Canberra Cleaners Pty Ltd (ACN 142 575 095)(First Plaintiff) v Commissioner for ACT Revenue

• Jurisdiction: Australian Capital Territory
• Court: Supreme Court of ACT
• Judge: McWilliam AsJ
• Judgment Date: 17 October 2017
• Date: 17 October 2017
• Docket Number: File Number: SC 51 of 2017

[2017] ACTSC 303

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Before:

McWilliam AsJ

File Number: SC 51 of 2017

Canberra Cleaners Pty Ltd (ACN 142 575 095)

(First Plaintiff)

Phillip Arcidiacono Trading as Rose Cleaning Service (ABN 28 057 543 242)

(Second Plaintiff)

Rose Cleaning Asset Service Pty Limited (ACN 607 365 506)

(Third Plaintiff)

and

Commissioner for ACT Revenue

(Defendant)

Representation:

Counsel

M Ashurst SC with A Russoniello (Plaintiffs)

P Walker SC with WDB Buckland (Defendant)

Cases Cited:

Allen Properties (Qld) Pty Ltd v Encino Holding Pty Ltd (1985) 10 ACLR 104 Kioa v West (1985) 159 CLR 550

Attorney-General (NSW) v Quin (1990) 170 CLR 1

B & M Quality Constructions Pty Ltd v W G Brady Pty Ltd (1994) 116 FLR 218

Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54 ; 232 CLR 598

Can Barz Pty Ltd v Commissioner of State Revenue [2016] QSC 59 ; [2017] 1 Qd R 222Scott (as trustee of Mewcastle Superannuation Fund) v Commissioner of State Revenue [2016] QSC 132; 103 ATR 411

Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1

Commissioner of Taxation v Australian Building Systems Pty Limited [2015] HCA 48 ; 257 CLR 544

Edelsten v Wilcox (1988) 83 ALR 99

Ex parte Ashby; Re Egg and I (Farm) Pty Ltd (1971) 2 PSR 969

General Electronics International Pty Ltd v Deputy Federal Commission of Taxation (1996) 96 ATC 5036

Isabella Shop Fitout & Design Pty Ltd v Tan Republic Pty Ltd [2014] NSWCA 192

Lis-Con Concrete Constructions Pty Ltd v Commissioner of State Revenue [2011] QSC 363 ; 85 ATR 769

Queensland Maintenance Services Pty Ltd v Commissioner of Taxation [2011] FCA 1443 ; 207 FCR 405

Transtar Linehaul Pty Limited v Deputy Commissioner of Taxation [2011] FCA 856 ; 196 FCR 271

Walker v Secretary, Department of Social Security (No 2) (1997) 75 FCR 493

Legislation Cited:

Administrative Decisions (Judicial Review) Act 1989 (ACT) s 5

Income Tax Assessment Act 1936 (Cth) ss 254, 255

Corporations Act 2001 (Cth) ss 9, 153, 601BD

Payroll Tax Act 2011 (ACT) ss 7, 9, 67, 69, 70, 74, 79, 80, 81, 87C, 87E, sch 3

Taxation Administration Act 1999 (ACT) ss 15, 16, 36, 51, 54, 134

TAXATION AND REVENUE — garnishee notices — whether notices issued in respect of non-taxpayer ought be set aside — whether denial of procedural fairness

McWilliam AsJ

1 These are judicial review proceedings commenced on 23 February 2017, pursuant to s 5 of the Administrative Decisions (Judicial Review) Act 1989 (ACT). The plaintiffs seek to set aside six garnishee notices issued by the defendant ( Commissioner) on the basis that they were issued beyond power.

2 The genesis for the proceedings is a Notice of Reassessment and Assessment issued to Rose Cleaning Services on 29 November 2016, signed by Ms Evelyn McCarthy as delegate of the Commissioner ( Assessment Notice).

3 The Assessment Notice determined a payroll tax debt amounting to $4,612,887.59, which included interest ($592,783.60) and penalty tax ($1,904,259.79).

4 Following the issue of the Assessment Notice, on 10 February, 13 February and 28 March 2017, the defendant issued 21 statutory notices (garnishee notices) to debtors of the plaintiffs, pursuant to s 54 of the Taxation Administration Act 1999 (ACT) ( the Act). The garnishee notices essentially required that money payable to the plaintiffs (among a list of companies) instead be remitted to the Commissioner, in satisfaction of the said payroll tax debt.

5 The case as ultimately put by the plaintiffs is set out in the further amended originating application ( Application), filed in Court by consent on 11 September 2017, when the matter was also heard. Further written submissions were provided by the parties at the invitation of the Court on 15 September 2017.

6 The Commissioner withdrew and reissued a number of the garnishee notices. A garnishee notice issued to the Commonwealth Bank of Australia ( Bank) on 10 February 2017 has been withdrawn and was not reissued, but remains the subject of challenge. The Bank has paid money in compliance with the notice and accordingly, there remains utility to the plaintiffs in challenging its validity in these proceedings.

7 The remaining five disputed garnishee notices were all issued on 28 March 2017 to Calvary Health Care ACT Limited (ACN 105 304 989), the ACT Education Directorate, Lennock Motors Pty Limited (ACN 149 847 601), Canberra Grammar School (ACN 684 026 062), and Active Leisure Centre (ACN 508 132 455).

The issue for determination

8 Of the various grounds of challenge raised in the Application, the parties agreed that one was appropriate for determination by way of a preliminary point, as it was a relatively short legal argument and was potentially decisive of the entire proceedings. The argument proceeded before the Court on that single issue.

9 The issue is set out in ground 1(c) of the Application. The plaintiffs contend the garnishee notices were beyond power because they were ‘issued to debtors in respect of a mix of taxpayers and non-taxpayers at the same time’, or because they were issued in respect of ‘one or more non-taxpayers.’

10 The respective positions of the parties may be briefly summarised. The plaintiffs say that at the time the disputed garnishee notices were issued, the third plaintiff, Rose Cleaning Asset Service Pty Limited (ACN 607 365 506) ( RCAS), was not the relevant ‘tax-payer’. This is because the Assessment Notice had excluded it from the ‘group’ of companies liable to pay the taxation debt the subject of the Assessment Notice.

11 The plaintiffs submit that as RCAS had not been included in the Assessment Notice, a garnishee notice could not be issued to debtors of RCAS, seeking to recover the monies specified in the Assessment Notice. The plaintiffs rely on Commissioner of Taxation v Australian Building Systems Pty Limited [2015] HCA 48; 257 CLR 544 ( Commissioner v ABS) at [25]–[26], [58] and [134]; Edelsten v Wilcox (1988) 83 ALR 99 at 113; and Can Barz Pty Ltd v Commissioner of State Revenue [2016] QSC 59; [2017] 1 Qd R 222 at [8], [39]–[40].

12 Further, any garnishee notice that did include RCAS among the debt of other tax-payers (being the members of the ‘group’ as determined by the Commissioner in the Assessment Notice) was invalid.

13 Alternatively, the Assessment Notice had specifically determined the ‘group’ liable for the $4,612,887.59 debt. To then issue garnishee notices to debtors of the plaintiffs without notifying them, and in particular RCAS, of the change in the Commissioner's position (by a notice of assessment including it as part of the relevant group or other notification) was to fail to afford RCAS procedural fairness.

14 For either or both reasons, the plaintiffs contend the garnishee notices ought be quashed (or set aside).

15 The Commissioner accepts that RCAS was not liable to pay the tax debt specified in the Assessment Notice when it was issued. However, the Commissioner contends that this does not invalidate a garnishee notice later issued in respect of RCAS, seeking to recover the debt specified in the Assessment Notice.

16 The Commissioner relies on the grouping provisions in the Payroll Tax Act 2011 (ACT) ( PT Act), arguing that whether or not a company is part of a ‘group’ does not depend upon any decision or assessment by the Commissioner. The statute operates of its own force, so that notwithstanding the Assessment Notice, which failed to include RCAS as part of the group, that company remained part of the group liable to pay the debt when the garnishee notices were issued, by virtue of s 81 of the PT Act.

17 In relation to the question of procedural fairness, the Commissioner submits that no notice of assessment was required to be issued to RCAS before the Commissioner became entitled to issue garnishee notices to debtors of RCAS, or in respect of a debt owed by it.

18 In the event the Court finds the garnishee notices were invalid in respect of RCAS, the Commissioner contends that the validity of the same notices in respect of the other members of the group is unaffected.

Summary of findings

19 I have concluded that:

• (a) Applying the reasoning of Commissioner v ABS, the statutory framework implicitly links the issuing of a garnishee notice to a notice of assessment.

• (b) Although the statutory framework expressly permits a garnishee notice to be issued without notice to the taxpayer, in the circumstances of this case, a notice of assessment was issued, and was based on a specified ‘group’ (with reasons given for that finding).

• (c) Any change to the Commissioner's position was required to be notified to the parties affected, and in particular RCAS.

• (d) In issuing a garnishee notice founded on the Assessment Notice but in respect of a group differently constituted, the plaintiffs were denied procedural fairness.

20 I have further found that because of the nature of the error, and having regard to the statutory framework, the garnishee notices were unable to remain operative as against different parties. Accordingly, it is appropriate to make declarations as to invalidity.

Relevant Legislation

21 A proper understanding of the statutory scheme assists with the resolution of both the power to issue a garnishee notice and the content of procedural fairness.

The Taxation Administration Act 1999 (ACT)

22 The empowering provision is s 54, located in Part 7 of the Act, concerning the collection of tax. It is relevantly as follows (emphasis added):

54 Collection of tax from third parties

• (1) The commissioner may require any of the following people instead of thetaxpayer to pay tax that is payable but remains unpaid:

  (a) a person from whom any money is due or accruing or may become due to the taxpayer;

  …

• (2) The commissioner's requirement must be made by...