability of the company is being visited personally upon them by way of penalty. The finding of Graham AJ that the first notice was invalid was correct.

(17) The respondent runs a subsidiary argument which was rejected by the trial judge. It was said that the appellant's covering letter of 10 February 1995 was inconsistent with the notice. Graham AJ was right in holding that the terms of the letter, taken as a whole, did not render the notice relevantly misleading.

(18) The respondent submits that at the time the second notice was given in September 1995 (7 months after the first) the appellant knew that the first notice contained errors. Indeed, this was the reason for the second notice which purported to cover the period from 1 September to 31 October 1994. The second notice was expressed to be for a `total amount you are liable to pay by way of penalty' of $61,035.18. However, the Commissioner never informed the respondent that the first notice was erroneous in any way or sought to modify or amend it. On behalf of the respondent, Mr McMillan of counsel submits that the second notice was relevantly misleading because a recipient may believe that he had to comply with both notices in a cumulative fashion, viz pay the `total amount' of the first notice of $582,662.81 and the $61,035.18, the subject of the second notice.

(19) I think there is much in the submission. It is difficult to read the two notices together. The appellant maintains that each notice is valid and not misleading notwithstanding that they each claim different amounts as payable by the recipient in respect of the same month. Looked at objectively (as I believe it should be) the notice is capable of being misleading to a recipient as to what is required to be done to comply. In my opinion, the second notice was also invalid.

(20) I have earlier set forth the sections of the Act relevant to the service of the notices (ss222AOF and AOG). It is accepted that the giving of a valid notice is a condition precedent to recovery. The case for the appellant is that in respect to each notice it appeared from the Australian Securities Commission (ASC) documents (on 9 February and 11 September 1995 respectively) that the respondent was a director of the company and his residential address was 157 Fullers Road Chatswood. In the submission of the appellant it matters not that the ASC documents also listed the respondent as a shareholder with a different address. It was also claimed to be irrelevant that the respondent had left the Fullers Road address in November 1988 and never received the notices via the post directed to Fullers Road.

(21) The Commissioner submits that s222AOF was complied with and therefore the notices were validly served. Reliance is placed on what was said by Lee J in Deputy Commissioner of Taxation v Taylor [1983] 2 NSWLR 139 at 143:

But the very fact that a mode of service other than personal service is permitted, of itself ordinarily means that service will be complete when the requirements stipulated for service have been fulfilled.

In my opinion, the statement by Lee J is apposite to s222AOF.

(22) In so far as Graham AJ may have held that the relevant information in the ASC documents must `appear' to the Commissioner, that is that an officer of the appellant must personally sight the ASC documents, I am unable to agree. Such a construction has no foundation in the words of s222AOF(1) nor in policy or logic. It reads words into the section without warrant.

(23) It seems to me that it did `appear' from the documents lodged with the ASC that the respondent was a director of the company and that 157 Fullers 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 ASC documents, which are company extracts from the ASC 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.

(24) Should it be necessary to refer to or rely upon ss28A and 29 of the Acts Interpretation Act 1901 (see the `Note' specifically included within s222AOF) then the presumptions inherent in the sections apply and are not displaced by the respondent's evidence of non receipt. Proof of non receipt is not proof of non delivery (Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 96-97).

(25) The respondent placed reliance on Miller v Deputy Commissioner of Taxation (Court of Appeal, unreported, 18 December 1997) at p16 of the judgment of Mason P where he accepted a submission that a penalty notice was not given when posted but only when it was received. It is true that s222APE(1) with which Miller was concerned, is substantially similar to s222AOE. Mason P was concerned with whether the penalty notice had been given on a day within 14 days before proceedings were commenced. Applying ss 28A and 29 of the Acts Interpretation Act leads to the conclusion that since the notice was posted on Friday, 14 October, it would be deemed to have been received on Monday, 17 October. So, the penalty notice was `given' (at the earliest) on 17 October, being the deemed date of receipt. Mason P was saying no more than the notice was not given when posted, rather it was given (or sent) when it was deemed to have been received. I do not understand Mason P to be stating any general principle that such a notice is only effective when it is received.

In light of my conclusion above, I do not need to consider whether Mr Gruber's receipt of a copy of the first notice in March 1995 is sufficient service.

IS IT NECESSARY TO SPECIFY THE DUE DATE IN THE NOTICE

(26) The notices did not state the `due date' in respect of the deductions by the company. The `due date' is `the day on or before which the [company] making the deduction must pay to the Commissioner an amount equal to the deduction' (s222AFB(1)). His Honour held that the relevant due dates of the unpaid amount of the company's liability must be specified in the notice, otherwise it is invalid. It was one of the `details of the unpaid amount of the liability referred to in section 222AOC' (s222AOE(a)).

(27) The submission of Mr Slater on behalf of the appellant is that the `due date' does no more than identify the month in which deductions were made and which the company was required to remit to the Commissioner. It is not a relevant `detail' which is required to be included in the notice and is of no consequence to the operation of the Act or the recipient. The appellant argues that the statutory purpose is complied with if the notice gives the details of the amount unpaid and identifies the period in which the relevant deductions were made. Further, once the amount and month are identified, the due date is fixed by the statute (s221F).

(28) The section does not define the `details' required to be included in the notice. The details required by s222AOE are the details of liability referred to in s222AOC. They must obviously include, as agreed by the parties, the amount of the deductions, the fact of the deductions and the period in which the deductions were made. The question is whether the notice needs also to include the `due date' of the payments.

(29) In my opinion, since the liability imposed by s222AOC is dependant on payments not being made by the `due date', the `due dates' are a `detail' of the unpaid amount of the company's liability under the Act which must be included in the notice. It is a relevant detail required to be included in the notice. Accordingly, I agree with his Honour's conclusion. Bearing in mind the potentially draconian effect of the provisions it is appropriate to construe `detail' in a broad fashion. `Detail' in the context of the relevant provisions of the Act seems to me to imply more than merely `specify'.

(30) I should mention that the appellant's counsel eschewed any reliance on an argument based upon the `details' regarding the due dates being requirements that are directory and not mandatory.

IS IT NECESSARY TO SPECIFY THE DIVISION UNDER WHICH THE DEDUCTIONS WERE MADE?

(31) The trial judge held that it was necessary to specify the Division under which the deductions giving rise to the liability were made. The respondent did not seek to support his finding on the appeal doubtless because the notices specified Division 2 and s221F in particular.

(32) It follows from what I have said that the notices were not defective as a composite document; the notices were relevantly misleading and the invalid portions of the first notice cannot be severed; the notices were effectively served but that the notices needed to specify the due dates. Accordingly, both notices were invalid and Graham AJ's conclusion that there should be judgment for the defendant was correct. The appeal should be dismissed with costs.