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A tax agent has lost an appeal to overturn administrative penalties in a case involving wages that were paid from the bank account of an entity other than the employer.
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Tribunal rules against tax agent in recent PAYG withholding case
19 February 2025
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8 minute read
The Administrative Review Tribunal of Australia has upheld a decision by the ATO to issue penalty assessments to a taxpayer after it found that it had failed to take reasonable care with its PAYG withholding obligations.
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The decision, DJG Consulting Pty Ltd as Trustee for the David Gerrans Family Trust and Commissioner of Taxation (Taxation and business) [2025] ARTA 84, involved a registered tax agent who was the sole shareholder and director of a consulting firm.
He was also the director and shareholder of other companies which acted as corporate trustees of certain trusts that carried on businesses providing accountancy, tax agent and related advisory services.
In 2021, the Commissioner of Taxation conducted audits of the applicant and other entities controlled by the tax agent.
The ATO determined that the applicant entity, which was the trustee of a family trust, had PAYG withholding obligations and that it was therefore required to lodge business activity statements and remit amounts withheld accordingly.
It issued the trustee with a “notice of estimate of liability for PAYG withholding liability” for quarterly periods from 1 July 2016 to 30 June 2021.
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The ATO also imposed administrative penalties on the trustee for those periods.
The applicant disputed that it was the entity with PAYG withholding obligations. It argued that another entity within the group, which was the legal employer of individuals who provided the accountancy and other services to clients, was the entity subject to the PAYG withholding obligations.
The applicant entity had a bank account which made payments on behalf of the service trust, including employee wages and PAYG withholding.
However, the tax agent had reported the wages and PAYG withholding in the employing entity’s BAS.
The tax agent said that the payroll arrangements for the group had previously been discussed with the ATO and that the ATO had not raised any particular concerns.
The tax agent contended that the trustee should therefore not be subject to administrative penalties.
They later lodged an objection against the penalty assessments which was allowed in part by the Commissioner.
The penalty assessments included shortfall penalty amounts totalling $129,508.60 for periods from 1 July 2016 to 31 March 2020. The ATO also issued shortfall penalty amounts totalling $45,799.20 from 1 April 2020 to 30 June 2021.
These penalty assessments were based on the applicant having made false or misleading statements, giving rise to a total shortfall amount of $294,845 reflecting the liabilities in the PAYGW assessment.
The ATO determined that the shortfall amount arose from “recklessness” on the part of the applicant as to the operation of a taxation law and therefore the base penalty amount was 50 per cent of the shortfall amount. The base penalty amount was further increased by 20 per cent for each period ending after 30 September 2016.
The tax agent lodged an objection against the penalty assessments in July 2022, stating that while there was a relationship between the employees and the employer entity, there was no relationship between the employees and the trustee of the family trust.
They argued that an employment relationship does not need to be between the payer of salary or wages and the employee for section 12-35 of the Tax Administration Act 1953 to apply.
It also argued that the procedures adopted by the applicant were in accordance with usual business practices and in reliance upon the ATO’s guidance and advice.
The tribunal was not satisfied with the applicant’s explanation for its failure to lodge BAS containing correct statements and information relating to PAYG withholding obligations.
Given the sole director and shareholder of the applicant entity was a tax agent and accountant, the tribunal said they should have had the “knowledge and resources to undertake the necessary actions to ensure compliance with relevant taxation laws”.
“These matters indicate that the Applicant demonstrated a high degree of carelessness, or was grossly indifferent, as to whether its position on the application of PAYG withholding rules was correct,” it said.
“A reasonable person in the Applicant’s position should have foreseen that there was a real risk that the approach it had taken was not correct, and made an effort to assure itself of compliance.”
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