Bamsang Pty Ltd v The Commissioner of Taxation [2016] QDC 189

DISTRICT COURT OF QUEENSLAND CITATION: Bamsang Pty Ltd v The Commissioner of Taxation [2016] QDC 189 PARTIES: BAMSANG PTY LTD (appellant) v THE COMMISSIONER OF TAXATION (respondent) FILE NO/S: BD 901/2016 DIVISION: Criminal PROCEEDING: Appeal ORIGINATING COURT: Magistrates Court at Brisbane DELIVERED ON: 29 July 2016 DELIVERED AT: Brisbane HEARING DATE: 25 July 2016 JUDGE: Smith DCJA ORDER: 1. The appeal is allowed to the extent that I set aside the orders made in the Magistrates Court and in lieu thereof on the 7 charges of failing to lodge taxation returns I impose a fine of $5,000.00 and on the 31 charges of failing to lodge BAS statements I impose a fine of $25,000.00. 2. The appeal is otherwise dismissed. 3. I order that the respondent pay to the appellant costs fixed in the sum of $2,100.00. CATCHWORDS: CRIMINAL LAW – JUDGMENT AND PUNISHMENT – whether penalties for failing to lodge tax returns and BAS statements manifestly excessive – whether totality principle considered- whether reasons were sufficient- whether any other errors TAXES AND DUTIES – whether penalties for failing to lodge tax returns and BAS statements manifestly excessive – whether totality principle considered - whether reasons were sufficient- whether any other errors Crimes Act 1914 (Cth) ss 4AA, 4C, 4K, 16A Justices Act 1886 (Q) ss 222, 223 -- 1 of 10 -- 2 Taxation Administration Act 1953 (Cth) ss 8C, 8E, 8ZE, 8ZF, 8J and schedule 1 s 286-75 and s 286-80 AB v R (1999) 198 CLR 111 Cameron v R (2002) 209 CLR 339 Commissioner of Taxation v Baffsky (2001) 122 A Crim R 568 Commissioner of Taxation v Doudle (2005) 195 FLR 76 Cummins v Duck [2009] ACTSC 20 Hamilton v FCT (2007) 68 ATR 375 Harrex v Fraser (2011) 85 ATR 706 Hili v R; Jones v R (2010) 242 CLR 520 Kelton v Uren (1981) 27 SASR 92 McMillan v Bierwirth (1988) 49 SASR 403 R v Pham (2015) 325 ALR 400; [2015] HCA 39 R v Sgroi (1989) 40 A Crim R 197 R v Woods [2004] QCA 204 Teelow v Commissioner of Police [2009] 2 Qd R 489 COUNSEL: Mr R. Davies for the appellant Mr L. Caruana for the respondent SOLICITORS: Munro Legal for the appellant Commonwealth Director of Public Prosecutions for the respondent Introduction [2] The appellant appeals sentences imposed on it in the Magistrates Court at Brisbane on 12 February 2016. [3] The appellant pleaded guilty to 7 offences of failing to lodge income tax returns and was convicted and fined the sum of $10,000.00. The appellant was also convicted of 31 offences of failing to lodge GST returns and was convicted and fined the sum of $30,000.00. Principles [4] The appeal is pursuant to s 222 of the Justices Act 1886 (Q) (“JA”). [5] Section 222(2)(c) of the JA provides that where the defendant pleads guilty then the person may only appeal on the sole ground that the fine, penalty, forfeiture or punishment was excessive or inadequate. -- 2 of 10 -- 3 [6] Section 223(1) of the JA provides that the appeal is to be by way of rehearing on the evidence given in the proceedings before the Justices. [7] In Teelow v Commissioner of Police1 Muir JA held at [4]: “It is a normal attribute of an appeal by way of rehearing that the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all of the evidence now before the appellate court, the order that is the result of some legal, factual or discretionary error…” Prosecution submissions below [8] The appellant pleaded guilty to the offences before the magistrate. The representative of the Commissioner advised the Court that the first 7 charges were offences contrary to s 8C of the Taxation Administration Act 1953 (Cth). The appellant had failed to comply with a notice requiring the appellant to lodge income tax returns for the financial years 2008 to 2014. A final notice requiring the appellant to lodge the outstanding returns was posted on 8 May 2015 requiring lodgement by 19 June 2015. All returns by the date of sentence had been lodged, resulting in a total liability of $117,282.00. The appellant last lodged a taxation return in the 2015 year which returned a taxable income of $14,417.00. The appellant’s business activity was listed on the ATO system as “leasing non-residential property”. The appellant had no previous convictions. It currently had a debt with the ATO of $164,172.00. [9] The maximum penalty for the charges is $135,200.00. [10] With respect to the failing to lodge GST returns, these were for quarterly periods from December 2007 through until June 2015. As at the date of sentence, all returns had been lodged. [11] The maximum penalty available was a total of $485,200.00. Defence submissions [12] The appellant tendered two character references, the first from Mr Brian Menhinnitt, and a second from Kathy Rees. The reference from Mr Menhinnitt found Ms Rashleigh of the appellant company to be a “genuine, trusting, reliable and generous person”. She had had to devote a substantial amount of her time in recent years to family matters due to one of her sons’ serious illness. [13] The letter from Ms Rees noted that Ms Rashleigh was an honest, hardworking woman. She said that Ms Rashleigh wholeheartedly believed that all taxation matters were being attended to. [14] The letter from Wilmont Accounting Pty Ltd noted that Ms Rashleigh had engaged Mr Robert Hills to complete her BAS statements and income tax returns. Mr Hills had not lodged these documents even though a substantial amount for accounting fees had been paid. Ms Rashleigh was one of the numerous clients Mr Wilmont had been dealing with in respect to the non-lodgement of returns by Mr Hills. He had also had difficulties with the man who refused to take phone calls, respond to emails or even have a meeting to discuss ways to correct these issues. Once Wilmont became 1 [2009] 2 Qd R 489. -- 3 of 10 -- 4 involved eight years of income tax returns and business activity statements were completed. [15] A further letter from Wilmont Account Pty Ltd enclosed the income tax account statements and integrated client account statement. [16] The appellant’s solicitor informed the magistrate that Ms Rashleigh had control of the company since early 2008. Mr Hills had been her personal accountant from the late 1990’s and was, in fact, a personal friend. After she acquired control of the company she gave all of the accounting requirements to Mr Hills. She had confidence in him relating to these matters. She kept in touch with him and was satisfied there was no liability beyond regular PAYG payments. She understood matters were being addressed. In June 2015, she attempted to contact him because she had received some notification from the Taxation Department directly. [17] Later in that month, she approached Mr Wilmont to regularise the affairs. She had reported Mr Hills’ conduct to the Police service and the Taxation Practitioners Board. Magistrate’s decision [18] The magistrate took into account the defence submissions and took into account the principle that the starting point of penalty was the statutory amount foregone. She took into account that there was reliance by the appellant on an outside entity but no attention was given to the matter over a long period of time. In the result the penalties, which I have already referred to, were imposed. No submissions were made against the recording of a conviction. Appellant’s submissions [19] The appellant submits that the sentence imposed was manifestly excessive and the magistrate failed to take into account the negligent role which the appellant’s accountant played in causing noncompliance with s 8C. Further, it is submitted the magistrate did not adequately consider s 16A of the Crimes Act 1914 (Cth) in imposing penalty. [20] In written submissions it is also submitted the magistrate failed to provide adequate reasons in passing sentence. It is submitted that Ms Rashleigh became sole director of the company in early 2008 following a matrimonial separation. It is submitted that by the date of sentence all outstanding paperwork had been lodged. It is submitted that Ms Rashleigh had two positive character references and had no prior convictions for tax offences. It is submitted that the fine of $40,000.00 is a large one and the reasons provided by the magistrate were inadequate. It is submitted they made no reference to the principle of totality, s 16A of the Crimes Act, or the plea of guilty. It is noted that the statutory penalty applicable to the income tax returns was $4,570.00, and for the GST $20,470.00. [21] Ultimately, it is submitted that the appeal be allowed, the sentence set aside and the appellant resentenced according to law. [22] In oral submissions the appellant’s counsel stressed the alleged errors and in particular the fact that her accountant did not attend to the company’s taxation affairs. He also submitted the magistrate failed to inquire as to the financial circumstances of the appellant before imposing the penalty, contrary to s 4C of the Crimes Act. -- 4 of 10 -- 5 [23] He submitted that in this case the penalty should be no more than the statutory penalties. Respondent’s submissions [24] The respondent submits that the appellant, by its director, pleaded guilty to a total of 38 offences contrary to s 8C(1)(a) of the Taxation Administration Act 1953 (Cth). It is submitted that the returns revealed a total liability of $117,282.00 which had been remitted to the tax office prior to the sentence. It is submitted the magistrate referred to the starting point being the statutory penalty which would otherwise have been applicable, the appellant’s plea of guilty, the fact that the appellant at the time of sentence complied with its obligations, the appellant and its director relied on an outside entity and the submissions made by the parties. It is submitted that the penalty could not be considered manifestly excessive and it is submitted that this was a case where the appellant was sentenced for 38 discreet offences occurring over a continuous eight year period and the penalties adequately reflected the offending in this case. [25] In oral submissions the respondent did not concede the errors alleged but accepted there was no reference to totality in the proceedings. The respondent submitted that $40,000.00 whilst towards the upper end of the range of penalties was not excessive. Discussion [26] Whilst the magistrate’s sentencing remarks were brief, the fact is the magistrate did take into account the plea of guilty, the fact there was compliance, the statutory penalty, and the reliance on Mr Hills. Despite this, she considered no attention was given to the taxation affairs by the Appellant over a long period of time. [27] However the Magistrate did not mention, nor were submissions made as to the principle of totality.2 This was an error. I also consider it was an error for the Magistrate not to consider the appellant’s financial circumstances before making the orders.3 [28] I also consider the reasons did not sufficiently explain how it was the magistrate took into account the plea of guilty4; and the circumstances concerning Mr Hills. The magistrate did not mention the character references,5 nor the fact the appellant had no previous convictions. [29] In the circumstances, I consider that there were errors below and it falls for this Court to resentence the appellant.6 2 This applies to fines – R v Sgroi (1989) 40 A Crim R 197 and in tax matters see McMillan v Bierwirth (1988) 49 SASR 403 at p 416. 3 This is required by s 16C (1) of the Crimes Act. 4 Cameron v R (2002) 209 CLR 339 at [11] discussed in R v Woods [2004] QCA 204 at [8-9]. Also, s 16A (2) (g) of the Crimes Act. 5 Section 16A (2)(m) of the Crimes Act. 6 AB v R (1999) 198 CLR 111 at [130]. -- 5 of 10 -- 6 [30] In McMillan v Bierwirth7 it was noted that the starting point for a penalty against s 8C of the Taxation Administration Act 1953 (Cth) is the statutory penalty which would otherwise have been applicable. [31] In this case the statutory penalty for the income tax offences was $4,570.00 and the statutory penalty for the GST offences was $20,470.00.8 By initiating a prosecution the Commissioner forgoes the statutory penalties that could otherwise be levelled against persons or companies that fail to comply with their obligations to file taxation returns.9 [32] In McMillan at page 419 Johnston J stated: “It is of course clear that the penalty on conviction must be such as to act as a deterrent to the offender. It is also true that Parliament must be taken to think that the statutory penalty will be sufficient to deter the ordinary group employer, and that the full statutory penalty or that penalty only slightly remitted, will be sufficient to deter from more general noncompliance those who very occasionally fail to comply and whom the Commissioner feels able to handle using the ‘soft option’, but it seems to me that the penalty in respect of an offender whose offending is such as to justify prosecution, must have an element of deterrence directed towards those who might otherwise be inclined to offend to the point where they too would become liable to prosecution. Accordingly, I think that the penalty should have some general deterrent aspect as well as the particular deterrent aspect to the particular defendant.” [33] His Honour at page 421 considered the statutory penalty to be the “absolute minimum”. Fines should usually be not less than the statutory minimum (page 405). [34] In Kelton v Uren10 Jacobs J of the South Australian Supreme Court noted that the offence is failure to comply with the notice issued rather than failure to comply with a general obligation to file a return. His Honour noted at page 94 that there is a wide variation in fines imposed in such matters. His Honour also noted that [the provision]: “…is a fiscal measure, which imposes obligations and burdens upon the whole community, and it would defeat the purpose of the legislation if the courts were to condone the neglect of those obligations, and possible avoidance of the burdens, in the case of a first offender, simply because he is a first offender. More particularly that is so when administrative steps have been taken, prior to prosecution, to remind a defaulter of his obligations.” [35] I also note, with respect to the submission that it was the fault of the tax agent, that in Hamilton v FCT11 it was said that it is the taxpayer who is primarily responsible for the lodgement of the return. 7 (1988) 49 SASR 403 at 419. 8 Sections 286-75 and ss 286-80, Schedule 1 Taxation Administration Act 1953 (Cth). 9 Section 8ZE Taxation Administration Act 1953 (Cth). 10 (1981) 27 SASR 92 applied in Commissioner of Taxation v Doudle (2005) 195 FLR 76 at [15]. 11 (2007) 68 ATR 375 at 378 [21]. -- 6 of 10 -- 7 [36] As this matter relates to Commonwealth sentencing, it is important that there be consistency in sentencing across the states and territories.12 Regard must be had to what is done in other cases. [37] In Harrex v Fraser13 the taxpayer was a physician. He had filed his BAS statements but not his tax returns between 1999 and 2009. He also suffered PTSD as a result of his war service. He pleaded guilty to 11 counts and was fined $8,250.00, i.e. $750.00 for each count. The appeal was allowed as the magistrate did not take into account the mitigating factors and the total fines were reduced to $5,600.00. [38] Refshauge A-CJ of the Supreme Court of the ACT, by reference to two other cases, considered the range in the run of the mill case to be $240.00-$500.00 for a first offender. Of course, the case his Honour considered was a 1985 case. His Honour noted that the maximum penalties since 1995 had only increased by 10%. [39] His Honour ultimately imposed a fine of $200.00 for the first charge, $450.00 on the second, and $550.00 on each of the remaining charges. At that time though the maximum for the first charge was $2,200.00 and for the subsequent offence $4,400.00. Presently, the maximum is $3,400.00 for the first charge and $6,800.00 for each of the second charges and $25,000.00 on each of the others. The maximum penalty available with respect to the 7 income tax offences was $135,200.00.14 The maximum penalty available for the 31 GST offences was $485,200.00.15 [40] Of course, the High Court has noted consistency is not achieved through numerical equivalence but I must have regard to what occurred in a case such as Harrex which is an appellate decision.16 [41] The appellant has tendered a schedule of comparable decisions concerning failing to lodge taxation returns and BAS statements as follows:17 Taxation return offences McHarg 14.8.15 Brisbane Magistrates Court 7 charges. Last return had income of $18444. No debt owing Fined $8500 s8G orders Winton 18.9.14 Maroochydore Magistrates Court 7 charges. Income not known. Fined $5000 s8G orders 12 Hili v R; Jones v R (2010) 242 CLR 520 at [46-53]. 13 (2011) 85 ATR 706. 14 Section 8E of the Tax Administration Act provides for the first offence the maximum penalty was 20 penalty units ($170.00 at the time – s 4AA of the Crimes Act). The maximum for the second offence was 40 penalty units. The maximum for each of the 5 remaining offences was $25,000.00. This is calculated by reference to ss 8E and 8ZF of the Tax Administration Act. S8ZF provides that the maximum (on a corporation) is a fine not exceeding five times the maximum fine for a prescribed offence, but s 8ZJ provides that the fine should not exceed $25,000.00 for a corporation if the matter is dealt with summarily. 15 Ibid. 16 Op. Cit. 12 at [48] and [53]. 17 Exhibit 3. -- 7 of 10 -- 8 Mulley 13.11.15 Brisbane Magistrates Court 7 charges. Last return had income of $41,933. No debt owing. Fined $4000 s8G orders Hubbert 1.4.14 Southport Magistrates Court 8 charges. Last return lodged in 2004. Fined $4500. S8G orders PDMS Group Pty Ltd 14.8.15 Brisbane Magistrates Court 8 charges. Last return lodged in 2006 Fined $6000 s8G orders Wilmot 10.3.16 Maroochydore Magistrates Court 8 charges. Last return lodged in 2010. No debt owing. Receiving Centrelink. Suffers bipolar. Fined $4000 s8G orders Kerr 1.4.14 Southport Magistrates Court 9 charges. Last return lodges in 1996. Debt to ATO of $26,580. Marriages had broken down. Fined $5000 s8G orders Glenn 17.4.14 Maroochydore Magistrates Court Obligations snowballed. Modest earnings. Limited means to pay. Fined $5070. BAS offences Kelly 14.8.15 Brisbane Magistrates Court 21 offences. Last return lodged in 2006. Fined $30,000 s8G orders Rusis 14.8.15 Brisbane Magistrates Court 28 offences. 2014 return showed income of $55,000. Heart attack 2008. Suffered stress. Fined $26,000 s8G orders Barnes 11.3.16 Brisbane Magistrates Court 29 offences. Last lodged return in 2008, Debt with ATO $5200. Fined $22,000 s8G orders Papik 1.4.14 Southport Magistrates Court 30 offences. Debt to ATO $29134. Low level income earner. Fined $12000 Skinner 10.3.16 Maroochydore Magistrates Court 35 offences. Last lodged return in 2006. Self- employed. Could not afford to pay accountant. Fined $25,000 s8G orders -- 8 of 10 -- 9 Kemp 15.5.14 Southport Magistrates Court 36 offences. Low level income earner. ATO debt $13857. Marriage breakdown, suffers from depression. Fined $25,000 Main 14.8.15 Brisbane Magistrates Court 37 offences. Last return lodged in 2011. Debt to ATO- $20,000. Undergoing bankruptcy proceedings. Fined $35,000 s8G orders [42] As a general statement, where a number of years of returns were not filed, it seems the range of penalties to be between about $4,000.00 to $8,500.00. Where a number of BAS statements have not been filed for a number of years the range appears to be between $12,000.00 to $35,000.00. [43] Caution however, should be applied to following Magistrates Court decisions,18 particularly in light of the scant detail provided. It is the intermediate appellate decisions to which one must have regard.19 [44] This was a case where the taxation liability amounted to $117,282.00. Additionally, the appellant failed to lodge tax returns and BAS statements over an eight year period – which is a significant amount of time. [45] I have regard to the course of conduct, the maximum penalties involved, the matters mentioned in s 16A of the Crimes Act, the principles of deterrence, the principle of totality, the pleas of guilty and the antecedents of the appellant and its director. I also have regard to the conduct of Mr Hills in this case, noting, of course, the ultimate responsibility is on the taxpayer to comply with the law. But for this and the pleas of guilty, the penalties would have been higher. Of course, Ms Rashleigh does not have the same health conditions Mr Harrex had. Also, the appellant is a company. But it is not a significant trading company. Indeed, the statutory amounts for a company such as the appellant are the same as individuals. [46] A bond under s 19B would be out of the range here in light of the number of offences and time over which they were committed20 and in the absence of any psychiatric condition.21 A bond was not contended for. [47] Bearing in mind the increase in maximum penalties, it is my view that for the first taxation return charge and BAS charge the starting point is in the order of $400.00, for the second charges in the order of $800.00 and then, for the balance, $1,000.00 on each. This totals $6,200.00 for the taxation return charges and $30,200.00 for the BAS charges, a total of $36,400.00.22 18 R v Pham (2015) 325 ALR 400; [2015] HCA 39. 19 Ibid at [28]. 20 See e.g. Commissioner of Taxation v Baffsky (2001) 122 A Crim R 568 where two tax returns were involved. Also see Harrex at [81]. 21 See e.g. Cummins v Duck [2009] ACTSC 20. 22 A composite penalty may be imposed, see s 4K of the Crimes Act 1914 (Cth). -- 9 of 10 -- 10 [48] Bearing in mind the totality principle and the financial circumstances of the appellant,23 I would reduce this to $5,000.00 for the taxation return charges and $25,000.00 for the BAS charges, a total of $30,000.00. [49] As to costs, in light of the success by the applicant, it is appropriate these be paid by the respondent. It may well have assisted the magistrate if a schedule of comparable decisions had been provided to the court by the respondent. It was agreed the quantum should be $2,100.00. Order [50] For the reasons given, my orders are as follows: 1. The appeal is allowed to the extent that the orders made in the Magistrates Court are set aside and in lieu thereof on the 7 charges of failing to lodge taxation returns I impose a fine of $5,000.00 and on the 31 charges of failing to lodge BAS statements I impose a fine of $25,000.00. 2. The appeal is otherwise dismissed. 3. I order the respondent pay the applicant’s costs fixed in the sum of $2,100.00. 23 In this regard, I note the 2015 income was $14,417.00, but I was informed a fine in the sum of $30,000.00 can be paid. -- 10 of 10 --