CASE 58/95
Members:KL Beddoe SM
Tribunal:
Administrative Appeals Tribunal
KL Beddoe (Senior Member)
By application lodged on 15 November 1994 in the Melbourne Registry of this Tribunal, the applicant applied for review of undated objection decisions made in respect of the years of income ended 30 June 1990, 30 June 1991 and 30 June 1992. The objection decisions disallowed in full the objections by the taxpayer against the income tax assessments for those years. It is the respondent's contention that each of the objection decisions which are the subject of the application before me are ineligible income tax remission decisions pursuant to paragraph 14ZS(2)(a) of the Taxation Administration Act 1953 (``the Administration Act'').
The legislation
2. This Tribunal's jurisdiction in income tax matters is governed by the Administration Act.
3. Section 14ZZ of that Act provides that a person who is dissatisfied with an objection decision of the Commissioner may apply to the AAT for review of the decision if the decision is a reviewable objection decision. Section 14ZQ defines a ``reviewable objection decision'' to mean an objection decision that is not an ineligible income tax remission decision.
4. Section 14ZS provides:
``14ZS(1) For the purposes of this Part, an objection decision is an ineligible income tax remission decision if subsection (2) or (4) applies.
14ZS(2) An objection decision is an ineligible income tax remission decision if it relates to the remission of additional tax payable by a taxpayer under the Income Tax Assessment Act 1936 (other than Division 11 of Part IIIAA), except where the additional tax is payable under section 224, 225, 226, 226G, 226H, 226J, 226K, 226L or 226M of Part VII of that Act, whatever its amount, or is payable under another provision of that Part and its amount, after the decision is made, exceeds:
- (a) in the case of additional tax payable under section 222 of that Act because of the refusal or failure to furnish a return, or any information, relating to a year of
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income - the amount calculated, in respect of the period commencing on the last day allowed for furnishing the return or information and ending on:
- (i) the day on which the return or information is furnished; or
- (ii) the day on which the assessment of the additional tax is made;
whichever first happens, at the rate of 20% per year of the tax properly payable by the taxpayer in respect of the year of income; or
- (b) (Omitted by No 101 of 1992)
- (c) (Omitted by No 101 of 1992)
- (d) if the amount calculated in accordance with paragraph (a) is less than $20 - $20.''
5. The issue before me is whether the penalty tax imposed by the objection decisions under review in each of the relevant years of income is imposed at a rate higher than 20% per annum of the tax properly payable.
6. Subsection 161(1) of the Income Tax Assessment Act 1936 (``the Assessment Act'') provides for the Commissioner of Taxation, by a notice published in the Commonwealth Gazette, to require persons nominated to lodge an income tax return, inter alia ``within the period specified in the notice or such further period as the Commissioner allows''.
7. At the hearing of jurisdiction before me on 14 April 1995 the applicant was represented by Mr Alexander of counsel, instructed by McDonald, Slater and Lay, and the Commissioner was represented by an officer of the Australian Taxation Office. The Tribunal had before it the bundle of documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (``T-documents'') and, in particular, two letters written by the taxpayer; one to a Deputy Commissioner of Taxation and the other to Mr Slater, his solicitor and tax agent. The hearing was adjourned sine die to allow the applicant an opportunity to lodge affidavit material relating to the relevant lodgment dates. That material has now been lodged. The respondent has seen the material and has made written submissions on it.
8. Paragraphs following set out the relevant figures required for the calculation of the rate of penalty tax imposed in order to determine this Tribunal's jurisdiction. In each of the years of income the applicant was liable, pursuant to subsection 222(1) of the Assessment Act, to pay additional tax as a penalty for the late lodgment of his income tax return. The amount of penalty in each year was subsequently remitted in part pursuant to subsection 227(3).
Year of Income Ended 30 June 1990
9. A notice in accordance with the requirements of subsection 161(1) of the Assessment Act was published 27 June 1990 in the Commonwealth of Australia Gazette No GN25 requiring lodgment of income tax returns for the year of income ended 30 June 1990 (``the 1990 tax year''), on or before 31 October 1990. Therefore, for that year the applicant's income tax return was prima facie due on 31 October 1990. It was lodged at the Australian Taxation Office on 17 September 1993. The applicant's taxable income for the 1990 tax year was $176,852. The tax payable by the applicant was adjusted by an amended assessment issued on 19 September 1994 to $77,045.96 with a Medicare levy of $2,210.65. Additional tax for late lodgment was remitted upon objection to $45,420.13.
Year of Income Ended 30 June 1991
10. A notice pursuant to subsection 161(1) calling for lodgment of income tax returns for the year of income ended 30 June 1991 (``the 1991 tax year'') on or before 31 October 1991 was published in the Commonwealth of Australia Gazette No GN24 on 26 June 1991. Therefore for that year the applicant's income tax return was prima facie due on 31 October 1991. It was lodged with the Australian Taxation Office on 17 September 1993. The applicant's taxable income was assessed at $241,787. By amended assessment issued on 19 September 1994 the applicant's tax on taxable income was calculated at $105,874.64. The Medicare component in addition was $3,022.33. Additional tax was remitted upon objection to $40,626.94.
Year of Income Ended 30 June 1992
11. On 24 June 1992, the required notice was published in the Commonwealth of Australia Gazette No GN25, calling for the lodgment of income tax returns for the year of income ended 30 June 1992 on or before 31 October 1992. Therefore the applicant's income tax return for year of income ended 30 June 1992 (``the 1992 tax year'') was prima facie due on 31 October 1992. It was lodged with the Australian Taxation Office on 17 September 1993. The
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applicant's taxable income for that year was $196,694.00. Additional tax was remitted upon objection to $15,009.03. For that year the tax payable on taxable income was $84,260.18. The Medicare levy imposed was $2,458.67.Extension of time for lodgment
12. The applicant submits, that as he was represented by a tax agent in the years in dispute, the last day for lodgment would have been, as allowed by that tax agent's lodgment schedule.
13. Exhibit A is a letter from the taxpayer addressed to a Deputy Commissioner of Taxation dated 25 June 1994 (T20/63-80). In that letter the applicant addresses the problems which caused the late lodgment of his income tax returns for the years in question. Those issues properly relate to the substantive question in these matters rather than the interlocutory and jurisdictional question currently before the Tribunal. What is relevant is that the applicant asserts that at all times he had engaged a tax agent (``GJG'') to deal with his tax affairs. Set out below is a relevant excerpt from Exhibit A:
``I have sent continuously every year, my documents and records for Taxation purposes, to my former Taxation Agent in Melbourne, Victoria, [GJG], and I continued to send my records and documents to [GJG], when I came to settle on the Goldcoast, Queensland, in August 1986...
...
Please do not punish and penalise me, for my past poor circumstances in Melbourne, Victoria. Even after the sale of the City Property on June 8th 1988 in Melbourne (I was already settled on the Goldcoast, Queensland), I still sent my records and documentation to [GJG], who assured me, that there was no hurry to lodge Taxation Returns, and that he had extensions of time given to him, due to my heavy losses.''
14. Exhibit B is a letter from the applicant to Mr Ian Slater of McDonald, Slater and Lay, Solicitors, who represented the applicant in the hearing of jurisdiction before me. That letter is dated 17 September 1993. It is similar in theme to the later letter addressed to the Deputy Commissioner of Taxation.
15. Filed in the Tribunal's Brisbane Registry on 4 September 1995 was a statutory declaration of GJG, the applicant's former tax agent. The body of that document is as follows:
``1. That I was [the applicant's] Registered Tax Agent for the years 1988 to 1992 inclusive, being Tax Agent No. 7187 009.
2. That the Commissioner of Taxation agreed to extend the time for lodgment of [ the applicant's] Income Tax Returns for the above years from 1988 to 1992 inclusive beyond the 31st day of October in each year.
3. That [the applicant's] Returns were part of my Tax Agent's lodgment schedule. The following were the last days for lodgment of the respective Returns within my Taxation Lodgment Scheme with the Commissioner of Taxation:
For the year ended 30th June, 1988 the last day was the 15th April, 1989
For the year ended 30th June, 1989 the last day was the 15th April, 1990
For the year ended 30th June, 1990 the last day was the 12th April, 1991
For the year ended 30th June, 1991 the last day was the 10th April, 1992
For the year ended 30th June, 1992 the last day was the 10th April, 1993''
16. The Commissioner did not dispute that for the relevant years of income, the applicant taxpayer was a client of GJG, a registered tax agent. The Commissioner further agreed that the applicant was listed on GJG's client listing with the Tax Agent Liaison Centre, part of the Australian Taxation Office. However, it is the Commissioner's contention that for the applicant, as a client of a tax agent, the extension of time to lodge income tax returns is ``conditional'' only.
17. The Commissioner points to the Full Federal Court decision in
Balnaves v DFC of T 85 ATC 4592 as lending assistance to his contention that the extension of time given pursuant to a Lodgment Programme is conditional only. In a joint judgment, their Honours, Fox, Morling & Wilcox JJ at 4593-4594 explained the arrangements:
``In each year the Commissioner issues a circular to tax agents setting out arrangements for the lodgment of income tax returns.... The circular informed tax agents that lodgment of returns would be permitted under one of two alternative programmes -... Agents were required by
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the circular to notify the Commissioner of additions to and deletions from the list of clients whose income tax returns they would be lodging in order that the agents' lodgment performances in terms of percentages might be assessed.The circular contained the following paragraph:
`(3) The key date for both programmes is 31 December and the continuation of arrangements beyond 31 December will depend on programme requirements being met at that date.'
The effect of this paragraph (and of other paragraphs in the circular which emphasize the importance that the Commissioner placed upon the agents' performance as at 31 December) was that a tax agent and his clients were at risk if programme requirements had not been met by that date.
At some time after 12 January 1985 the Deputy Commissioner wrote to the appellant notifying him that because of dissatisfaction with his lodgment performance an extension of time beyond 31 December 1984 would not be granted. On 21 January 1985 the appellant requested reconsideration of the Commissioner's decision but on 7 February 1985 the Acting Deputy Commissioner wrote to the appellant informing him that no reinstatement of arrangements to lodge returns beyond 31 December had been granted and that returns lodged after that date would be liable to additional tax for late lodgment.
...
We are unable to agree with his Honour's conclusion that the decision sought to be reviewed was not a decision made under the Income Tax Assessment Act. In our opinion it is plain the Commissioner has power under sec. 161(1) to grant extensions of time for the furnishing of income tax returns. The statement in the circular that lodgment of returns would be permitted under the Standard Lodgment Programme or the Alternative Lodgment Programme was a statement of a decision made by the Commissioner extending time for the lodgment of tax returns in respect of the clients of registered tax agents, subject to compliance with the requirements of the circular. The effect of the circular was to extend time in respect of all such clients to 31 December 1984, subject to revocation of the extension in certain circumstances, and to extend time in respect of 30 per cent of the agent's clients beyond 31 December provided that the agent had complied with the performance requirements. The extension of time was a relaxation of the requirements of the Gazette notification for lodgment of returns by 31 August. We see no difficulty in characterizing it as a decision made under sec. 161(1) of the Act and, therefore as a decision `under an enactment'.''
18. At the time of the decision in Balnaves section 161 was in a different form and, in particular, stated that the return was to be furnished to the Commissioner ``within the time specified in the notice, or such extended time as the Commissioner may allow''. The section was redrafted by Act No 20 of 1990 and the relevant words now read:
``(c) within the period specified in the notice or such further period as the Commissioner allows;''
The respondent relies on the Explanatory Memorandum circulated with the Bill which stated that the redrafted section ``while not changing the substance of the existing provision will express its requirements more clearly''. With respect to the respondent's submission, the amendment now makes it clear that where the Commissioner agrees to a lodgment program for a tax agent the result is that the Commissioner allows a further period for lodgment of returns beyond the prescribed date.
19. However, the Commissioner's submissions take the matter further. There is nothing before me to suggest that the arrangements with GJG as to the Lodgment Programme were subsequently revoked by the Commissioner. A number of steps were involved in such a lodgment programme, but there is no evidence before me as to the level of compliance of GJG at each of those steps.
20. There is nothing in the legislation which indicates that the Commissioner has the power to grant a conditional extension of time. It is true that their Honours in Balnaves contemplated the revocation of an extension of time in the circumstance where particular conditions previously notified and agreed have not been met. However, there is nothing before
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me to suggest such a revocation has been made in this case. In any event the change in the wording of subsection 161(1) means that the relevant question is rather whether the Commissioner has allowed a further period. The failure to comply with the lodgment programme does not alter the fact that a further period was allowed.21. I have considered the Commissioner's submissions regarding the extraneous material available to assist in the interpretation of the phrase ``last day allowed'' but have found it to be of little assistance. Taking all the material into account I am satisfied that ``the last day allowed for furnishing the return'' is the date notified in the Gazette Notice unless the Commissioner has allowed a further period. In particular where there is a lodgment programme agreed by the Commissioner with a tax agent then the last day allowed will be the last day of lodgment provided for in that programme, that being a further period allowed by the Commissioner.
22. Nor do the respondent's submissions regarding the suggested inequities inherent in using, in the calculation of the rate of penalty tax, the last date allowed for lodgment pursuant to such a programme persuade me. It is difficult to see how such an interpretation would make the provisions ineffectual. It is a gross generalisation to say that this interpretation would necessarily mean that in the majority of cases the rate of penalty imposed would exceed the limit set by section 14ZS. Whether the rate of penalty imposed exceeds the limit set by section 14ZS must be determined after decisions about imposition and remission of additional tax have been made and should not be determined at any earlier stage.
Inclusion of Medicare Levy
23. The addition of Medicare levy into the ``tax properly payable'' used for calculating the rate per annum at which penalty tax for late lodgment has been imposed can cause substantial differences in the outcome of the calculation.
24. It is contended for the applicant that the Medicare levy imposed upon assessment should be removed from the calculation when determining the percentage rate of additional tax imposed. The applicant argues that the ``tax properly payable'' means primary tax only and does not include Medicare levy.
25. The phrase ``tax properly payable'', found, inter alia, in paragraph 14ZS(2)(a) of the Administration Act, is not defined. Section 222A of the Assessment Act defines ``proper tax'' as meaning ``the tax properly payable by the taxpayer in respect of that year on the taxpayer's taxable income after allowing credits properly allowable to the taxpayer''.
26. Part IIIB of the Assessment Act deals with Medicare levy. Section 251R(7) provides:
``251R(7) In this Act (other than this Part, the definition of `year of tax' in subsection 6(1), section 102AAN, Division 17 of Part III and sections 160AQU, 160AQX, 160AQY and 160AQZ), unless the contrary intention appears, `income tax' or `tax' includes levy payable in accordance with this Part.''
27. Reference was made to Taxation Ruling 2475 which was issued on 27 May 1988 with effect from 1 November 1988. Paragraph 9 of that Taxation Ruling sets out the Commissioner's view of the definition of ``tax payable''. That is, it means gross tax including Medicare levy. It is well recognised that such Rulings are not binding on this Tribunal, being no more than the Commissioner's view on the correct interpretation of a particular matter.
28. Do the references mentioned mean that the phrase ``tax properly payable'' in paragraph 14ZS(2)(a) should be read so as to include Medicare Levy? The Administration Act is silent on the question but it seems to me that there is an inference that the phrase should have the same meaning as it does in the Assessment Act. There is nothing in the legislation that I can find which suggests that the phrase is to have a different meaning when used in the Administration Act. I am therefore satisfied that the phrase ``tax properly payable'' in paragraph 14ZS(2)(a) includes assessed Medicare Levy. When calculating the rate at which penalty tax was imposed for each of the years of income in dispute, the amount of Medicare Levy assessed must be included as tax properly payable. In my view the effect of subsection 251R(7) is applicable in the circumstances of this case.
Calculation of rate of penalty tax
29. The rate per annum of penalty tax imposed is calculated using the following formula:
I therefore find that the rate of additional tax imposed in each year of income exceeds 20% per annum.
30. The Tribunal therefore has jurisdiction in all of the tax years before me.
31. This matter will be listed for hearing of the substantive issue on a date to be advised to the parties.
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