Taxation Law - Failing to Furnish Income Tax Returns - Part 2

Whilst it is conceded and supported that Income Tax Offences are serious matters and are far from trivial, there may be objective facts and mitigating circumstances which would warrant the non-recording of a conviction as provided for in section 19B. One such case may be that of Commissioner of Taxation -v- Baffsky [2001] NSWCCA 332 (7 September 2001). In that case, the defendant Mr Wayne Baffsky pled guilty to two charges of failing to furnish an income tax return contrary to section 8C(1)(a) of the Taxation Administration Act 1953 (Cth). He was convicted at St James Local Court and fined the one amount of $800 for the two offences. He appealed to the District Court against the severity of the sentences imposed upon him at the Local Court. Her Honour Judge Backhouse found that the circumstances were such that section 19B should be applied and quashed the convictions against Mr Baffsky.

Of notability in the Baffsky case, were Mr Baffsky's mitigating circumstances which warranted the operation of section 19B. By way of summary, the facts of the Baffsky case were as follows:

1. On 3 May 2000 Mr Baffsky failed to furnish Income Tax Returns for the years ended 30 June 1998 and 30 June 1999 to the Commissioner of Taxation, as he was required to do so before 2 May 2000 by notice issued on 4 April 2000

2. Mr Baffsky furnished the outstanding returns to the Commissioner of Taxation on 9 January 2001

3. The income tax payable on both income tax returns in total were approximately $82,533

4. Mr Baffsky was involved in a motor vehicle accident on 17 July 1998, which had the affect of aggravating an existing back ailment and also reducing his motivation

5. Mr Baffsky was made Bankrupt by the Commissioner of Taxation in about February 2000

6. Mr Baffsky has been working interstate on a regular basis from at least June 2000 to the relevant time

7. Mr Baffsky had devoted time to maintaining a relationship with his son, after Mr Baffsky had separated from his son's mother

8. Mr Baffsky had engaged in volunteer work in the past in both legal and non-legal capacities

9. Mr Baffsky had expressed contrition and remorse for the offences

In determining whether a non-conviction under section 19B is appropriate, the relevant considerations are contained within section 16A of the Act.

In the ordinary unusual case, it will be common that the client will either be owed a tax refund or alternatively any Tax Payable will be a nominal amount and will pail in comparison to the $82,533 owed by Mr Baffsky to the Commissioner of Taxation. Therefore so long as there is evidence of good reason why the client had not submitted his or her income tax returns, and that the client has by the time the matter reaches sentencing, submitted all outstanding Income Tax Returns, that as a matter of Justice and Parity that the Court should afford the client a non-conviction under section 19B in light of the Baffsky case.

It is notable that there is no requirement that section 19B apply only in extenuating circumstances. Section 19B(1)(b)(iii) provides that the Court may have regard to the extent (if any) to which the offence was committed under extenuating circumstances that it is inexpedient to inflict any punishment. This is a circumstance where section 19B can be invoked by the Court however it is not a pre-condition for the application. Furthermore the proposition that section 19B is not available under revenue legislation unless "exceptional circumstances" are found to exist, is not supported by authority. As Spiegelman CJ held at paragraph 77:

"This general policy served by section 19B is as pertinent to revenue offences as it is to other offences. The statute formulates a test of whether punishment is "inexpedient". I do not see any warrant for replacing the Statutory Formulation with terminology as broad as "Exceptional Circumstances" in a particular sphere or regulation.

It appears that the Baffsky case widens the door for the application of section 19B to apply to the ordinary and usual case where the client has failed to submit Income Tax Returns as and when required by the Commissioner of Taxation.