The Federal Court has ruled that PAYG amounts were “withheld” from a taxpayer’s salary or wages, so that she was entitled to a tax credit, despite the amounts never being remitted to the ATO by her employers.
Justice Robertson, summarised the issues and facts this way:
- The applicant, Mrs Mariolina Cassaniti, seeks declarations that she is entitled to credits against her liability to income tax for the years ended 30 June 2012, 30 June 2013 and 30 June 2014 (the relevant years). The entitlement to those credits is claimed to arise from amounts said to have been withheld from salary paid to her, pursuant to s 18-15(1) of Sch 1 to the Taxation Administration Act 1953 (TAA). The applicant submits that the respondent Commissioner reduced the applicant’s taxable income to the total of the net weekly payments of her salary in each of the relevant years, but also disallowed any credits against her tax liabilities, thereby increasing her overall tax liabilities.
- The amount of the credit claimed by the applicant for the year ended 30 June 2012 is $14,427; for the year ended 30 June 2013 is $14,088; and for the year ended 30 June 2014 is $13,235. These were the amounts of tax withholding credit disallowed by the respondent Commissioner.
The taxpayer was employed by 3 companies over the relevant years which provided her services as an office clerk to a tax and accounting firm. Her husband was also associated with that firm. As the service companies had not remitted, or notified, any PAYG withholding amounts, to the ATO, in respect of the taxpayer, the Commissioner denied her claim for withholding tax credits in her income tax return, and reduced her assessable amount to the ‘net’ amount (as noted above). The ATO argued that there was insufficient evidence to prove that the amounts had been “withheld” to qualify for a credit under s 18-15(1) of the TAA1.
The regime is that the an employer must withhold the specified PAYG amount from ‘salary and wages’ (under s12-35 of the TAA1), pay the withheld amount to the Commissioner (under s16-70), and give the Commissioner notice of the withholding (under s16-150). Then, s18-15(1) of the TAA1, gives the employee a credit, against their tax, for the amount withheld. It is not necessary that the employer have remitted the amount withheld, for the employee to get the credit. This was a case about the facts – had the amount been withheld.
Section 18-51(1) is in the following terms:
18-15 Tax credit for recipient of withholding payments
(1) An entity is entitled to a credit equal to the total of the *amounts withheld from *withholding payments made to the entity during an income year if an assessment has been made of the income tax payable, or an assessment has been made that no income tax is payable, by the entity for the income year.
On the balance of probabilities, the Court accepted the taxpayer’s evidence, including details from her offer of employment, payslips, bank statements and payment summaries, which suggested that the salary payments were “net pay” amounts. As such, the Court ruled that the taxpayer was entitled to the tax credits as the amounts had been “withheld” from her salary. The Court put it this way.
62. I accept the statements, admitted into evidence as submissions, made by the applicant in her affidavit of 8 August 2017 that she did not receive the full amount referred to in her contract with Ultra Nova, the Darlinghurst contract or the United contract; her payslips under the heading “Annual Salary” correctly recorded her gross income for each employer; and she only received into her nominated bank account the amounts referred to beside the words “Net Pay”. In relation to any pay amount, she had never received the amount referred to beside the words “Gross Pay”.
It seems that none of her employers had been complying with their obligations to the ATO.
The final point of interest is that the relevant law, seems to have been established, by a taxpayer, with the same surname, as the taxpayer in this case (begging some connection: David, Patricia & Mariolina?). Again, the Court said:
14. There appeared to be little difference between the parties as to the law, both parties treating the decisions of Edmonds J in David Cassaniti v Commissioner of Taxation  FCA 641; 186 FCR 480 and Patricia Cassaniti v Commissioner of Taxation  FCA 642; 79 ATR 378 as establishing the relevant principles. The contest between the parties was as to the facts and the application of those principles to the facts.
(Cassaniti v CofT  FCA 92, Federal Court, Robertson J, 16 February 2018.)
[FJM; LTN 33, 19/2/18; Tax Month February 2018]
Study Questions (answers below*)
- Did this case decide that the taxpayer was entitled to credits, withheld from salary?
- Does the employer have to remit the withheld amounts, to the Commissioner, for the employee to be entitled to credits?
- Is the employee entitled to the credit under s16-70 of the TAA1?
- Had the employers given her payslips, correctly recording her gross income (per her contract) showing tax withheld?
- Did the employers comply with their PAYGw obligations, so far as they concerned dealing with the ATO?