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Taxation Prosecution Procedures and Penalties

22.45. The Committee has received submissions relating to penalties and prosecutions dealt with in Part VII of the Act. Section 243 provides (inter alia) in effect that any allegation of fact (averment) contained in the process initiating a taxation prosecution shall be prima facie evidence of the matter averred. The purpose of the section is to enable the prosecution to sheet home its case without calling evidence to prove the facts necessary to sustain the charge made against the defendant. The section has no application where the intent of a defendant has to be proved or where the proceedings are for an indictable offence or an offence directly punishable by imprisonment. Section 221G is, for example, one of a number of sections in Division 2 of Part VI of the Act relating to collection of income tax by instalments and requires an employer, other than a group employer, to keep a tax deduction sheet and imposes a series of obligations in regard thereto. The penalty for failure to comply with certain of these obligations is fine or imprisonment. In many instances defendants charged with breaches of section 221G and other sections in Division 2 do not appear to answer the charge but, as the prosecution cannot rely upon the averments, the time of the Court is taken up in proving all the ingredients to sustain the charge.

22.46. It has been put to the Committee that the penalty of imprisonment should be deleted from these sections to permit charges under these sections to be proved by means of the averments. In these cases the penalty of imprisonment is rarely imposed and the Committee would favour its deletion.

22.47. It has also been submitted that section 243 should be altogether repealed and that the onus of proof in prosecutions under the Act should follow the general law. The type of provision found in section 243 is by no means unique and can be found in other fiscal and criminal legislation. It does not alter the fact that the prosecutor is left with the onus, both initial and final, of establishing the ingredients of the offence beyond reasonable doubt. Where the criminal intent of a defendant is an ingredient of the offence charged, this must be proved in the ordinary way. The Committee sees no good reason why section 243 should be repealed. It also sees no good reason why service of summonses for offences against the Act should not be effected by registered post.

22.48. The Court should be empowered in its discretion to extend the time for payment of pecuniary penalties which have been imposed. By virtue of section 247 (2) the Court, when an offender is convicted and ordered to pay a penalty, may order that the offender be given a specified time for its payment or allow it to be paid by specified instalments. Failure to pay the penalty or an instalment within the time specified will result in the imprisonment of the offender and, in all probability, any chance of recovering the penalty or the balance of it unpaid will be lost. No account is taken of some unexpected difficulty or hardship occurring to an offender who may be prepared to meet his liability rather than suffer imprisonment. Power in the Court to grant an extension of time would be in the interests of the Revenue as well as the taxpayer.

22.49. A submission received with reference to section 226 raises the question of penalty in a different fashion. For the failure to furnish, where required by statute or by the Commissioner, a return or any relevant information or for the omission from a return of any assessable income or for the inclusion therein of an excessive deduction for expenditure, the taxpayer becomes liable to pay an amount of additional tax calculated as prescribed by the section. The Commissioner is empowered for reasons which he thinks sufficient to remit the additional tax or any part thereof. It has been

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urged upon the Committee that section 226, which admittedly imposes heavy penalties in the shape of additional tax for breaches of its provisions, should be amended to distinguish between an accidental and deliberate breach of the section and the penalty for its infringement should only be determined by a magistrate. Section 226 is fundamental to the basis of the collection of income tax and it is essential that there should be a powerful deterrent standing in the way of non-compliance with the provisions of the Act and that the Revenue should be protected against procrastination and carelessness.

22.50. That is not to say, however, that every breach of the section should be visited with the totality of the penalty which the section prescribes. Returns are not always easy to compile and mistakes may occur even when care has been used to avoid them. It is not to be supposed that the Commissioner would not give full recognition to the likelihood of excusable, accidental error and by his power of remission he is enabled to make due allowance for it. If the taxpayer, however, is dissatisfied with the decision of the Commissioner relating to the remission of additional tax imposed by section 226, he is entitled to take the matter before the Board of Review which, by virtue of section 193 (2), has a limited power of reviewing that decision. In the Committee's view, no amendment of sections 226 or 193 (2) is called for along the lines suggested.

22.51. Representations have also been received by the Committee in relation to section 226 (4) which precludes the imposition of additional tax under the section where a prosecution is instituted in respect of the same subject-matter. Where a prosecution for failure to furnish a return is instituted under section 223, the penalty is not less than four dollars or more than $200; and it has been put to the Committee that many persons who have failed to lodge a return for a substantial income deliberately court prosecution knowing that the maximum fine of $200 under section 223 will be less than the additional tax which would be imposed by the Commissioner for late lodgment of the return without prosecution action being instituted. It is understood that additional tax imposed by the Commissioner for late lodgement of a return is normally based on what is in effect an interest charge of 10 per cent per annum of the tax payable for the period the return is late. It has been submitted to the Committee that it is anomalous that a taxpayer by courting prosecution can limit the penalty to $200 in these types of cases.

22.52. While the Committee elsewhere in this Report recommends revision of all of the penalties specified in the Act, this is not necessarily the complete answer to the submissions. Several proposals might be considered. One would be to repeal subsection (4) of section 226 and thus enable both the additional tax and the Court-imposed penalty to be exacted in appropriate cases. Subsection (3) of section 226 dealing with the Commissioner's power to remit additional tax could be expanded to include a direction that, in considering remission, the Commissioner is to take into account any penalty imposed by a Court. Another proposal would be to provide in section 223, which deals with prosecutions for failure to furnish returns or information, for a penalty of stipulated minimum and maximum amounts and, in addition, to give the Court power to order the person to pay to the Commissioner a sum not exceeding the maximum additional tax which could be imposed by the Commissioner under section 226 (1) of the Act. This latter is the pattern of the present legislation in relation to prosecutions and additional tax in cases of false returns, wilfully understating income and fraudulent avoidance of tax in sections 227, 230 and 231 respectively. The additional tax for failure to furnish a return is at present the greater of two dollars and an amount equal to the tax assessable on the return. To overcome cases where a return

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has not been furnished at the date of a Court hearing, a Court could order the taxpayer to pay to the Commissioner a specified proportion of the tax eventually found to be assessable or, of course, the whole amount thereof.

22.53. The Committee recommends the second of the two proposals outlined in the preceding paragraph: that the penalty specified in section 223 for failure to furnish a return or information be of the same nature as the penalty in the sections dealing with prosecutions for false returns and understating income.

22.54. Section 246 provides that no minimum penalty imposed by the Act should be liable to any reduction under any power of mitigation which otherwise is possessed by the Court. It has been submitted that the Court should have such a power. The Committee is not of that opinion. The real question would be whether the minimum penalty set by the Act for some particular offence is too harsh and that is another matter altogether. The Committee thinks that there ought to be a general review of the penalties which the Act imposes.