Deputy Commissioner of Taxation v Gray
[2007] QDC 261
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- Unreported Judgment
- Deputy Commissioner of Taxation v Gray[2007] QDC 261
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Deputy Commissioner of Taxation v Gray[2007] QDC 261
Deputy Commissioner of Taxation v Gray[2007] QDC 261
DISTRICT COURT OF QUEENSLAND
CITATION: | Deputy Commissioner of Taxation v Gray [2007] QDC 261 |
PARTIES: | DEPUTY COMMISSIONER OF TAXATION Applicant v LYNETTE MARGARET GRAY Respondent |
FILE NO/S: | 480 of 2006 |
DIVISION: | Civil |
PROCEEDING: | Application for Summary Judgment |
ORIGINATING COURT: | Southport |
DELIVERED ON: | 19 September 2007 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 20 August 2007 |
JUDGE: | O'Sullivan DCJ |
ORDER: | I dismiss the Application for Summary Judgment. |
CATCHWORDS: | Withholding tax not remitted to Deputy Commissioner of Taxation; s 222AOJ(2) of Income Tax Assessment Act (1936); Fitzgerald v Deputy Federal Commissioner of Taxation 95 ATC 4587; Deputy Commissioner of Taxation v William John Guthridge[2003] QSC 120; Deputy Commissioner of Taxation v Stenner[2003] QDC 053; Deputy Federal Commissioner of Taxation v Dick [2006] ATC 4678; Deputy Commissioner of Taxation v Pavlinovich[2001] 47 ATR 23; Deputy Commissioner of Taxation v Coco (2003) 179 FLR 362; Deputy Commissioner of Taxation v George(2002) 55 NSWLR 511; |
COUNSEL: | Ms Armstrong for applicant Mr C. Wilson for respondent |
SOLICITORS: | ATO Legal Services Branch for applicant Stephen Ippolito & Co Solicitors for respondent |
REASONS FOR JUDGMENT
- [1]This is an application by the applicant, Deputy Commissioner of Taxation, for summary judgment against the respondent for $81,196.24 for the respondent’s unpaid director penalty liabilities, together with costs and interest.
- [2]The issue between the parties is whether the respondent has a defence pursuant to s 222AOJ of the Income Tax Assessment Act 1936 (‘the Act’), which is as follows:-
- “(2)It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when:
- (a)The person was a director; and
- (b)The directors were under the obligation to comply with subsection 222AOB(1) or 222AOBAA(1).
- (3)It is also a defence if it is proved that:
- (a)The person took all reasonable steps to ensure that the directors complied with subsection 222AOB(1), 222AOBAA(1) or 222AOBA(1), (whichever is relevant); or
- (b)There were no such steps that the person could have taken.
- (4)In subsection (3):
‘Reasonable’ means reasonable having regard to:
- (a)When, and for how long, the person was a director and took part in the management of the company; and
- (b)All other relevant circumstances.”
- [3]The respondent was granted leave to file and read an affidavit sworn 22 July 2007. which includes the following:
- A.The relevant company, Lyngray Developments Pty Ltd, was set up as a corporate vehicle at a time when the respondent and her husband, Ian Alexander Crawford, believed he was still disqualified from acting as a director.
- B.“Although I was, formally, the sole director and secretary of the company, I played no active role in the management and operation of the company, other than as a signatory to the company’s statutory returns and the company’s bank accounts. This was entirely by arrangement between us.” (para 7).
- C.“Ian and I always both regarded the company as his business vehicle and Ian ran, and I allowed him to run, the company as such” (para 8). “Ian did not tell me about, and I did not learn of the company’s looming problem with the Deputy Commissioner in relation to the unremitted tax, the subject of this proceeding until about June 2002” (para 9).
- D.“Ian took responsibility for ensuring that the company paid its trading debts and taxation and liabilities as and when the company could. I never asked him about the details of the business or the company’s tax position and I never disclosed those matters with him. I was content to entrust Ian with the operation and management of the company’s business” (para 10).
- E.Ian informed the respondent that he had engaged an accountant to attend to the company’s taxation and to prepare business activity statements and other taxation returns. She was aware of this and “was satisfied thereby that there was established and in place a system as to ensure that the company complied with its taxation obligations” (para 11).
- [4]Counsel for the applicant submitted that the material does not show “some other good reason” within s 222AOJ(2) of the Act.
- [5]Both Counsel referred to a number of authorities, and in particular Fitzgerald v Deputy Federal Commissioner of Taxation 95 ATC 4587. Counsel referred to different passages in the judgment of French DCJ. Counsel for the applicant referred to His Honour’s statement that “The fact that he was not aware of the existence of the debt, this is not sufficient to provide a defence”. The judgment goes on to say (although not quoted by Counsel for the applicant):
“The provisions providing for penalties for directors pursuant to Division D9 have been in force since July 1993 so that it is the responsibility of a new director at or prior to taking up his (sic) appointment, to make enquiries of the relevant officers of the company as to whether there were any moneys owing by the company to the respondent.” (p 4,590).
Counsel then cited the passage which then follows, in these terms:
“If there was evidence to suggest that upon such enquiry a director was not given correct information, then it may be that he would be able to establish a defence to the respondent’s claim for penalty.” (p4,590)
- [6]In his Supplementary Outline of Argument, Counsel for the respondent submitted that the respondent was given “incomplete (and, therefore, misleading) information by Mr Crawford and, by reason thereof, is placed in exactly the position postulated hypothetically by the court in Fitzgerald” (para 2). Whether the matters deposed to by the respondent do, in fact, constitute the sort of defence contemplated by French DCJ is arguable.
- [7]Counsel for the respondent cited Mullins J in Deputy Commissioner of Taxation v William John Guthridge [2003] QSC 120:
“It is not possible on an application of this nature to reject absolutely a defence under s 222AOJ(3) which requires the question of what was a reasonable step or steps for the defendant to have taken during this first period to be determined in the light of the defendant’s involvement in the management of the company, his relationship with Mr Coco and all other relevant circumstances. Many factual issues may arise which require determination in the evaluation of this defence” (para 21).
- [8]I agree with Counsel for the respondent that the availability of the defences open to the respondent requires further examination of the factual issues.
- [9]Counsel for the applicant also referred to Deputy Commissioner of Taxation v Stenner [2003] QDC 053 and in particular that it was not a defence to show that a director had little interest in the finances of the company, (para 32 of Reasons for Judgment).
- [10]Counsel for the respondent submitted that Stenner is distinguishable; the director left the handling of the financial affairs of the company to his father, which did not entitle him to the benefit of a defence extended by s 222AOJ(3); in contrast, the respondent was given selective (and misleading) information about the company’s affairs by her husband.
- [11]Counsel for the applicant also referred to Deputy Federal Commissioner of Taxation v Dick [2006] ATC 4678, and in particular that non-participation per se was not a ‘good reason’ for the purposes of s 222AOJ (paras 109 and 110 of the Reasons for Judgment).
- [12]Counsel for the respondent noted that in Dick (supra), the court stated:
“The respondent was clearly aware not just that the company was in a parlous financial position, but also that it was failing to meet its tax obligations. You failed to make any independent investigation or enquiry…”(para 111).
- [13]Counsel for the applicant also referred to Deputy Commissioner of Taxation v Pavlinovich [2001] 47 ATR 23. The court noted (para 22) that the applicant “took on the task without the slightest intention of making any effort to discharge any responsibilities whatever on the basis that she would not thereby be liable. As I have indicated I do not consider that to be a good reason for failing to take part in the management of the company”. The defendant had said she did not take part in the management of the company because of her husband’s assurance that she would not incur personal liability by accepting a post as a director and she would not be required to take any part in the management of the business whatsoever. This particular aspect was held to be incapable of satisfying “good reason” in s 222AOJ(2).
- [14]It is certainly true that the facts in Pavlinovich are very close to the facts in the present application, and confirm the need for further examination of the factual basis on which the respondent became a director and what she did (and did not) do in her capacity as director, particularly with respect to the taxation obligations. Counsel for the respondent relies in particular on her delegation of the management to Mr Alexander, combined with the fact that he periodically gave her selective (and therefore inaccurate) reports on the company’s financial position (para 3 of the Supplementary Outline of Argument) .
- [15]Both Counsel referred to Deputy Commissioner of Taxation v Clark [2003] NSWCA 91. Counsel for the applicant cited Spigelman CJ at [164], while Counsel for the respondent distinguished Clark on the basis that it is a decision under the Corporations Act 2001(Cth) and, apart from that distinction, in this application, Ms Gray did not neglect her duties as a director; rather, she delegated them to her husband, and thus the risk referred to by Spigelman CJ is irrelevant.
- [16]Counsel for the respondent submitted that the construction of the words “good reason” in the Act requires consideration of the context of the legislation, and in this respect the Corporations Act 2000 is different from the Act. He submitted that s 222AOB serves a revenue purpose, and thus the effectiveness of the director penalty provisions is not subverted by adopting a construction that the words in s 222AOJ(2) are as wide as they could be in order that the court may determine each case on its own particular facts (para 11 of Outline of Argument).
- [17]Counsel for the respondent submitted that the defence set up in s 222AOJ(3) does not require a director to continuously take steps during the period if the steps which were taken from time to time together could apply to the whole period: Deputy Commissioner of Taxation v Coco (2003) 179 FLR 362 at [50].
- [18]I agree with Counsel for the respondent that in the light of the authorities I have discussed, and also Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511, the applicant must show that the respondent has no realistic prospect of succeeding in the defence for any part of the entire period commencing from the time when the first deduction of PAYG withholding was made by the company (1 April 2002) until it was placed in liquidation (25 January 2007).
- [19]I agree with Counsel for the respondent that the prospects of the respondent successfully raising a defence under s 222AOJ(2) for the entirety of the relevant period are not so fanciful as to justify denying her a trial. I consider this is particularly so in the light of the need for further examination of the facts concerning her participation in the company and her knowledge of its taxation arrangements and obligations.
- [20]I dismiss the application for summary judgment.
- [21]So far as costs are concerned, I note that the affidavit of Ms Gray was filed by leave at the hearing of this application.