The AAT has upheld an administrative penalty imposed on a partnership for failure to withhold PAYG amounts made under a labour hire arrangement.

  • The husband and wife partnership business in question provided workers to farmers in the Robinvale area of Victoria, although the Tribunal noted that, from the evidence given, during the relevant period, the business provided workers to only one farmer.
  • The partnership received payments from the farmer for supply of the workers.
  • The ATO audited the partnership and stated that the applicant had failed, as required under the PAYG withholding provisions, contained in Div 12 of Sch 1 to the Taxation Administration Act 1953 (‘TAA‘), to withhold a total of $464,354 from payments it made to labour hire workers and was therefore liable under s16-30 of Sch 1 to the TAA to a penalty of the same amount.
  • The Commissioner remitted the penalty by 25% to $348,265.50, on the basis that the failure to withhold had resulted from intentional disregard of the applicant’s PAYG withholding obligations.
  • The applicant’s objection was partly allowed with the Commissioner further remitting the penalty (imposed under s16-30) to 50% of the amount to which the applicant was otherwise liable, having determined that the applicant had been reckless with regard to its PAYG withholding obligations. The amount of the penalty was therefore reduced to $232,177. The taxpayer sought review before the AAT.

After review, the Tribunal said there was no evidence put forward by the applicant to establish that the amount of the penalty should have been some amount other than the amount upon which the remission decision was based, nor as to what that amount should have been. Accordingly, the Tribunal held that the applicant had not discharged the burden of proving that the remission decision should have been made differently in that regard. The Tribunal said that given the applicant’s poor recollection of events, the lack of corroborating evidence and the failure to call the former accountant to give evidence despite submitting that the applicant relied on him to a significant degree, it was not satisfied, based upon the evidence before it, that the penalty should be remitted further on the basis that the applicant’s conduct was not so blameworthy as to be reckless.

The Commissioner’s objection decision was affirmed.

(Re T T Lam and HT Ngo and FCT [2016] AATA 552, AAT, Alpins DP, 29 July 2016.)

[LTN 148,3/8/16]

[FJM Note:   These penalties, for failure to remit PAYG withheld, operate differently from the imposition of ‘shortfall penalties’  under Div 284 of Sch 1 to the TAA (which talk of 75% penalty for ‘intentional disregard’ of the income tax law and 50% of the shortfall if the taxpayer is ‘reckless’ – see s284-90). Under PAYG penalty provision (s16-30), the maximum penalty is 100% of what should have been remitted, so it sounds strange to have it remitted down to the 75% level because the taxpayer had ‘intentionally’ not remitted what he new he ought (???). Further, the remission down from 100% to 75% and to 50% were all done under s298-20 of Sch 1 to the TAA, which does not give any such guidance (in fact is it staggeringly short of any guidance). So the Commissioner sought to borrow the 75% and 50% levels from the ‘shortfall’ provisions (as, perhaps, vaguely relevant). It was still very odd given that the maximum penalty for shortfalls was treated as less than the maximum for a failure to remit. As I understand it, these failure to ‘remit’ penalties are on top of having to finally remit, what should have been remitted, so they are very aggressive penalties (25% points higher than for an income tax ‘shortfall’).]