Darghaw Pty Ltd v Chief Commissioner of State Revenue [2024] NSWCATAD 257

Background

The Applicant operates hospitality businesses. The liabilities arose out of non-payments and underpayments of payroll tax payable under the Payroll Tax Act 2007 (NSW) (“PT Act”) relating to those business operations between July 2020 and July 2023. The payroll tax liability itself was not in dispute in these proceedings, only interest and penalty tax. The Applicant claimed its tax default stemmed from COVID-19 disruptions (which commenced in early 2020) and was therefore outside of its control. Moreover, it contended that despite its default, it took reasonable care.

The types of disruptions claimed by the Applicants included:

• During lockdowns, the Applicant’s hospitality businesses did not operate at all.
• Ill-preparedness of the Applicant’s finance staff to work from home at the start of the pandemic.
• Loss of 100% of their former payroll staff.
• Loss of 70% of their total former payroll staff.
• Approximately one-year long transition to cloud-based software and file-management.
• Confusion regarding JobKeeper and JobSaver payment programs.

The Statutory Framework

Section 21 of the Taxation Administration Act 1996 (“TA Act”) provides that a taxpayer is liable to pay interest on any unpaid tax. This interest is calculated daily from the tax’s due date until the day it is paid. Section 25(1) of the TA Act, prior to its amendment, provided that the Chief Commissioner may, in circumstances it deems appropriate, remit the market rate or premium component of interest, or both, by any amount.

Section 27(1) of the TA Act provides that the amount of penalty tax payable for a tax default is 25% of the amount of unpaid tax. Section 33 of the TA Act broadly allows the Chief Commissioner to remit penalty tax by any amount, in circumstances he considers appropriate.

Section s. 60(1) of the Civil and Administrative Tribunal Act 2013 (NSW) (“CAT Act”) states that each party pays its own costs in Tribunal proceedings but allows, in s. 60(2), for the Tribunal to award costs if it is satisfied that there are special circumstances. Section 60(3) lists those special circumstances to which the Tribunal may have regard.

Submissions

The Applicant submitted that despite its failure to pay payroll tax on time, it took reasonable care. It submitted that the “exceptional circumstances” of the COVID-19 pandemic, which disproportionately affected the Applicant’s hospitality business, created delays outside of its control. In particular, the Applicant submitted that the COVID-19 pandemic caused staff shortages and meant the Applicants employees were unable to physically receive mail addressed to the office address due to COVID-19 lockdowns (at [37]).

Furthermore, the Applicant submitted that several factors delaying its payment were the fault of the Chief Commissioner, including:

• Difficulty in using the online portal;
• Payments made were allocated incorrectly across the Applicants’ accounts by RNSW;
• RNSW sent correspondence in hard copy to the Applicant sand there were challenges in the Applicants retrieving posted mail from its office building due to the pandemic restrictions at [45];
• RNSW made errors in tracking and recording of the Applicant’s debts, leading to undue delay.

The Chief Commissioner submitted that the Applicant did not take reasonable care (at [53]):

• RNSW contacted the Applicant numerous times warning them that payroll tax payments were overdue, but no response was received.
• The Applicant did not contact RNSW regarding its outstanding payroll tax until February 2023, well after the pandemic restrictions were in place.
• The Applicant did not update their contact details with RNSW to enable them to receive correspondence by email.
• The Applicant provided no evidence that they made diligent efforts to understand and comply with the law, including seeking advice regarding the impact of JobKeeper and JobSaver payments on its payroll tax liability.
• The Applicant did not maintain adequate payroll systems that enabled them to comply with their payroll tax obligations.
• The Chief Commissioner submitted that were no special circumstances which warranted deviation from the default 25% penalty that he originally assessed.

Decision

Interest

The Chief Commissioner accepted that the COVID-19 pandemic created difficulties for the Applicants, especially during 2020 (at [57]). However, most of the Applicants tax default occurred between early 2021 and July 2023, rather than at the height of the pandemic. The Tribunal therefore could not accept that the pandemic adequately explained the tax defaults (at [58]). Moreover, while the JobKeeper and JobSaver programs added complexity, the Applicants approach to the programs was that they did not attract payroll tax and therefore the Tribunal attributed little weight to the added complexity and work involved in managing these programs (at [59]).

The Tribunal found the Applicant failed to show reasonable care in relation to receipt of correspondence from RNSW. The Applicant did not request that mail be delivered electronically, nor did it arrange for personnel to physically collect mail from its offices or hire additional staff to assist [60].

The Tribunal also considered RVO Enterprises Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 64 and concluded there was no evidence the Applicant took professional advice in relation to their taxation obligations [62] and did not sufficiently cooperate with the Chief Commissioner until after February 2023.

Penalty tax

The Tribunal found that s. 27(3)(a) of the TA Act did not operate because the Applicant did not take reasonable care in paying their payroll tax liabilities on time. Moreover, as s. 27(3)(b) provides, the Applicants non-payment would have needed to be solely caused by factors outside of its control, which was not the case (at [76]).

The Tribunal concluded that the Chief Commissioner was correct in not remitting penalty tax under s 33 of the TA Act. In this regard, the Tribunal noted the Applicants lack of reasonable care and found the long delay before the Applicants engaged with RNSW especially persuasive at [80].

Costs

The Chief Commissioner made an application for costs for the preparation in relation to the initial hearing date in June 2024, which was vacated 48 hours prior to that hearing, on request from the Applicant. The Tribunal rejected that circumstances of a short delay in the hearing (June to August) warranted an award of costs stating this preparation would have been necessary regardless of the date of the hearing. In addition, the Tribunal found that preparation for cross-examination of witnesses that did not eventuate, could not be considered exceptional. The Tribunal made no order as to costs.

Orders

The assessments of the Respondent under review are confirmed.

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