Deputy Commissioner of Taxation v Woodhams [1998] VSCA 126

Court of Appeal (Vic)|1998-12-04|Before: TADGELL, CALLAWAY and CHERNOV, JJ.A.

INCOME TAX - Penalty notices sent to director - One notice relating to amounts of tax deducted by company but not remitted - Other notice relating to estimates of such amounts - Whether due date of deductions required to be included in each notice - Income Tax Assessment Act 1936, ss.222AOE, 222APE.

The circumstances giving rise to this appeal appear from the judgments and supplementary reasons of this Court in (1997) 97 ATC 5119. I do not repeat them except to say that the Deputy Commissioner had obtained summary judgment against the present respondent in respect of penalties imposed by ss.222AOC and 222APC of the and that the respondent was given leave to defend, limited to the allegation that the Deputy Commissioner was not entitled to recover those penalties, pursuant to s.221R, without giving notices complying with ss.222AOE and 222APE and that no such notices had been given. The defence was amended to include that allegation. It was common ground that notices had been given in purported compliance with ss.222AOE and 222APE but that neither of them had specified a "due date" as such. The learned County Court judge followed the decision of the New South Wales Court of Appeal in ; (see 98 A.T.C. 4317 at p.4318 for Powell, J.A.'s concurrence), which had affirmed the judgment of Graham, A.J. in (1997) 97 A.T.C. 4970. His Honour applied that decision both to the notice purportedly given under s.222AOE and to that purportedly given under s.222APE and ordered that there be judgment for the respondent. It is against that judgment that this appeal is brought.

Deputy Commissioner of Taxation v. Gruber is indistinguishable in relation to the notice purportedly given under s.222AOE. A notice given under that section must, among other things, set out "details of the unpaid amount of the liability" referred to in s.222AOC. The New South Wales Court of Appeal, in agreement with Graham, A.J., held that those details included the due date of the relevant deductions. I am not sure that I should reach that conclusion if the matter were untouched by authority, partly because the details that are required by s.222AOE are not details of the liability but details of the unpaid amount of the liability, expressions which Stein, J.A. treated as interchangeable at p.278. Compare the definitions of "unpaid amount" in s.222AFC(1) and (2) in relation to a liability and an estimate respectively. It may also be significant that the section says "details", not "the details", so that one must ask what details are required having regard to the purpose of the notice. The matter is not, however, untouched by authority. The decision in Gruber's Case as to the details required by s.222AOE is not plainly wrong, nor was that part of the decision obiter. It is a unanimous decision by another intermediate appellate court on the meaning of Commonwealth legislation. Notwithstanding the valiant submissions to the contrary of Mr. Pagone, Q.C., who appeared with Mr. Maxwell for the appellant, I consider that it is our duty to follow it. Compare R. v. Perfili (1995) 84 A.Crim.R. 26 at p.31 and the cases there cited, Leighton Contractors Pty. Ltd. v. Kilpatrick Green Pty. Ltd. [1992] VicRp 83; [1992] 2 V.R. 505 at p.510 and the cases there cited, Australian Securities Commission v. Marlborough Gold Mines Ltd. [1993] HCA 15; (1993) 177 C.L.R. 485 at p.492 and David Grant & Co. Pty. Ltd. v. Westpac Banking Corporation [1995] HCA 43; (1995) 184 C.L.R. 265 at p.272.

It is a different question altogether whether Gruber's Case entails the consequence that a notice under s.222APE must, at all events when that date is known to the Commissioner, specify the due date of the deductions giving rise to the underlying liability. A notice given under that section must set out, among other things "details of the unpaid amount of the estimate" for which the company has become liable under s.222AHA. (The word "estimate" plays a similar part in s.222APE(1)(a) to that played by the word "liability" in s.222AOE(a), although an estimate is strictly speaking an amount, which a liability is not: see, for example, ss.222AFC, 222AGA, 222AHA and 222APA. Again the definite article is omitted before "details".) The answer to the question turns on the part played by the due date in, and in relation to, subdivisions B and C respectively of Division 9 of Part VI of the Income Tax Assessment Act.

Subdivision A consists only of s.222ANA, which is set out in the judgment of Phillips, J.A. in Woodhams v. Deputy Commissioner of Taxation at p.5124, and an interpretation section. Subdivision B applies where a company has made deductions for the purposes of Division 2, 3A, 3B or 4 and subdivision C applies where a company becomes liable to pay an estimate under s.222AHA. They contain parallel provisions. Sections 222APA to 222APE(1) correspond with ss.222AOA to 222AOE and ss.222APE(2) to 222API correspond with ss.222AOF to 222AOJ. The correspondence of lettering is lost, in other words, because s.222APE(2) corresponds with s.222AOF.

After stating the circumstances in which subdivision B applies, s.222AOA defines "the first deduction day" and "the due date". The former is itself defined by reference to a due date. Section 222AOB applies to the persons who are directors of the company from time to time on or after the first deduction day. It provides that they must cause the company to do at least one of four things on or before the due date. The section is also set out in the judgment of Phillips, J.A. in Woodhams v. Deputy Commissioner of Taxation at p.5142, where it will be noticed that the due date is mentioned again in sub-ss.(1)(a)(ii) and (3). The language of ss.222AOC and 222AOD, which impose the penalties on directors, reflects the language of s.222AOB, complete with references to the due date. Section 222AOD refers, for example, to a person who becomes, or again becomes, a director after the due date. Sections 222AOE and 222AOF relate to the required notices. The former is set out in the judgment of Phillips, J.A. at p.5125. The latter is concerned with service. Section 222AOG deals with remission of penalty, s.222AOH with the parallel nature of the liabilities, s.222AOI with a director's rights of indemnity and contribution and s.222AOJ with defences.

There is no reference to the due date in any of the sections of subdivision C and s.222APA contains neither of the definitions in s.222AOA. Section 222APB applies to the persons who are directors of the company from time to time on and after the day when the Commissioner sent to the company notice of the estimate. It provides that they must cause the company to do at least one of four things, corresponding with the options in s.222AOB but relating to the estimate, within 14 days after that day. The language of ss.222APC and 222APD, which impose the penalties on directors, in turn reflects the language of s.222APB. Section 222APD refers, for example, to a person who becomes, or again becomes, a director after the end of the 14 days. Section 222APE deals with the relevant notices, s.222APF with remission of penalty, s.222APG with the parallel nature of the liabilities, s.222APH with a director's rights of indemnity and contribution and s.222API with defences.

The foregoing comparison of the corresponding sections of subdivisions B and C suggests that, even if the due date is one of the "details of the unpaid amount of the liability" referred to in s.222AOC that must be set out in a notice given under s.222AOE, it is not one of the "details of the unpaid amount of the estimate" which the company has become liable to pay under s.222AHA that must be set out in a notice given under s.222APE. That suggestion is confirmed when reference is had to the provisions of the Act relating to estimates. They refer to the due date only once, in s.222AGA, and, as we shall see, in a context that is subsumed by later provisions.

Section 222AGA applies where the Commissioner has reason to suspect that a person has become liable to pay amounts equal to deductions that the person has made and the liability to pay those amounts remains undischarged after the due date of those deductions. In those circumstances the Commissioner may make what he or she thinks is a reasonable estimate of the unpaid amount of that liability. The next step is to send notice of the estimate to the person, in this case the company of which the respondent was a director, under s.222AGB. Section 222AHA(1) then obliges the person to pay to the Commissioner the amount of the estimate. Section 222AHA(2) expressly provides that the liability to pay the estimate is separate and distinct from the liability to which the estimate relates and is separate and distinct for all purposes. They are, however, parallel liabilities, so that, for example, the discharge of one liability is a discharge of the other, wholly or pro tanto as the case may be. The date on which the amount of the estimate is due and payable is unrelated to the due date of the deductions referred to in s.222AGA.

It will be recalled that s.222APB applies to the persons who are directors of the company from time to time on and after the day when the Commissioner sent to the company notice of the estimate. The criterion is not, as it is in s.222AOB, that they be directors on or after the first deduction day relevant to the underlying liability. The directors to whom s.222APB applies are required to cause the company to do at least one of four things within 14 days after the day when the Commissioner sent to the company notice of the estimate. That deadline is unconnected with the due date of the deductions giving rise to the underlying liability, thereby affording another contrast between ss.222AOB, 222AOC and 222AOD on the one hand and ss.222APB, 222APC and 222APD on the other. Finally, s.222APE requires a notice given under that section to set out details of the unpaid amount of the estimate, not the unpaid amount of the underlying liability.

Mr. Hill, Q.C., who appeared with Mr. Power and Mr. Farrow for the respondent, submitted that a director, and especially a new director, would need to know the due date of the deductions giving rise to the underlying liability in order to know whether the estimate was open to challenge, but counsel agreed that challenging the estimate is not one of the four things referred to in s.222APB. They are paying the Commissioner the amount of the estimate, making an agreement with the Commissioner under s.222ALA, appointing an administrator and beginning to be wound up. The procedure for challenging an estimate is set out in ss.222AGC to 222AGF. Even if a successful challenge might result in the company's liability to pay the estimate being discharged, within the meaning of s.222APE(1)(b)(i) and (d)(i), I do not consider that it is one of the statutory purposes of a notice given under s.222APE to facilitate such a challenge.

In Gruber's Case Stein, J.A. said at p.278D that the due date was a detail that had to be included in a notice under s.222AOE because the liability imposed by s.222AOC was dependent on payments not being made by the due date. That is not true of the liability imposed by s.222APC . The liability imposed by that section is not dependent on payments not being made by the due date but, putting the other three things mentioned in s.222APB to one side, on the amount of the estimate not being paid within 14 days after the day when the Commissioner sent notice of it to the company. Accordingly it does not subvert the reasoning in Gruber's Case to decline to hold that the due date of the deductions giving rise to the underlying liability need not be included in a notice under s.222APE, even giving full effect to his Honour's further observation that the potentially Draconian effect of the provisions made it appropriate to construe "detail" in a broad fashion. However broadly "details" may reasonably be construed consistently with the principles of statutory interpretation, the due date of those deductions is not a detail of the unpaid amount of the estimate. It is too remote having regard to the provisions of the Act relating to estimates, especially s.222AHA(2), and the language of subdivision C.

Mr. Hill conceded that there might be cases where the Commissioner did not know the due date, but he submitted that the details required by s.222APE might properly vary from case to case. In the present case it was apparent from the notice that the Commissioner did know the due dates, for each estimate was $2,900 in respect of a specified calendar month and it was not suggested that the company was or might be an early remitter. See ss.221EC and 221F(5). So much may be accepted for the sake of argument, but it does not follow that the due dates of the deductions giving rise to the underlying liabilities were details that had to be included as such in the notice. (They could, of course, be inferred, by a person who knew that the company was not an early remitter, from the information that was provided.) I do not decide whether the notice would have been valid if the relevant months, which are described in the notice as "deduction periods", had been omitted or whether the notice is open to challenge on any basis other than that which was debated before us.

For these reasons, in my opinion, the appeal should be allowed in part and there should be judgment for the appellant in respect of the penalties imposed by s.222APC.

In my view, for the reasons given by Callaway, J.A., the appeal should be allowed, the judgment of the County Court be set aside and in lieu thereof, there be judgment for the appellant in respect of penalties imposed by s.222APC.

Tax Assessment Act 1936

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Judgment (16 paragraphs)

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