Sector woes not enough to reduce Tax Office penalty

Australian currency rolled (6CPA funding)

Price disclosure, competition cited in unsuccessful bid to reduce Tax Office penalties

The owner of a number of pharmacies in NSW who relied on his accountant and staff for tax advice has had an appeal to waive Tax Office penalties and interest dismissed.

John Tacey had applied to have Tax Office penalties and interest of $177,263.82 waived after a payroll tax default was identified – highlighting current challenges in the pharmacy sector such as price disclosure.

The owner of several NSW pharmacies and controller of Central Drug Co Pty Ltd and Medan Holdings, Tacey relied upon Allan Bonner, who operated a bookkeeping service under several names including Nepean Placement Services, for taxation advice.

“Nepean [Placement Services] was conducted by Mr Bonner only in a titular capacity, as the applicant paid staff, interviewed candidates, recruited them and managed the other aspects of that business,” the NSW Civil and Administrative Tribunal heard.

“Nepean placed employees in the chemist and retail businesses operated by the other taxpayers involved, such that those businesses could not operate without the placed employees.

“Mr Bonner was registered for payroll tax, but the wages paid by the other taxpayers were not declared through his registration, or at all.”

Tacey’s operations were audited and a tax default identified, which the Tribunal noted was “within their control”.

Bonner had established AW Bonner Nepean Placement Services as an agency to supply staff to pharmacies, the Tribunal noted.

“Initially staff were supplied to other shops only, but because of declining demand [Tacey] believes that staff were supplied only to his chemist shops.

“In his own affairs and as a director of the above companies, he had relied exclusively on the professional advice of his registered tax agent and accountant Mr Allan Bonner.”

The Tribunal heard that Tacey had obtained a good understanding and made reasonable efforts to become familiar with his tax obligations, including payroll tax. But he also relied on Bonner’s advice – and as he became the major client of Nepean Placement Services, Bonner did not advise that this could cause him to incur payroll tax.

“He had been assured that he was meeting all his taxation commitments, including payroll tax. Mr Bonner specifically advised him that each employer company was liable to pay payroll tax, but only when each entity in which he was involved exceeded the relevant tax-free threshold,” the Tribunal noted.

“As soon as he became aware, during the course of the OSR audit, that there was a potential issue about outstanding payroll tax, he immediately instructed his new accountants… to become involved and to subsequently take over his accounting requirements.”

Tacey claimed that penalties and interest of the magnitude involved could have significant impact on his businesses and staff.

“The taxpayer group of companies with which he is involved employs over 60 people in Sydney’s south-western region,” the Tribunal heard.

“Penalties and interest of that magnitude would create severe financial hardship which could well result in the forced closure of some of the pharmacies involved, which are operating on a marginally profitable basis.

“That would result in the loss of a significant proportion of jobs, both professional and unskilled, in an area where there is high unemployment, particularly of young unskilled workers.

“The independent retail pharmacy sector is already under great pressure because of aggressive discounting by large pharmacy chains, as well as cutbacks in the Pharmaceutical Benefits Scheme. The sale of retail pharmacies in the current environment, particularly for low-profit operations, is extremely difficult.”

The Tribunal noted that Tacey was portrayed by the evidence as a “commercially knowledgeable man” and noted that it was unlikely that Bonner was much more than a “front” for the Nepean business.

“Unfortunately for the Applicants I find that they have provided no evidence to satisfy me that they took reasonable care or that the tax default occurred because of circumstances beyond their control,” the Tribunal noted.

Price disclosure and other challenges to the pharmacy sector did not qualify the penalties and interest to be waived due to hardship.

However, the interest rate applied was changed: the premium rate component was reduced from 8% to 2%.

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