Delbake Pty Ltd v FC of T

Members:
R Reitano M

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2024] AATA 449

Decision date: 18 March 2024

R Reitano (Member)

1. This case is about the substantial penalties that the Commissioner for Taxation (Commissioner) is required to impose on employers who fail to provide information to the Commissioner about their superannuation guarantee shortfall before the Commissioner commences compliance action against them.

2.

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Specifically, the case concerns whether there are exceptional circumstances that prevented Delbake Pty Ltd (Delbake) from providing the Commissioner with particular information about the extent of its superannuation guarantee shortfall in the quarterly periods between 30 September 2015 to 31 March 2018 (the shortfall period) before 28 February 2022 which was the day the Commissioner told Delbake that he intended to examine its compliance with its obligations to pay superannuation guarantee charges over the shortfall period.

3. As will be seen I am not satisfied that there are exceptional circumstances that prevented Delbake from providing the Commissioner with information about its superannuation guarantee shortfall over the shortfall period before 28 February 2022 so that the decision must be affirmed subject to one qualification which I will explain later.

THE REGULATORY SCHEME

4. It is helpful to first say something generally about the superannuation guarantee scheme under the Superannuation Guarantee (Administration) Act 1992 (Act) and Superannuation Guarantee Charge Act 1992. That scheme provides that an employer who does not make superannuation contributions for employees by relevant dates incurs a debt, known as 'the superannuation guarantee charge' which is owed to the Commissioner.

5. The superannuation guarantee charge has three parts: the amount by which the employer failed to make prescribed superannuation contributions, known as the 'superannuation shortfall', an interest charge and an administration cost. The superannuation guarantee charge can be reduced by making superannuation contributions after the date the charge becomes due and before a quarterly assessment is made.

6. Alongside the obligation to pay the superannuation guarantee charge, there is in s.33 of the Act an obligation on employers to report superannuation guarantee shortfalls in a superannuation guarantee statement on or before the due date in each relevant quarter. Section 59 of the Act provides that a failure to lodge a superannuation guarantee statement on time means that the employer must pay a penalty equal to twice the superannuation guarantee charge. The penalty is not confined to the amount or part of the non-payment but to the whole of the superannuation shortfall. The penalty can be for some employers a very large amount depending on what the shortfall is. One objective of having such high penalties is no doubt to secure compliance with the Act and ensure that employees are properly superannuated.

7. Section 62(3) of the Act provides the Commissioner with a discretion to remit penalties in whole or in part. The Commissioner has implemented a policy known as Law Administration Practice Statement 2021/3 Remission of additional superannuation guarantee charge (PS LA 2021/3) which the Commissioner applies to the determination of whether penalties are to be remitted. That policy was applied in this case to quarters after 31 March 2018 in which superannuation guarantee statements were not lodged with the Commissioner. The Commissioner made an error in calculating the amount to be remitted in that period which means that the matter must be returned to the Commissioner to recalculate the amount to be remitted in respect of those quarters. The parties agreed that was the appropriate course.

8. Returning to the issue, s.62(4) of the Act creates an exception to the Commissioner's power of remission in relation to assessments for periods before 31 March 2018, or more strictly speaking as s.62(4)(a) provides for quarters that started on or before 1 January 2018, the Commissioner has no discretion to remit penalties below 100% of the superannuation guarantee shortfall for quarters before then.

9. That limit on the discretion to remit for that period is itself subject to an important exception which is in s.62(5) of the Act which provides:

10. The reference to subparagraph (4)(c)(ii) is a reference to the Commissioner having informed the employer that the Commissioner was examining, or was intending to examine, the employer's compliance with an obligation to pay superannuation for a relevant quarter. The reference to 'information' is a reference to 'particular information' that would mean that the employer's superannuation guarantee shortfall exceeds what it would be if that information were not considered. That is the combined effect of s.62(4)(b) and (d) of the Act.

11. The scheme is simple enough: if an employer is prevented by exceptional circumstances from disclosing information that would show they failed to pay superannuation correctly and so had a superannuation guarantee shortfall and therefore a superannuation guarantee charge either at all, or before the Commissioner commences compliance action, the exception will be engaged.

12. The entire scheme has as its object allowing employers to take advantage of the Commissioner's discretion to remit beyond 100% of a superannuation guarantee shortfall but only if the employer has disclosed the shortfall to the Commissioner without the Commissioner having to telegraph the commencement of an examination for the purpose of compliance. If the employer has not disclosed its superannuation guarantee shortfall or has disclosed it after the intention to commence compliance action is announced, then there must be exceptional circumstances that prevent disclosure for the Commissioner to engage the discretion to remit beyond 100% of the shortfall. This is consistent with a legislative intention to provide an incentive for employers to comply with their obligations by taking active steps to do so rather than waiting for the Commissioner to do something.

13. Sub-section 64(5) of the Act means that that for the limit on remission to be removed the Commissioner, and in this case the Tribunal, must be satisfied that there were exceptional circumstances that prevented the employer from providing information about the extent of its superannuation guarantee shortfall that was not previously disclosed to the Commissioner. 'Exceptional circumstances' has a close sibling in the often used legislative phrase 'special circumstances'. Both involve circumstances that are genuinely unusual or uncommon or out of the ordinary. Further, it is not simply satisfaction about the existence of 'exceptional circumstances' that is required but those circumstances must be productive of a particular result, namely preventing the employer from providing the relevant information to the Commissioner. It is unnecessary to dwell on it but the existence of exceptional circumstances that have such a consequence is itself unlikely to be frequently occurring, but naturally enough will depend upon the circumstances of a particular case.

14. Delbake relied on
Groth v Secretary, Department of Social Security [1995] FCA 1708 (Groth) at [12] where Keifel J (as she then was) considered the discretion in s.1184 of the Social Security Act 1991. That section permitted the Secretary to disregard a compensation payment as not having been made or liable to be made 'if the Secretary thinks it is appropriate to do so in the special circumstances of the case'. Keifel J observed 'that 'special circumstances' might be found where a conclusion was arrived at that 'something unfair, unintended or unjust had occurred there must be some feature out of the ordinary'. Delbake also referred to
Ward v Commissioner of Taxation [2016] FCAFC 132 (Ward) at [41] where the Full Court of the Federal Court referred to Groth and observed in relation to the requirement in s.292 - 465(3)(a) of the Income Tax Assessment Act 1997 to find 'special circumstances' that:

In our opinion, it was open to the Tribunal to find that there were "special circumstances" if it found that the provisions operated on Mr Ward, in his individual circumstances, in an unfair or unjust way because, through a misunderstanding of an adviser by virtue of the misleading notice provided by BT Super for Life, Mr Ward, acting honestly and carefully, accidentally breached the bring

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forward rule which had consequences disproportionate to the intended operation of the statute.

15. Both Groth and Ward were concerned with preconditions to the exercise of a broad statutory discretion where the condition was the finding of, or satisfaction about, either 'special circumstances' or 'the special circumstances of the case'. They are to be contrasted to the precondition to the exercise of the discretion here which requires not simply the existence of 'exceptional circumstances', to ground departing from the statutory proscription against remitting the penalty to below 100% of the superannuation guarantee shortfall, but rather one that requires 'exceptional circumstances that prevented the employer from disclosing' the information during prescribed time frame. However unfair, unintended or unjust the outcome might be is quite irrelevant to the question of 'exceptional circumstances that prevented the employer from disclosing' in this case. The reference to Groth and Ward is no more than a distraction.

16. I will return the question of 'exceptional circumstances that prevented the employer from disclosing' after dealing with how the case arose in the first place.

WHAT HAPPENED?

17. On 6 December 2022 the Commissioner decided Delbake's objection to the assessment of its liability to pay penalties under s.59(1) of the Act in the amount of $393,753.10 of which $185,141.65 concerned quarters after 31 March 2018 and $208,611.45 related to the shortfall period.

18. As I have already observed the Commissioner conceded an error in the calculation of the amount to be remitted for the period after 31 March 2018 so that it will be necessary to remit the matter to the Commissioner to recalculate the penalty for that period. It is otherwise unnecessary to deal with the assessment of penalties for that period.

19. The dispute is confined to whether the Commissioner's assessment of penalties for the shortfall period in the amount of $208,611.45 is correct. The circumstances that gave rise to that assessment are relatively uncontroversial.

20. In 2019 the Commissioner raised concerns with Delbake about whether it had paid superannuation guarantee for its employees in the periods 1 July 2014 until 30 June 2017 with the result that Delbake lodged many superannuation guarantee statements for the four quarters over the period 1 July 2015 to 30 June 2016.

21. On 3 December 2021 the Commissioner issued to Delbake what is known as an 'early engagement review letter'. The purpose of such a letter is to invite an employer to check that it has complied with its obligations. The terms of the letter in this matter confirmed so much. The letter said that it was concerned with the period 1 July 2015 to 30 June 2018. The letter requested that Delbake 'Check your records to confirm that you have paid: >the correct SG amount for all of your employees >to the correct fund >by the due date.' The letter said that if Delbake had not 'met these obligations, then [it] must lodge an SGC statement and pay the SGC to us'.

22. On 7 December 2021 Delbake through its tax agent Longboard Group Pty Ltd, advised the Commissioner, apparently in response to the letter of 3 December 2021, that the period 1 July 2015 to 30 June 2018 had been subject to an 'SGC audit in 2019' and that 'SGC statements have previously been prepared and lodged with the ATO'. Delbake did not take any other action in response to the Commissioner's early engagement review letter. I say 'apparently in response to the letter of 3 December 2021' because the response did not at all directly engage with what the Commissioner's letter requested Delbake to do.

23. On 28 February 2022 in a letter and by telephone the Commissioner notified Delbake that that there would be another audit in relation to its superannuation compliance in relation to the period 1 July 2015 to 30 June 2018. In the letter the Commissioner requested Delbake provide the Commissioner with documents, receipts from super funds showing amounts paid and dates of payments, bank statements showing payments and payroll summaries, for the period 15 July 2015 to 31 December 2021 for a number of employees.

24. Over the period 1 April until 17 May 2022 Delbake provided various documents to the Commissioner. Those documents included superannuation guarantee statements for the

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shortfall period. There was no issue that the information in those documents revealed that Delbake's superannuation guarantee shortfall exceeded what it would be if that information were not considered.

25. Between 24 May and 28 June 2022, the Commissioner issued amended assessment in respect of Delbake's superannuation guarantee charge for the quarters from 30 September 2015 to 31 December 2020.

26. On 12 July 2022 the Commissioner completed the audit and so far as the period in dispute is concerned the Commissioner determined that the penalty as 100% of Delbake's superannuation guarantee charge which amounted to $208,611.45.

27. On objection the Commissioner was unmoved in his position regarding the disputed quarters because he was not satisfied that there were exceptional circumstances that prevented Delbake from lodging superannuation guarantee statements, or providing information relevant to its superannuation guarantee shortfall before 28 February 2021 when Delbake was advised that the Commissioner was intending to examine Delbake's compliance with its obligations. The absence of the Commissioner being satisfied about exceptional circumstances that prevented Delbake from lodging superannuation guarantee statements, or more particularly the information about its superannuation guarantee shortfall meant that the Commission was unable to remit below 100% of the penalty.

WHAT IS THE ISSUE?

28. The only issue is whether the Tribunal is satisfied that there were exceptional circumstances that prevented Delbake from providing information to the Commissioner about its superannuation guarantee shortfall before 28 February 2021, when the Commissioner indicated that he intended to look at Delbake's conformity with its obligations. If the Tribunal is not satisfied about the existence of exceptional circumstances that prevented Delbake from providing information in one or other of the relevant periods, there is no power to remit the penalties below 100% of the superannuation guarantee shortfall. The particular information is that information that Delbake provided to the Commissioner after 28 February 2021.

WERE THERE EXCEPTIONAL CIRCUMSTANCES THAT PREVENTED DISCLOSURE?

29. Delbake relied upon the coming together of a number of different things as constituting exceptional circumstances: the illness of its previous accountant, the financial impact of the pandemic, the coincidence of the onset of the pandemic and the legislation closing the amnesty period, the lack of notice of the Commissioner's audit, the previous audit conducted by the Commissioner and the fact that 'late payments' were made in five out of seven of the relevant quarters. It is necessary to say some things about each of these circumstances before dealing with them together as Delbake contended they should be treated.

30. First, Delbake's accountant was diagnosed with brain cancer in August 2018 and died a little less than a year later. It was claimed by the principals of Delbake's tax agents that the former accountant was in poor health and not operating at 'full cognitive capacity'. The suggestion, so it seems, was that but for his illness superannuation guarantee statements would have been lodged. The evidence did not rise above that level of generality, and it is not possible to conclude that Delbake's former accountants' illness had anything at all to do with Delbake not having disclosed relevant information to the Commissioner.

31. There was no particular evidence about what information the former accountant had available to him, what instructions he had been given and by whom, what system if any he had in place for keeping such information and so on. The 'evidence' was no more than 'we came across a number of issues in respect of advice [former tax agents name] had given and work he had prepared and it became apparent that [former tax agents name] was in poor health and not operating at full cognitive capacity for a significant period of time prior to his diagnosis'. The evidence does not satisfy me that the former accountant's illness in any way prevented Delbake from lodging superannuant guarantee statements. Apart from anything else there was a period of about a year from the former accountant's death until the

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end of the amnesty period and about another 18 months until the Commissioner notified Delbake that it intended to examine its compliance. In all that time the former tax agent could have had nothing to do with Delbake's failure to provide information to the Commissioner.

32. Second, it was suggested that for all the quarters from September 2016 to September 2019 Delbake was in fact paying superannuation albeit after the due date. This was because its tax agents were processing the payments. The tax agents maintained that 'as the payments were late SGC statement (sic) should have been prepared and lodged for each quarter'. It is difficult to understand how this circumstance was something that prevented disclosure to the Commissioner. The reference to 'SGC statement (sic) should have been prepared and lodged for each quarter' simply reiterates the fact that they were not prepared and lodged for each quarter. Further, although payments were apparently being made there is no evidence that would suggest that the whole of the shortfall had been satisfied.

33. Third, Delbake's tax agents referred to the impact of the pandemic after March 2020 and the difficulties that they had as tax agents in servicing their clients. That of course fails to explain how it prevented Delbake from disclosing information to the Commissioner. Further, as the Commissioner pointed out, Delbake did comply with other of its taxation lodgements obligations such as for tax returns, business activity statements and other returns were concerned. It also lodged in some of the relevant quarters superannuation guarantee statements. Further, it was suggested because of the pandemic Delbake suffered a downturn in business and reduced cash flows which resulted in it having significant amounts outstanding. Again, it is not clear why any of those things would have prevented Delbake from disclosing to the Commissioner its superannuation guarantee shortfall. I am not satisfied that those things prevented Delbake from disclosing its superannuation guarantee shortfall to the Commissioner.

34. Fourthly, Delbake relied upon the fact that there had already been a review by the Commissioner of its compliance with its obligations to pay and provide information about superannuation guarantee shortfalls. The submission was that 'in our view we were entitled to assume that this review had considered the late payment of the superannuation and the need to lodge the SGC statement in instances were the superannuation had been paid (which was the basis of our response to the ATO on 7 December 2021'. The submission cannot be accepted in the light of the terms of the Commissioner's letter only days earlier by which Delbake was specifically requested to check its records and make sure it had lodged superannuation guarantee statements. Even if Delbake was entitled to assume anything from the previous audit the Commissioners letter should have disabused it of that assumption. There was nothing in the letter that suggested Delbake was entitled to rely upon the Commissioner's earlier audit and Delbake's tax agents, as their 'response' to the letter confirmed, knew the letter requesting the review was in the context that there had been a previous review. But even if all that be accepted it is not possible to see how the Commissioner's previous audit whether combined with the 'assumption' that Delbake had made or not prevented disclosure of the particular information to the Commissioner.

35. Delbake suggested that the coincidence of the onset of the pandemic and the commencement of the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill on 6 March 2020 which heralded the end of the amnesty period six months later added to the exceptional circumstances that prevented the disclosure of the information to the Commissioner. Apart from the fact that amnesty period at that time had nearly run 18 months, it is also relevant that disclosure at any time before the Commissioner indicated he intended to examine Delbake's compliance on 28 February 2022 would have avoided the consequence that Delbake now complains about.

36. Finally, Delbake relied on the combination of all these circumstances as establishing exceptional circumstances. It is to be noted that the some of the circumstances referred to, the illness and death of the former accountant and the onset of the pandemic, might be regarded as out of the ordinary or unusual, but it is not possible to attribute those

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things to the failure by Delbake to lodge its superannuation guarantee statements or to inform the Commissioner about the things it disclosed to the Commissioner after 28 February 2022. The other circumstances such as its late payments, the assent to the Bill, the previous audit and the early engagement letter, the lack of notice about the Commissioner starting an audit do not to my mind establish anything that is out of the ordinary either on their own or in combination with one another establish anything out of the ordinary or unusual, far less do they satisfy me that Delbake was because of them prevented from providing information about its superannuation guarantee shortfall to the Commissioner. The existence of the circumstances was not something that endured over the whole of the shortfall period and none of the circumstances in any event were such that stopped Delbake from providing the information to the Commissioner as it was required to do.

37. As I have indicated I am not satisfied that any of the circumstances that Delbake relied upon prevented it from lodging superannuation guarantee statements or providing information to the Commissioner about its superannuation guarantee shortfall before 28 February 2022. Even if it could be said that the things to which Delbake pointed came together to establish exceptional circumstances they were not exceptional circumstances that prevented Delbake from providing information to the Commissioner. Although it is unnecessary to rely upon it, the fact that Delbake did after 1 April 2022 provide information to the Commissioner demonstrates it was able to provide that information earlier if it had made the effort.

DECISION

38. I set aside the Commissioner's decision in relation to the period after 31 March 2018 and remit that part of the decision back to the Commissioner for reconsideration. I affirm the Commissioner's decision in relation to the period 30 September 2015 to 31 March 2018.

 

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