Kolistasis & Anor v Deputy Commissioner of Taxation; Wade & Anor v Deputy Commissioner of Taxation

Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271; Deputy Commissioner of Taxation v McArdle [2003] QCA 282; CASES CITED: Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370; Forsyth v Deputy Commissioner of Taxation [2004] NSWCA 474.

George Kolistasis & Chris Kolistasis - Claimants/Appellants (Matter No 40536/04) PARTIES: Michael David Wade & Malcolm Butt - Claimants/Appellants (Matter No 40537/04 Deputy Commissioner of Taxation - Opponent/Respondent (Both matters)

AJL Ogborne - Claimants/Appellants COUNSEL: RS Quinn - Opponent/Respondent

Paul Bard Lawyers - Claimants/Appellants SOLICITORS: ATO Legal Practice - Opponent/Respondent

LOWER COURT FILE NUMBER(S): DC 6570/02; DC 377/03

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40536/04 CA 40537/04

MASON P GILES JA YOUNG CJ in EQ

Wednesday 25 May 2005 KOLISTASIS & ANOR v DEPUTY COMMISSIONER OF TAXATION WADE & ANOR v DEPUTY COMMISSIONER OF TAXATION Judgment 1 GILES JA: In two proceedings in the District Court the Deputy Commissioner of Taxation claimed from Messrs George and Chris Kolistasis, directors of Waste Recyclers Pty Ltd, and from Messrs Michael Wade and Malcolm Butt, directors of Gusdell Pty Ltd, amounts of PAYG deductions made by the companies from their employees' salaries and wages but not remitted to the Commissioner. Twigg DCJ gave judgment for the Commissioner against the Messrs Kolistasis for $90,145.93 and against Messrs Wade and Butt for $48,880.02. These were applications for leave to appeal from his Honour's decisions, with full submissions so that if leave were granted the appeals could be decided without a further hearing. The question was whether the directors' liabilities to pay the amounts came to an end, by force of s 222AOG of the Income Tax Assessment Act 1936, when Waste Recyclers Pty Ltd and Gusdell Pty Ltd went into liquidation and administration respectively. 2 The directors' liabilities arose under Division 9 of Part VI of the Act. The parties agreed upon the version of the Act applicable in the proceedings. 3 In Subdivision B, s 222ANA(1) stated that the purpose of the Division was to ensure that a company either met its taxation obligations to which the subsection referred or went promptly into administration or liquidation. By s 222ANA(2) and (3) - " (2) The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.

(3) A penalty recovered under this Division is applied towards meeting the company's obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty." 4 The taxation obligations referred to in s 222ANA(1) included the deduction and remittal of PAYG amounts pursuant to the Taxation Administration Act 1953. By s 222AOA of the Act, the provisions in Subdivision B applied if, amongst other matters, a company made deductions "having a particular due date". This picked up provisions of the Taxation Administration Act as to due dates for remitting deductions. The sections of the Act on which the question turned were in Subdivision B. 5 By s 222AOB - " Directors to cause company to remit or to go into voluntary administration or liquidation - deductions and amounts withheld

(1) The persons who are directors of the company from time to time on or after the first deduction day must cause the company to do at least one of the following on or before the due date: (a) comply with its obligations in relation to deductions (if any) and amounts withheld (if any) whose due date is the same as the due date;

(b) make an agreement with the Commissioner under section 222ALA in relation to the company's liability under a remittance provision in respect of such deductions (if any) and amounts withheld (if any);

(c) appoint an administrator of the company under section 436A of the Corporations Act 2001 ;

(d) begin to be wound up within the meaning of that Act.

(1A) For the purposes of paragraph (1)(a), the obligations are: (a) to comply with Division 1AAA, 3B or 4, as the case may be, in relation to each deduction (if any): (i) that the company has made for the purposes of Division 1AAA, 3B or 4; and (ii) whose due date is the same as the due date; and (b) to comply with Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 in relation to each amount that the company has withheld (if any): (i) for the purposes of Division 12 of that Schedule; and

(2) This section is complied with when: (a) the company complies as mentioned in paragraph (1)(a); or

(b) the company makes an agreement as mentioned in paragraph (1)(b); or

(c) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001 ; or

(d) the company begins to be wound up within the meaning of that Act; whichever first happens, even if the directors did not cause the event to happen.

(3) If this section is not complied with on or before the due date, the persons who are directors of the company from time to time after the due date continue to be under the obligation imposed by subsection (1) until this section is complied with." 6 Section 222AOBAA and 222AOBA made broadly similar provision in relation to other matters in s 222AOA. 7 Section 222AOC(1) provided as to unremitted deductions- " Penalty for directors in office on or before due date

(1) 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 or amounts withheld: (a) that the company has deducted for the purposes of Division 1AAA, 3B or 4 of this Act, or withheld for the purposes of Division 12 in Schedule 1 to the Taxation Administration Act 1953 (as the case requires); and (b) whose due date is the same as the due date." 8 Section 222AOC(1A) and (2) made like provision as to non compliance with ss 222AOBAA and 222AOBA 9 Then by s 222AOE - " Commissioner must give 14 days' notice before recovering penalty

The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision 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 subsection 222AOC(1), (1A) or (2) (whichever relates to the penalty); and

(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: (i) the liability has been discharged; or

(ii) an agreement relating to the liability is in force under section 222ALA; or

(iii) the company is under administration within the meaning of the Corporations Act 2001 ; or

(iv) the company is being wound up." 10 Finally, by s 222AOG - " Remission of penalty if section 222AOB, 222AOBAA or 222AOBA complied with before notice period ends

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

(b) section 222AOB, 222AOBAA or 222AOBA (whichever relates to the penalty) 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;

the penalty is remitted because of this section." 11 The facts as to Waste Recyclers Pty Ltd can be taken for decision of the question. 12 Under the Taxation Administration Act, Waste Recyclers Pty Ltd was required to make PAYG deductions from its employees' salaries and wages and to remit the amounts deducted to the Commissioner by the end of the twenty-first day of the month after the end of the quarter. That day was the due date. 13 Between 1 January 2001 and 30 September 2001 Waste Recyclers Pty Ltd made PAYG deductions totalling $124,412 from its employees' salaries and wages. $34,266.07 was remitted to the Commissioner. The balance of $90,145.93 was not. Between 1 October 2001 and 31 March 2002 it made PAYG deductions totalling $47,551 from its employees' salaries and wages. None of this amount was remitted to the Commissioner. None of the events in s 222AOB(1)(b), (c) or (d) occurred. 14 The Commissioner served on each of the Messrs Kolistasis notices conforming to s 222AOE, being -

(i) a notice dated 3 October 2001 detailing unpaid amounts of $31,308 for the January-March 2001 quarter and $51,321 for the April-June 2001 quarter;

(ii) a notice dated 30 November 2001 detailing an unpaid amount of $41,783 for the July-September 2001 quarter; and

(iii) a notice dated 31 July 2002 detailing amounts of $29,427 for the October-December 2001 quarter and $18,124 for the January-March 2002 quarter. 15 On 6 August 2002 an order was made that Waste Recyclers Pty Ltd be wound up. 16 On 15 August 2002 the Commissioner commenced proceedings in the District Court, claiming from the Messrs Kolistasis $90,145.93, being the amounts of $31,308, $51,321 and $41,783 less $34,266.07 received from Waste Recyclers Pty Ltd. 17 The facts as to Gusdell Pty Ltd were materially the same. It was required to remit deductions monthly. Two notices were served detailing unpaid amounts. A third notice was served detailing further unpaid amounts. Gusdell Pty Ltd went into administration within 14 days of service of the last-mentioned notice. The Commissioner commenced proceedings claiming the amounts in the earlier notices less payment received from the company. 18 Hence the question for decision. Penalties were payable by the directors. They became liable, pursuant to s 222AOC, when the respective companies did not remit the PAYG deductions on or before the quarterly or monthly due dates and none of the events in s 222AOB(1)(b), (c) or (d) occurred. Section 222AOB was later complied with, in that Waste Recyclers Pty Ltd went into liquidation and Gusdell Pty Ltd went into administration. The Commissioner accepted that the penalties the amounts of which were detailed in the notices served within the preceding 14 days were remitted. The directors contended that the operation of s 222AOG was such that all penalties were remitted. 19 There is no doubt that there could be compliance with s 222AOB even after the due date. The directors submitted that, on the plain words of s 222AOG, compliance within fourteen days after service of the third notices remitted all penalties payable by them. They said that compliance with s 222AOB was not tied to any particular notice and that, the Act being relevantly taxing and penal, the plain words should be given effect. And they said that this operation of s 222AOG gave effect to the purpose of Division 9 as set out in s 222ANA, because the Commissioner should act promptly to recover the amount of unremitted deductions, could himself take action to wind up a defaulting company and by Division 8 of the Act had been given enhanced ability to initiate recovery action, and could not complain if he chose to give another notice and thereby brought a director's liability to an end. The purpose of the Division was given effect because the director remained under the incentive to bring about compliance with s 222AOB, so it was submitted, even if there was the prospect of remission pursuant to s 222AOG at a later time, in particular because the director could not be sure that a notice under s 222AOE would be served whereby the director could take advantage of the operation of s 222AOG by bringing about compliance with s 222AOB. 20 Although the directors shrank from it, it should be noted that giving entirely literal effect to s 222AOG would arguably mean that there was remission of a penalty even if the notice given by the Commissioner was unrelated to the company in question. I certainly do not rest my conclusion on this. Despite the attractive arguments presented by Mr Ogborne on behalf of the directors, I do not think that their submission should be accepted. 21 Section 222AOC gave rise to discrete penalties with respect to each of the quarters or months and its due date, see Forsyth v Deputy Commissioner of Taxation [2004] NSWCA 474 at [49] - [53]. In that case it was unsuccessfully argued that a notice under s222AOC was invalid because it detailed the unpaid amounts for two months and omitted the unpaid amounts for earlier months. Spigelman CJ, with whom Gzell J and I agreed, said at [49] - "The statutory duty to pay arises anew each month with respect to the total of the deductions made in the previous month. Each such liability is discrete and can be the subject of a separate notice or, as in the present case, a notice for more than one month." 22 The notices have been described as notices before action, see Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at [16], [19], [34]; Deputy Commissioner of Taxation v McArdle [2003] QCA 282 at [14] - [15]; Forsyth v Deputy Commissioner of Taxation at [41] - [42]). A notice not create or change a director's liability. As earlier noted, more than one quarter or month could be dealt with in the one notice, provided the discrete unpaid amounts were detailed, see Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271 at 274. In Subdivision B a penalty was a liability for deductions which were not remitted on or before a particular due date, and in the present case there were a number of discrete penalties. 23 In my opinion, s 222AOG applied distributively, to each penalty and notice detailing the unpaid amount. Compliance with s 222AOB brought remittal of each penalty in respect of which notice had not been given and of any penalty in respect of which notice had been given in the preceding fourteen days. As applied to the directors' penalties, notices had been given in respect of the unpaid amounts claimed by the Commissioner in the proceedings, but more than fourteen days before liquidation or administration. Hence there was no remission of the penalties detailed in those earlier notices. 24 This seems to me to follow from the scheme of Division 9 with its provision for discrete liabilities. It is also, in my opinion, reflected in the notice for which s 222AOE provided. By s 222AOE, the notice had to state that the person was 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 … ". The unpaid amount was the unpaid amount of the particular penalty the subject of the notice or, if the notice covered more than one penalty, the penalties the subject of the notice. The notice referred to remission only of the particular penalty or penalties, not of other penalties which may have been the subject of earlier notices. 25 The operation of s 222AOG for which the directors contended did not to my mind give effect to the purposes of Division 9. There is no reason why service of a notice in respect of the amount of later unremitted deductions, and no more, should trigger irrecoverability of the amounts of earlier unremitted deductions. In saying this I stress the words "and no more", as the position could well be different if a notice were served which took up and repeated the unpaid amount or amounts of penalties the subject of earlier notices. If service of a notice had this operation, the Commissioner would be in a very difficult position. By giving notice before action to recover the amount of later unremitted deductions, he would enable a director to bring to an end liability for the amounts of earlier unremitted deductions. I do not think that is consistent with the scheme to be discerned in Subdivision B, by which a director incurs a discrete liability, cannot be sued without a statutory notice detailing the liability, and has a last chance to negate that discrete liability. 26 In this connection it could be said that, where under s 222AOG all penalties payable were remitted if there was compliance with s 222AOB at a time when the Commissioner had not given the director notices under s 222AOE in relation to those penalties, the provision should have a similar effect if there was timely compliance after a notice had been given following earlier notices. The answer to that, it seems to me, is that the purpose of a notice was to give the director the last chance to negate the discrete liability. If the director had been given that chance by earlier notices and had not taken it, it seems to me that the legislature intended that the director should remain liable, and that the penalty would not be remitted because the director took the last chance to negate the discrete liability in relation to the subsequent notice. 27 In my opinion, therefore, the directors' position cannot be accepted. In order that the question be authoritatively decided, I consider that there should be leave to appeal, but the appeal should be dismissed with costs. 28 I therefore propose the orders in each of the applications - 1. Grant leave to appeal;

2. Direct that the claimants file their notice of appeal within seven days;

4. Claimants/appellants to pay the costs of the opponent/ respondent. 29 MASON P: I agree. 30 YOUNG CJ in EQ: I also agree and would just add my compliments to Mr Ogborne who put forward stronger arguments than I would have thought possible before he started. 31 MASON P: The orders of the Court will be as indicated. **********

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.