Alexander and Commissioner of Taxation (Taxation and business) - [2025] ARTA 1163

Alexander and Commissioner of Taxation (Taxation and business) [2025] ARTA 1163 (30 July 2025)
Applicant:Yanni Alexander
Respondent: Commissioner of Taxation
Tribunal Number: 2024/5083

Tribunal:General Member C Willis
Place:Melbourne
Date:30 July 2025
Decision:The Tribunal affirms the decision under review.

..............[SGD].................
General Member C Willis
Catchwords
TAXATION – release of taxation liability – whether payment of tax liability would cause serious hardship – meaning of phrase ‘serious hardship’ – applicant with access to funds in superannuation account – whether applicant prioritised other non-tax liabilities over her tax liability – factors relating to exercise of discretion to release – decision affirmed
Legislation
Taxation Administration Act 1953 (Cth); ss 14ZZK; Schedule 1, sections 340-5, 340-10
Cases
Commissioner of Taxation v A Taxpayer [2006] FCA 888
Corlette v Mackenzie [1995] FCA 1512
Corlette v Mackenzie [1996] FCA 1482
Doery and Commissioner of Taxation [2024] AATA 1493
Powell v Evreniades and Others [1989] FCA 114
Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50
Re Rasmussen and Commissioner of Taxation [2013] AATA 746
Secondary Materials
Australian Taxation Office Practice Statement Law Administration PS LA 2011/17 – Debt Relief, waiver and write off
Statement of Reasons
INTRODUCTION

In early 2022 Ms Alexander (the Applicant) sold the property which had been her home for many years. The Commissioner of Taxation (the Respondent) issued a notice of assessment to the Applicant which included an amount referable to a capital gain made on the disposal of that property. This resulted in a tax liability of over $70,000 being owed by the Applicant.
The Applicant asked the Respondent to release her from this tax liability on the basis of financial hardship. The Respondent refused her request and she objected against that refusal. On objection the Respondent made a decision to affirm its previous refusal. The Applicant has sought a review by the Tribunal of the Respondent’s decision.
BACKGROUND
The Applicant owned a property in the suburb of Elwood in Victoria (the ‘Elwood Property’) and lived there for 10 years before deciding to subdivide the Elwood Property into two units (‘Unit 1’ and ‘Unit 2’).
The Applicant described the Elwood Property as a two bedroom property that had been the family home and which was cramped and rundown. She obtained a loan secured against the value of the land to finance construction of the two units. Her intention was to sell one unit to cover the expenses of the redevelopment and live in the other unit. As a single mother she said that she wanted to secure a more stable financial future for herself and her children.
The Applicant said that the family initially moved into Unit 1 with the intention of selling Unit 2. However prevailing real estate market conditions meant that she could not get the price for Unit 2 that she had been seeking, so she decided instead to sell Unit 1. The Applicant said she rented out Unit 2 for approximately six months as a practical measure to manage her financial situation while she arranged the sale of Unit 1.
After Unit 1 was sold on 24 February 2007 the Applicant and her family moved to Unit 2. Records of the Respondent indicate that the Applicant lived in Unit 2 from August 2008 to February 2022, and the Applicant confirmed that she resided in Unit 2 with her family for approximately 15 years. The Applicant explained that her focus during this period was to provide a stable home for her family.
In late 2021 the Applicant said that she made a decision to downsize, pay off her mortgage and put funds into superannuation for her retirement. In January 2022 the Applicant sold Unit 2 and bought another property (her ‘Current Home’). The Applicant continues to reside in her Current Home and owns this mortgage free.
The difference between the sale price of Unit 2 and the purchase price of the Current Home was approximately $640,000, from which the Applicant contributed $238,000 to her superannuation account in February 2022.[1]
[1] ST1. There was no documentary evidence as to how the remainder of the funds from the January 2022 real estate transactions was used, but they may have been applied to clear the mortgage debt on Unit 2.
The Applicant engaged a tax agent (the ‘Tax Agent’) in 2018 who has assisted the Applicant with lodging tax returns since 2018. Correspondence between the Applicant and the Tax Agent in early 2023 noted potential taxation consequences from the sale of Unit 2 and the Tax Agent requested further information about the sale and the prior subdivision.[2]
[2] The Applicant provided a copy of an email chain between her and the Tax Agent with dates from 27 January to 6 February 2023.
On 18 July 2023 the Applicant lodged her income tax return for the year of income ended 30 June 2022 (the ‘2022 Year’). On 25 July 2023 the Respondent issued a Notice of Assessment to the Applicant for the 2022 Year (‘Notice of Assessment’)[3] which set out a tax liability of $73,058.75. This liability reflected the inclusion of an amount of $192,195 referable to a capital gain arising from the disposal of Unit 2. On the basis that the Applicant had rented out Unit 2 for a period prior to moving into Unit 2 with her family, the Respondent said that the Applicant was not entitled to the full ‘main residence’ exemption from the capital gains tax (CGT) provisions of the taxation legislation.[4]
[3] T7.
[4] The Applicant was not entitled to claim the ‘seniors and pensioners tax offset’ because her taxable income (which included the capital gain) was over the relevant rebate income test threshold and her medical levy and private health insurance rebate amounts were also adjusted.
The Applicant has not objected against the Notice of Assessment (that is, the Respondent’s assessment of her capital gain and consequential adjustments to her tax liability) although she had told the Respondent that she believed her personal circumstances merited a re-evaluation of her CGT liability in her original application for debt release[5]. The Tribunal has not been asked to review the application of the CGT provisions to the disposal of Unit 2.
[5] T8. During a telephone call with the Applicant during the objection process the Respondent confirmed that the Applicant was not objecting against the Notice of Assessment, although the Applicant expressed some confusion about the different processes: T13, pages 356 to 357.
On 19 August 2023 the Applicant applied to the Respondent for release of her taxation liabilities (the ‘Debt Release Application’).[6] In her Debt Release Application the Applicant said that (as at the time of the Debt Release Application):
[6] Application for release form at T8.
(a)Her only sources of income were the government age pension and amounts of $600 fortnightly from her superannuation pension account.
(b)Her reason for not paying the tax liability by the due date was because she had not expected it to be so high.
(c)In relation to what actions she had taken for the payment of her tax debt, she was still trying to work out what options she had.
(d)In relation to how she planned to pay future tax bills, she did not believe she would have future tax bills but otherwise she had always paid her taxes as soon as she could.
(e)Based on her fortnightly after tax income (the age pension and a superannuation pension) and estimated household and personal expenses she had surplus income of $42 each fortnight.
(f)Her only assets were a 2011 model motor vehicle (‘Motor Vehicle’) with an estimated market value of $8,000 and bank accounts with an aggregate balance of approximately $3800.
(g)She had a Westpac credit card with a limit of $17,000 and an American Express card, with nominal (less than $1000 in aggregate) amounts owing.[7]
(h)She did not have a mortgage.[8]
(i)She did not have any dependents.
(j)She identified a business, Gidget Pty Ltd (‘Gidget’) which she had started in 1984.[9]
[7] The Applicant told the Respondent she paid off the balance of her cards every month: T9.
[8] The Applicant does own the home she lives in and her response appears to have resulted from a misunderstanding of what the Debt Release Application form was asking.
[9] The Applicant was the sole director of this company which has since ceased operating: see paragraph 23 of Respondent’s SFIC and T13.
The Respondent stated that during a telephone conversation between the Applicant and an officer of the Respondent on 30 January 2024 the Applicant further referred to having a solar panel loan (‘Solar Panel Loan’) which she was paying off at $29 per month.[10] The Applicant told the officer that she was not sure of the amount of the Solar Panel Loan but thought she had two years to pay it off. She also had an electrician bill of $2,000. The Applicant said that she had over $400,000 in her superannuation account.
[10] T9.
During the course of the telephone conversation the officer indicated to the Applicant that her Debt Release Application would be refused and on 6 February 2024 the Respondent wrote to the Applicant to advise that release from payment of her tax debt had been refused (the ‘Refusal Decision’).[11] The reasons for the Refusal Decision were:
‘> You’ve paid other creditors instead of making payment towards your tax debt.
> You have set up your affairs so that you are in a position of hardship.’
[11] T10. The amount owing by the Applicant at this time was $78,593.75.
The Applicant objected to the Debt Release Decision on 17 February 2024 (the ‘Objection’).[12] In her Objection the Applicant reiterated the personal circumstances that had led to the subdivision of the Elwood Property and sale of Unit 2. Her view was that her actions in downsizing and contributing funds to superannuation demonstrated prudent financial planning and prioritising her future. She said that a tax debt of (by now) more than $73,000 was disproportionate to her circumstances. She was over 70 years old and had health conditions which limited her ability to increase her income. She said that she lived a modest lifestyle and did not have other debts or financial commitments which she could defer or reschedule. Her superannuation was her safety net for her retirement.
[12] T11.
In her Objection the Applicant also addressed factors set out in the Respondent’s Practice Statement, PS LA 2011/17[13], which provides guidance as to the matters the Respondent will consider in determining whether to release a person from a tax liability. She said she had not acquired assets or disposed of funds or assets without consideration for her tax liabilities because she had been unaware that she would have a tax liability. This was because she had assumed she was eligible for the full CGT main residence exemption in relation to Unit 2. She said that had had always complied with her taxation obligations, had not delayed lodgement of her returns and had acted promptly when she became aware of her tax liability.
[13] Practice Statement Law Administration PS LA 2011/17: Debt relief, waiver and write off.
The Applicant did not mention the Solar Panel Loan or her means of paying the electrician’s bill in her Objection, but confirmed later that repayments of the Solar Panel Loan were ongoing and she had paid the electrician’s bill in full.[14] There was no further information relating to her financial position provided with her Objection.
[14] See notes of a conversation between Applicant and officer of the Respondent on 6 June 2024 at T13.
On 25 June 2024 the Respondent wrote to the Applicant disallowing the Objection and confirming its previous decision to refuse the Applicant’s request for release from payment of her tax debt (the ‘Objection Decision’).[15] The Respondent explained its Objection Decision by reference to the tests and factors set out in PS LA 2011/17.
[15] T2 and T14.
In PS LA 2011/17, the Respondent sets out three ‘tests’ that it will apply in determining whether the Respondent will agree to a release of liability. These tests address the finding of serious hardship and the exercise of the discretion to release. They are:
(a)The income/outgoings test, which looks at a person’s capacity to meet their tax liability from their current income, taking into account household income and expenditure. The person’s ability to increase their income, the person’s discretionary spending and any attempts they have made to reschedule or defer other financial commitments are also considered.
(b)The asset/liabilities test, which looks at a person’s equity in or access to assets which may indicate their capacity to pay their tax debt. Certain assets, such as furniture and household goods and cash for day to day living expenses, are not expected to be surrendered to meet a tax liability.
(c)Other relevant factors, which considers the person’s particular circumstances and could include their tax compliance history, whether the person has other liabilities or creditors, their plans to meet their liabilities and whether their own behaviour has placed them in a position of hardship.
On the basis that the Applicant would have a surplus of income over expenses of $27.92 per fortnight[16], the Respondent’s position at Objection was that she did not have the capacity to pay her tax debt in a reasonable time and therefore she met the requirements of the ‘income/outgoings’ test. The Respondent also said that the Applicant’s asset position indicated that she had no borrowing capacity and thus she satisfied the ‘assets/liabilities’ test.[17]
[16] The Respondent used adjusted expense figures which took account of the Solar Panel Loan repayments and said that these expenses appeared reasonable: paragraphs 27, 35 and 36 of the Objection Decision at T2.
[17] See paragraphs 42 to 44, T2.
However the Respondent reaffirmed its position that the Applicant had paid other creditors instead of making payments towards her tax debt (for example, the Solar Panel Loan repayments and Westpac and American Express cards). The Respondent’s view was that release of the Applicant’s tax debt would not alleviate any hardship as she had other liabilities.
The Respondent also affirmed its position that the Applicant had structured her affairs to place herself in hardship. The Respondent’s records disclosed that the Applicant had been engaging with her Tax Agent since April 2018, with the sale of Unit 2, purchase of her Current Home and contribution to the superannuation account occurring in January 2022. The Respondent suggested that the Applicant was aware that she would have a tax liability from a CGT event in relation to Unit 2, even if she did not realise how much that liability would be. The Applicant nevertheless bought another property outright, paid off other debts and made a contribution to her superannuation. The Respondent pointed to the 18 months between the time of the sale of Unit 2 and the lodgement by the Applicant of her tax return for the 2022 Year in July 2023. The onus was on the Applicant to discuss the tax implications of the sale of Unit 2 with her Tax Agent.
The Respondent therefore found that the Applicant did not meet the ‘other factors’ test set out in PS LA 2011/17. The Respondent also said that granting the Applicant a release of her tax debt would give her an advantage over other taxpayers who met their tax obligations on time, including those facing hardship.
The Applicant applied to the Tribunal for a review of the Objection Decision on 18 July 2024.[18]
[18] T1.
The Respondent wrote to the Applicant on 14 November 2024 seeking information as to whether her financial position had changed since the Objection Decision.[19]
[19] As at 30 June 2024 the Applicant had a superannuation account balance of $272,236.36, plus pension account balance of $175,493.31: ST2, ST3. Records obtained by the Respondent from the Applicant’s superannuation provider indicated that the Applicant’s transfer balance was around $180,000 as at 1 October 2024.
The Applicant filed the following materials with the Tribunal:
(a)Copies of the letters to the Respondent accompanying her Debt Release Application and Objection.
(b)Copies of emails between the Applicant and the Tax Agent sent between January and May 2023, prior to the lodgement of her tax return for the 2022 Year.[20]
(c)A Statement of Facts, Issues and Contentions (‘Applicant SFIC’) dated 20 February 2025.
[20] One email was filed with the Tribunal in November 2024 and the rest were filed in February 2025.
The Respondent filed its Statement of Facts, Issues and Contentions (‘Respondent SFIC’) on 16 December 2024 as well as written submissions and Supplementary T documents on 21 May 2025.
The Applicant confirmed to the Tribunal that she would not be filing separate submissions but would rely on the materials already lodged with the Tribunal. The Applicant did not file any further evidence relating to her financial position or changes to that position since the date of the Objection Decision, and confirmed to the Tribunal at the hearing that there had been no changes.
The Applicant represented herself at the hearing, with her daughter as a support person.
RELEVANT LAW
A taxpayer may apply to the Tribunal for a review of an objection decision of the Respondent: see Division 4, Part IVC of the Taxation Administration Act 1953 (TAA 1953). Where an objection relates to a taxation decision other than an assessment, the taxpayer has the burden of proving that the taxation decision should not have been made or should have been made differently: subparagraph 14ZZK(b)(ii).
Division 340 of Schedule 1 to the TAA 1953 allows the Respondent to release individuals from certain tax related liabilities. Section 340-10 sets out liabilities which may be released, and this includes liabilities for income tax.
The Respondent may release an individual from a liability if the individual would suffer ‘serious hardship’ if required to satisfy the liability: Item 1 of the table in subsection 340-5(3).
A person may apply to be released from the whole or a part of a tax liability. If the Respondent refuses to release them from the liability the person can make another application for release, or they may object against the decision: see subsections 340-5(1), (4), (7).
The term ‘serious hardship’ is not separately defined in the TAA 1953. Courts and tribunals have considered the meaning of this phrase for the purposes of section 340-5 and earlier versions of this provision.[21] The Federal Court has said that ‘serious hardship’ is itself the test to be applied, although there may be discussion about which factors are relevant or not. This assessment is based on the individual circumstances of the person seeking release.[22] The type of hardship to be considered for Division 340 purposes is financial hardship, not physical or social hardship.[23]
[21] Earlier case law refers to section 265 of the Income Tax Assessment Act 1936 (Cth).
[22] Commissioner of Taxation v A Taxpayer [2006] FCA 888 at [16] (A Taxpayer) per Stone J.
[23] Powell v Evreniades and Others [1989] FCA 114 at [19] per Hill J, Doery at [43]
Courts have said that ‘serious hardship’ looks to whether satisfying the full amount of the tax liability would involve the person in financial difficulty that, in all the circumstances, can be said to be serious. Nevertheless the circumstances may not need to be as extreme as ‘destitution.’[24] Factors that have been considered by courts and tribunals in determining whether payment of a tax liability would give rise to serious hardship include the assets and liabilities of the taxpayer, the income earning capacity of the taxpayer, whether the living or other expenses of the taxpayer were excessive, and the ability of the taxpayer to meet reasonable living costs. The ability of a person to afford basic necessities (such as food, clothing, accommodation and medical requirements) which are reasonable by reference to ‘community standards’ is relevant. [25] Other matters may become relevant to the circumstances of a particular taxpayer.
[24] Powell at [19] to [20] per Hill J, A Taxpayer at [16] to [17], [55] per Stone J
[25] The phrase ‘community standards’ was discussed in this context in and Re Rasmussen and Commissioner of Taxation [2013] AATA 746 (Re Rasmussen) at [3] and [46] to [50] per Deputy President Forgie, including by reference to A Taxpayer.

These concepts are reflected in the Respondent’s Practice Statement, PS LA 2011/17 which states that the Respondent considers:
serious hardship to exist where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education.
and will look to determine:
whether the consequences of paying the tax would be so burdensome that the person would be deprived of what are considered necessities according to normal community standards.
Although PS LA 2011/17 provides background to the reasoning in the Objection Decision as made by the Respondent, it is not binding on the Tribunal. Consistency of decision making supports the Tribunal taking this guidance into account, provided it is consistent with law and judicial authorities.[26]
[26] Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50 at [54], Re Rasmussen at [11] to [13] and [56].
In determining whether a person would suffer serious hardship, the question is to be framed at the moment when it is to be answered, rather than looking at whether the person would have suffered hardship if they had been required to satisfy the liability at a time in the past or whether they might suffer serious hardship in the future.[27] The Tribunal can have regard to changes to the financial affairs of the person since the time the original decision or application was made, noting their circumstances may have changed for the worse or for better.[28]
[27] Re Rasmussen at [53].
[28] Powell at [58] per Hill J, Re Rasmussen at [53],
The wording of Item 1 of subsection 340-5(3) which says ‘you would suffer serious hardship if you were required to satisfy the liability’ indicates that there must be a causal relationship between the potential payment of the tax liability and ‘serious hardship’. [29]
[29] Re Rasmussen at [3] and [40]
A two-stage approach has been adopted when determining whether a tax liability should be released in accordance with Division 340. The first stage is for the decision-maker to decide whether payment of the liability would result in ‘serious hardship.’ If this is found, then the decision-maker must consider whether the discretion to release should be exercised.[30] Unless circumstances of serious hardship have been found, the discretion to release cannot be exercised.
[30] Powell v Evreniades and Others [1989] FCA 114 at [32] and [36] (Powell), Doery and Commissioner of Taxation [2024] AATA 1493 at [34] (Doery).
ANALYSIS AND FINDINGS
At the outset of the hearing it became apparent that wording in the Respondent’s correspondence may have caused concern to the Applicant who thought that she was being accused of tax avoidance or other inappropriate behaviour. The Applicant told the Tribunal that although she had done some bookkeeping, she was not an accountant and had no training in taxation law. She said that based on other examples she had seen, she had assumed that the amount of any CGT arising from the sale of Unit 2 would be limited on the basis that she had only rented that property out for six months (before living in it with her family for fifteen years). She said that she had proactively contacted her Tax Agent to discuss her taxation situation.
Phrases such as ‘setting up one’s affairs to be in a position of hardship’ or ‘paying other creditors instead of paying tax debts’ are drawn from the language of decisions made by courts or tribunals in various case authorities involving debt release applications, and the meaning and context of those words is discussed further below. They are not necessarily indicative of the Respondent forming a view that avoidance or evasion has occurred. In the present case the Respondent confirmed to the Tribunal that there was no suggestion that the Applicant had engaged in tax avoidance. No administrative penalties and no amounts of shortfall interest charge have been imposed on the Applicant. The Respondent’s contentions and submissions are directed solely to the criteria for the release of a tax liability.
The Applicant has the burden of proving that the Respondent’s Objection Decision should not have been made or should have been made differently. Practically, this means that the Applicant must provide sufficient evidence for the Tribunal to be satisfied that she should be released from her tax liability.[31]
[31] Re Rasmussen at [36], Doery [36] to [38].
Would the Applicant suffer serious hardship if required to satisfy the tax liability?
At Objection the Respondent appeared to accept that payment by the Applicant of her tax liability would cause the Applicant serious hardship, but the Respondent’s position was that the discretion to release should nevertheless not be exercised because of the manner in which the tax liability came about, as well as the existence of other liabilities of the Applicant (including her credit cards and the Solar Panel Loan).
However before the Tribunal the Respondent’s position was that the Applicant had not established that payment of her tax liability would result in serious hardship and this issue was therefore open for consideration by the Tribunal.
In its Objection Decision the Respondent had concluded that the Applicant ‘met the requirements of the income/outgoings test’ on the basis that the surplus of her household income over her household expenditure was insufficient to repay her tax debt within a reasonable time. At Objection the Respondent had also concluded that the Applicant satisfied its ‘assets/liabilities’ test because, despite the Applicant owning her Current Home debt free, it accepted that the Applicant had no borrowing capacity. Other than her superannuation, the Motor Vehicle and some cash in bank accounts the Respondent did not identify any other assets owned by the Applicant.
However, before the Tribunal the Respondent argued that the Applicant was able to increase her income by, at least temporarily, increasing the amount of her fortnightly income distribution from her superannuation which could be applied to paying down her tax debt . Further, as the Applicant had reached an age where she could access her superannuation without conditions and the balance of her superannuation exceeded her tax liability, she could withdraw a lump sum amount from her superannuation to pay her tax debt. In either case the Respondent contended that the Applicant would not be deprived of basic necessities and could meet her tax liability without putting herself in serious hardship. The Respondent’s view was that a portion of the Applicant’s superannuation balance included an amount that was referable to the tax that had not been paid (and subsequent earnings on that amount).
At the hearing the Respondent’s representative asked the Applicant whether, if she were required to pay her tax debt now, she would be unable to meet her basic requirements. The Applicant responded that she might be able to afford her basic requirements now, but was not sure whether this would be the case in the future. The Applicant emphasised to the Tribunal that she had a modest lifestyle, did not have any significant discretionary expenditure and that her general cost of living was increasing. She noted that she had a medical condition that required immediate surgery and which was likely to result in additional medical expenses going forward.
The Tribunal accepts, and the Respondent did not challenge, the Applicant’s contention that she has a modest lifestyle, without any significant discretionary expenditure. The Tribunal also accepts the Applicant’s identification and description of her existing assets. The Tribunal believes the Applicant’s statement that she was not engaging in speculative profit-seeking but undertook the subdivision of the Elwood Property with the intention of providing better housing circumstances for her family and sold Unit 2 with the purpose of downsizing to provide for her retirement.
However, it is also true that the Applicant is able to access further amounts from her superannuation, whether by way of additional periodic income or as a lump sum withdrawal. The Applicant would still retain her home which she owns outright and have some funds remaining in her superannuation. For this reason the Tribunal is unable to make a finding that the Applicant would suffer ‘serious hardship’ in the sense required by Division 340 if she were required to meet her tax liability at the present time.
The Tribunal acknowledges the Applicant’s distress at the thought of losing some of her existing financial security and her concern that her medical conditions may add to the uncertainty of her future financial position. Unfortunately the Tribunal must apply the test of serious hardship as set out in the taxation legislation, and apply that at the present time. Should the Applicant’s circumstances change, it may be possible for her to make a further request for release of her taxation debt.
There were three other matters raised by the Respondent relating to the Applicant’s domestic expenditure in the context of ‘serious hardship’ that the Tribunal wishes to address.
The Respondent said that the Applicant had not provided details of the outstanding balance of her credit card ‘liabilities’, and that she had told the Respondent in June 2024 that she had an outstanding amount on an American Express card. [32] The Respondent queried why the Applicant had not ‘deferred or rescheduled her AMEX card’ repayments. The Applicant said that because she pays off her credit cards in full each month, she does not have outstanding balances on those two cards. Amounts expended on those cards reflected the household and other expenses already disclosed by her to the Respondent in her Debt Release Application.[33] From the materials filed with the Tribunal the Tribunal can see that the Applicant disclosed to the Respondent the ‘card limit’ on her two cards and provided details of the ‘balance owing’ on those cards as at the date she made her statement (in aggregate less than $1000). The Tribunal accepts the Applicant’s statement that she pays her credit cards off in full each month and that she uses those cards for household and other expenses which she had already disclosed to the Respondent as part of her fortnightly ‘outgoings.’ The Tribunal does not believe that the Applicant’s use of her credit cards in this way discloses any prioritisation of other creditors or failure to reschedule other financial commitments.
[32] It was not clear whether the American Express card was a credit card or a charge card.
[33] T8, at page
Similarly, the Respondent queried how the Applicant managed to fund the payment by June 2024 of an electrician bill that she had previously disclosed to the Respondent in January 2024. The Applicant told the Tribunal that she may have used one of her credit cards (which was then paid off at the end of the month) or used funds from the bank accounts that she had also previously disclosed to the Respondent. Again, the Tribunal would not view the payment of one relatively modest electrician’s bill as indicative of inappropriately prioritising other debts over a tax debt. It may be regarded necessary household expenditure.
The Respondent questioned the Applicant’s ongoing repayments under her Solar Panel Loan. As this was only an amount of $29.70 per month the Tribunal does not believe that deferral or rescheduling of these payments would significantly change the Applicant’s financial position or increase her ability to meet her tax liability within a reasonable time.
In summary, the Tribunal finds that the Applicant would not suffer ‘serious hardship’ if required to pay her tax liability at the present date. This is on the basis of the Applicant being able to access funds in her superannuation, whether by way of additional periodic income distributions or as a lump sum withdrawal. In making this finding the Tribunal did not place significant weight on the Respondent’s contentions relating to payments made by the Applicant on her credit cards, of her electrician bill or under the Solar Panel Loan.
Should the discretion to release all or part of the tax liability be exercised?
Absent a finding of serious hardship the Tribunal is unable to exercise a discretion to release all or part of the tax liability. In relation to the Respondent’s statement that the Applicant structured her affairs to place herself in a position of hardship, the Tribunal acknowledges the Applicant’s explanation that she did not engage in these real estate transactions for profit making or short term gains, but was focussed on longer term financial stability for herself and her family.
However the Tribunal accepts the Respondent’s submission that a portion of the funds in the Applicant’s superannuation account reflects an amount that should have been remitted by way of tax rather than being retained by the Applicant, and this is something that would have weighed heavily against the Tribunal exercising the discretion. Further, those funds would have been earning income on a compounding basis within her superannuation account while the tax debt remained owing.
At the hearing the Applicant was asked why she did not believe she should withdraw funds from her superannuation to pay her tax debt. She said that she felt her tax debt was unfair because Unit 2 had been her primary residence for most of the time she had owned it. In the absence of the Applicant identifying a dispute about the proper application of the CGT provisions, the Tribunal would not be able to place significant weight on a more general perception of unfairness. As an individual the Applicant did obtain the 50% CGT discount which reduced by half the amount of gain on which tax would otherwise be payable.
The Respondent made submissions about the Applicant’s approach to compliance with her taxation obligations which it said weighed against any exercise of discretion. The Respondent stated that the Applicant had a ‘professional background as an accountant’[34] and therefore should have been aware of the potential taxation consequences of the sale of Unit 2. This appears to be incorrect. At the hearing the Applicant told the Tribunal that she had done some bookkeeping work but was not trained as an accountant and had no background in taxation, referring such matters to her Tax Agent. The Respondent did not press this point further.
[34] Paragraph 40 of the Respondent’s submissions.
It is correct that a taxpayer is responsible for their compliance with taxation laws, and that the Applicant had retained a professional tax agent to advise her. The Applicant filed with the Tribunal copies of emails between herself and her Tax Agent dating from early 2023. On 27 January 2023 the Tax Agent contacted the Applicant to remind her that the due date for lodgement of tax returns and payment of tax for the 2022 Year was 15 May 2023. The Applicant responded on 3 February 2023 advising that she had sold Unit 2 in November 2021, querying whether there would be a CGT issue and asking what further information was required. On 6 February 2023 an email between two staff at the Tax Agent’s firm (and apparently not copied to the Applicant at the time) suggests that the Tax Agent realised that there was a CGT issue. On the same day the Tax Agent wrote back to the Applicant advising her that there would be CGT ‘consequences’ and requesting further information about Unit 2.
The Respondent said this correspondence evidences ‘an attempt to reduce the Applicant’s CGT liability.’[35] The Tribunal does not agree with this statement. The Tax Agent’s email asks a series of questions about the relevant timeline for the subdivision of the Elwood Property and the sale of Unit 2, copies of any valuations of the properties, a copy of the sale contract for Unit 2 and information about expenditure on the properties including mortgage interest, council rates and expenses of sale. These are perfectly standard and appropriate things for a tax agent to request from a client for the purposes of preparing a correct return of their client’s taxable income (including any net capital gains).
[35] Paragraph 37 of the Respondent’s submissions.
The Respondent queried why the Applicant did not take steps as of February 2023 to lodge her tax return or withdraw funds from her superannuation to meet her CGT liability. The Applicant did ultimately lodge her tax return for the 2022 Year late[36] but it disclosed the capital gain arising from the sale of Unit 2. The Applicant acknowledged the late lodgement of her tax return but said that the quantum of the capital gain had been a surprise to her. She had obtained the full CGT ‘main residence exemption’ when she sold Unit 1 and having lived in Unit 2 for 15 years she assumed some similarity in treatment. There was no indication of prior non-compliance by the Applicant, and the Respondent pointed to the Applicant’s prior history of timely lodgements of returns as evidence that something was amiss in the 2022 Year. A misunderstanding of tax law does not excuse an Applicant from compliance, however the Tribunal observes that the Applicant filed her return for the 2022 Year only a few weeks late and with the correct amount of capital gain included.
[36] T6.
The compliance related concerns raised by the Respondent were not particularly persuasive. However had the Tribunal been required to consider the discretion to release the fact that some of the funds in the Applicant’s superannuation account are referable to a gain made on the sale of a property, and the outstanding liability in question is tax on that gain, would have weighed significantly against the exercise of the discretion.
CONCLUSION
The Tribunal has found that the Applicant would not suffer ‘serious hardship’ in the sense required by Division 340 of Schedule 1 to the TAA 1953, if she were required to satisfy the tax liability arising from the capital gain made from the disposal of Unit 2. As set out above, this finding arises from the ability of the Applicant to access additional funds from her superannuation to meet the tax liability.