Tacey v Chief Commissioner of State Revenue [2016] NSWCATAD 255

Date of judgement 10 November 2016 Proceeding No. 1510678
Judge(s) Professor G Walker, Senior Member
Court or Tribunal NSW Civil and Administrative Tribunal
Legislation cited Administrative Decisions Tribunal Act 1997

Civil and Administrative Tribunal Act 2013

Payroll Tax Act 2007

Taxation Administration Act 1996, ss. 21, 22, 25, 26, 27, 33, and 100
Catchwords Payroll Tax – remission of penalty and interest – taxpayer’s reliance upon expert advice regarding their tax liability – premium component of interest rate – culpability component of penalty interest reduced.
Cases cited B & L Linings Pty Ltd v Chief Commissioner of State Revenue (CCSR) [2008] NSWADTAP 14

Boston Sales and Marketing Pty Ltd v CCSR [2014] NSWCATAD 139

CCSR v Elsegood & Co [1983] 1 NSWLR 223

Chan & Naylor Australia Pty Ltd v CCSR [2016] NSWCATAD 4

Federal Commissioner of Taxation (FCT) v Dalco (1990) 168 CLR 614

Levitch Design Associates v CCSR [2014] NSWCATAD 215

Ma v FCT (1992) 37 FCR 225

Touma v CCSR [2012] NSWADT 2

Trust Co of Australia v CCSR [2002] NSWADT 21

Background

This case concerned an application for review of the Chief Commissioner of State Revenue’s (“Chief Commissioner”) decision to disallow the application for remission of penalty tax and interest imposed on payroll tax assessments issued on 18 June 2015 to John C Tacey (“the Taxpayer”) and various other grouped entities for the period from 30 June 2009 to 30 June 2012 (“the relevant period”). The entities grouped with the Taxpayer consisted of Central Drug Co. Pty Ltd (“Central”), Medan Holdings Pty Ltd atf the Tacey Family Trust (“Medan”), and Mr A W Bonner (the Taxpayer’s former accountant and tax agent).

The issue was whether the Taxpayer took reasonable care to comply with a taxation law for the purposes of s. 27 of the Taxation Administration Act 1996 (“the TAA”); and whether penalty tax and interest should be remitted under ss. 25 and 33 of the TAA.

The Taxpayer is a sole trader chemist, who trades as John Tacey Chemist and operates several pharmacies in NSW. The Taxpayer also controls Central and Medan. A W Bonner is a bookkeeping service owned by Mr Bonner, which trades under various names including Nepean Placement Services (“Nepean”), and exclusively supplies staff to the Taxpayer’s pharmacies. A W Bonner was registered for payroll tax, however the other grouped entities were not. The taxpayers did not dispute that there was a tax default during the relevant period.  Rather, the Taxpayer objected to the penalty and interest tax components of the assessments on the basis that all of the grouped entities other than Mr Bonner had reasonably relied upon the expert advice of Mr Bonner in determining their payroll tax liability.

The Statutory Framework

Section 25 of the TAA relevantly provides that:

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit the market rate component or the premium component of interest, or both, by any amount.

Section 27 of the TAA relevantly provides that:

  1. The Chief Commissioner may determine that no penalty tax is payable in respect of a tax default if the Chief Commissioner is satisfied that:

    1. the taxpayer (or a person acting on behalf of the taxpayer) took reasonable care to comply with the taxation law.

Section 33 of the TAA relevantly provides that:

The Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount.

Submissions

The Taxpayer submitted that the Chief Commissioner should have exercised the discretion to remit the penalty tax pursuant to s 27(3)(a) of the TAA, since the Taxpayer had taken reasonable care to comply with his payroll tax obligations by relying upon the professional advice of Mr Bonner, who had been his tax adviser for over 30 years. The Taxpayer contended that Mr Bonner had specifically advised him that he was complying with all of his tax liabilities and that payroll tax liability would not arise for the Taxpayer, Central or Medan until each of the entities individually exceeded the relevant tax-free threshold.

The Taxpayer relied upon the Interest and Penalty Guidelines issued by the Chief Commissioner, as well as the decision of B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWADTAP 14 in support of his position.

The Chief Commissioner emphasised that the Taxpayer has the onus of proving his or her case in an application for review, pursuant to s 100(3) of the TAA. Accordingly, the Chief Commissioner submitted that the Taxpayer had not provided sufficient evidence to establish that he had taken reasonable care to comply with his payroll tax liabilities, since the Taxpayer failed to supply any evidence of specific discussions with Mr Bonner or requests for advice.

The Chief Commissioner further contended that Mr Bonner was the owner of Nepean in name only, since the Taxpayer was responsible for interviewing and recruiting candidates for employment, as well as paying staff and preparing Nepean’s Business Activity Statements and financial statements. Consequently, the Chief Commissioner submitted that the Taxpayer had not established that it was reasonable or plausible for him to have delegated all responsibility for his payroll tax liabilities, as well as the liabilities of Central and Medan, to Mr Bonner.

Decision

Regarding penalty tax, Senior Member Walker held that the Taxpayer had not adduced cogent evidence to discharge the onus of proof required to enliven the discretion under s. 27(3)(a) to not impose penalty tax, or to remit penalty tax pursuant to s. 33 of the TAA.

Regarding interest, Senior Member Walker stated that only in rare cases would market interest be remitted.  However, referring to the decision of Verick JM in Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21, he found that the range of factors relevant to the remission of the premium element of interest under s. 25 of the TAA was more flexible than those that applied to the remission of penalty tax. Accordingly, Senior Member Walker determined that it would be appropriate to reduce the premium rate component of the interest, having regard to the lack of any significant element of culpability in the Taxpayer’s conduct. Senior Member Walker noted that it was reasonable for the Taxpayer to have relied upon Mr Bonner in relation to specific payroll tax issues such as grouping and thresholds, since the Taxpayer had previously entrusted Mr Bonner with these matters for over three decades without any payroll tax defaults occurring.

Order

Senior Member Walker ordered that the premium rate component of the interest be reduced from 8 per cent to 2 per cent, and affirmed the Chief Commissioner’s decision in all other respects.

Link to decision

Tacey v Chief Commissioner of State Revenue [2016] NSWCATAD 255

Last updated: 13 December 2016