Tax Litigation Update

At Cove Legal we are very active in the tax litigation space and two recent decisions particularly caught our eye.

Firstly in Arbuckle v Commissioner of Taxation [2019] WASC 7 Martin J dismissed Mr Arbuckle’s Appeal against the sentence imposed by the Magistrate’s Court.

The Court found that Mr Arbuckle’s long-standing failure to meet his tax obligations did warrant a 6- month suspended prison term. He was released on the undertaking to be of good behaviour for a period of two years.   

In handing down the sentence, Magistrate Huston said he needed to “send a message very clearly to Mr Arbuckle that he needs to be discouraged from engaging in this form of unlawful behaviour ever again.” 

“I also need to send a message to the broader community that the expectations in the legislation for lodging income tax returns and business activity statements is not something to fit in when life is convenient. They have to be prioritised because it’s a legislative requirement to do those things.” 

The second decision is Deputy Commissioner of Taxation v Nore [2019] WADC 27 which saw the District Court dismiss an ATO summary judgment application against Mr Nore on the basis that there was sufficient uncertainties in the ATO’s case (despite the ATO claiming Mr Nore had no defence to the claim) to justify the matters being aired in court. 

Mr Nore had been issued with a Director Penalty Notice with respect to a company that failed to remit superannuation guarantee charges.  There are a number of steps a Director can take in order to avoid personal liability in that scenario. Some of those actions were undertaken by Mr Nore with the Court observing “In the circumstances … I am struggling to see what the defendant could have done.”

The two decisions perhaps sit at opposite ends of the true litigation scale: the Supreme Court showing a willingness to endorse custodial sentences for more serious personal tax omissions whilst the District Court is resisting the Commissioner’s attempts to rely upon his procedural/legislative advantages so as to prevent arguable defences from being properly considered by the Courts.  Both show that tax disputes can very much turn on their own particular facts and circumstances and require specialist guidance.

Roger Blow

P: +61 8 6381 0326 or e: roger@covelegal.com.au

 This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

 

WA Company goes into Administration

 

This week saw another significant WA company, RCR Tomlinson, placed into the hands of Administrators.  https://www.perthnow.com.au/business/contracting/engineering-firm-rcr-tomlinson-collapses-appoints-administrators-ng-b881028755z

According to recent ASIC figures 2,182 companies across Australia entered into external administration between July to September 2018, a 4.5% increase on the same period in 2017.

The statistics also identify that roughly one third of companies are found to have traded insolvent for over 2 years prior to the appointment of an external administrator.  Of most concern is the current rate of 92% of liquidations resulting in nil dividends for unsecured creditors and less than 1% achieving more than 50c in the dollar.

Those statistics need to be considered against the backdrop of more aggressive collection strategies from the ATO, with an increase in the use of garnishee notices, Director Penalty Notices and seeking security over personal director assets before entering into payment plans for company tax debts.

Cove Legal provide specialist advice to clients facing possible insolvency outcomes or facing actual or threatened ATO debt action.  If you are attempting to address director personal liability issues, director penalty notices, garnishee orders, winding up applications, statutory demands or need advice on an insolvency situation generally, speak to us today as we would love to try and help. 

#garnishee #DPN #directorliability

What to do if you have been served a Director Penalty Notice by the ATO?

If you are a Director of a company and your PAYG and Superannuation Guarantee Charge Obligations are not up to date, you could find yourself the subject of an ATO Director Penalty Notice (DPN) and incur personally liability for those outstanding debts.   

The ATO issues DPNs as part of its debt recovery actions and once issued you have 21 days to either: 

  1. cause the Company to pay the debt (or pay it yourself); or

  2. appoint a voluntary administrator; or

  3. put the Company into liquidation.

A failure to comply within 21 days will automatically make you personally liable for the unpaid super/PAYG, subject to the limited defences discussed below. 

You should also be aware that if the company’s BAS returns are more than 3 months old, the serving of the DPN can give rise to personal liability for the directors for Company tax debts EVEN IF they then put the company into liquidation or voluntary administration within the 21 day period. 

Where no returns have been lodged, the ATO can undertake an audit and simply issue an estimate of the debt and then issue a DPN based on that estimate, so a failure to report does not necessarily provide any protection to personal liability. 

Under the legislation a director cannot avoid liability under a DPN by claiming they did not receive it – the ATO merely needs to prove that it was properly posted by normal post to evidence receipt. 

There are some limited defences to liability arising under a DPN.  A Director is not personally liable if they can prove: 

  1. they were not capable of acting as a Director of the company during the relevant period that the debts arose and were not paid due to sickness or some other good reason;

  2. they took all reasonable steps to ensure that:

    • the directors caused the company to comply with its obligations;

    • the directors caused an administrator of the company to be appointed;

    • the directors caused the company to begin to be wound up, and

    • there were no reasonable steps that could have been taken to ensure that any of the above happened.

Whether a course of action is 'reasonable' and whether there is sufficient evidence to support the argument will vary on a case-by-case basis and requires advice. 

Cove Legal are experts in assisting our clients with contentious tax matters and insolvency proceedings and provide advice on ATO payment plans and all other aspects of ATO debt recovery action.  Roger Blow acted extensively for the ATO in Perth for over 5 years and has specific expertise in tax related disputes.   

If you would like advice or assistance with any legal matters involving the ATO, we would be keen to hear from you.   Please contact: 

Roger Blow, Principal, Ph: +61 8 6381 0327 or roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents. 

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