CREAGH v FC of T

Members:
J Block SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [1999] AATA 203

Decision date: 31 March 1999

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J Block (Senior Member) (a) The objection decision in this matter is the decision by the Respondent to allow in part only the Applicant's objection against an assessment for the year ended 30 June 1991 (``relevant year'').

(b) The due date for the lodgment by the Applicant of his return for the relevant year was 31 October 1991. The Applicant lodged his return for the relevant year (together with his returns for the four succeeding financial years) in January 1997. His return for the relevant year was approximately 271 weeks late; that period of approximately 271 weeks is referred to in these Reasons as the ``late period''.

(c) The Applicant's assessment for the relevant year was issued on 14 April 1997; it included an amount of additional tax of $2,862.79 calculated in respect of the late period at a rate of 10% per annum.

(d) After receiving the Applicant's objection, the Respondent allowed a lump sum rebate of $584.72 which resulted in a reduction of the additional tax from $2,862.79 to $2,558.05. The amended assessment (which appears at page T34 of the T documents) reads as follows:

``NOTICE OF AMENDED ASSESSMENT 1936 1991

Your amended Taxable Income is $41842  $         c

Tax on Taxable Income                  A     11941.28DR
Medicare Levy                          O       523.02DR
Additional Tax for Late Return         C      2558.05DR
Total credit for Tax Stamps/Group
Certificates                           E      9789.11CR
Rebates and Other Credits              G       584.76CR
Balance of this Assessment             L      4648.48DR''
      

(e) The Respondent raised as a preliminary matter a question of jurisdiction; put in succinct terms, the Respondent contends that the additional tax has been imposed at a rate which is less than 20% per annum of the tax properly payable; accordingly, so the Respondent contends, the objection decision under review is an ineligible income tax remission decision for the purposes of section 14ZS of the Taxation Administration Act (``TAA''); because the objection decision is an ineligible income tax remission decision, it is not a reviewable objection decision (section 14ZQ of TAA), and therefore, this Tribunal does not (having regard to section 14ZZ of TAA) have jurisdiction to review the objection decision.

(f) It was agreed between the parties that the jurisdiction question be resolved first and that the matter then be relisted, if applicable, but only, of course, if the Tribunal holds that it does have jurisdiction.

2. The Applicant was self-represented; Mr Martin Dwyer, an officer of the Respondent, appeared on behalf of the Respondent.

3. It is convenient to gather in this clause 3 those legislative provisions (or appropriate references to them) which are relevant for the purposes of these Reasons:

(a) Sections 14ZS(1) and 14ZS(2) of TAA are as follows:

``14ZS(1) [Ineligible income tax remission decision defined] for the purposes of this Part, an objection decision is an ineligible income tax remission decision if subsection (2) or (4) applies.

14ZS(2) [Remission of additional tax payable by taxpayer] 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 163B, 224, 225, 226, 226G, 226H, 226J, 226K, 226L or 226M of that Act, whatever its amount, or is payable under a provision of Part VII of that Act other than any of the preceding sections and

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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 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.''

(b) Section 14ZS(2) was amended by sections 6(a)-6(c) of Act 101 of 1992 (with effect from 30 June 1992) by substituting ``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'' for ``Part VII of that Act'', omitting paragraphs (b) and (c), and omitting the references to paragraphs (b) and (c) in paragraph (d). Section 14(1) of No 101 of 1992 (with effect from 30 June 1992) contains the following application provision:

``14(1) Despite the amendments made by section 6, section 14ZS of the Principal Act as in force immediately before the commencement of this Act continues to apply to objection decisions that relate to the remission of additional tax payable by a taxpayer:

• (a) under section 223 of the Income Tax Assessment Act 1936; or
• (b) under section 224, 225 or 226 of that Act in relation to assessments in respect of:
  • (i) the 1991-92 year of income or an earlier year of income; or
  • (ii) an accounting period adopted in lieu of the 1992-93 year of income and commencing before 1 July 1992.''

Paragraphs (b) and (c) previously read:

``(b) in the case of additional tax payable under section 223 of that Act because of the making of a statement:

• (i) if the statement relates to only one year of income - the amount calculated, in respect of the period commencing on the day that is the prescribed day in relation to the taxpayer in relation to the year of income and ending on the day on which the assessment of the additional tax is made, at the rate of 20% per year of the amount of relevant affected tax in relation to the taxpayer in relation to the year of income; or
• (ii) if the statement relates to 2 or more years of income - the sum of the amounts calculated in relation to each of those years of income, in respect of the period commencing on the day that is the prescribed day in relation to the taxpayer in relation to the year of income and ending on the day on which the assessment of the additional tax is made, at the rate of 20% per year of the amount of relevant affected tax in relation to the taxpayer in relation to the year of income; or

(c) in the case of additional tax payable under section 224, 225 or 226 of that Act in relation to a year of income - the amount calculated, in respect of the period commencing on the day that is the prescribed day in relation to the taxpayer in relation to the year of income and ending on the day on which the assessment of additional tax is made, at the rate of 20% per year of the amount of relevant affected tax in relation to the taxpayer in relation to the year of income; or''

(c) Section 14ZS(2) was further amended by Act 169 of 1995 as follows:

``By inserting `163B,' before `224' and substituting `that Act, whatever its amount, or is payable under a provision of Part VII of that Act other than any of the preceding sections' for `Part VII of that Act, whatever its amount, or is payable under another provision of that Part', applicable to additional tax in relation to returns for the 1995/96 or any later year of income.''

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ATC 2196

(d) Section 14ZQ of TAA provides that an ineligible income tax remission decision has the meaning given to that term in section 14ZS of TAA.

(e) Section 14ZQ of TAA also provides that a reviewable objection decision is an objection decision which is not an ineligible income tax remission decision.

(f) Section 14ZZ of TAA provides that an application for review of an objection decision may be made to the Administrative Appeals Tribunal only where the objection decision is a reviewable objection decision.

(g) Section 222(1) of the Income Tax Assessment Act 1936 (``ITAA'') provides:

``222(1) [Additional tax: return or information] Where a taxpayer refuses or fails to furnish, when and as required under or pursuant to this Act or the regulations to do so, a return, or any information, relating to a year of income being a return relating to or information relating to, or to the affairs of, the taxpayer, the taxpayer is liable to pay, by way of penalty, additional tax equal to double the amount of tax payable by the taxpayer in respect of the year of income.''

(h) Section 222A of ITAA provides that:

```credit' means:

• (a) a credit within the meaning of Division 19 of Part III; or
• (b) an offset within the meaning of Division 1 of Part IIIAA;

...

`proper tax', in relation to a taxpayer and a year, means 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;''

4. (a) The additional tax of $2,558.05 referred to in clause 1(d) was calculated by applying a rate of 10% per annum (which is a concessional rate and which was applied because the return was lodged voluntarily) in respect of the late period and in relation to the amount payable; the amount payable for this purpose included a notional provisional tax debit of $2,818.

(b) It is unnecessary for the Tribunal to have regard to certain Rulings issued by the Respondent and which deal with the concept of notional provisional tax; the amended assessment does not include a provisional tax debit. The relevant question to be determined by the Tribunal is whether the additional tax is above or below the 20% per annum threshold (referred to henceforth as the ``threshold'') prescribed by section 14ZS(2) of TAA. This in turn requires the Tribunal to consider the manner in which the tax properly payable should be calculated.

5. The Respondent contends that in respect of the relevant year the correct calculation of the tax properly payable is made by adding the Gross Tax (label A) to the Medicare levy (label O) and then deducting Rebates (label G). On this basis the result is $11,879.54 which at 20% per annum over the late period would amount to $12,382.13. The additional tax of $2,558.05 assessed is considerably less than $12,382.13 and accordingly, so the Respondent contends, it is below the threshold.

6. The Applicant argued that the tax properly payable should correctly be calculated after deduction of tax payments; his calculation (amended in the third line so as to correct a calculation error) reads as follows:

``1991 Calculation:

Tax on taxable income                 11,941.28
Plus Medicare Levy                       523.02
                                      ---------
                                      12,464.30

Less lump sum rebate                     584.76
                                      ---------
                                      11,879.54

Less Credited Group Cert               9,789.11
                                      ---------
                                       2,090.43

Applying formula in AAT Case 10,532
(2558.05/2090.43) x (365/1897) x 100 = 23.54%''
      

7. The issue between the parties for the purposes of these Reasons is quite simply as to whether the tax properly payable is calculated before or after the deduction of tax payments made through the PAYE system. The Applicant contends that it should be calculated after that deduction has been made; he argues that because there is no totally appropriate statutory definition it is incumbent on the Tribunal to formulate an appropriate definition; alternatively (and if I understood him correctly), the definition of ``proper tax'' in section 222A of ITAA is in order so far as it goes, but that it does not go far enough, in that the definition of ``credit'' in section 222A of ITAA (which is relevant in relation to the

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definition of ``proper tax'') does not encompass all of the credit amounts which should properly be taken into account. The Respondent contends that the definitions of ``proper tax'' and ``credit'' contained in section 222A of ITAA do not allow for the deduction of the tax instalments paid.

8. (a) In Case 58/95,
95 ATC 467; AAT Case 10,532
(1995) 32 ATR 1006, Senior Member K.L. Beddoe considered the meaning of the term ``tax properly payable''; clauses 23 to 28 of his Decision are as follows [ATC p 472; ATR p 1011]:

``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 s 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:

`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 section 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 s 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 s 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 s 251R(7) is applicable in the circumstances of this case.''

(b) The Tribunal agrees with Senior Member Beddoe's decision, and in particular, with his view that in the absence of a definition of ``tax properly payable'' in TAA, the term should have the meaning given to it in ITAA.

(c) The Tribunal considers that the Respondent's method of formulation is correct up to a point. The starting point should indeed be tax on taxable income (Tab A). Having regard to the AAT decision previously referred to in these Reasons, it is also correct to add Medicare levy (Tab O). To deduct Rebates (Tab G) appears to the Tribunal to be eminently fair given that the enquiry is directed towards the tax properly payable, and rebates necessarily affect the calculation. But it appears to the Tribunal that it is then both illogical, and unfair to ignore Tab E which relates to tax already paid, since to do so necessarily distorts the nature of the enquiry.

(d) It is true of course that the term ``credit'' is defined without reference to amounts already paid. It is also fair to say that tax paid is at least in one sense a credit in that it is deductible. But it is also correct to say that it is in reality an automatic set-off. The plain legislative intent was to allow review only where the additional tax exceeds the threshold. But an essential (and

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indeed the essential) element in the calculation is the tax properly payable, and to construe ``tax properly payable'' and ``proper tax'' so as to include rebates and to exclude tax already paid, appears to me to be so manifestly absurd that it cannot have been intended. And in any event, the legislation in question does not prohibit an interpretation which would allow a deduction for tax already paid.

9. The Applicant cited Case 53/96,
96 ATC 501; AAT Case 11,214
(1996) 33 ATR 1201 and in particular clause 64 (at ATC p 520; ATR p 1223) reading as follows:

``It was accepted that, with one exception, the Tribunal was empowered to review the remission decisions of the respondent. The exception related to the rent understatement penalty of 5% and the provisions of s 14ZS of the Taxation Administration Act 1953 which limit the Tribunal's jurisdiction to situations where the penalty exceeds 20% per annum of the tax sought to be avoided.''

The particular words used by the Tribunal in that decision, that is, ``tax sought to be avoided'', related to the particular fact situation under consideration by that Tribunal. It was not, and was not intended, to be an accurate summation of the words of section 14ZS of TAA. Nevertheless the fact that the Tribunal referred to the provision in those terms is indicative (to a minor extent only) of what it perceived as the underlying legislative intent.

10. The Tribunal was also referred to another decision by Senior Member Beddoe; in that other decision (Case 12/96,
96 ATC 204), the Senior Member made a finding as to the inclusion in ``tax properly payable'' of Medicare levy, which accorded with his other decision in this respect and which is referred to earlier in these Reasons.

11. (a) As set out previously, section 14ZS of TAA has been amended since the relevant year on two occasions. The Tribunal does not think that those amendments are material in relation to these Reasons; this is a case of additional tax imposed under section 222 of ITAA; the amendments in question have not altered the threshold as regards assessments of additional tax under section 222 of ITAA.

(b) The Applicant raised an argument based on his view of how section 14ZS(2) of TAA is to be construed. He argued that (having regard in particular to the placement of ``except'' and the words which follow it) that section should be construed in such manner that an objection decision will be an ineligible income tax remission decision where the additional tax is in excess of the threshold, and not where it is less than the threshold. That argument was presented in relation to the section in its current form and not in relation to the section in the form which applied for the relevant year. In any event that argument is without merit.

12. The Tribunal considers that in calculating tax properly payable tax already paid should be taken into account. This being so, the additional tax is above the threshhold, and the Tribunal does have jurisdiction. The Tribunal directs that the objection decision be relisted for hearing accordingly.