The recent case of Fitzgerald v Deputy Commissioner of Taxation  NSWCA 158 presents another example of how difficult it is for a taxpayer to argue he did not receive a director penalty notice (“DPN”). Even where a neighbour may have intercepted the mail, the presumption is that the notice has been “given” to the taxpayer. In today’s modern age of electronic communications, taxpayers need to ensure that they monitor their mail so as to not get caught out with these strict deeming provisions.
If a company fails to report its PAYG withholding liabilities by the due date then the Commissioner gives notice requiring the director to personally meet the company’s PAYG obligations. This Court of Appeal decision upholds the deemed presumption that a DPN is given when it is left at or posted to the director’s place of residence or the company’s place of business as registered on ASIC (s 269-50 of Schedule 1 to the Tax Administration Act 1953 (Cth)). The relevance is that the Commissioner can recover any PAYG withholding amounts from the director 21 days after the DPN was posted to the director. A summary of DPNs and the Court of Appeal decision is as follows.
PAYG Withholding and DPN
The PAYG withholding system helps taxpayers to meet their income tax liabilities. It eases the taxpayer’s burden of paying income tax as a lump sum at the end of the year by forcing the employer to gradually withhold some income tax from the taxpayer’s salary, wages, commission, bonuses or allowances throughout the year. For instance, an employer withholds an amount from payments to the taxpayer based on the taxpayer’s personal income tax rate. The employer then remits this amount to the Commissioner over the course of the year.
It is the employer’s responsibility to meet the PAYG withholding liabilities. Where the employer is a company and the PAYG withholding is not reported, then the company becomes non-complying and the directors are accountable for meeting the company’s PAYG withholding liability. The penalty is remitted if the PAYG withholding was unreported for a period of less than 3 months and, within 21 days of the Commissioner giving the DPN:
- the company complies with its obligation;
- an administrator of the company is appointed as either the board believes the company is insolvent, a liquidator appoints an administrator or a secured party appoints an administrator; or
- the company begins to be wound up.
The Commissioner can give notice of the penalty by leaving the DPN at or posting it to the director’s place of residence or the company’s place of business as registered on ASIC.
The issue in Fitzgerald was whether the Commissioner validly gave written notice of the DPN. The appellant (“Fitzgerald”) was a director of HBO EMTB Employment Services Pty Ltd (“the company”). The company withheld $1,965,485 from its employees as part of the PAYG system but failed to remit this amount to the Commissioner.
Fitzgerald admitted that he received the DPN 7 weeks after it was posted but only when his neighbour handed it to him. Fitzgerald did not personally receive the DPN in the mail. The Commissioner contended that the DPN was deemed to be given on the day it was posted. The Commissioner filed evidence by way of an affidavit attaching a copy of the envelope with a postage stamp affixed, a file note from an ATO officer confirming that the envelope was posted and the Commissioner tendered an evidentiary certificate providing that the DPN was served on Fitzgerald.
The Court of Appeal consisted of their Honours Ward JA, Gleeson JA and Sackville AJA. They unanimously upheld the Primary Decision that written notice was given to Fitzgerald as it was posted to the company’s place of residence or business and the DPN was taken to be given on the day it was posted to him.