Decision impact statement

Wegner v Deputy Commissioner of Taxation; Reardon v Deputy Commissioner of Taxation

Venue: Miscellaneous - Australian
Venue Reference No: HCA B17 and B18 of 2013; QCA No 3597 and 3598 of 2012
Judge Name: High Court: Bell J, Keane J; Queensland Court of Appeal: Holmes JA, McMurdo J, McMeekin J
Judgment date: High Court: 6 June 2013; Queensland Court of Appeal: 15 March 2013
Appeals on foot: No
Decision Outcome: Favourable

Impacted Advice

Relevant Rulings/Determinations:

• Not applicable

Subject References:
Validity of Director Penalty Notices
Interaction between the former section 222AOE Income Tax Assessment Act 1936 (ITAA 1936) and section 269-25 of Schedule 1 of the Taxation Administration Act 1953 (Schedule 1, TAA53))

Précis

Outlines the ATO's response to this case concerning whether Director Penalty Notices (DPNs) issued under former s 222AOE of the Income Tax Assessment Act 1936 were required to be re-issued under s 269-25 of Sch 1 to the Taxation Administration Act 1953.

Brief summary of facts

On 27 April 2010, the ATO issued a Director Penalty Notice (DPN) to each of the taxpayers in respect of unpaid pay as you go withholding (PAYGW) for the company of which they were directors. Each DPN was drafted in conformance with the decision in DCT v Meredith (2007) 245 ALR 150, which is authority for the proposition that a DPN is served at the time it is posted and the date for compliance runs from that date. In this case, the taxpayers alleged they did not receive the DPNs.

On 1 July 2010, as a result of the Tax Laws Amendment (Transfer of Provisions) Act 2010, section 222AOE of the ITAA 1936 was repealed and Division 269 was enacted as part of Schedule 1 to the TAA 1953. Transitional provisions provided that the new Division 269 applied in respect of directors' penalties payable under the former provisions in the ITAA 1936 as though they were payable under Division 269, excluding section 269-20 which provides for the raising of the penalty (in order to avoid a double penalty).^[1]

The taxpayers argued unsuccessfully on appeal, and at their application for special leave, that the transitional provisions had the effect of revoking the Commissioner's power to recover the penalty that arose after the expiration of the 14 day period for compliance under former section 222AOE on 11 May 2010, as from 1 July 2010 when the new provisions became effective.

Issues decided by the court

The Queensland Court of Appeal held that the original DPNs enabled the Commissioner to recover the penalty because his accrued right was preserved by former section 8(c) of the Acts Interpretation Act 1901 (Cth) (now in section 7 of that Act) (per McMurdo J and McMeekin J).^[2] Alternatively, Schedule 7 to the Tax Laws Amendment (2011 Measures No 7) Act (Cth) (which retrospectively validated the DPNs sent to the taxpayers after the NSW Court of Appeal decision in Soong v DCT (2011) 278 ALR 538 overturned their earlier decision in Meredith, with the effect that all DPNs issued with the wording used in the present case became invalid) operated as a retrospective repeal or modification of the transitional provisions and avoid any inconsistency, such that a new notice under Division 269 was not required (per Holmes J).^[3]

Summary

1. Is the Commissioner entitled to commence or continue recovery proceedings on unpaid director penalty liabilities in circumstances where a DPN issued before 1 July 2010 under [now repealed] section 222AOE of the ITAA 1936 without having to issue a further notice under section 269-25 of Schedule 1 of the TAA 1953?

It was held that in cases where the taxpayer has already received a DPN under section 222AOE of the ITAA 1936, the Commissioner remains entitled to recover the director penalty and is not required to issue a further DPN under section 269-25 of Schedule 1 of the TAA 1953.

2. Whether Schedule 7 of the Tax Laws Amendment (2011 Measures No 7) Act 2011 ("the Soong Amendments") operate to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Soong amendments, may have otherwise been invalid?

It was held that the Soong Amendments were effective to validate a notice issued under former section 222AOE which was rendered invalid as a result of the decision of the NSW Court of Appeal in Soong v DCT (2011) 278 ALR 538.

ATO view of Decision

The decision of the Court of Appeal, which the High Court determined was not attended with sufficient doubt to warrant granting the taxpayers Special Leave to Appeal, is consistent with the Commissioner's view and current procedures.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

Not applicable

Implications on Law Administration Practice Statements

Not applicable

Court citation:
High Court
[2013] HCATrans 130
Queensland Court of Appeal
[2013] QCA 46
(2013) 275 FLR 9
(2013) 92 ATR 494

Footnotes

Items 64, 65.

[2013] QCA 46

[2013] QCA 46

Legislative References:
Taxation Administration Act 1953 (Cth)
Section 269-25 of Schedule 1

Income Tax Assessment Act 1936 (Cth)
Former Division 9

Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth)
Schedule 1 section 10
Part 3, Division 5

Tax Laws Amendment (2011 Measures No 7) Act 2011 (Cth)
Schedule 7

Case References:
Deputy Commissioner of Taxation v Woodhams
(2000) 199 CLR 370
[2000] HCA 10
43 ATR 757
2000 ATC 4141

Deputy Commissioner of Taxation v Meredith
[2007] NSWCA 354
(2007) 245 ALR 150
2007 ATC 5353
69 ATR 876

Soong v Deputy Commissioner of Taxation
[2011] NSWCA 26
(2011) 278 ALR 538
2011 ATC 20-245
82 ATR 455

Deputy Commissioner of Taxation v Zammitt
[2012] NSWDC 135