As the impact of COVID-19 continues to be felt across Australia, federal and state governments continue to take measures to stimulate the economy and provide financial assistance to taxpayers. For many taxpayers COVID-19 may coincide with new or ongoing tax audits. A recent case heard in the NSW Supreme Court has provided an important insight into the legal systems view on the impact of COVID-19 on certain taxpayer obligations during audits.
In the case, Elanor Operations Pty Ltd v Chief Commissioner of State Revenue [2020] NSWSC 840 (Elanor), the underlying dispute related to payroll tax notices of assessment issued by the Commissioner of State Revenue NSW (Commissioner). As part of this underlying dispute the Commissioner requested several categories of documents be produced by the taxpayer.
Representatives of the taxpayer submitted that the requirements to produce the various documents requested by the Commissioner was oppressive. The submission of oppression was made on the basis that the relevant businesses had, and were continuing to be, impacted by the economic consequences of the COVID-19 pandemic. The businesses had entered a “hibernation phase” under which only a reduced number of staff remained working. Representatives of the taxpayer stated that the number of documents requested and the time and costs of sourcing them amid the COVID-19 pandemic would be too burdensome for the taxpayer.
In requesting documents Revenue NSW (as would be the case with other revenue offices and the Australian Taxation Office), is required to only seek documents relevant to a fact in issue. In Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326 (Graphite) Justice Brereton stated this principle as follows:
21. …an order for discovery may not be made in respect of a document unless the document is relevant to a fact in issue...
22. … This means that it must always be possible to show a connection between the class and a fact in issue, and where a class is specified in some other manner than by relevance to a fact in issue, it must be apparent that the class so described will capture only documents that are relevant to a fact in issue…
In reaching a conclusion that the discovery request was not oppressive Chief Justice Ward in Elanor first considered the relevance sought by the Commissioner. Chief Justice Ward acknowledged Graphite and noted that the documents sought by the Commissioner must have a legitimate forensic purpose rather than merely a speculative purpose. In this respect Chief Justice Ward found that the documents sought could “possibly throw light” on the issues of the case or materially assist in doing so.
In considering this against the continuing logistical difficulties of producing documents during the COVID-19 pandemic, the Chief Justice Ward found that the pandemic itself does itself make the requirement to produce documents oppressive. Chief Justice Ward agreed with the Commissioner’s position that any increased difficulties caused by COVID-19 can be appropriately addressed by providing additional time to produce the materials.
The Court therefore found in favour of the Commissioner and ordered the taxpayer to source and provide the documents required.
Elanor provides a clear message to taxpayers the subject of audits during the COVID-19 pandemic. Simply put, the pandemic will not cause audits to cease. Taxpayers may request additional time to produce documents (within reason). However, beyond extension requests tax audits remain ‘business as usual’ despite the COVID-19 pandemic meaning many taxpayers are not experiencing business as usual.
If you require assistance in managing new or ongoing tax audits, contact one of our specialists:
Laura Spencer
Senior Associate
T +61 3 9611 0110
lspencer@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327| T +61 3 9611 0105
E: dsmedley@sladen.com.au
