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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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This bill seeks to amend the Income Tax Administration Act 1993 and
the Taxation Administration Act 1953 to address identified issues
associated with the black economy
Schedule 1 creates new offences related to the manufacture, distribution,
possession, sale and use of electronic sales suppression
tools
Schedule 2 introduces compulsory reporting to the Australian Taxation
Office by businesses operating in the courier and cleaning industries
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Portfolio
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Treasury
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Introduced
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House of Representatives on 7 February 2018
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Bill status
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Before the House of Representatives
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2.749 The committee dealt with this bill in Scrutiny Digest No. 2 of 2018. The minister responded to the committee's comments in a letter received 9 March 2018. Set out below are extracts from the committee's initial scrutiny of the bill and the minister's response followed by the committee's comments on the response. A copy of the letter is available on the committee's website.[307]
Initial scrutiny – extract
2.750 Item 2 of Schedule 1 to the bill seeks to introduce a new Subdivision BAA into the Taxation Administration Act 1953 (Administration Act). The Subdivision contains a number of offences relating to the production, use, possession and distribution of electronic sales suppression tools[309] (ESS tools). The offences (in proposed sections 8WAC, 8WAD and 8WAE) seek to make it unlawful for a person to:
• manufacture, develop or publish an ESS tool;[310]
• supply or make available for use an ESS tool or a right to use such a tool; or provide a service involving the use of an ESS tool;[311]
• acquire or possess an ESS tool, in circumstances where the person is required under a taxation law to make or keep a tax record;[312] and
• make, alter, keep or prevent from being kept a tax record with the use of an ESS tool, in circumstances where the person is required under a taxation law to make or keep such a record.[313]
2.751 The offences in proposed section 8WAC are punishable by a pecuniary penalty of 5,000 penalty units, while the offences in proposed sections 8WAD and 8WAE attract penalties of 500 and 1,000 penalty units respectively. Each of the offences is an offence of strict liability.
2.752 Under general principles of criminal law, fault is required to be proved before a person can be found guilty of a criminal offence (ensuring that criminal liability is imposed only on persons who are sufficiently aware of what they are doing and the consequences it may have). When a bill states that an offence is one of strict liability, this removes the requirement for the prosecution to prove the defendant's fault. In such cases, an offence will be made out if it can be proven that the defendant engaged in certain conduct, without the prosecution having to prove that the defendant intended this, or was reckless or negligent. As the imposition of strict liability undermines fundamental criminal law principles, the committee expects the explanatory memorandum to provide a clear justification for any imposition of strict liability, including outlining whether the approach is consistent with the Guide to Framing Commonwealth Offences.[314]
2.753 With respect to the offences in proposed section 8WAC (which carry more significant penalties), a comprehensive explanation for the application of strict liability is provided in the explanatory memorandum:
Applying strict liability to these offences is appropriate because it substantially improves the effectiveness of the prohibition on electronic sales suppression tools. The provision will act as a significant and real deterrent to those entities who seek to profit by facilitating tax evasion and fraud through the tools' production and supply. Because an electronic sales suppression tool's principal function is, by definition, to facilitate tax evasion, there are no reasons for an entity to produce or supply such a tool beyond those covered by the applicable defences...The ability to prosecute at the fraud's facilitation level will significantly reduce the instances of fraud at the user level.[315]
2.754 The explanatory memorandum also provides similar (though less extensive) explanations for the application of strict liability to the offences in proposed sections 8WAD[316] and 8WAE.[317]
2.755 The committee notes that the Guide to Framing Commonwealth Offences states that the application of strict liability is only considered appropriate where the relevant offence is not punishable by imprisonment and is only punishable by up to 60 penalty units for an individual.[318] In this instance, the bill proposes applying strict liability to offences punishable by between 500 and 5,000 penalty units. The explanatory memorandum states that the magnitude of the relevant penalties is justified as the offences relate to systematic fraud and tax evasion. With regard to the offences in proposed section 8WAC, the explanatory memorandum also notes that the Taxation Administration Act 1953 imposes a civil penalty of a similar amount on persons who promote tax exploitation.[319] While noting this explanation, the committee remains concerned about the application of strict liability in circumstances where a very significant financial penalty may be imposed.
2.756 Further, the committee notes that proposed section 8WAD seeks to apply strict criminal liability to the mere possession of an ESS tool, and to impose a substantial penalty (500 penalty units) where possession is established. The committee is concerned that proposed section 8WAD could criminalise a broad range of conduct, up to and including mere inadvertence. For example, a person could acquire an ESS tool from a third party, never use the tool, and forget that the tool was in their possession. Owing to the application of strict liability in proposed subsection 8WAD, the person could be convicted of an offence despite not engaging or intending to engage in the type of conduct (that is, certain kinds of tax evasion) that the bill seeks to prevent. The committee's concerns are heightened by the fact that the offence would apply the day after the bill commences, meaning that there may be a number of people currently lawfully in possession of an ESS tool that would immediately commit an offence the day after the bill receives royal assent.
2.757 The committee acknowledges that the offence in proposed section 8WAD would not apply if an entity gives a notice to the Commissioner of Taxation, as soon as practicable after the commencement of Schedule 1 to the bill, that the entity acquired or assumed possession or control of the ESS tool or the right to use it before 9 May 2017.[320] However, the committee remains concerned that persons who are in possession of an ESS tool, but have never used that tool, may not be aware of the proposal to criminalise possession of ESS tools, or the proposed notification provisions, and may be immediately subject to a criminal offence on the basis of mere inadvertence.
2.758 Finally, in relation to proposed section 8WAC, the committee notes that the explanatory memorandum states that the significant pecuniary penalty (5,000 penalty units) that may be imposed in relation to that provision is justified because the offences in that section relate to intentional and systemic fraud and tax evasion.[321] In this regard, the committee notes the difficulty in reconciling an offence which seeks to punish intentional conduct with a proposal to remove the requirement to prove fault in relation to that conduct.
2.759 The committee seeks the minister's more detailed justification for the application of strict liability to offences attracting significant penalties of between 500 and 5,000 penalty units.
Minister's response
2.760 The minister advised:
Schedule 1 to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 creates a number of offences relating to the production, use, possession and distribution of electronic sales suppression tools.
• The proposed offences are offences of strict liability that can attract maximum penalties of between 500 and 5,000 penalty units (depending on the offence).
• Offence-specific defences are available to individuals who would otherwise commit an offence. These defences apply where the otherwise prohibited action in relation to an electronic sales suppression tool was taken to prevent or deter tax evasion.
• More detail is provided on each of these amendments in Appendix B.
Appendix B
A more detailed justification for the application of strict liability to offences attracting penalties of between 500 and 5,000 penalty units.
As noted in the explanatory memorandum to the Bill, the application of strict liability to the proposed offences is justified on the basis that, with the exception of the activities covered by the applicable defences, electronic sales suppression tools can only be used to facilitate systematic fraud and tax evasion.
Given that there is no legitimate use of an electronic sales suppression tool, it is the Government's view that the physical elements of the proposed offences provide the appropriate basis for determining when a person has committed an offence. That is, the fact of production, distribution, use or possession of an electronic sales suppression tool is of itself unable to be justified (other than in the circumstances covered by the applicable defences).
I also note the Committee raised specific concerns about the potential for the proposed offence for possession to apply in circumstances of 'inadvertent' possession of an electronic sales suppression tool.
In developing the proposed offence for possession, careful consideration was given to this issue and it was determined that the general defence for honest mistake of fact provided appropriate protection to persons who unwittingly came into possession of such a tool, as well as in respect of the other actions covered by the proposed offences (the availability of this defence is noted at paragraphs 1.52, 1.66 and 1.76 of the explanatory memorandum). As such, if a person inadvertently acquired an electronic sales suppression tool but genuinely believed that it did not have that function, the person would not commit an offence.
With respect to the amount of the proposed penalties, these amounts have been specifically set to send the strongest possible signal, short of imprisonment, that appropriately reflects the severity of the behaviour related to systematic fraud and evasion.
In the case of the maximum penalty for production and supply related offences of 5,000 penalty units, the upper limit reflects that the activity related to the offence can involve systematic and commercial scale operations that are specifically designed to profit from the facilitation of fraud and tax evasion. The maximum amount of the penalty is appropriate given the magnitude of the revenue at risk from the commercial manufacture and distribution of electronic sales suppression software.
The maximum penalties for the proposed offences for use and possession have been intentionally scaled down. This reflects that those offences do not apply to wholesale production and distribution but nevertheless involve actions in respect of tools that have no legitimate function.
In setting the amounts of these penalties, specific regard was also had to the principle articulated at Chapter 3.1.2 in the Guide to Framing Commonwealth Offences that there should be consistent penalties for existing offences of a similar kind or of a similar seriousness. As noted by the Committee, the proposed penalties are comparable to those that apply in respect of similar prohibited behaviours, such as the penalties for the promoters of tax exploitation schemes and breaches of certain directors' duties. It is the Government's view that the settings for the proposed penalties are appropriate and necessary to maintain a consistent message that schemes and tools that are specifically designed to promote or facilitate systematic fraud and tax evasion are unacceptable.
Committee comment
2.761 The committee thanks the minister for this response. The committee notes the minister's advice that the application of strict liability is justified because, with the exception of the activities covered by the applicable defences, electronic sales suppression (ESS) tools can only be used to facilitate systematic fraud and tax evasion. The committee also notes the minister's advice that, on this basis, it is the government's view that the physical elements of the proposed offences are sufficient to determine a person's culpability.
2.762 The committee also notes the minister's advice that, in developing the proposed offence for possession of ESS tools, careful consideration was given to the matter of 'inadvertent' possession. The committee notes the minister's advice that it was determined that the defence of honest and reasonable mistake of fact (available in relation to all strict liability offences) would provide an appropriate level of protection for persons who unwittingly come into possession of an ESS tool, as well as in respect of the other actions covered by the proposed offences.
2.763 However, the committee notes that the minister's advice does not appear to address the committee's concerns regarding potential criminalisation of persons who are, under the current law, lawfully in possession of ESS tools. The committee therefore reiterates its concerns (outlined in its initial comments) that a person who acquires an ESS tool from a third party, never uses the tool, and forgets the tool is in their possession, could be convicted of an offence despite not engaging or intending to engage in the type of conduct that the bill seeks to prevent.
2.764 In this regard, while noting the safeguard against criminal liability for inadvertent possession (that is, the proposed notification procedure), the committee considers there is a risk that persons may be unaware of the proposal to criminalise the possession of ESS tools and the proposed notification procedure, and could be immediately subject to a criminal offence on the basis of mere inadvertence. The committee notes that the defence of honest and reasonable mistake of fact would only apply in limited circumstances, for example, where a person inadvertently acquired an ESS tool but genuinely believed that it did not have that function.
2.765 With regard to the amounts of the proposed penalties, the committee notes the minister's advice that the amounts have been specifically set to send the strongest possible signal—short of imprisonment—that appropriately reflects the severity of behaviour related to systematic fraud and evasion. The committee also notes the minister's advice that the proposed penalties are comparable to those that apply to similar prohibited behaviours under Commonwealth law, such as penalties for the promoters of tax exploitation schemes and breaches of directors' duties.
2.766 Finally, with respect to the offence relating to the production and supply of ESS tools, the committee notes the minister's advice that the penalty is designed to reflect the significant gains that can be made from the facilitation of fraud and tax evasion. The committee also notes the minister's advice that the penalty is appropriate given the magnitude of the revenue at risk from the commercial manufacture and distribution of ESS software (that is, that the magnitude of the penalty is necessary to ensure that the offence functions as an effective deterrent).
2.767 While noting the comprehensive explanation provided by the minister, from a scrutiny perspective, the committee remains concerned about the application of strict liability to offences carrying penalties of between 500 and 5,000 penalty units. In this regard, the committee reiterates that the Guide to Framing Commonwealth Offences states that the application of strict liability is only considered appropriate where the relevant offence is only punishable by up to 60 penalty units for an individual.
2.768 Further, while noting the minister's advice that the proposed penalties are consistent with penalties imposed in relation to comparable Commonwealth offences, the committee would have appreciated a more detailed explanation in relation to this matter, including specific examples of provisions imposing similar penalties for comparable offences under Commonwealth law.
2.769 The committee requests that the key information provided by the minister be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).
2.770 The committee draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of imposing strict liability in circumstances where a person may be unaware of the proposal to criminalise the possession of ESS tools and where significant penalties attach to the proposed offences.
2.771 As outlined above, proposed sections 8WAC and 8WAD seek to create offences relating to the use and possession of electronic sales suppression tools. Proposed subsections 8WAC(3) and 8WAD(2) seek to create exemptions (offence-specific defences) for those offences. The defences provide that the offences in sections 8WAC and 8WAD do not apply where the relevant conduct is undertaken for the purposes of preventing or deterring tax evasion or enforcing a taxation law.
2.772 Subsection 13.3(3) of the Criminal Code Act 1995 provides that a defendant who wishes to rely on any exception, exemption, excuse, qualification or justification bears an evidential burden in relation to that matter.
2.773 At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence. This is an important aspect of the right to be presumed innocent until proven guilty. Provisions that reverse the burden of proof and require a defendant to disprove, or to raise evidence to disprove, one or more elements of an offence, interfere with this important common law right.
2.774 While in this instance the defendant would bear an evidential burden (requiring the defendant to raise evidence about the matter) rather than a legal burden (requiring the defendant to positively prove the matter), the committee expects any such reversal of the evidential burden of proof to be justified. In this regard, the explanatory memorandum states:
Framing the circumstances in which an entity does not commit an offence as an offence-specific defence is appropriate because the person who undertakes the conduct is best placed to lead evidence about why their conduct was for the purposes of preventing or deterring tax evasion or enforcing a law.[323]
2.775 The committee notes that the Guide to Framing Commonwealth Offences[324] provides that a matter should only be included in an offence-specific defence (as opposed to being specified as an element of the offence) where:
• it is peculiarly within the knowledge of the defendant; and
• it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.[325]
2.776 It is not apparent to the committee that the matters in proposed subsections 8WAC(3) and 8WAD(2) would be peculiarly within the knowledge of the defendant, and are matters that would be difficult and costly for the prosecution to establish. In particular, the question of whether a person was undertaking particular conduct for the purposes of enforcing a law does not appear to be a matter peculiarly in the defendant's knowledge. In this regard, the committee also emphasises that a defendant being 'best placed' to point to evidence in relation to a matter does not equate to the matter being 'peculiarly' within the defendant's knowledge.
2.777 The committee seeks the minister's more detailed justification for making the question of whether a person is acting to prevent or deter tax evasion, or to enforce a taxation law, an offence-specific defence, by reference to the principles set out in the Guide to Framing Commonwealth Offences.
2.778 The committee also seeks the minister's advice as to the appropriateness of amending the bill to provide that whether a person is acting to prevent or deter tax evasion, or to enforce a taxation law, to be an element of the offences in proposed sections 8WAC and 8WAD (rather than an offence-specific defence).
Minister's response
2.779 The minister advised:
Appendix B
A more detailed justification for making the question of whether a person is acting to prevent or deter tax evasion, or to enforce a taxation law, an offence-specific defence
As the committee notes, the statement in the explanatory memorandum to the Bill about a defendant being 'best placed' to raise evidence about a matter does not equate to an explanation about the matter being 'peculiarly' within their knowledge.
In many cases, a person will not only be best placed to raise evidence, but will also be able to provide information about their purpose for undertaking otherwise prohibited actions in respect of an electronic sales suppression tool that is peculiarly within their knowledge. This is because the purpose for which many actions that a person may take in respect of an electronic sales suppression tool will only be able to be identified after the intended purpose has been fulfilled. It will therefore be extremely difficult for the prosecution to establish the intended purpose that an individual had in respect of a particular action that they took, whereas it will be comparatively simple for the person to lead evidence about the reasons for which the action was undertaken. For example, it will be relatively easy for a person who develops an electronic sales suppression tool for research rather than commercial purposes to evidence the way in which they intended their research to be used.
While it is recognised that similar issues are unlikely to apply in respect of law enforcement officers carrying out their duties, it is expected that there will also be no ambiguity about whether a defence is applicable in such cases.
Requiring an accused to raise evidence about the purpose for which they took the otherwise prohibited action in respect of an electronic sales suppression tool also makes clear the expectation that persons must exercise extreme care and diligence in taking otherwise prohibited actions in respect of such tools.
Advice as to the appropriateness of amending the Bill to provide that whether a person is acting to prevent or deter tax evasion, or enforce a taxation law, to be an element of the proposed offences (rather than an offence-specific defence).
While I do not consider that incorporating the relevant matters as an element of the proposed offences would be unequivocally inappropriate, based on the above reasons, it is my view that the current approach that utilises an offence-specific defence is the most appropriate course of action.
Committee comment
2.780 The committee thanks the minister for this response. The committee notes the minister's advice that a defendant will not only be 'best placed' to raise evidence about a matter, but will also be able to provide information about their purpose for undertaking otherwise prohibited actions in respect of an electronic sales suppression (ESS) tool that is peculiarly within their knowledge. The committee also notes the minister's advice that this is because the purpose for which many actions that a person may take in respect of an ESS tool will only be able to be identified after the intended purpose has been fulfilled. Consequently, it will therefore be extremely difficult for the prosecution to establish the intended purpose that an individual had in respect of a particular action, whereas it will be comparatively simple for the defendant to lead evidence about the reasons for which the action was undertaken. The committee also notes the example provided by the minister.
2.781 Although not strictly relevant to the principles set out in the Guide to Framing Commonwealth Offences, the committee further notes the minister's advice that requiring an accused to raise evidence about the purpose for which they undertook the otherwise prohibited action in respect of an ESS tool also makes clear the expectation that persons must exercise extreme care and diligence in taking otherwise prohibited actions in respect of such tools.
2.782 The committee requests that the key information provided by the minister be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).
2.783 In light of the detailed information provided by the minister, the committee makes no further comment on this matter.
[307] See correspondence relating to Scrutiny Digest No. 3 of 2018 available at: www.aph.gov.au/senate_scrutiny_digest
[308] Schedule 1, item 2, proposed sections 8WAC, 8WAD and 8WAE. The committee draws Senators' attention to these provisions pursuant to Senate Standing Order 23(1)(a)(i).
[309] Proposed section 8WAB defines 'electronic sales suppression tool' as a device, software program or other thing, a part of any such thing, or a combination of any such things or parts, that is capable of, and a reasonable person would conclude has the purpose of, falsifying, manipulating, hiding, obfuscating, destroying or preventing the creation of certain tax records.
[310] See proposed subsection 8WAC(1).
[311] See proposed subsection 8WAC(2).
[312] See proposed subsection 8WAD.
[313] See proposed subsection 8WAE(1).
[314] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp. 22-25.
[315] Explanatory memorandum, pp.12-13.
[316] Explanatory memorandum, p. 15.
[317] Explanatory memorandum, p. 17.
[318] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp. 23.
[319] Explanatory memorandum, p. 13.
[320] See Schedule 1, item 4.
[321] Explanatory memorandum, p. 13.
[322] Schedule 1, item 2, proposed subsections 8WAC(3) and 8WAD(2). The committee draws Senators' attention to these provisions pursuant to Senate Standing Order 23(1)(a)(i).).
[323] Explanatory memorandum, p. 18.
[324] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp. 50-52.
[325] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 50.
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