The Full Federal Court has confirmed 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.

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. 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 assessed her on the amounts she actually received, as if this was the total of her income).

The Commissioner accepted that the effect of s18-15(1) of the TAA53, is to allow employees credits, for amounts ‘withheld’, even if they are not remitted to the Commissioner, or reported to the Commissioner. Rather, he sought to challenge that there had actually been any amount withheld.

At first instance in Cassaniti v FCT [2018] FCA 92, the Federal 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.

On appeal, the ATO mainly questioned the veracity of the offer of employment, payslips and payment summaries by contending that the documents had either not been properly proven or were a recent invention.

However, the Full Federal Court upheld the first instance decision as it found it was open for the primary judge to accept the taxpayer’s evidence as truthful and to accept the business records she exhibited as authentic.

There were also issues about whether the respondent taxpayer had been given proper notice of the contention of recent invention and whether primary judge erred in failing to draw an inference from respondent’s failure to call certain witnesses

There’s a related issue, which is that a new s26-105 has been inserted into the ITAA97, that will, from 1 July 2019, deny the payer deductions for salary type amounts, if he fails to comply with the PAYG withholding obligation or fails to notify the Commissioner, of the amounts withheld, by the time the ATO was due to receive those amounts (under s16-150 of the TAA, which obliges the employer to advise even $nil withholding amounts).

(CofT v Cassaniti [2018] FCAFC 212, Full Federal Court, Greenwood, Logan and Steward JJ, 30 November 2018.)

FJM 4.1.19

[Tax Technical articles: Cassaniti at first instance; Salary Deduction Denied if no withholding etc.; LTN 233, 3/12/18; Tax Month – December 2018]


CPD (comprehension) questions

  1. Was this case about whether the employee taxpayer was entitled to credits against her tax, on her employment income, for amounts she alleged had been withheld from her salary?
  2. Were any PAYGw amounts remitted to the Commissioner?
  3. Did that matter?
  4. How did the taxpayer go about establishing that there had been withholding?
  5. Did the Court at first instance, find in her favour?
  6. Did the Full Federal Court reach the same decision, on appeal?
  7. What would an employer’s position be, after 30 June 2019, if he failed to withhold an amount from salary?

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