Perdikaris v Deputy Commissioner of Taxation

Legislation - 1996 to 1999 years 10 Section 221H of the Assessment Act, in the form it took in these years, was in part as follows: (2) Subsections (3) to (5) apply if: (a) an employer has made any deductions in respect of an employee under this Division … during a year of income; and (b) an assessment has been made of the tax payable … by the employee … in relation to the year of income. (3) If the sum of the deductions … is less than or equal to the tax payable, the Commissioner must credit the sum in payment or part payment of the tax. (4) If the sum is more than the tax, the Commissioner must: (a) credit so much of the sum as is required in payment of: (i) firstly, the tax; and (ii) secondly, any other liability of the employee … to the Commonwealth that arises under or because of an Act of which the Commissioner has the general administration; and (b) pay to the employee … an amount equal to any excess. … (4B) The employee … is taken to have paid any amount credited by the Commissioner in payment of the tax or other liability, at the time at which the Commissioner credits the sum or at any earlier time that the Commissioner determines. (5) If the … sum credited … by the Commissioner exceeds the amount to which the employee … is entitled, the Commissioner may recover the excess as if it were income tax due and payable by the employee …

Legislation - 2000 year 11 As amended during 1999 s 221H provided in part: (2) If: (a) an employer has made any deductions in respect of an employee under this Division during a year of income; and (b) an assessment has been made of the tax payable … by the employee in relation to the year of income; the employee is entitled to a credit equal to the sum of the deductions. … (4B) The employee … is taken to have paid any amount credited by the Commissioner in payment of the tax or other liability, at the time at which the Commissioner credits the sum or at any earlier time that the Commissioner determines. (5) If the … sum credited … by the Commissioner exceeds the amount to which the employee … is entitled, the Commissioner may recover the excess as if it were income tax due and payable by the employee …

Legislation - 2001 to 2003 years 12 Section 18‑15(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the Administration Act), in the form it took in these years, provided in part: A person is entitled to a credit equal to the total of the amounts withheld from withholding payments made to the person during an income year if: (a) an assessment has been made of the income tax payable by the person for the income year … The expression "amount withheld" by an entity from a "withholding payment" is defined in s 995‑1 of the Income Tax Assessment Act 1997 (Cth), so far as presently material, as: an amount that the entity withheld from the payment under Division 12 in Schedule 1 to the Taxation Administration Act 1953 … The expression "withholding payment" is defined, so far as presently material, as: a payment from which an amount must be withheld under Division 12 in Schedule 1 to the Taxation Administration Act 1953 (even if the amount is not withheld) … 13 Division 3 of Part 11B of the Administration Act (which consists of ss 8AAZL to 8AAZLE) deals, amongst other things, with the treatment of credits. Section 8AAZL(1)(b) says that the Division sets out how the Commissioner "must treat … a credit (including an excess non‑RBA credit) that an entity is entitled to under a taxation law". The word "credit" is defined (in s 8AAZA) so as to include an amount the Commissioner must pay to a taxpayer under a taxation law, whether or not described as a credit. The Commissioner must treat a credit using the method set out in s 8AAZLA or s 8AAZLB, "but not both". The method in s 8AAZLA is by allocating the amount to a "Running Balance Account" (RBA) if one has been established by the Commissioner. The method in s 8AAZLB is by applying the amount first against any non‑RBA tax debt (being a tax debt not reflected in an RBA). It provides in part: (1) The Commissioner may, in the manner he or she determines, apply the amount against a non‑RBA tax debt of the entity … … (3) To the extent that the amount is not applied under subsection (1), it gives rise to an excess non‑RBA credit in favour of the entity that is equal to the part of the amount that is not applied. 14 Division 3A of Part 11B (which consists of ss 8AAZLF to 8AAZLH) deals, amongst other refunds, with the refund of credits. Section 8AAZLF(1) provides in part: The Commissioner must refund to an entity so much of: … (b) a credit (including an excess non‑RBA credit) in the entity's favour; as the Commissioner does not allocate or apply under Division 3. 15 Division 4 of Part 11B (which consists of ss 8AAZM to 8AAZN) contains miscellaneous provisions about tax debts. Section 8AAZM provides that a payment in respect of a tax debt is taken not to have been made until it is received by the Commissioner. Section 8AAZN provides that an "administrative overpayment" is a debt due to the Commonwealth by the person to whom it was made, is payable to the Commissioner and may be recovered in a court of competent jurisdiction by the Commissioner. The expression "administrative overpayment" is defined as an amount the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled.

ADJR application 16 The appellant claimed relief in respect of three matters: decisions to which the ADJR Act applies (s 5(1)), conduct in which the Commissioner is said to have engaged for the purpose of making decisions to which the ADJR Act applies (s 6(1)), and an alleged failure by the Commissioner to make decisions to which the ADJR Act applies (s 7). The decisions are identified as the Commissioner's decisions that the appellant is not entitled to PAYE credits or PAYG withholding credits for the years in question. The conduct is identified as the conduct "under which" the Commissioner has made the decisions. The failure is said to be the failure to allow the credits. 17 The main grounds in the application for review can be summarised as follows: · It was a condition of the power to make the decisions that the Commissioner must first have made an assessment of the tax payable by the appellant, and this was not done. · The Commissioner failed to ask herself and determine what were the assessable wages and salary of the appellant during the years in question and whether the amounts of the credits claimed were or were not part of those wages and salary. · The Commissioner acted on no evidence in concluding that the appellant had received the amounts of the claimed PAYE and PAYG deductions. · The Commissioner took into account irrelevant considerations, namely information available within the Tax Office that the company had not fulfilled either its obligation to deduct and remit the amounts of PAYE deductions or its obligation to report and remit the amounts of PAYG withholding deductions. 18 Other grounds related to the imposition of penalties. For reasons that appear at [42] and [43] it is not necessary to record them.

Objection to competency 19 The primary judge upheld the Commissioner's objection to the competency of the ADJR application. After referring to the observations of Gummow, Callinan and Heydon JJ in Griffith University v Tang (2005) 221 CLR 99 (Tang) at [89], his Honour said at [94]: Under the [PAYE] legislation … the respondent had no obligation to 'credit' any sums. The imperative 'must credit' was not employed. The legislation simply 'entitled' an employee to a credit equal to the sum of the deductions that had been made in respect of the employee. It was then for the Commissioner to credit the relevant sum of the deductions. At [95] he made the same point about the PAYG legislation, and continued at [96] to [99]: The obligatory crediting of the sums of the deductions in payment or part payment of the tax payable under an assessment, the entitlement of an employee to a credit equal to the sum of the deductions under the PAYE system and the entitlement of an employee to a credit equal to the total of the amounts withheld under the PAYG system did not form part of the assessment process. They were matters which were consequential upon the making by the Commissioner of assessments of the employee's taxable income and of the tax payable thereon. They were germane to the discharge by taxpayers, who had been employees in receipt of salaries or wages, of their tax liabilities, not to the determination of the relevant tax payable. True it is that a determination that an employer has not made PAYE deductions or that a payer has not withheld PAYG amounts from payments made to an employee will negate any obligation on the Commissioner to credit the sum of the deductions in payment or part payment of the relevant tax or deny the entitlement of the employee to a credit equal to the sum of the deductions or the total of the PAYG amounts withheld, but such a determination will not constitute a decision made under an enactment. In my opinion, the determinations did not answer the description of being decisions made under an enactment in the requisite sense as explained by Gummow, Callinan and Heydon JJ in Griffith University v Tang … They did not, in my opinion, by themselves confer, alter or otherwise affect legal rights or obligations and in that sense derive from the relevant enactment. Were the respondent to bring recovery proceedings against the applicant, the applicant would not be precluded by the determinations from asserting that his employer had made the relevant PAYE deductions or withheld the relevant PAYG amounts, for which he contends. All that the determinations do is deny the applicant the credits which he contends the Commissioner must make or to which he submits that he has become entitled, unless and until he establishes, he carrying the onus of proof, that his employer made the deductions or withheld the payments as claimed. 20 In Tang 221 CLR 99 at [89] the joint judgment said: The determination of whether a decision is "made … under an enactment" involves two criteria: first, the decision must be expressly or impliedly required or authorised by the enactment; and, secondly, the decision must itself confer, alter or otherwise affect legal rights or obligations, and in that sense the decision must derive from the enactment. A power to make a determination need not be express. It may be discerned as a matter of implication from the statute: Minister for Immigration and Ethnic Affairs v Mayer (1985) 157 CLR 290 and Tang 221 CLR 99 at [74]. Assuming in favour of the appellant that there is within s 221H an implication that the Commissioner is to determine whether an employer has made deductions in respect of an employee, so that the first criterion is satisfied, the second is not. 21 In our view the primary judge was correct when, in the last paragraph in the passage set out at [19], he explained why the Commissioner's conclusion as to the deductions did not affect the appellant's legal rights or obligations. In proceedings in a court of competent jurisdiction to recover the amount of the assessments, the appellant would be at liberty to prove that his employer made the deductions or withheld the amounts. The Commissioner's determinations are no barrier to that. The primary judge correctly upheld the Commissioner's objection to competency.

Review grounds 22 Notwithstanding the primary judge's view that the application for review was incompetent, his Honour went on to consider some of the grounds in the application for review, as well as the issues thrown up by the alternative claim under s 39B(1) of the Judiciary Act. In case we are wrong in sustaining the primary judge's upholding of the objection to competency, we will consider the grounds of appeal other than ground 8 (the competency ground), which were fully argued.

Ground 1 23 The first ground is that the primary judge erred in admitting into evidence an affidavit of Farisha Ali. This affidavit was directed to whether exhibit "CS1" to the affidavit of Constantine Savell sworn on 2 April 2007 was an RBA under the Administration Act or an itemised statement of account. Ms Ali is employed in the Australian Taxation Office as an Executive Level 2, Australian Public Servant. She is a tax technical officer in the Micro Enterprises and Individuals business line of the Australian Taxation Office. Her affidavit discloses that she has an awareness of the systems whereby electronic and other records of the Office are maintained. Based on this experience she expressed the opinion that exhibit "CS1" was not an RBA but an itemised statement of account. The appellant contends that Ms Ali's opinion was not expert evidence, was not supported by appropriate qualifications, disclosed no basis for the opinions, and usurped the Court's function. The primary judge referred to s 8AAZC(1) of the Administration Act, which empowers the Commissioner to establish RBAs. A note to subs (1) states that s 8AAZC does not prevent the Commissioner from establishing other accounts that are not RBAs. The primary judge found that Ms Ali was "eminently qualified to indicate whether or not, in respect of a particular taxpayer, the Commissioner had established a system of accounts for primary tax debts of the taxpayer". 24 We do not need to decide whether Ms Ali's opinion was admissible as expert evidence under s 79 of the Evidence Act 1995 (Cth). That is because the primary judge's finding about Ms Ali was not something upon which his ultimate conclusion depended. At [113] he found it unnecessary to decide whether the document in question was an RBA "or as to the consequences which may have flowed from it being such an account".

Grounds 2.1, 2.2 and 4 25 Ground 2 contends that the primary judge erred in not upholding various grounds in the ADJR application. These grounds are numbered 2.1 through 2.10. Grounds 2.1 and 2.2, along with 4, can be dealt with together. Ground 2.1 is that before the Commissioner could make her decision about the deductions, she needed first to have made an assessment of the tax payable by the appellant, and this she did not do. Of this ground the primary judge said at [92]‑[93]: Under the relevant legislation [ie s 221H] the Commissioner was not obliged to credit any sum in payment or part payment of the relevant tax unless, firstly, the relevant employer had made PAYE deductions from which the sum of the deductions could be derived and, secondly, the Commissioner had assessed the amount of tax payable by the relevant employee, to the payment or part payment of which the sum of the deductions could be applied. Plainly, until the relevant notices of assessment were issued, the occasion for the Commissioner to credit sums could not have arisen. But this did not preclude [the Commissioner] from addressing, before the notices of assessment were issued, whether the relevant employer had 'made any deductions' in respect of the relevant employee in the years in question. 26 There is nothing in s 221H that requires the Commissioner to first assess the tax payable before deciding whether a deduction has been made by the employer. What subs (2) provides is that subss (3) to (5) apply only if two things happen: an employer has made deductions and an assessment has been made of the tax payable by the employee. Once those things have occurred, the Commissioner is in a position to do the things he or she is obliged or entitled to do. If the deductions are less than or equal to the tax payable, the Commissioner must credit the sum of the deductions in payment or part payment of the tax: subs (3). If the deductions total more than the tax, the Commissioner must credit so much as is required in payment of the tax and pay the residue to the employee: subs (4). There is nothing about subs (2) that suggests that there must be an assessment before there can be a determination as to deductions. Indeed the sequence of pars (a) and (b) in subs (2) is to the contrary. Grounds 2.2 and 4 are covered by what we have said about ground 2.1. It was not suggested that there was any difference for present purposes between s 221H and s 18‑15 of Schedule 1 to the Administration Act. 27 Unless s 221H(2)(a) is satisfied, one goes no further. Subsections (3) to (5) do not apply. Accordingly, the assistance the appellant sought to derive from subs (4B) is not available.

Grounds 2.4 and 3 28 Grounds 2.4 and 3 can be dealt with together. Ground 2.4 is that the Commissioner acted on no evidence in concluding that the appellant had received the amounts of the claimed deductions. However, what the Commissioner concluded was that deductions had not been made or withheld by the appellant's employer. She did not conclude that the appellant had received the amounts of the claimed deductions. 29 Ground 3 is that the primary judge erred in holding that whether the appellant received the whole of his assessable income from his employer was irrelevant. The appellant contends that it was in fact "the key thing" the Commissioner had to decide. At [50] his Honour said: On the applicant's own evidence the conclusion is inescapable that, in the eight relevant years of income, he derived assessable income as disclosed by him in the several returns which he lodged, declaring the information therein to be 'true and correct'. Whether he received the whole of his assessable income from his employment with whomsoever may have been his employer in cash or in some other form is irrelevant. This case is only concerned with his entitlement to credits against his tax liability for deductions said to have been made or amounts said to have been withheld by his relevant employer. 30 His Honour's statement that whether the appellant received the whole of his assessable income from his employer was irrelevant is directed to what was and what was not involved in the proceeding before him. What was not involved, because of s 177 of the Assessment Act (see [37]), was any question about the appellant's income in the relevant years. What was in issue was his entitlement to credits for deductions said to have been made or amounts said to have been withheld by his employer. The passage quoted at [29] involves no error.

Grounds 2.5 and 7 31 Grounds 2.5 and 7 can be taken together. Both claim a denial of procedural fairness. It is said that the Commissioner did not call for comment by the appellant on adverse evidence the Commissioner proposed to take into account, and did not identify the material issues and call on the appellant to address them. It may be doubted whether s 221H gives rise to a requirement for procedural fairness. However the case was argued on the assumption that it does, and we will proceed on that basis. Grounds 2.5 and 7 have no substance. Their formulation overstates the obligation on the Commissioner to accord procedural fairness. What she was required to do was to ensure that the appellant knew what her concerns were and afford him the opportunity to deal with them. This she did. The primary judge was correct to say (at [101]): The applicant was afforded an opportunity to put information and submissions to [the Commissioner] in support of an outcome that supported his interests. In my opinion it was not incumbent upon [the Commissioner] to afford the applicant an interview before making the determinations which she made. 32 The Commissioner's letter to the appellant of 28 September 2006, set out at [42] in the primary judge's reasons, disclosed the matter that was concerning the Commissioner - how to deal with the appellant's claim for PAYE TIDs. It requested details of all salaries and wages paid and deductions made from payments during the years ended 30 June 1996 and 1998 to 2000. Documentary evidence to support entitlements to deductions was called for. The letter also asked for details of any remitted deductions, and the name of the employer by whom they were made. The letter concluded: If you are unable to provide evidence that the salary and wages payments have been made and PAYE tax instalments deducted, then we may be unable to allow any PAYE TID credit claimed by you in your income tax returns. 33 Similar letters had earlier been sent to the appellant in relation to the 1997 year (17 March 2006, set out at [82] of the primary judge's reasons), and in relation to the 2001‑2003 years (also on 17 March 2006, set out at [83] of the reasons). Each of those letters also concluded with the sentence set out at [32] above. 34 This correspondence clearly and repeatedly alerted the appellant to the issue the Commissioner was concerned about, and what he would need to do to allay that concern. He was afforded every opportunity to do so. There was no denial of procedural fairness.

Grounds 2.6 and 2.7 35 Grounds 2.6 and 2.7 assert that that Commissioner took into account an irrelevant consideration, namely information within the Tax Office that the company had not fulfilled its obligation to deduct and remit PAYE and PAYG deductions during the relevant years. In Telstra Corporation Ltd v Seven Cable Television Pty Ltd (2000) 102 FCR 517 at [137] the Full Court said: For a consideration to be irrelevant in this sense the statute must expressly or impliedly prohibit consideration of it - Minister for Aboriginal Affairs v Peko‑Wallsend at 40; R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45 at 49‑50. 36 The primary judge dealt with this issue at [88], by saying: A failure to remit will not, of itself, establish that there was a failure to make the requisite PAYE deductions, but a non‑remittal will legitimately put into question whether deductions were made. We agree with that observation. Having regard to the failure to remit was not expressly or impliedly prohibited by the legislation, and accordingly did not involve the Commissioner taking into account an irrelevant consideration.

Ground 5 37 Ground 5 claims that the primary judge erred in treating s 177 of the Assessment Act as relevant to a consideration of the validity of decisions to make PAYE deduction credits or PAYG withholding credits. Section 177(1) provides: The production of a notice of assessment, or of a document under the hand of the Commissioner … purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. 38 His Honour did not treat s 177 as relevant to the deduction issue. At [52], in the course of dealing with the appellant's submission at [51] that the Commissioner decided that the amounts claimed to have been deducted or withheld "were in fact paid by the employer and received by the employee", his Honour referred back to his earlier examination of s 177 and the case law thereon, and repeated that the notices of assessment "have a conclusive evidentiary character both in respect of the due making of the assessments and that the amounts and all the particulars of the assessments were correct". There s 177 was left. It was not employed by his Honour in connection with his consideration of the validity of decisions to make deductions or credits.

Ground 6 39 Ground 6 is that the primary judge erred in holding that "an entitlement to a credit does not oblige the Commissioner to make a credit". The appellant refers in this connection to his Honour's reasons at [94]: Under [s 221H, the Commissioner] had no obligation to 'credit' any sums. The imperative 'must credit' was not employed. The legislation simply 'entitled' an employee to a credit equal to the sum of the deductions that had been made in respect of the employee. It was then for the Commissioner to credit the relevant sum of the deductions. This ground misunderstands what his Honour said. All he was doing was drawing a distinction between a provision imposing an obligation on the Commissioner to make a decision as to whether a taxpayer was entitled to a credit and s 221H, which conferred an entitlement to a credit on a taxpayer but did not require the Commissioner to decide whether that entitlement existed. His Honour considered the distinction relevant to whether there was any decision made under an enactment. See the Commissioner's submission recorded by his Honour at [73].

Ground 9 40 Ground 9 attacks the primary judge's observation at [110] that were the appellant otherwise entitled to constitutional writ relief, he would have refused relief in the exercise of his discretion. He referred to the observations of Gaudron and Gummow JJ in Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82 at [43]‑[62] and in particular [53]. In view of the fact that no other ground of appeal has been made out, there is no occasion for us to deal with this ground. 41 The s 39B claim for constitutional writs was bound to fail if all the ADJR claims failed. Indeed it is difficult to see that it was a viable claim in view of the fact that the Commissioner had not made a decision under an enactment. In any event, as the primary judge pointed out at [101] and [107], there was no failure to accord procedural fairness, the Commissioner did not identify a wrong issue, ask the wrong question, ignore relevant material, or rely on irrelevant material to make an erroneous finding or reach a mistaken conclusion. There was no jurisdictional error.

Penalties 42 Three grounds of appeal (2.8, 2.9 and 2.10) assert error in the primary judge's treatment of attacks on the Commissioner's imposition of penalties in the 2001‑2003 years. At [112] his Honour said: [I]t should be observed in relation to the applicant's challenges to the assessment of penalties … that such challenges were restricted by s 298‑30 of Schedule 1 to the Administration Act to proceedings under Part IVC of the Administration Act on a review or appeal relating to the assessment. The application for an order for review presently before the Court is not such a proceeding. 43 His Honour thus correctly summarised the effect of s 298‑30(1) of Schedule 1 to the Administration Act, which provides: (1) The Commissioner must make an assessment of the amount of an administrative penalty under Division 284. (2) An entity that is dissatisfied with such an assessment made about the entity may object against it in the manner set out in Part IVC of the Taxation Administration Act 1958. (3) The production of a notice of such an assessment, or of a copy of it certified by or on behalf of the Commissioner, is conclusive evidence of the making of the assessment and of the particulars in it. (4) Subsection (3) does not apply to proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment. (Emphasis added)

Conclusion 44 None of the grounds of appeal has been made out, and the appeal must be dismissed. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Sundberg, Jessup and Tracey.

Associate: Dated: 5 December 2008 Counsel for the Appellant: DE Grieve QC, DA Smallbone and J Cohen

Counsel for the Respondent: N Williams SC and G Johnson

Solicitor for the Respondent: Australian Government Solicitor