Criminal Law - Jurisdiction practice and procedure - Judgment and punishment - Sentence - Factors to be taken into account - Purpose of sentence - Deterrence - Persistent offences - Taxation offences.

Brown v Stone B14/1995; Bessell v Deverell 3/1998; Dadson v O'Brien 75/1998, referred to.

Federal Commissioner of Taxation v Hagidimitriou & Ors (1985) 16 ATR 839; Davies v Taylor (1997) 7 Tas R 265; Collins v Denton (1987) 85 FLR 139, followed.

Applicant: Commonwealth Director of Public Prosecutions

Judgment Number: [2001] TASSC 11

1 The respondent was convicted of six charges of failing to comply with notices to furnish a taxation return, contrary to the Taxation Administration Act 1953 ("the Act"), s8C(1)(a). The notices related to personal and family trust returns for the financial years 1996, 1997 and 1998. The respondent was fined a total sum of $1,200 representing a penalty of $200 for each offence. The applicant seeks review of penalty on the ground that:

"... a sentence ... was in all the circumstances manifestly inadequate."

2 The respondent was at all relevant times a legal practitioner conducting a sole practice. His defence, rejected at the hearing, was that at the time he was required to comply with the notices he was under personal and work related pressure to such an extent that he was suffering from a form of clinical depression which rendered him incapable of performing the tasks necessary to furnish the returns. Medical evidence was given at the hearing that he had suffered from a depressive illness, coupled with anxiety. The learned magistrate accepted the substance of that evidence, but rejected its import that it rendered him incapable of compliance. No challenge is made to that determination.

3 The medical condition of the respondent was accepted as a mitigating matter. The extent to which it ought be regarded as a mitigating matter and whether it should substantially affect other sentencing principles are the central issues raised by the applicant in the challenge to adequacy of penalty.

4 The respondent, a legal practitioner, ought to have been aware of the necessity to comply with an important statutory obligation imposed on all citizens to disclose assessable income. In 1996 he failed to furnish either a personal or family trust return as required by the Income Tax Act 1936, s161. On 9 March 1998, he was convicted of that failure in accordance with the provisions of the Act, s8C(1)(a) and fined the sum of $200. In addition, the court ordered, pursuant to the Act, s8G, that the returns be furnished within a particular time. On 14 December 1998, the respondent was further convicted of failure to comply with that order, that failure constituting a breach of the Act, s8H, and fined the sum of $400. On the hearing of this appeal, counsel for the respondent contended that on the material before the learned magistrate, it was not clear that the December conviction related either to the 1996 return or the March order. An examination of the documentation shows only two convictions and since an offence contrary to the Act, s8H, can only arise if there has been a failure to comply with an order made in accordance with a s8G order, the contention is untenable It is also relevant that the document evidencing the conviction contains the year 1996 below the word "return". In any event, the question is of little import since at the time of these proceedings the respondent had twice been convicted of relevant offences.

5 Following non-compliance and a failure to furnish the 1997 and 1998 returns, the Commissioner issued notices permitted by the Income Tax Act, s162, requiring the respondent to furnish the six returns by 21 April 1999. Upon non-compliance, the Commissioner caused complaints to be made on 31 August 1999. On 8 November 1999, the respondent entered pleas of not guilty to all complaints and the hearings commenced on 4 October 2000. On 5 October, all charges were found proven. As of the date of the plea in mitigation, the returns had yet to be lodged.

6 The Court was also informed that the respondent had failed to furnish any returns for the years 1985 - 1995 inclusive, within the prescribed times, that such returns had not been lodged until the period May/June 1996, but that no proceedings had been taken with respect to those failures. Nevertheless those failures were relevant both to the explanation proffered in relation to the 1996 - 1998 returns and to penalty.

7 The Commissioner had elected, in accordance with the Act, s8F(1):

"... to treat ... offences against section 8C(1)(a) of the Taxation Administration Act 1953 alleged to have been committed by Piet A Schouten on 22/4/99 ... otherwise than as prescribed taxation offences".

8 The consequence of that election was to bring into operation the provisions of the Act, s8E(3), which provides:

(a) a person is convicted of an offence against section 8C or subsection 8D (1) or (2);

(b) in a case where the person is a natural person -- the Commissioner has elected under subsection 8F (1) to treat the offence otherwise than as a prescribed taxation offence; and

(c) the court before which the person is convicted is satisfied that the person has previously been convicted of 2 or more relevant offences;

the penalty that the court may impose in respect of the first-mentioned offence is a fine not exceeding $5,000 or imprisonment for a period not exceeding 12 months, or both."

9 The application of subs(3) provides for a greater penalty. The Act, s8E(1), provides for a penalty of a fine not exceeding $2,000 for a first offence against ss8C or 8D(1) or (2), whilst subs(2) operates so as to increase that penalty to a maximum fine of $4,000 for a second offence. The election by the Commissioner brought this matter into a different category of penalty. In the circumstances of this case, there was little risk that the respondent would have been exposed to the risk of a sentence of imprisonment, but Parliament had clearly intended by its differentiation that a more severe penalty be applicable where there had been two previous convictions for a relevant offence. The respondent was liable for a maximum penalty of $30,000.

10 The persistence of offences, especially where there is ongoing failure to comply with the duty to furnish returns over a long period of time, warrant condign punishment (Brown v Stone B14/1995; Bessell v Deverell 3/1998; Dadson v O'Brien 75/1998). The failure in this case to furnish the returns as of the date of the plea in mitigation is an indication of disregard for legal and social responsibility. (Federal Commissioner of Taxation v Hagidimitriou & Ors (1985) 16 ATR 839.) Whilst there remains a need for general deterrence, of greater import is the need for the sanction to cause the particular taxpayer to ensure future compliance. The penalty imposed by the learned magistrate did not fully take this principle into account.

11 The respondent relied upon the existence of a medical condition as a significant mitigating matter. The learned magistrate took that matter into account in the determination of penalty. However, the material had less significance as a mitigating matter than that contended for by the applicant on the hearing of this appeal. The learned magistrate considered the evidence in her reasons for decision and, having reviewed it, concluded:

"The evidence of Dr McArthur did not assist the Court greatly. Because - not because of the nature of it, but because of the time frame to which it related. Dr McArthur did not even see the defendant until February 2000, several months after the relevant period. And was therefore, unable to give evidence, nor was he asked to, about the defendant's state in the early months of 1999.

As to Dr Crawford, his report says that as at the 16th September 1998, the defendant showed a good response, and his anxiety and panic attacks, had resolved. There is no evidence he saw the defendant on, an ongoing basis about the same problem, through the relevant period in 1999. The defendant's evidence about effectively self medication, was confusing, and did not again, address specifically, the relevant time frame.

The defendant's evidence was not satisfactory in that, all it did, was in general terms, tell me he had difficulty coping over an ill defined period. He'd also demonstrated that he was able to run a legal practice, and that he had both assistance in that practice, and the available help of an accountant in relation to the notices from the Taxation Department.

The defendant may very well have been under pressure, and avoiding doing things. However, with respect, that probably describes a large percentage of the lawyers in practice in Hobart today. It does not however, in my view, go to the level of satisfying me on the balance of probabilities, that as at March/April 1999, the defendant was actually not capable within the meaning of Section 8C of the Taxation Administration Act, of completing his taxation returns.

In those circumstances, I find the charges proved."

12 The evidence given by the respondent had been that during the relevant period in March/April 1999 he was "Sort of, running his legal practice", had two part time secretaries, was still functioning as a solicitor, had completed part of his tax returns and had sought the assistance of a taxation agent. It would appear that the information had not been collated. He had received treatment for depression between June and September 1998 and the evidence of the psychiatrist who had examined him in February 2000 related to that earlier period. The failure to put his affairs in order in April 1999 can only be partly explained by the medical condition. The findings of the learned magistrate are consistent with the evidence. The nature of the medical evidence did not warrant the imposition of a nominal penalty.

13 The second matter of significance relied upon was the absence of means. There was a dispute, unresolved at the hearing, as to how much the respondent owed, although as the magistrate observed, the amount remained due until the respondent took steps to challenge the assessment. However, as counsel for the applicant conceded on the hearing of this appeal, the failure of the learned magistrate to resolve the matter is irrelevant to its outcome. The significant matter concerns the means to pay. It was incumbent upon the respondent to place before the Court a full statement of both his financial position and that of the family trust (Davies v Taylor (1997) 7 Tas R 265). He did not do so. The learned magistrate appears to have accepted that the respondent was not in a strong financial position since, in determining penalty, she stated:

"Given the background that's been supplied to me, and the material supplied to me, I see little point in imposing fines, as will be the penalty, that are so punitive as to - well, that are excessively punitive. I appreciate from the Taxation Department's point of view that they have little options when it comes to the fact that people fail to file taxation returns. Their - I think it was put to me on one occasion, perhaps not in this matter, that the Tax Department often find themselves on a merry-go-round of having to file notices, bring the Defendant back to - for failing to comply with notices and then Court orders and then start all over again. That's not something the Court can resolve. It's a matter for legislation, if the Taxation Department believe they want better penalty - a better penalty structure."

14 But general acceptance of the respondent's poor financial state did not warrant the imposition of a penalty amounting to $200 for each charge. The applicant had not advanced material supportive of a finding that he was without means or assets. He had not declared details of the family trust. He was a legal practitioner with two previous convictions, with a history of non-compliance in the furnishing of returns and who, at the date of hearing, had still to file the relevant returns. The penalty imposed would not have operated to ensure future compliance. An option open to the learned magistrate was that of imposing an effective sanction with a portion suspended, so as to reflect limited means, and to ensure future compliance. The course adopted by the learned magistrate did not adequately reflect the penalty regime laid down by Parliament in its enactment of the Act, s8E(3) (Collins v Denton (1987) 85 FLR 139).

15 In my opinion, the penalties imposed, both as components and in total, were manifestly inadequate. The parties have agreed that the matter should not be remitted to the learned magistrate and that this Court should substitute its own penalty. The parties will be afforded the opportunity to make submissions in relation to the appropriate penalty.

16 The motion to review is upheld and the order of the learned magistrate in imposing fines of $200 in respect of each charge is quashed.