Deputy Commissioner of Taxation v Zammitt
Document type: Decision Impact Statement
Venue: Miscellaneous - Australian (2012/299263 (NSW Court of Appeal) S103/2014 (High Court))
Date published: 14 January 2015

Summary of decision:
Outlines the ATO's response to this case which concerns a Director Penalty Notices (DPN) issued under former section 222AOE of the Income Tax Assessment Act 1936 (ITAA 1936), specifically whether the DPN had been validated by Schedule 7 of the Tax Laws Amendment Measures (No.7) Act 2011 and whether there was a requirement to issue a new notice pursuant to section 269-25 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Overview of facts:
On 27 November 2009, the ATO issued a DPN to the taxpayer in respect of unpaid pay as you go withholding (PAYGW) of Work Care Medical Pty Limited, of which he was a director. The DPN was drafted in conformance with the decision in DCT v Meredith (2007) 245 ALR 150, which was then authority for the proposition that a DPN is served at the time it is posted and the date for compliance runs from that date. | 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July 2010, as a result of the Tax Laws Amendment (Transfer of Provisions) Act 2010, section 222AOE of the ITAA 1936 was repealed and Division 269 was enacted as part of Schedule 1 to the TAA. Transitional rules (transitional provisions) 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] | On 25 February 2011, the NSW Court of Appeal overruled Meredith in the matter of Soong v Deputy Commissioner of Taxation (2011) 278 ALR 538 (Soong) and held that the notice was given when it was delivered rather than when it was posted. | On 29 November 2011, Federal Parliament enacted the Tax Laws Amendment (2011 Measures No 7) Act 2011 (Amendment Act) in response to the decision in Soong. Schedule 7 of the Amendment Act relevantly provided that notices given on or after 10 December 2007 were to be treated as given at the time the Commissioner sent them by pre-paid post. | The taxpayer argued unsuccessfully at the Court of Appeal, and in his application for special leave, that: • that the Amendment Act was ineffective to validate the DPN; and • 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 of the ITAA 1936 as from 1 July 2010 when the new provisions became effective. | • that the Amendment Act was ineffective to validate the DPN; and • 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 of the ITAA 1936 as from 1 July 2010 when the new provisions became effective. | Issues Decided by the Court | On appeal, the NSW Court of Appeal (constituted by 5 judges) unanimously held that: • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. | • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. | The NSW Court of Appeal agreed with the earlier decision of the Queensland Court of Appeal in Reardon and Anor v Deputy Commissioner of Taxation [2013] QCA 46. | The High Court stated that the taxpayer failed in his application for special leave to identify any error in the reasons of the NSW Court of Appeal and there was no reason to doubt the conclusions reached by it. As such, the taxpayer had insufficient prospects of success to warrant a grant of special leave.

Issues decided:
On appeal, the NSW Court of Appeal (constituted by 5 judges) unanimously held that: • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. The NSW Court of Appeal agreed with the earlier decision of the Queensland Court of Appeal in Reardon and Anor v Deputy Commissioner of Taxation [2013] QCA 46. The High Court stated that the taxpayer failed in his application for special leave to identify any error in the reasons of the NSW Court of Appeal and there was no reason to doubt the conclusions reached by it. As such, the taxpayer had insufficient prospects of success to warrant a grant of special leave.

ATO view of decision:
The decision of the Court of Appeal is consistent with the Commissioner's view and current procedures.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings & Determinations etcetera) | Not applicable | Implications for impacted Law Administration Practice Statements | Not applicable | [1] Tax Laws Amendment (Transfer of Provisions) Act 2010 Schedule1, items 64, 65.

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) 43 ATR 757 2000 ATC 4141 Deputy Commissioner of Taxation v Meredith (2007) 245 ALR 150 2007 ATC 5353 (2007) 69 ATR 876 Soong v Deputy Commissioner of Taxation (2011) 278 ALR 538 2011 ATC 20-245 (2011) 82 ATR 455 Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135 (2012) 90 ATR 568 Reardon and Anor v Deputy Commissioner of Taxation [2013] QCA 46
Subject references: Validity of Director Penalty Notices Interaction between former section 222AOE (ITAA 1936) and section 269-25 Schedule 1 (TAA)