O’Neill Tyres Gateshead Pty Ltd & Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2020] NSWCATAD 314
Background
The Applicants each carry on a business of selling motor vehicle tyres at various locations in the Hunter Valley. The Applicants had been grouped for payroll tax for a number of years and on two occasions sought unsuccessfully to be degrouped, in 2012 and again in 2015.
The Applicants ceased lodging monthly and annual payroll tax returns between July 2015 and August 2018.
The Chief Commissioner, from August 2015, wrote to the applicants’ accountant on a monthly basis concerning their outstanding monthly payroll tax payments and warned that a failure to pay tax would result in the issuing of assessments, including interest and 25% penalty tax.
On and from 29 April 2016, the Chief Commissioner issued estimate payroll tax assessments, which included interest and penalty tax.
Following their unsuccessful objection to being grouped in February 2016, the Applicants applied to NCAT for a review of the Chief Commissioner’s decision. In May 2017, one of the Applicants made a part-payment of tax.
On 15 December 2017, in Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 368, the Tribunal confirmed the Chief Commissioner’s decision. The Applicants appealed to the NCAT Appeal Panel on 2 January 2018. On 8 June 2018, the Appeal Panel in Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2018] NSWCATAP 147 dismissed the appeal.
On 15 November 2018, the applicants’ accountants lodged objections to the Chief Commissioner’s decision to assess interest and penalty tax. The Chief Commissioner disallowed the objections.
On 11 October 2019, the Applicants filed an Application under s. 96 of the TAA, seeking a review of the Chief Commissioner’s determination disallowing the objection. During the hearing the Applicants indicated that they were no longer seeking the remission of interest charged by the Chief Commissioner.
The Statutory Framework
Division 2 of Part 5 of the Taxation Administration Act 1996 (NSW) (“TAA”) provides that if a tax default occurs, the taxpayer is liable to pay penalty tax of 25% of the tax unpaid, but the rate may be increased to a maximum of 90%, or reduced or remitted, depending on the circumstances.
The applicants’ submissions
The Applicants submitted that they should be relieved from paying penalty tax under s. 27(3)(a) of the TAA on the basis that they took reasonable care assessing their position and attending to their payroll tax obligations because:
- Written correspondence from Revenue NSW dated 10 November 1993 created an expectation that Cessnock would be degrouped;
- They engaged professional accountants, solicitors and senior counsel to provide advice;
- The accountants engaged in correspondence, applications and appeals with Revenue NSW;
- The taxpayers considered the matters raised by Revenue NSW in correspondence and addressed the factual issues;
- The taxpayer and Revenue NSW were in litigation before NCAT at the time of the tax becoming payable and the outcome of the litigation would have directly changed the tax position of all taxpayers;
- The taxpayers were clarifying and not avoiding their obligations and they should not be penalised; and
- Revenue NSW has said they were prepared to withdraw the interest if the dispute over the penalty tax was withdrawn.
The Chief Commissioner’s submissions
The Chief Commissioner submitted that the Applicants did not take reasonable care to comply with their ongoing payroll tax obligations during or after litigation ended in June 2018.
In particular, the Chief Commissioner submitted:
- The Applicants’ reliance on the 1993 letter did not constitute the taking of reasonable care because the letter was based on the facts and law during that time and the Applicants were not subject to a degrouping exclusion.
- The fact that the Applicants had professional advisors does not of itself constitute reasonable care. Additionally, the Applicants’ evidence did not disclose the content of the advisor’s advice and therefore no inference could be drawn they were acting in good faith.
- The fact that the Applicants asserted that they took reasonable care by “considering matters raised by the Chief Commissioner in correspondence and addressing the factual issues” did not constitute taking reasonable care.
- The Applicants’ tax defaults commenced prior to proceedings being brought before the Tribunal.
Decision
The Tribunal found that in the case of two of the Applicants, neither played an active role in relation to their payroll tax matters. Rather, this aspect of their affairs was completely delegated to their Accountants. The consequence of such delegation was identified by the Tribunal to change the focus in deciding whether reasonable care was taken, from the taxpayers to persons “… acting on behalf of the taxpayer”. Therefore, the question for the Tribunal was whether the Accountants had taken reasonable steps to comply with taxation law.
The Tribunal found that the Accountants had not taken reasonable steps to comply with taxation law. The Tribunal relied upon the Applicants’ failure to lodge regular payroll tax returns, pay payroll tax and their disregard of ss. 94 and 103 of the TAA, which require the meeting of assessed tax liabilities, even during the objection or review processes for those liabilities.
The Accountants’ confidence in a successful degrouping application did not alter these requirements, and reasonable care in the context of s. 27(3) of the TAA must include familiarising oneself with the effect of an objection or review on the taxpayer’s compliance and obligations. Such familiarisation must also extend to professional tax advisors. Therefore, the Tribunal found that the Applicants did not discharge their onus to prove that the Chief Commissioner had incorrectly determined that reasonable care was not taken.
In the case of the third Applicant, the Tribunal found that no evidence was provided which specifically related to the management of its payroll tax affairs during the Relevant Period. The Tribunal drew the inference, that given the common approach to payroll matters, its payroll tax affairs were likely to be managed in a similar manner to the other two Applicants. Because of this, the Tribunal found that the third Applicant also did not discharge its onus of proving that the Chief Commissioner had incorrectly determined that reasonable care was not taken.
The Tribunal considered the possibility of increasing the penalty tax assessed against the Applicants but ultimately decided against doing so on the basis that the immediate burden of any increase would fall on the Applicants rather than the Accountants, who were found to have been the real cause of the tax defaults.
Orders
The Tribunal, in accordance with s. 101(1)(a) of the TAA, confirmed the decision under review.
O’Neill Tyres Gateshead Pty Ltd & Cessnock Tyres Pty Ltd v Chief Commissioner of State Revenue [2020] NSWCATAD 314