Watts and Commissioner of Taxation (Taxation) [2021] AATA 758 (3 March 2021)

Last Updated: 6 April 2021

Watts and Commissioner of Taxation (Taxation) [2021] AATA 758 (3 March 2021)

Division: TAXATION AND COMMERCIAL DIVISION

File Number(s): 2020/6441

Re: Laurence Michael Watts

APPLICANT

And Commissioner of Taxation

RESPONDENT

DECISION

Tribunal: Deputy President Bernard J McCabe

Date: 3 March 2021

Place: Brisbane

1. The applicant does not have standing to review the objection decision in question.

2. This application is dismissed under s 42A(4) of the Administrative Appeals Tribunal Act 1975 (Cth).

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Bernard J McCabe, Deputy President

Catchwords

Practice and procedure – whether decision that is subject of the application is reviewable – whether applicant has standing to bring an application on behalf of a company that has been wound-up – whether applicant has standing to seek review of the issuing of Superannuation Guarantee Charges and Director Penalty Notices – the applicant does not have standing – application dismissed.

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

Superannuation Guarantee (Administration) Act 1992 (Cth)

Taxation Administration Act 1953 (Cth)

Cases

Commissioner of Taxation v Tomaras (2018) 265 CLR 434; [2018] HCA 62

McCallum v Commissioner of Taxation [1997] FCA 533; (1997) 75 FCR 458

Shi v Migration Agents’ Registration Authority [2008] HCA 31

REASONS FOR DECISION

1. The Commissioner of Taxation has challenged the applicant’s standing to seek a review of an objection decision made on 19 July 2019. The Commissioner says the applicant cannot ask the Tribunal to review an objection decision in circumstances where the applicant was not the taxpayer who lodged the objection in the first place.
2. The Commissioner is right, for reasons I will explain below.

What happened?

3. The applicant in these proceedings, Mr Laurence Michael Watts, was a director of a company until he retired from that role in 2014. After Mr Watts retired, the Commissioner of Taxation commenced an audit of the company’s affairs. The Commissioner concluded the company had failed to make adequate and timely superannuation contributions in respect of eligible employees while Mr Watts was a director. The Commissioner issued assessments imposing superannuation guarantee charges (SGCs) in respect of the underpaid amounts. Shortly after, on 30 October 2017, the Commissioner issued director penalty notices (DPNs) to Mr Watts. The DPNs claimed the same amounts as the assessed (but unpaid) amounts of SGC.
4. Mr Watts claims he only learned of the shortfalls that prompted the imposition of SGC when he received the DPN. He says he was not involved in the Commissioner’s audit process and was effectively denied procedural fairness. In any event, he says he did his best to assist the Commissioner once he received the DPN. He said he was able to provide information that established the company had made many of the payments the Commissioner thought were missing.
5. In the meantime, liquidators had been appointed to the company. Presumably with the encouragement of Mr Watts, the liquidators lodged an objection to the assessment to SGC on 26 November 2018. The objection was partially successful, but the Commissioner still concluded substantial amounts were owed.
6. The objection decision is dated 19 July 2019. The liquidators were entitled to challenge the decision in the Federal Court or seek a review in the Tribunal. For whatever reason, they did not do so. The company was subsequently wound up before any further steps were taken. The Commissioner now looks to Mr Watts to meet the outstanding obligations with respect to the SGC and DPNs.

Director Penalty Notices

7. Directors of a company are responsible for managing its business. As part of their duties, directors are expected to ensure the company meets its taxation obligations. The failure to meet some corporate taxation obligations – including the obligation to pay SGCs that have been assessed against the company – are regarded as so serious that the law permits the Commissioner to pierce the corporate veil in order to impose personal liability on directors to pay outstanding amounts in some circumstances.
8. The relevant veil-piercing rules are found in Division 269 of Schedule One to the Taxation Administration Act 1953 (Cth)(the TAA). Relevantly, s 269-20 provides for the imposition of a penalty on directors that is equal in amount to the company’s unpaid liability. The penalties are set out in the DPN. A director has defences to the recovery proceedings which follow the issue of the DPN. The possible defences are set out in s 269-35. Mr Watts may yet be able to avail himself of one or more defences if recovery proceedings were commenced, but he does not want to be placed in that position. He says there are good reasons to dispute the Commissioner’s findings on objection. He would prefer that the Tribunal revisit the facts and circumstances of the original superannuation contributions. He is confident the amount of the outstanding liability would be reduced, if not eliminated, upon review. But will he have that chance?

Standing

9. That brings me to the question of standing. The general rules about standing are contained in s 27 of the Administrative Appeals Tribunal Act 1975 (Cth)(the AAT Act). Section 27(1) provides an application for review may be made in relation to a reviewable decision “by any person or persons...whose interests are affected by the decision.” There is no doubt Mr Watt’s interests are affected by the objection decision that was made in relation to the affairs of his former company. But the Commissioner points out s 14ZZB of the TAA says s 27 of the AAT Act does not apply to taxation reviews under Part IVC of the TAA. One must look to the scheme of the TAA to determine whether Mr Watts has standing.
10. The Commissioner says the starting point of the analysis is s 14ZZ of the TAA. That section permits “the person...who is dissatisfied with the Commissioner’s objection decision” to seek review in the Federal Court or the Tribunal (assuming it is a reviewable objection decision – otherwise the right of review lies only to the Federal Court). The Commissioner argues the reference in s 14ZZ to “the person” is a reference to the person who has the right to object to the decision in question. In this case, that would be the employer (ie, the former company). That conclusion follows from s 42 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the Administration Act) which provides:

An employer who is dissatisfied with an assessment may object in the manner set out in Part IVC of the Taxation Administration Act 1953 .

11. Mr Watts is dissatisfied with the reviewable objection decision, so he says he should be allowed to lodge an application for review under Part IVC, notwithstanding s 42 of the Administration Act. But the Commissioner argues that approach would run counter to the scheme of the TAA which imposes restrictions on who may seek review of objection decisions, and on the way in which the review proceeds. Unfortunately for Mr Watts, the Commissioner is right. As Gordon J explained in Commissioner of Taxation v Tomaras (2018) 265 CLR 434; [2018] HCA 62 (at [85]):

The objection, review and appeal rights under Pt IVC of the TAA in
respect of assessments are limited. Although s 14ZL(1) of the TAA
relevantly states that Pt IVC applies if a provision of an Act provides
that a “person” who is dissatisfied with an assessment may object
against it, the “person” is relevantly the person or persons who may,
because of a provision of the taxation law, lodge an objection against
the assessment.

12. Her Honour went on to explain what that meant where the right to object was found in s 175A of the Income Tax Assessment Act 1936 (Cth) (at [85]):

So, for example, s 175A(1) of the Income Tax Assessment Act 1936 (Cth) (“the 1936 Act”) provides that a “taxpayer” who is dissatisfied with an assessment “made in relation to the taxpayer” may object against the assessment in the manner set out in Pt IVC of the TAA. Thus, the effect of s 14ZL of the TAA is to confer objection, review and appeal rights under Pt IVC of the TAA upon the person described in s 175A(1) of the 1936 Act – the “taxpayer” – “in relation to” whom the assessment has been made. It is that taxpayer who is the “person” who has rights and obligations under s 14ZU of the TAA (a “person” making a taxation objection must comply with certain administrative requirements), s 14ZY of the TAA (the Commissioner must make a decision on a taxation objection and serve written notice of the decision “on the person”) and s 14ZZ of the TAA (if the “person” is dissatisfied with the objection decision, the “person” may (if the decision is a reviewable objection decision) seek review in the Administrative Appeals Tribunal or appeal to the Federal Court of Australia).

13. In this case, the right to object is found in s 42 of the Administration Act rather than s 175A of the Income Tax Assessment Act 1936 – but the Commissioner says the reasoning is the same.
14. Mr Coveney, counsel for the Commissioner, said Lehane J had applied similar reasoning in the earlier decision of the Full Federal Court in McCallum v Commissioner of Taxation [1997] FCA 533; (1997) 75 FCR 458. The dispute in McCallum arose because the applicant taxpayer had been bankrupted after lodging his objection. When he subsequently sought review of the objection decision, the Tribunal denied he had standing. In the course of resolving the question of standing, the Court reflected on what followed from the words of s 175A of the Income Tax Assessment Act 1936 (Cth). Lehane J explored the other provisions of Part IVC and concluded the reference in s 14ZZ to “the person” was limited by reference to those other provisions. His Honour explained (at 473):

When one turns to Part IV C of the Administration Act, one finds that
s 14ZU describes the way in which "a person making a taxation objection"
must go about it; s 14ZW then tells us within what time "the person" must
lodge the objection; under s 14ZX the Commissioner is to give notice of his
decision to "the person"; if the Commissioner delays, s 14ZYA provides that
"the person" may give the Commissioner a notice requiring him to make an
objection decision; and, finally, s 14zz provides that if "the person" is
dissatisfied with the objection decision, "the person" may, in the circumstances
specified, apply to the AAT for a review or appeal to the Court. There
can, I think, be no doubt that "the person" referred to in s 14ZZ and the other
sections following s 14ZU is the same person as the one referred to in s 14zu
itself and, in turn, in s 14ZL(1); and s 14ZL(1) makes it clear that the "person"
concerned is the taxpayer referred to in s 175A of the Assessment Act who is
dissatisfied with an assessment "made in relation to the taxpayer".^[1]

15. The Commissioner says it is possible to replace the references to s 175A in the passages quoted above from both Tomaras and McCallum with references to s 42 of the Administration Act. Section 42 says the employer (as opposed to “the taxpayer”) has the right to object. That means – if one follows the reasoning in Tomaras and McCallum – the only applicant with standing to commence proceedings in relation to the objection decision in question in this case is the employer, assuming the employer is dissatisfied with the decision. That is a practical problem for Mr Watts because the employer company has been wound up.
16. Mr Mazloum, counsel for Mr Watts, argued I should distinguish the reasoning in Tomaras and McCallum. He said the uncritical application of that reasoning would leave Mr Watts without a practical right of administrative review. He noted Hill J in McCallum had specifically warned about that outcome. Mr Mazloum said the reference to the employer in s 42 of the Administration Act should not be used to narrow the class of persons who might seek review. He said that approach was inconsistent with the evident commitment in our law to readily accessible merits’ review.
17. Mr Mazloum was effectively arguing the provisions of Part IVC and s 42 of the Administration Act should be approached in a way that promotes access to administrative review remedies. It is an attractive argument which acknowledges that the Tribunal’s review processes have become embedded into our system of public administration. But the argument falls short in this case.
18. The Tribunal is one of the most innovative features of Australian public law. It was designed to improve the standard of public administration, and to provide readily accessible relief from administrative injustice and error in individual cases. But it is still a creature of statute. The AAT Act establishes the mechanism of review, but the Tribunal’s jurisdiction to review a particular case will depend on the precise terms of the enactment which declares the decision in question to be reviewable. Generalisations about the role of the Tribunal are no substitute for a careful analysis of the text of the relevant enactment.^[2] Unfortunately for the applicant in this case, a textual analysis of the relevant provisions suggests he does not have standing. The provisions of Part IVC, read in context, impose limits on the objection review process (and upon eligibility to participate in that review process) that are, for better or worse, more stringent than those which govern most other reviews.

Conclusion

19. The applicant does not have standing to review the objection decision in question. In those circumstances, the Tribunal does not have jurisdiction to entertain the review. That leaves the applicant without access to meaningful review rights, at least in the short term. Mr Mazloum asked that I allow the applicant an opportunity to approach the Court for orders reinstating his former company so that it might join the proceedings. Regrettably, I do not think that option is open: if there is no jurisdiction to conduct the review as it stands, I have no authority to adjourn the proceedings.

I certify that the preceding 19 (nineteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 3 March 2021

Date(s) of hearing:	16 February 2021
Counsel for the Applicant:	Mr Hadi Mazloum
Solicitors for the Applicant	Frigo Adamson Legal Group
Counsel for the Respondent:	Mr Gary Coveny
Solicitors for the Respondent:	Self-Represented

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^[1] Hill J applied a similar analysis on this issue in McCallum (at p 464), although his Honour was ultimately in the minority.

^[2] See Shi v Migration Agents’ Registration Authority [2008] HCA 31 at [132], per Kiefel J.