Deputy Commissioner of Taxation v Jaggs

uty Commissioner of Taxation of the Commonwealth of Australia [1999] WASCA 5 F J Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360; [1981] HCA 27 Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246; [1927] HCA 49 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3 Harvey v Commissioner of State Revenue [2015] QCA 258 Kaldas v Barbour (2017) 350 ALR 292; [2017] NSWCA 275 Kolichis v Deputy Commissioner of Taxation [2014] WASCA 76 McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; [1956] HCA 62 Moore v Jack Brabham Holdings Pty Ltd (1986) 7 NSWLR 470; (1986) 67 ALR 561 Mount Pritchard & District Community Club Limited v Commissioner of Taxation (2011) 196 FCR 549; [2011] FCAFC 129 Naumcevski v Deputy Commissioner of Taxation [2019] NSWCA 72 Nicholas v The Queen (1998) 193 CLR 173; [1998] HCA 9 Platypus Leasing Inc v Commissioner of Taxation (2005) 61 ATR 239; [2005] NSWCA 399 Roberts v Deputy Commissioner of Taxation (2013) 228 FCR 280; [2013] FCA 1108 Roberts v Deputy Commissioner of Taxation (2015) 101 ATR 71; [2015] FCA 238 Category: Principal judgment Parties: Deputy Commissioner of Taxation (Plaintiff) Anthony Jaggs (Defendant) Representation: Counsel: J P Gatland (Plaintiff)

Solicitors: Hunt & Hunt Lawyers (Plaintiff) File Number(s): 2017/327830

Judgment

1. HIS HONOUR: By an amended statement of claim filed on 31 January 2018, the Deputy Commissioner of Taxation ("the plaintiff") seeks to recover the sum of $2,585,725.29 plus interest and costs from the defendant, Mr Anthony Jaggs, arising from a claimed liability to pay the Commissioner of Taxation ("the Commissioner") penalties pursuant to s 269-10(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) ("TAA").
2. The matter proceeded ex parte but upon the basis that the amended defence, filed by Mr Jaggs on 11 October 2017, was not struck. An affidavit filed by Mr Jaggs, sworn on 14 November 2018 (together with exhibit AAJ-1), was not read. However, select pages from the bundle of material exhibited to that affidavit were tendered by the plaintiff (namely, pages 103-119) and were before the Court.
3. The proceedings concern the plaintiff's claim for judgment in respect of Mr Jaggs' liability for director penalties pursuant to s 269-20 of Sch 1 of the TAA.
4. The underlying taxation liability was claimed to arise from the non-remittance of Pay As You Go Withholding ("PAYGW") amounts and superannuation guarantee charge ("SGC") amounts payable by a company, A.C.N 099 866 592 Pty Ltd, which was formerly known as Atlantis = Pty Ltd ("the Company") and which is now in liquidation. The Company was part of a group of similarly-named companies owned or controlled by Mr Jaggs.
5. The relief claimed in the amended statement of claim was as follows: The plaintiff claims $2,586,888.29 in respect of the cause of action pleaded below. Amount of claim $ 2,585,725.29 Interest $ Filing fees $ 1,101.00 Service fees $ 62.00 Solicitor's fees $ TOTAL $ 2,586,888.29

1. Mr Jaggs was the sole director of the Company at all relevant times.
2. As a director of the Company, and pursuant to s 269-15 of Sch 1 to the TAA, Mr Jaggs was obliged to cause the Company to comply with its obligations in circumstances where the Company had not remitted the withheld amounts, where an administrator had not been appointed and the Company had not begun to be wound up.
3. Prior to commencing to recover the liability from Mr Jaggs, the plaintiff was required to give notice, pursuant to s 269-25 of Sch 1 to the TAA.
4. The plaintiff gave the penalty notices, relevant to these proceedings, to Mr Jaggs.
5. The first director penalty notice was given by the plaintiff on 25 September 2017 and concerned PAYGW liabilities for the period 1 July 2011 to 9 May 2014 ("the First DPN").
6. The second director penalty notice was given by the plaintiff, also on 25 September 2017, and concerned SGC amounts for the period between 1 January 2014 and 31 March 2014 ("the Second DPN").

LEGISLATIVE BACKGROUND

1. Pursuant to s 255-5(2) of Sch 1 to the TAA, the plaintiff may recover an amount of a tax-related liability that remains unpaid after it has become a debt due to the Commonwealth and payable to the Commissioner.
2. Pursuant to Div 12 and 16 of Sch 1 of the TAA, an entity (in this case the Company) was required to withhold an amount from payments made to employees or office holders and to remit those payments to the Commissioner, in accordance with s 16-70(1) of Sch 1 of the TAA. A withheld amount payable to the Commissioner, pursuant to s 16-75 of the TAA, is a tax-related liability (see s 250-10(2), Item 105 of Sch 1 of the TAA).
3. Pursuant to s 35 of the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the SGAA"), a superannuation guarantee statement has the effect, as if it were a notice of assessment, on the date on which the statement was lodged. Pursuant to s 46 of the SGAA, the SGC becomes payable on the day of lodgement of the statement. The SGC is a tax-related liability.
4. Mr Jaggs' liability to a penalty arises under Div 269 of Sch 1 of the TAA in respect of unpaid Pay As You Go ("PAYG") amounts and unpaid SGC amounts due by the Company. I note that a director penalty notice ("DPN") is a "tax-related liability" for the purpose of s 250-10(2), Item 139 of Sch 1 of the TAA.
5. Although the High Court in Deputy Commissioner of Taxation of the Commonwealth of Australia v Woodhams (2000) 199 CLR 370; [2000] HCA 10 ("Woodhams") was considering penalty notices given under the predecessor provisions contained in Part VI Div 2 of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") (see s 250-10(2), Item 60 of Sch 1 of the TAA), the statement of the policy objectives of that legislative scheme, in respect to of DPNs are relevant here. They are expressed as follows at [13]: [13] The provisions so far considered relate to the liability of employers in respect of amounts deducted from salary and wages on account of the tax liabilities of employees. As was pointed out by Phillips JA in Woodhams v Deputy Commissioner of Taxation, this is not a liability to pay tax. It concerns a responsibility to collect tax, and an obligation to remit the amounts collected. The relevant taxpayers are the employees. Division 9 seeks to protect the revenue by the imposition of penalties upon directors of non-remitting corporate employers. [Footnotes omitted.]

THE CLAIM

1. In respect of the financial year ending 30 June 2012, the Company withheld amounts under Div 12 in Sch 1 to the TAA and notified the plaintiff through the filing of self-assessed income activity statements ("IAS") and business activity statements ("BAS"), that it had withheld tax for two periods, being 1 to 31 May 2012 and 1 to 30 June 2012.
2. The amounts disclosed by the Company as having been withheld in those periods are, consistent with Mr Jaggs' pleaded defence, $102,406.00 and $299,911.00.
3. The Company made a further report of withholding by way of an annual payment summary report which had been submitted electronically to the Australian Taxation Office ("ATO") on 18 January 2013 in respect of the whole of the financial year ended 30 June 2012.
4. In the annual payment summary report, the Company disclosed, that in the year ended 30 June 2012, it had paid wages of $12,491,870.00 and that it had withheld from those wages an amount of $2,677,732.00.
5. Despite withholding the money, the Company did not pay the withheld amounts, which are claimed in these proceedings, on or before their due dates. The Company had only remitted those amounts disclosed in the IAS and BAS for the months of May and June 2012. The difference between the amount disclosed by the Company in the annual payment summary report and the amounts remitted with respect to the May and June periods of 2012, was $2,275,415 and it was this amount which formed part of the debt the subject of these proceedings.
6. As asserted in the amended statement of claim, the Company was a "Medium Withholder", pursuant s 16-100 of Sch 1 to the TAA, for the period between 1 July 2012 and 30 November 2012 and a "Large Withholder", pursuant to s 16-95 of Sch 1 to the TAA, for the period between 1 December 2012 and 30 June 2014. A Medium Withholder is required to report on a monthly basis while a Large Withholder is required to report on a weekly basis. The application to become a Large Withholder was made at the instigation of the Company's accountants. There is no explanation provided by Mr Jaggs as to why the only reporting undertaken in the 2012 financial year was on a quarterly and then monthly basis.
7. Whether the Company was a "Medium Withholder" or "Large Withholder" affects the due dates for payment of amounts withheld arising from the Company's obligations under Subdiv 16-B to remit the withheld amounts.

EVIDENCE OF LIABILITY TO DIRECTOR PENALTY NOTICES

1. The plaintiff relied on the following evidence: 1. Affidavit of James Ford, affirmed 11 March 2019 (Mr Ford's Affidavit repeated several matters contained in an Affidavit of James Foster, affirmed 10 August 2018. Mr Foster's affidavit was not relied upon); 2. Affidavit of Olena Newman, affirmed 14 August 2018 (regarding service of the First DPN); and 3. Affidavit of Mario Villalobos, sworn 14 August 2018 (regarding service of the Second DPN).
2. Mr Ford, an ATO employee, deposed to his review of the plaintiff's business systems and records. He annexed to his affidavit copies of notations recorded on the ATO systems concerning contact with Mr Jaggs.
3. In his affidavit, Mr Ford deposed to the following matters: 1. the relevant BAS prepared and lodged by the Company for the year ended 30 June 2012; 2. the amounts withheld by the Company for the relevant period in the 2014 financial year as reported by its accountant; 3. ATO Statement of Account for the Company's liabilities and credits under the BAS provisions (each statement of Account being copy of a Running Balance Account ("RBA") statement pursuant to s 8AAZI of the TAA); 4. ATO Statement of Account of Mr Jaggs, which was parallel to those of the Company; 5. ATO Statement of Account for the Company's liabilities and credits in respect of SGC liabilities; and 6. ATO Statement of Account for DPN liabilities owed by Mr Jaggs in respect of SGC liabilities.
4. In addition, Mr Ford annexed the following documents to his affidavit: 1. Copies of each DPN and the respective covering letters. 2. A certificate pursuant to s 255-45 of Sch 1 to the TAA in relation to each of the DPNs given to Mr Jaggs (Annexure O). The certificate was to the effect that, as at 9 March 2019, the sum of $2,585,640.29 was a debt due and payable by Mr Jaggs to the Commissioner of Taxation. 3. A company search extracted on 4 March 2019 for the Company showing Mr Jaggs as a director of the Company (Annexure N). 4. Notices of Assessment of SGC for the period ending 31 March 2014 which issued on 13 October 2014 (Annexure J).

PLAINTIFF'S PRIMA FACIE EVIDENCE OF LIABILITY

1. In accordance with s 8AAZI of the TAA, the plaintiff relied on the production of RBA statements as prima facie evidence that the RBA was duly kept and that the amounts and particulars contained on the statements were correct (see Annexure H of Mr Ford's affidavit).
2. The plaintiff further relied on s 255-50(1) of Sch 1 of the TAA in respect of the claim for director penalties which provided that each statement or averment about a matter in the plaintiff's amended statement of claim is prima facie evidence of the matter. Section 8AAZI(1) of the TAA states: 8AAZI RBA statement to be evidence (1) The production of an RBA statement: (a) is prima facie evidence that the RBA was duly kept; and (b) is prima facie evidence that the amounts and particulars in the statement are correct.
3. In accordance with s 255-45 of Sch 1 to the TAA, the plaintiff further relied on the evidentiary certificate at Annexure O to Mr Ford's Affidavit as evidence that: 1. Mr Jaggs has a tax-related liability under s 269-20 of Sch 1 of the TAA; 2. Mr Jaggs was served with the DPNs on 27 September 2017 and such notices were issued under s 269-25 of Sch 1 of the TAA; and 3. that, as at 11 March 2019, the sum of $2,585,640.29, is a debt due and payable by Mr Jaggs in respect of this tax-related liability (Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473; [2008] HCA 41 at [38]).
4. In oral submissions, counsel for the plaintiff made reference to a more recent decision of the NSW Court of Appeal in Naumcevski v Deputy Commissioner of Taxation [2019] NSWCA 72. It was correctly submitted that the certificate under s 255-45 of the TAA does not alter the legal burden of proof, although it may, as here, be of a conclusive nature where the taxpayer does not go into evidence.
5. Additionally, the plaintiff relied on s 255-50(1) of Sch 1 of the TAA, in respect of the claim for director penalties, which provided that each statement or averment about a matter in the plaintiff's Statement of Claim was prima facie evidence of the matter (see s 255-50(1) of Sch 1 to the TAA and Kolichis v Deputy Commissioner of Taxation [2014] WASCA 76 at [22]-[23]).
6. As these are recovery proceedings, the prima facie presumption created by ss 255-45 and 255-50 should be given their full force and effect (Commissioner of Taxation v Ornelas [2016] FCA 457 at [7(f)], discussing Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621-622).

BUZADZIC

1. In Buzadzic No 1, Croft J refused summary judgment in a recovery proceeding where the pleaded defences included that certain assessments were invalid for jurisdictional error and that s 175 of the 1936 Act and s 350-10 of the TAA were constitutionally invalid because they would offend the separation of powers in Ch III of the Constitution. Her Honour found that, by giving conclusivity to a notice of assessment, s 350-10 purported to determine the very issue for determination in a pending case and so interfered impermissibly with the judicial function of fact finding and reduced that function to "the merest formality" (at [37] and [39]).
2. The plaintiff submitted that Buzadzic No 1 is not binding on this Court and that it was plainly wrong and should not be followed. At the time of making that submission, the plaintiff had filed an application for leave to appeal the Buzadzic No 1 decision in the Court of Appeal in the Supreme Court of Victoria on 18 April 2019 but the proceeding had not been determined. In any event, based upon the appellant judgment and some other factors to which I will turn, the judgment should not be followed in this matter.
3. On 11 October 2019, the Victorian Court of Appeal concluded that leave to appeal should be granted, the orders of the Court below be set aside and in their place, a summary judgment be entered for the plaintiff in each proceeding: Deputy Commissioner of Taxation v Buzadzic [2019] 348 FLR 213; [2019] VSCA 221 ("Buzadzic No 2") (per Kyrou, McLeish and Niall JJA)).
4. In Buzadzic No 2, the Court of Appeal rejected the findings by Croft J that, if the provisions of the TAA, which the Commissioner had relied upon (s 175 of the 1936 Act and s 350-10(1) of the TAA (which was in the same terms as s 177 of the 1936 Act), they would impermissibly confer judicial power on the Deputy Commissioner of Taxation and require the Court to act in a manner inconsistent with its position as a repository of federal judicial power.
5. In rejecting that conclusion, the Victorian Court of Appeal made the following findings and relevant observations regarding the respondent's submissions (Buzadzic No 2 at [8], [10], [11],; [47] [61], [66]-[68] and [76]): [8] Section 255-5 is a successor provision to ss 208 and 209 of the 1936 Act. … [10] Thirdly, s 350-10(1) item (2) of sch 1 to the TAA provides that: production of … a notice of assessment under a taxation law; … is conclusive evidence that … (a) the assessment was properly made; and (b) except in proceedings under Part IVC of [the TAA] on a review or appeal relating to the assessment - the amounts and particulars of the assessment are correct. [11] This language replaces, and is almost identical to, former s 177 of the 1936 Act which is referred to extensively in the case law. It is conveniently referred to as the 'conclusive evidence' provision. … [47] First, the respondents submitted that s 175 and the conclusive evidence provision (s 350-10(1) item 2) removed all scope for judicial review and gave the Commissioner an unexaminable power to exact money from taxpayers. It was contended that the observations to the contrary in the joint judgment in Futuris were inconsistent with the subsequent decisions of the High Court in Plaintiff S157/2002 v Commonwealth (2003) 211 CLR 47633 and Graham v Minister for Immigration and Border Protection, (2017) 263 CLR 134 which recognised an entrenched minimum provision of judicial review and held that privative clauses which would deny that minimum provision were invalid. … [61] The Commissioner contended that the 'incontestable tax' argument raised in the second ground of the respondents' notice of contention was foreclosed by the High Court's decision in Futuris. The joint judgment stated that: The recourse to the Federal Court (and thereafter by special leave, to this Court) which is provided by Pt IVC of the [TAA] meets the requirement of the Constitution that a tax may not be made incontestable because to do so would place beyond examination the limits upon legislative power. The Commissioner also relied on the quotation set out at [39] above, which rejected the possibility that s 177(1), the conclusive evidence provision, imposed an incontestable tax. … [66] The manner in which s 175 of the 1936 Act and s 350-10(1) of sch 1 to the TAA (or its predecessor, s 177 of the 1936 Act) operate is well settled. Section 175, the 'no invalidity' provision, provides that failure to comply with provisions of the 1936 Act does not affect the validity of an assessment. This enlarges the field within which the Commissioner may validly act. In other words, despite non-compliance with the legislation, the Commissioner effectively exercises the power to make an assessment. As a result, failure to comply with the legislation does not constitute jurisdictional error. The Commissioner merely makes an error within jurisdiction. The joint judgment in Futuris put it this way: Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act. [67] The joint judgment in Futuris recognises two cases where s 175 does not have effect, because as a matter of construction there is no 'assessment' for the provision to operate upon. One is where there has been 'conscious maladministration of the assessment process'59 or 'deliberate failures to administer the law according to its terms'. Section 175 is construed so as not extending to protecting against such failures to comply with the legislation. This class of case is not relevant to the present matter. [68] The second kind of case involves assessments which are 'tentative or provisional'. An instrument of that description simply falls outside the scope of s 175 because it is not an assessment. For the Commissioner to treat it as an assessment would amount to jurisdictional error. The present respondents allege error of this kind and it will be necessary to return to this subject. … [76] For these reasons, the availability of review and appeal proceedings under pt IVC is fatal to the respondents' argument that the impugned provisions operate to impose an incontestable tax.

DEFENDANT'S PLEADINGS

1. As mentioned, Mr Jaggs had filed a served a defence.
2. Five matters were effectively pleaded in Mr Jaggs' case. A summary of those matters and the plaintiff's response to them are outlined below:
3. First, Mr Jaggs contended that the Company, in the period from 1 July to 30 April 2012, had no employees and was, therefore, not liable to withhold or remit PAGYW amounts. In fact, another related company with a similar named was the employing entity.
4. The plaintiff's response was as follows: 1. It is correct that there are several companies of which Mr Jaggs was a director which had similar names, these include Atlantis Services Pty Ltd, Atlantis Administration Pty Ltd, Atlantis Logistics Pty Ltd, and Atlantis=Personnel Pty Ltd. 2. It is also correct that several payment summaries referred to Atlantis = Personnel Pty Ltd. 3. However, all payment summaries reported to the Commissioner of Taxation bear "ABN 43 099 866 592", which is the ABN for the Company. It is the ABN, rather than an entity's name, on which the ATO relies to process withholding tax information. 4. The fact that the Company was not an employer is not material to the whether it had an obligation to withhold or remit amounts. The obligation arises because an entity pays wages. The Company, by its lodgements, confirmed that it had paid wages and had withheld amounts. Further, in oral submissions, counsel for the plaintiff referred to s 12-35 of Sch 1 of the TAA, which provided that there is no requirement by the Court to find a relationship of employment between the Company and any of the employees.
5. Secondly, and in any event, the full value of the 2011 PAYGW had been remitted to the plaintiff.
6. The plaintiff contended, in response, that this allegation has been met, comprehensively, by reference to the Company's reported PAYG payment summaries and the "withholder" status of the Company which changed overtime contemporaneously with its reported payments.
7. Thirdly, from 17 September 2014, liquidators were appointed and, therefore, Mr Jaggs' obligations ceased.
8. In reply, the plaintiff submitted that the obligations of a director are parallel to the obligations of the Company. A DPN is merely a procedural step before recovery can occur. Mr Jaggs' liability existed in parallel with the Company, both DPNs were "lockdown" notices which required only payment of the debt or a payment arrangement to be entered into. The appointment of liquidators was immaterial.

THE DEBT CLAIMED

1. By an affidavit of debt, dated 24 July 2019, it was deposed that: 1. Anthony John Jaggs has a tax-related liability, namely penalties arising under section 269-20 of Schedule 1 to the Taxation Administration Act 1953 ("TAA 1953"). 2. Notices required to be served on Anthony John Jaggs under section 269-25 of Schedule 1 to the TAA 1953 were served on him on 25 September 2017 in relation to that tax related liability in accordance with section 269-50 of Schedule 1 to the TAA 1953. 3. The sum of $2,585,640.29 is at 24 July 2019 a debt due and payable by Anthony John Jaggs to the Commonwealth of Australia in respect of the tax-related liability referred to in this certificate.

CONCLUSION

1. In my view, the plaintiff has established, on the evidence, its case under the amended claim.
2. The evidence of the plaintiff is contrary to Mr Jaggs' contentions as set out in his pleaded defence.
3. In the circumstances, while Mr Jaggs has denied the claim and put the plaintiff to proof, the evidence in these proceedings, particularly as regards to its withholding tax liabilities, means that Mr Jaggs has failed to successfully rebut the presumption arising under the TAA with respect to the debt. Further, Mr Jaggs has failed to rebut the prima facie evidence of liability.
4. The plaintiff should bring in short minutes reflecting this judgment. The plaintiff may address the question of costs in a short note accompanying the short minutes of order.

ORDER

1. The plaintiff shall bring in short minutes of order reflecting this judgment within 7 days of the publication of this judgment.

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: 07 July 2020