PM Roach SM
Administrative Appeals Tribunal
P.M. Roach (Senior Member)
In the late 1930s Les, then a young man, was earning money as a stadium and tent boxer for stakes such as ``three pounds for three rounds''. In the late 1980s he was fighting the Commissioner for a larger purse - $1,635. This time what was at stake was all provided by Les and his wife. The fists of earlier days had been displaced by the words of the Income Tax Assessment Act 1936 (``the Act'').
2. Reared around the fairgrounds of Australia, as a young man Les fought in boxing troupes and then, following a period in the armed forces, he worked as a truck driver until war's end. There then followed many years on the fairground circuits, sponsoring boxing tent shows. As such entertainments passed from favour, he increasingly engaged in demolition works on a relatively small scale. By the mid-1980s Les and his wife were working in partnership (``the firm''). The figures for the partnership for the years of income ended 30 June 1985-1987 inclusive give some indication of the scale of their activities and of its profitability.
Year Ended 30 June 1985 1986 1987 $ $ $ Gross Income 50,126 24,600 105,400 ------ ------ ------- Hiring plant, equipment & truck 29,554 13,333 88,950 Sub-contractor's fees 8,502 - Other 9,340 7,973 5,972 ------ ------ ------ 47,396 21,306 94,922 ------ ------ ------ Net Income 2,730 3,294 10,478
The figures were not a sound indicator of prosperity. For the year of income ended 30 June 1986 the taxable income of Les was calculated at $26,469.
3. Following amendments to the Act in 1983, Les became aware of the general impact of the prescribed payments system (``the PPS'') within the building industry. By 1985 he had become aware that the PPS applied to projects such as the firm undertook. Following the withholding from the firm of $250, he applied for and obtained a PPS exemption certificate. At that point at least he realised that if he were to make payments to contractors and sub-contractors, such as his own partnership, he would have to apply the system. But his unchallenged evidence was - and I accept it - that he did not realise that according to the
ATC 819Commissioner the PPS related to all manner of other payees. Les' view was that if he had a job to demolish, say four houses, he would be his own master and be subject to the PPS. He also understood that if he contracted out the demolition of two of those properties to another, that person would become his own master as a sub-contractor and, as such, liable to the PPS. But Les did not think that the scope of the PPS system went beyond that.
4. Following March 1987 - a year of high turnover for the partnership - Les became aware that an inspector from the Australian Tax Office wanted to inspect his records. Ignoring his accountant's advice to leave matters to him, Les produced the few and simple records of the firm for inspection. He took the view that he had nothing to hide. His openness did him credit but did not greatly serve him. Nor did it avoid any difficulties such as the accountant thought might have been avoided had the accountant had his way. The inspector discovered that, in the space of five months commencing in October 1986, the firm had paid a third party substantial amounts for the provision of front-end loaders and trucks used in demolition operations carried out by the firm - commonly with a driver or other operator provided. Sometimes Les operated the hired equipment, but more commonly a driver or other operator controlled the equipment, working under the direction of Les. Les was then advised that he had been under an obligation to comply with the prescribed payments system; and that because he had not obtained a declaration from the payee, the required rate of deduction was set at 30% of each prescribed payment. Les disagreed with that advice and he still protests that he is correct in doing so. But none the less he complied with the demands made in the name of the Commissioner. He made fresh arrangements with his contractor and friend - a person in whom he placed complete trust as a result of their association on and off over five years. Pads of prescribed payment deduction sheets and a registration number were obtained, and once obtained, they were filled out and completed in relation to payments which had already been made and in relation to other payments made since the investigation. The matter was not to be a problem of any great duration. In December 1987, shortly after commencement of his seventieth year. Les and the firm gave up their contracting activities.
5. I find that Les was completely honest in his dealings with the Commissioner. I find that he was a person who took a rightful pride in his honesty and integrity, and that he was a person who measures up to the reference given him in 1979 by his accountant of more than 20 years, who said:
``He has proved himself to be not only a man of substance but also a man of integrity and a worthy citizen.''
6. I find that he is a self-reliant and independently-minded person who, even now when he is about to retire to country life, has still not claimed the age pension for which he understands himself to be presently qualified.
7. In due course on 29 June 1987, as a result of the investigation, the Commissioner gave notice to the firm that he was claiming $1,645.62, made up as follows:
``LATE PAYMENT PENALTY COMPONENT CALCULATED TO 20 March 1987(A) (B) (C) (D) (E) (F) Late payment Flat component Gross presc. Tax not component Days 20% per annum Month payments deducted penalty overdue (D) from due date $ $ $ $ Oct. 1986 2,000 600 120 119 7.82 Dec. 1986 14,000 4,200 840 58 26.69 Jan. 1987 3,500 1,050 210 27 3.11 Feb. 1987 3,800 1,140 228 0 0.00 March 1987 3,500 1,050 210 0 0.00 ------- ------ ------ ------ TOTAL $26,800 $8,040 $1,608 $37.62 ------- ------ ------ ------ TOTAL PENALTY (D + F) $1,645.62
N.B. On this occasion the level of Flat Penalty has been remitted from 100% of the total undeducted tax to 20%.''
8. At the hearing, no evidence was produced by the Commissioner as to just when the examination was made, but Les produced the handful of cheque butts and copies of most of the cheques referred to by the Commissioner. From the evidence produced by Les, it would seem that the Commissioner has not brought to account other payments made to the third party following inspection and preceding notice of the assessment.
9. Whether the applicant is liable to be punished as the Commissioner contends is not obvious. It must be determined by reference to and close analysis of Div. 3A of the Income Tax Assessment Act 1936 (``the Act'') and the Regulations made thereunder. Division 3A comprises 26 sections commencing with 221YHA and extending to 221YHZ. They lie between sec. 221YHAAE and 221YHZA. Recognising that ordinarily the provisions of the Act as to income tax only apply to taxpayers as individuals, sec. 221YHZ makes provision that the Division applies to partnerships as if the partnership were a person (subsec. (1)); that any one of the partners may discharge the obligations of the partnership (subsec. (2)); and that partners are jointly and severally liable for any amounts payable under the Division (subsec. (3)); but that, where an offence is deemed to have been committed by a partnership, that offence shall be deemed to have been committed by each of the partners (subsec. (4)). Subsection (1) provides the jurisdictional foundation for casting liability upon the partnership.
10. The issues raised by the firm before the Tribunal touch the obligations of payers. They find their foundation in sec. 221YHD of the Act. That section casts duties as to deducting amounts on account of tax and reporting the fact of payments made to the Commissioner in relation to some payments by some persons. Although the Commissioner contends that the evidence establishes that the applicant has been in breach of obligations as to both deducting tax and reporting the payments made, he has only purported to impose penalty in relation to the alleged breach of the former duty. That being so it is sufficient to quote sec. 221YHD(1) as if only providing that:
``A person who is an eligible paying authority in relation to a prescribed payment or prescribed payments that the person is liable to make during a month (in this sub-section referred to as the `relevant month') shall -
- (a) subject to section 221YHQ, deduct the relevant amount from each prescribed payment in relation to which the person is not a householder; and...''
Subsection 221YHD(1D) - a subsection specially added in 1984 - obliges payers to remit to the Commissioner moneys deducted: and sec. 221YHJ provides for penalties to be imposed where moneys are not remitted within the required period.
11. By the terms of sec. 221YHD(1) there will be no obligation in anyone to effect a deduction unless the payment to be made is a ``prescribed payment''. What constitutes a ``payment'' and, more particularly, a ``prescribed payment'' has to be determined by reference to the definitions provided by the Act. Many terms to be considered are defined by sec. 221YHA(1) of the Act. All the definitions there appearing are to be read subject to the introductory proviso which states:
``In this Division, unless the contrary intention appears -...''
In consequence, all references hereafter made to terms which are so defined in that subsection are to be understood as subject to that qualification and, unless otherwise indicated, as not being affected by it.
The section provides that ``payment'' means:
``a payment that is made, or is liable to be made, under a contract the performance of which, in the whole or in part, involves the performance of work (whether or not by the person to whom the payment is made or is liable to be made), but does not include -
12. A substantive definition of ``prescribed payment'' does not appear in the Act. Section 221YHA(1) only identifies ``prescribed payment'' as:
``a payment of a kind declared by the regulations to be a prescribed payment for the purposes of this Division.''
13. Therefore, to identify a ``prescribed payment'' one must have regard to all of the definitions set out at length in the five subclauses which constitute reg. 54ZEB.
Subregulation (1) is in quite general terms. It provides:
``A payment, being a payment within the meaning of Division 3A of Part VI of the Act, that is made, or is liable to be made, under a contract the performance of which, in whole or in part, involves the performance of work that consists of the carrying out for a person who is a prescribed person of any activity to which sub-regulation (2) or (3) applies is declared to be a prescribed payment for the purposes of that Division.''
14. Subregulation 54ZEB(4) identifies a ``prescribed person'' by reference to nine classes of activity. In turn, those activities are defined as to one class by reference to subreg. 54ZEB(2); and as to the other eight classes by reference to the eight types of activities described in the subpara. of subreg. 54ZEB(3). As it is not suggested that the relevant class of activity is any of those defined by subreg. (3), it is sufficient to quote subreg. (4). It provides:
``In sub-regulation (1). `prescribed person' means -
- (a) in relation to the carrying out of any activity referred to in sub-regulation
- (2) -
- (i) a person who is carrying on a business -
- (A) that consists wholly or principally of the carrying out of an activity or activities referred to in that sub-regulation: or
- (B) that consists, in whole or in part, of furnishing, or arranging for, the services of another person or other persons to carry out such an activity or activities;
- (ii) a person who is carrying on a business that consists, in part, of the carrying out of an activity or activities referred to in that sub-regulation, where the activity so carried out is such an activity and is carried out for a person other than that person; or
- (iii) a person other than a person referred to in sub-paragraph (i) or (ii) where the work is performed in respect of a construction project the cost of which, including the cost of -
- (A) goods or materials used in, or forming part of, the construction project; and
- (B) surveying, designing or other activities preliminary to the construction project.
exceeds, or may reasonably be expected to exceed, $10,000:
15. I am satisfied that the partnership was carrying on a business. Whether the business involved ``an activity or activities'' referred to in subreg. (2) depends upon a consideration of that subregulation.
16. Subregulation (2) is in a familiar form. It opens in general terms and then proceeds to more particular cases stated to apply ``without limiting the generality of the foregoing'' general terms. In its general terms the subregulation provides:
``This sub-regulation applies to the following activities, namely, the construction, erection, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling, or removal of any structure, roadworks or thoroughfare...''
Without more, it would be open to the applicant to contend that the ejusdem generis rule of interpretation would require that the term ``structure'' be construed consonantly with ``roadworks or thoroughfare''. However, the subregulation proceeds:
``... without limiting the generality of the foregoing...''
to particular provisions such as dealing with (a) the painting and decorating of surfaces of any structure; (b) installations of electrical and other devices of surface coverings and built-in furniture; and (c) of cleaning ``of any structure, roadworks or thoroughfare'': and then proceeds:
- (d) any other activity, being an activity carried out on a structure or on land on which a structure is to be located or on roadworks or thoroughfares or on land on which roadworks or thoroughfares are to be located, that forms an integral part of, is preparatory to, or is for rendering complete any of the activities referred to in this sub-regulation other than in this paragraph and, without limiting the generality of the foregoing, includes site clearance, earthmoving, excavation, laying of foundations, erection of scaffolding, site restoration, landscaping or access works but does not include...''
17. Assuming for the moment that there was a ``prescribed payment'', the next question to determine is whether the applicant was an ``eligible paying authority'' in relation to that prescribed payment as required by sec. 221YHD(1). Section 221YHA(1) defines ``paying authority'' as meaning:
``a person who makes, or is liable to make, a prescribed payment.''
That requires that regard must be had to sec. 221YHA(4). It provides:
``For the purposes of this Division, a person who is a paying authority in relation to a prescribed payment is an eligible paying authority in relation to the prescribed payment if -
- (a) the person is not a natural person; or
- (b) the person is a natural person and -
- (i) the person is a householder, or an owner-builder, in relation to the payment; or
- (ii) the payment is not wholly or principally of a private or domestic nature.''
18. I am satisfied that by force of sec. 221YHZ the partnership is to be regarded as a person and that, as the partnership comprises two natural persons, it is appropriate that it be considered as a natural person. Accordingly, sec. 221YHA(4)(b)(ii) operates to make the firm an ``eligible paying authority'' in relation to the payment. The question which must then be considered more closely is whether the payments which were made constituted ``prescribed payments''.
19. I am satisfied that the payments were made in relation to prescribed activities and that they were payments made under a contract. But that alone is not enough to satisfy the requirements of reg. 54ZEB(1). Expressed in shortened and simplified terms, and thereby less than full manner, reg. 54ZEB(1) only identifies as a prescribed payment:
``a payment... that is made... under a contract the performance of which... involves the performance of work that consists of the carrying out for... a prescribed person of any (prescribed) activity...''
(the emphasis is mine).
20. The view of the applicant is that it was not so: that the firm was not paying ``for the performance of work''. It claims that it was only paying for the hire of equipment. Les says that the nature of that transaction did not change in character because it was commonplace for the contract to provide for the provision, not only of the equipment, but also of the personal services of an operator of the equipment. Les accepts that, had he contracted with his payee that the payee would perform certain work as his own master, rather than under the direction of Les it would have been otherwise. But the Commissioner responds contending that, although the hire of equipment only would not give rise to a ``prescribed payment'' even within the building industry, none the less, once the contract provides not only for the hire of equipment but also for the provision of services of a person a ``prescribed payment'' will arise.
21. As a result of the foregoing analysis of these very extensive provisions. I am satisfied that the essential questions to be addressed are whether the payment was made under a contract which was wholly or partly for ``the performance of work''; and whether such work related to a ``structure'' in the sense of the meaning to be attributed to that word in the context of a phrase ``structure, roadworks or other thoroughfare''. That being so, I am satisfied that the test which was in the mind of the applicant is not the correct test. The question is not whether the applicant had ``sub-contracted out'' some part of his responsibilities. To that extent the applicant was in error. However, that error does not establish that the firm was obliged to deduct tax in accordance with sec. 221YHD.
22. In my view, if the firm had merely hired equipment, it would not have been liable to comply with that section because, in that circumstance, it would not have been appropriate to say that the firm had been party to a contract wholly or partly for ``the performance of work''. The evidence of Les was that, in some instances, the moneys paid were merely for the hire of equipment which was used by Les. However, he acknowledged that the more common practice was that the firm did hire the equipment with its operator and that the equipment was then operated by that operator in accordance with the directions given by Les. In those cases, I am satisfied that the contract was partly for ``work''. As the evidence stands, I am satisfied that the assessment is to some excessive. Les did not present any detailed evidence, but, slight though the evidence presented was, it was not challenged. But the fact remains that the application must be resolved in accordance with the evidence and the evidence is barely sufficient to enable me to make a finding in that regard. Bearing in mind that the applicant bears the onus of proof (cf. sec. 190), I am not persuaded that any more than 10% of the amounts paid ($2,680) were paid for the hire of equipment only.
23. The second question is whether the term ``structure'', as used in the phrase ``structure, roadworks or other thoroughfare'', is used in the sense of a structure like to ``roadworks and other thoroughfare'', or whether it is used in contrast: to distinguish on the one hand ``roads and other thoroughfare'' (made over cleared ground to permit the unobstructed passage of people, with or without vehicles and animals) from ``structures'' (things erected, such as buildings, monuments, ornaments and the like, which, by their nature and construction, inhibit or prevent the movement of persons, with or without vehicles and animals). In shorter form, is ``structure'' in the phrase ``structure, roadworks or other thoroughfare'' to be understood as structures like roadworks and other thoroughfares (such as steps, staircases, escalators, elevators and moving walkways) or as structures used in its more common sense of buildings and similar objects. In my view the latter understanding is correct. Accordingly, I am persuaded that the applicant did have an obligation to comply with the provisions of sec. 221YHD.
24. It follows from other provisions of the Act (notably sec. 221YHC) that the payee also had an obligation to comply with the requirements of the prescribed payments system. Upon the evidence, he did not do so. However, very little information has been placed before me which indicates to what extent that failure on the part of the payee has any bearing upon the assessment of the gravity of the conduct of the applicant.
25. It is also appropriate to say that there is nothing before me which suggests that the payee either duly accounted to the Commissioner for the assessable income received or that he defaulted in his obligations to do so. In that regard, I draw no inference in favour of the Commissioner or adverse to the applicant. In my view, if it is to be alleged that applicants such as the present applicant are to be more severely punished because of default on the part of payees, it will be necessary for the Commissioner to positively make out a case for such default. In the absence of such evidence nothing more is to be imputed against the applicant than the circumstance that its failure to comply with its obligations under the prescribed payments system made it possible for a dishonest payee to deny receipt of the assessable income in question and, whether the payee be dishonest or not, placed the Commissioner at risk that the payee might not in due course be able to remit to the Commissioner the moneys which should have been deducted by the applicant.
The Commissioner's options
26. Having become aware of the incidents in which the Commissioner considered the applicant to have defaulted in its obligations, several courses of action were open to the Commissioner. He might have reprimanded the applicant, with or without a warning against the commission of further offences; he might have sued in a court of civil jurisdiction to recover all moneys duly levied under the Act; he might have prosecuted either or both partners for offences alleged to have been committed; and he might have acted unilaterally to impose penalties as provided for by the Act (with or without remission). He opted for the latter course.
27. In all the circumstances, it might have been thought that the most reasonable course to follow was the former but the matter was not so
ATC 824viewed. The course of civil action would have been an incomplete solution for, although by that process the Commissioner might have recovered the moneys claimed, that course was not one which could lead to a final determination as to the amounts, if any, of penalties which should be exacted. That being so, in practical terms once a decision had been taken not to firmly reprimand the applicants, it became necessary to opt between the course of prosecution or of imposing obligations unilaterally by a process of assessment.
28. Had the course of prosecution been followed the applicants would have been entitled to have been heard before an independent court. The partners could only be adjudged guilty of any alleged offence if the commission of that offence had been established by the Commissioner beyond reasonable doubt. Before such a court Les and his wife would have been entitled to have been heard without payment of any fee. In those proceedings no penalty could be exacted of either of them without the Commissioner having discharged that burden of proof. Further, only when that burden was discharged, would they be liable to penalty. Upon conviction, each person convicted would have been liable to a fine not exceeding $1,000 for each offence arising from failing to deduct the relevant amount (sec. 221YHD(3)(a)). In addition, sec. 221YHD(4) provides that, upon such conviction:
``... the court may, in addition to imposing a penalty under sub-section (3) in respect of the offence, order the person to pay to the Commissioner as a penalty a sum not exceeding the amount required to be deducted.''
In determining what fine and penalty, if any, should have been exacted, the Court would of course have to exercise a very large, but not unfettered, discretion (cf.
McMillan v. Bierwirth 88 ATC 4056 - I note, in relation to that decision, that it related to a person previously convicted of nine tax offences; that it related to the long-standing PAYE system; that he was well aware of his obligations; that the offender had withheld tax from his employees and used the funds so withheld for his own purposes after they should have been paid to the Commissioner; and that the penalties were finally set at an amount equal to 30% of the amount withheld from the Commissioner).
29. In this instance the Commissioner elected to proceed by a process in which the issue of a notice by the Commissioner created a liability in the applicant to penalties. One consequence was that the issue of the notice automatically led to a debt enforceable by civil proceedings. Further, by unilateral action on the part of the Commissioner under provisions of the Act such as sec. 218 [the debt] became immediately due and payable. Further, it automatically carried forward an ongoing liability to interest on the sum of the penalties at 20% per annum (sec. 207): a liability which could only be independently reviewed before this Tribunal and which could only be reviewed in proceedings in which the burden of proof lay against the applicant although only on the balance of probabilities; a review only to be available to applicants if they paid in advance a fee of $240 at the present time.
30. Having elected for the favoured course, the Commissioner was much more closely confined in the exercise of discretion than any court would have been in the event of conviction. The starting point for the Commissioner lay in the provisions of sec. 221YHH(1) which provided:
``Where an eligible paying authority other than a government body refuses or fails, at the time of making a prescribed payment to a payee, to deduct from the payment the amount required to be deducted under this Division, the eligible paying authority is liable to pay to the Commissioner, by way of penalty -
- (a) an amount (in this sub-section referred to as the `undeducted amount') equal to the amount that the eligible paying authority failed to deduct; and
- (b) an amount equal to 20% per annum of so much of the undeducted amount as remains unpaid, computed from the expiration of the period within which the eligible paying authority, had the eligible paying authority deducted the amount required to be deducted under this Division, would have been required to pay the amount of the deduction to the Commissioner.''
(Hereafter I shall refer to the two amounts as the ``undeducted amount'' and ``interest
ATC 825factor'' respectively.) In the circumstances of this case I am satisfied that the penalties so provided for amounted to $8.040 as the undeducted amount and 20% thereof per annum for the interest factor - an amount of $188.10.
31. It was not mandatory that the Commissioner should have exacted either penalty in full. As to the undeducted amount, sec. 221YHL(2) provides:
``the Commissioner may, in any case, for reasons that he thinks sufficient, remit the whole or any part of any amount payable by a person under paragraph 221YHH(1)(a),...''
32. As to the interest factor, sec. 221YHL(1) provides:
``Where an amount (in this section referred to as the `late payment penalty') is payable by a person under paragraph 221YHH(1)(b),... in relation to another amount that has not been paid (in this section referred to as `the principal amount') and -
- (a) the Commissioner is satisfied that -
- (i) the circumstances that contributed to the delay in payment of the principal amount were not due to, or caused directly or indirectly by, an act or omission of the person; and
- (ii) the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances;
- (b) the Commissioner is satisfied that -
- (i) the circumstances that contributed to the delay in payment of the principal amount were due to, or caused directly or indirectly by, an act or omission of the person;
- (ii) the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; and
- (iii) having regard to the nature of those circumstances, it would be fair and reasonable to remit the late payment penalty or part of the late payment penalty; or
- (c) the Commissioner is satisfied that there are special circumstances by reason of which it would be fair and reasonable to remit the late payment penalty or part of the late payment penalty,
the Commissioner may remit the late payment penalty or part of the late payment penalty.''
33. In my view it is significant in considering sec. 221YHL(1) to recognise that the term ``late payment penalty'' may be appropriate to be applied to other circumstances covered by the subsections, such as situations in which moneys were withheld from the payee and, instead of being remitted to the Commissioner, were applied to the use of the eligible paying authority. However, despite the statutory definition, the phrase is not apt to describe what occurred in this instance. The applicant did not retain for itself moneys due to the Commonwealth. Further, consideration of the question as to whether the Commonwealth had in fact been deprived of any moneys by reason of the action of the applicant depended upon considerations as to the relationship between the Commonwealth and the payee: matters having nothing to do with the tax status of the applicant.
34. In the present case I am satisfied that the Commissioner did exercise a discretion to remit the penalties applicable to the undeducted amount, and that he exercised his discretion to effect a remission in relation to the interest factor by reducing it pro rata to the undeducted amount less remission. Having made his decision to effect a partial remission in relation to the undeducted amount, the Commissioner thereupon gave notice of that to the applicant. That was done pursuant to sec.221YHL(3) of the Act which provides:
``Where the Commissioner makes a decision to remit part only of an amount payable as mentioned in sub-section (2), or not to remit any part of such an amount, the Commissioner shall give notice in writing of his decision to the person by whom the amount is, or but for the remission would be, payable.''
In so giving notice, he also gave notice of demand for the interest factor - a figure reduced in proportion to the remission of the penalty set in relation to the undeducted amount.
35. The giving of that notice by the Commissioner was to lay the foundation for an
ATC 826independent review of some only of the aspects of the Commissioner's determinations in these matters. Section 221YHT(2) provides:
``Where a person who has been notified of a decision of the Commissioner made under sub-section 221YHL(2)... is dissatisfied with the decision, the person may,... lodge with the Commissioner an objection in writing against the decision stating fully and in detail the grounds on which the person relies.''
Thereupon it is provided by subsec. (3) that:
``The provisions of Division 2 of Part V (other than section 185) apply in relation to an objection made under sub-section (2) in like manner as those provisions apply in relation to an objection against an assessment.''
36. The provisions of the Act are so limited that the Commissioner submits that, despite the circumstance that the Commissioner had a discretion to remit the interest factor and exercised it, there can be no review of that decision by this Tribunal or any other independent authority. I accept that I have no power to review the penalties imposed by way of interest factor. However, I take the view that, if as a result of this review, further remissions on account of the ``undeducted amount'' are authorised, then the interest factor should fall accordingly.
37. In considering remissions in relation to the undeducted amount. I take into account principles as to remission as expressed in Case U36 (
87 ATC 266) in relation to the responsibilities of taxpayers in relation to their own affairs. In particular, I take into account the principles there expressed as to honesty of purpose; innocence of mind; and difficulties in comprehending obscure and unclear laws. In addition, I take into account the fact that the penalties here exacted do not arise in consequence of any default on the part of this applicant in the discharge of his obligations as to the payment of tax. The obligations which have been breached are obligations lawfully and understandably imposed by statute obliging the community to act in the community's interest in protecting the Revenue. I take into account the circumstance that the obligations in respect of which default had been made were the relatively recent creations of statute. In particular, I take into account that the applicant had no awareness that the law obliged him to withhold moneys from his payee in circumstances such as these. I also have regard to the circumstance that the applicant kept a clear record of the identity of the payee and that there is no suggestion that it was inaccurate, or known to the applicant to be, or to be likely to be, inaccurate.
38. As long ago as 1936 the High Court of Australia, in commenting on matters of penalty in income tax matters, expressed the view that a person's ``belief'' is ``an important point'' to be considered. The belief then referred to was ``the once fairly widely accepted notion that profits from sale of property interests were not taxable as income'' (
Trautwein v. F.C. of T. (1935-1936) 56 C.L.R. 196 at pp. 209-210). That consideration must be clearly borne in mind in considering the application of laws as complicated in their definition as these. However, the circumstance that a man such as Les is hardly to be expected to have a capacity to analyse the legislation and regulations as has proved to be necessary for these purposes is not a complete answer for this taxpayer or any other. Reading the rules of cricket is not essential to a reasonable understanding of the sport. Neither is reading of the PPS legislation essential to understanding its application.
39. There is yet a further dimension of the matter which needs to be considered. The difficulties in which the applicants find themselves have been very substantially contributed to by the payee: someone of whom, having regard to considerations of age and the scale of business activities, it might much more reasonably have been expected to have known and understood that the applicant, like the payee, had obligations to comply with the PPS. In the circumstances of this case, little is known as to the tax status of the payee. It might be that had he been called on by the applicant to present a deduction form, he might have been able to establish that deductions should have been made at the 15% rate as provided for by reg. 54ZED(1); or at some lesser percentage rate as contemplated by sec. 221YHP; or not at all as contemplated by the deduction exemption certificates provided for by sec. 221YHQ. But because the applicant did not seek any such evidence and the payee, contrary to sec. 221YHC, did not present a deduction form. sec. 221YHD(5)(b) operates to double the amount required under reg. 54ZED(1) to have
ATC 827been deducted at that time. Subsection (5) provides for the definition of the ``relevant amount'' to be deducted. It does so in the following terms:
``(5) In sub-section (1), `relevant amount', in relation to a deduction that is to be made from a prescribed payment by an eligible paying authority to a payee, means -
- (a) where the payee has properly furnished a deduction form to the eligible paying authority in relation to the prescribed payment -
- (b) in any other case - the amount that would be applicable under sub-paragraph (a)(i) if that sub-paragraph were applicable in relation to the prescribed payment, increased by an amount equal to 15% of the prescribed payment.''
40. As reg. 54ZED(1) provides that the prescribed amount for the purposes of sec. 221YHD(5)(a)(i) is 15%, sec. 221YHD(5)(b) has the effect of increasing the prescribed amount to 30%.
41. The consequence for the present applicant is that the default on the part of the payee almost certainly occasioned at least the doubling of the amount required to have been deducted by the applicant. In consequence, the remission in relation to the undeducted amount is based upon what is almost certainly a most substantial overstatement of what would have been required to have been deducted had the payee carried out his duties under the Act.
42. In all the circumstances, while fully recognising that there is a substantial cash economy which thrives or has thrived on its ability to conceal transactions such as this from the Commissioner, the present case is not one which warrants the imposition of penalties such as those which have been imposed by the Commissioner. If anything more than a caution and reprimand was called for, it was not a heavy financial penalty. But some financial penalty is appropriate. Just as the applicant had an obligation to be aware of, and to comply with, new laws touching matters such as pollution; industrial safety; and building operations; so too there was a similar obligation in relation to laws regulating taxation.
43. Bearing in mind all the findings I have made, including the finding that the prescribed payments were only $24,120 rather than $26,800, I think a penalty of $400 in respect of the undeducted amount and $9.35 in relation to the interest factor sufficient and appropriate. (The fixing of a total calculated to the nearest cent, rather than to a multiple of $50 or $100, is occasioned by the obligation to impose an interest factor as a function of the remitted undeducted amount, which in turn is related to the ``undeducted amount'' defined by the Act.)
44. Accordingly, the order of the Tribunal will be that the penalty in relation to the undeducted amounts and interest factor shall be reduced to $409.35.