CONFIDENTIAL and COMMISSIONER OF TAXATION

[2010] AATA 756

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 756

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/4550

TAXATION       APPEALS       DIVISION		)
Re		CONFIDENTIAL

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr Frank O'Loughlin, Senior Member

Date1 October 2010

PlaceMelbourne

Decision The Tribunal sets aside the reviewable decision and in substitution exercises the Discretions by deferring those parts of the assessed repayment obligations for the Accumulated HELP and financial supplement debts for the 2007 and 2008 years that have were not satisfied by applying PAYG deductions and directs that the assessments for the 2007 and 2008 years be amended accordingly.

(sgd) Frank O’Loughlin

Senior Member

TAXATION – accumulated help debt – accumulated financial supplement debt – whether serious hardship or special circumstances exist – whether discretions should be exercised to defer debts

Higher Education Support Act 2003 s 140-25

Social Security Act 1991 ss 1061ZZEQ, 1184K

Re Beadle and Director-General of Social Security [1984] AATA 176; (1985) 60 ALR 225

Department of Social Security v Thompson (1994) 53 FCR 580

Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32

Director-General of Social Services v Hales (1983) 47 ALR 281

Re Ferguson and Commissioner of Taxation [2004] AATA 779

Re Filsell and Commissioner of Taxation [2004] AATA 1012

Groth v Secretary, Department of Social Security (1995) 40 ALD 541

Re Ivonic and Director-General of Social Services (1981) 3 ALN N95; [1981] AATA 57

Re Klewer and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 964

McAusland v Deputy Federal Commissioner of Taxation; Antlers Pty Ltd (1993) 47 FCR 369

Re O’Reilly and Commissioner of Taxation [2009] AATA 235

Powell v Evreniades (1989) 21 FCR 252

Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355

Secretary, Department of Social Security and Hill (1995) 39 ALD 667

Secretary, Department of Social Security v Smith (1991) 30 FCR 56

Re Szekely and Commissioner of Taxation [2001] AATA 704

Re Taxpayer and Commissioner of Taxation [2004] AATA 1073

Van Griekan v Veilands (1991) 21 ATR 1639; (1991) 91 ATC 4423

REASONS FOR DECISION

1 October  2010 Mr Frank O'Loughlin, Senior Member     

1.In this matter the Applicant has two debts: an accumulated HELP debt[1] pursuant to the Support Act[2] and an accumulated financial supplement debt[3] pursuant to the Security Act[4] which are required to be repaid in instalments with income tax assessments.

[1]Refer to Appendix A for defined terms.

[2]See footnote 1.

[3]See footnote 1.

[4]See footnote 1.

2.On 13 July 2009 the Commissioner assessed an accumulated HELP debt repayment obligation of $2,715.51 and a financial supplement debt repayment obligation of $1,481.19 in the Applicant’s income tax assessment for the 2007 year.[5]  The Applicant had an excess of PAYG instalments over his other liabilities in that assessment of $176.51 which was applied in part payment of the repayment obligations assessed.  Also on 13 July 2009 the Commissioner assessed an accumulated HELP debt repayment obligation of $2,930.78 and a financial supplement debt repayment obligation of $1,598.61 in the Applicant’s income tax assessment for the 2008 year.  The Applicant had an excess of PAYG instalments over his other liabilities in that assessment of $608.60 which was applied in part payment of repayment obligations assessed.

[5]See footnote 1.

3.The Applicant applied to be excused from making repayments referred to in paragraph [2] by exercise of the Discretions[6] and the Commissioner has refused that application.

[6]See footnote 1.

Issue in dispute

4.The only issue in dispute is whether the requisite serious hardship or special circumstances exist to warrant exercise of the Discretions to defer the Applicant’s obligations for the 2007 and 2008 years.

Competing contentions

5.The Applicant contends that his medical and psychological conditions and the effect they have had on his lifestyle and absence of means are such that his income earning capacity is limited, the incorrect advice he received and the mistake he made in completing an employment declaration that caused a shortfall in his PAYG tax deductions constitute the requisite financial hardship or special circumstances that warrant exercise of the Discretions.

6.The Commissioner contends that the Applicant’s financial position is not such that it ought be described as anything more than straitened and that that is not enough to amount to special circumstances.  In supporting his contention that the Discretions ought not be exercised the Commissioner has, in some respects, taken a view with which some might quarrel.  For example, he has contended that $250 per fortnight spent on food for two adults in 2009 is discretionary and excessive.  Many in the community would not share that view.

7.In his Statement of Facts and Contentions, in his submissions and at the hearing of the matter, the Commissioner rested his contentions on the foundation that if the Discretions were exercised the Commonwealth will be deprived of recovery of the Applicant’s 2007 and 2008 year repayment obligations such that, in a manner parallel to the provision of social security benefits, Commonwealth or community resources will be permanently reduced for the Applicant’s benefit.  Accordingly, the Commissioner’s contention was that special circumstances ought be considered by reference to the same criteria that apply for permanent relief discretions.[7]  The foundation on which the Commissioner proceeded was questionable for two reasons.

[7]For example the discretion conferred by s 1184K of the Security Act or discretions allowing relief from tax debts.

8.First, the structure of most of the relieving discretions considered in the authorities on which the Commissioner relies were single limb, special circumstances based discretions.  The Discretions are different.  They have two limbs.  They allow relief where failure to give it would cause serious hardship (first limb) or where there are other special reasons that make it fair and reasonable to allow the relief (second limb).  In the context of a discretion relieving a person from an obligation to pay an amount immediately, the hardship referred to in the first limb can be taken to refer to financial hardship.  The second limb, an alternate to the first, can accommodate a wider range of circumstances that could be described as special.  Those circumstances, however, must also require some aspect of financial difficulty.  It would be extraordinary if financial relief afforded by the Discretions could be permitted to an otherwise wealthy person who happens to have special circumstances.  Accordingly, other special circumstances embrace financial difficulties in conjunction with other circumstances that together can be regarded as special.

9.Second, most of the relieving discretions considered in the authorities on which the Commissioner relies provided permanent relief from obligations to the Commonwealth or the community.  Again, the Discretions are different.  They only provide temporary relief.  In considering the operation of any statute, and in the case of a discretion, the criteria for its exercise, it is necessary to consider the terms of the legislation in which the discretion sits.  Moreover, it is necessary to consider the particular legislation by reference to the whole of the legislative system in which the provision sits.[8]  The processes by which both accumulated HELP and financial supplement debts are calculated require any reduction in a repayment obligation for a year to be added back to the balance of the debt and the increased balance is carried forward.  Any benefit enjoyed upon exercise of the Discretions is only temporary.  This fact ought bear some weight in determining the factors that need to be present before the Discretions are exercised.  In this regard the Discretions are remedial or beneficial in nature and ought be given a generous construction allowing the fullest relief which is open on a fair reading of their terms.[9]

[8]Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at [69] and [70].

[9]See McAusland v Deputy Federal Commissioner of Taxation; Antlers Pty Ltd (1993) 47 FCR 369 at 374 per Gummow J and the reference to Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 44 there cited.

10.Following the hearing the Commissioner recognised that the Discretions would not cause permanent diminution of Commonwealth or community resources. He has, nevertheless, persisted with his reliance on the commentaries in the permanent relief cases,[10] and deferral cases where the reasoning is based on the permanent relief cases,[11] to contend that the Discretions should not be exercised. Some of those decisions have adopted Chapter 24 of the Commissioner’s Receivables Policy as an appropriate guide as to when to exercise a relieving discretion. That Chapter concerns permanent relief from payment of particular tax debts. It does not concern deferral of tax debt. Deferral differs significantly from permanent relief.

[10]Powell v Evreniades (1989) 21 FCR 252; Filsell and Commissioner of Taxation [2004] AATA 1012; Ferguson and Commissioner of Taxation [2004] AATA 779; Beadle and Director-General of Social Security [1984] AATA 176; Ivovic and Director-General of Social Services [1981] AATA 57; Van Griekan v Veilands (1991) 21 ATR 1639; Klewer and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 964; Groth v Secretary, Department of Social Security (1995) 40 ALD 541.

[11]Re Taxpayer and Commissioner of Taxation [2004] AATA 1073; Szekely and Commissioner of Taxation [2001] AATA 704; O’Reilly and Commissioner of Taxation [2009] AATA 235.

11.Those decisions[12] in which deferral discretions were considered in the context of the rules canvassed in the permanent relief cases do not appear to have entailed any discussion of the differences in effect that the two types of discretion have.  For that reason, these decisions are of limited assistance in reaching the proper outcome.

[12]Re Taxpayer and Commissioner of Taxation [2004] AATA 1073; Szekely and Commissioner of Taxation [2001] AATA 704; O’Reilly v Commissioner of Taxation [2009] AATA 235.

Factors relevant to exercising relieving discretions

12.The authorities that have addressed special circumstances in a permanent relief context are to the effect that:

(a)straitened financial circumstances are not sufficient to be regarded as special circumstances.  Financial hardship must be truly exceptional;[13]

(b)the circumstances must be unusual, uncommon or exceptional in the context in which they occur and need to be circumstances that distinguish an applicant’s case from others or take it out of the usual or ordinary case;[14]

(c)if it is unreasonable, unjust or inappropriate to allow a circumstance to stand without exercising a discretion then special circumstances exist;

(d)in exercising the discretion it is necessary to have regard to whether its exercise in a particular instance will achieve or frustrate the ends, objects or purposes of the relevant statute;[15]

(e)general factors such as mental health can be taken into account;[16]

(f)it is often not possible to lay down precise limits or precise rules to determine whether circumstances are special.  Much turns on the circumstances of a particular case;[17]

(g)relieving discretions[18] protect against or ameliorate unfair results that would otherwise be produced by the arbitrary features of the relevant legislation.[19]  In this regard the Discretions are remedial or beneficial in nature and ought be given a generous construction allowing the fullest relief which is open on a fair reading of their terms;[20] and

(h)the relevant test is a household test.[21]

[13]Director-General of Social Services v Hales (1983) 47 ALR 281 at 321 per Sheppard J.

[14]See Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Keifel J.

[15]See Secretary, Department of Social Security v Smith (1991) 30 FCR 56 at 59 per von Doussa J and the reference there to Re Ivonic and Director-General of Social Services (1981) 3 ALN N95 at N96-97.

[16]Department of Social Security v Thompson (1994) 53 FCR 580 at 586 Einfeld J.

[17]Beadle v Director-General of Social Security (1985) 60 ALR 225.

[18]For example the Security Act s1184K discretion.

[19]Re Secretary, Department of Social Security and Hill (1995) 39 ALD 667 at [22].

[20]See McAusland v Deputy Federal Commissioner of Taxation; Antlers Pty Ltd (1993) 47 FCR 369 at 374 per Gummow J and the reference to Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 44 there cited

[21]Van Grieken v Veilands (1991) 91 ATC 4423.

13.For a deferral discretion, the time at which the special circumstances must exist is the time of assessment of the repayment obligation.[22]  The Applicant was assessed on 13 July 2009.

[22]Re Taxpayer and Commissioner of Taxation [2004] AATA 1073 at [25]; Szekely and Commissioner of Taxation [2001] AATA 704.

14.The fact that the Discretions only allow a deferral of a current year’s payment, or part thereof, means that their exercise does not frustrate the integrity of the underlying policy reflected in the legislation that the beneficiaries of education assistance pay for that assistance over time.

15.As there is a lesser impact on the community, the criteria for exercise of the Discretions ought be less stringent than those involved in the exercise of permanent relief discretions.  Accordingly, the factors to be considered in exercising the Discretions ought differ from those relevant to exercising permanent relief discretions or, if the same the factors need to be considered, some or all of the permanent relief discretion factors ought to not be given the same weight or influence.  Alternatively, if there is a spectrum of circumstances with normal or conventional circumstances at one end and extreme circumstances at the other, the circumstances necessary for exercise of a deferral discretion need not be as close to the extreme end of the spectrum as those necessary for exercise of a permanent relief discretion.

16.Of the factors listed in paragraph [12] above those listed in paragraphs [12(b) – (h)] are capable of being applied to the Discretions.  For the second limb of the Discretions, the paragraph [12(a)] factor ought to not have the same significance.  As noted at paragraph [8] above, difficult financial circumstances coupled with other circumstances that can be regarded as special at the appropriate point in the spectrum noted above ought be enough.

Facts

17.The Applicant suffers from AD/HD[23] and has associated comorbidity difficulties and sleep disorders. These disorders cause him difficulties on a number of fronts.  He has:

(a)sleep disorders that cause him to sleep at unusually early hours in the morning to late mornings.  These patterns were described by his wife as anti social;

(b)poor organisational skills which require his wife to give him directions and tasks to do.  She regularly needs to press him to go to work and needs to organise a much greater degree of his affairs than is normal for an adult of his age;

(c)limited career and employment opportunities.  His current employer is understanding and has extended generously flexible working arrangements without which securing on-going work would be difficult;

(d)learning difficulties that resulted in an extended period attending university without being able to complete the course of study;

(e)impulsive behaviours that have led to him making purchases of unnecessary things and extended debt.  Unless constrained these behaviours would continue; and

(f)scant financial management skills.  These difficulties, in part, led to his bankruptcy in 2005.

[23]See footnote 1.

18.When the applicant began his relationship with his wife, she progressively learnt of the huge debt that the Applicant had accumulated and over time took control of his affairs and began managing his life.  Incremental steps were taken to this end.  With little initial improvement in the Applicant’s behaviour more severe controls were introduced.  For example, to curb the Applicant’s impulsive spending his wife limited his money supply.  Initially he was given periodical pocket money, but he would spend the allowance too quickly by making unnecessary purchases and need more money.  In response the controls were tightened.  The Applicant’s wife would purchase periodical train tickets for the Applicant instead of giving him money to do so.  She gave him reduced pocket money to cover his immediate needs and if he spent it on unnecessary items it would not be replaced.  The Applicant now faces the punishment of not having money for food if he makes unnecessary purchases.  This regime has been enforced.

19.Upon bankruptcy the Applicant was incorrectly advised by a practicing insolvency advisor that the accumulated HELP and financial supplement debts had been extinguished.  After this advice the Applicant completed an employment declaration form indicating he did not have any accumulated HELP and financial supplement debts and PAYG deductions were made from his salary accordingly.  Completing the form in this manner has led to the present repayment obligations not being provided for in the Applicant’s PAYG deductions.

20.As at June 2009, very close to the relevant time for assessment of whether special circumstances existed, the Applicant’s evidence was that the combined family income was $1,843 per fortnight and that the surplus of fortnightly income over expenses was $61 adopting an amount of $258 after tax per fortnight earned by his wife whose income is relevant to the test.

21.The Applicant and his wife live hand to mouth and never have spare money.  In July 2009 they did not have the means to meet the Applicant’s repayment obligations and extended credit will be needed for those obligations to be met.

22.The Commissioner contends that the Applicant’s wife’s taxable income for the 2009 year was $20,853 or $802 per fortnight but led no evidence in support of that.  Even if the Commissioner was correct in his contention, the Applicant’s evidence may still be correct and is consistent with the evidence given at the hearing which was not challenged.  The Applicant’s wife did not have full time work.  She worked in vacation periods and as at June or July 2009 it is possible that that was the income flow for her and that it would continue to be irregular.

23.With household fortnightly income after tax of $1,843, in June 2009 the Applicant and his wife had estimated fortnightly expenditures of $1,782, almost 49% of which was committed ($717 for their residence, $100 for loan repayments, and $50 for hire-purchase payments).  Beyond these fixed commitments the biggest item is $250 for food and household expenses which the Commissioner contends are discretionary and excessive expenditure.  In May 2009 the Applicant’s wife had a bank balance of $262.96, and the Applicant’s access to money was restricted.  In June 2009 the Applicant had a five year old car thought to be valued at approximately $15,000 with $7,600 owing on it.  The car was needed to allow the Applicant’s wife to get to and from work when work was available.  The Applicant and his wife also owned household furniture, appliances and effects thought to be valued at $8,000 on which they had debt of $700.  Some of these purchases were the result of impulsive and unnecessary actions.  Whether the items household furniture, appliances would realise the value claimed is questionable given their second-hand nature.

24.In the second half of 2009 the Applicant and his wife were married.  His wife spent money on the wedding and a significant proportion of the cost of the wedding was met by the Applicant’s parents-in-law.  By modern standards the wedding was modest.  The wedding commitment was entered before assessments had been made.

25.The Applicant and his wife were quite candid in relation to some of the most personal aspects of their lives that are connected to or caused by the Applicant’s condition.  They told of behaviours that are not normal and/or are otherwise exceptional by community standards.  The Applicant and his wife live by practicing unusual behaviours which in effect punish the Applicant by deprivation of food if he engages in impulsive behaviours which his condition leaves him predisposed to do.  The Applicant’s evidence ought be accepted.

26.The conclusions that can be drawn from these facts are that the Applicant and his wife have a modest existence with few assets that could be sold without depriving them of the basic living standards of today’s community.

27.The Applicant has a condition which in combination with the advice of an insolvency advisor has led to the predicament he is in.

28.Of themselves, ignorance of the law, illness and its effects and mere financial difficulty would not be a sufficient special circumstance.  In conjunction they might be.

29.Irresponsible spending leading to financial difficulty would not usually be a special circumstance.  Where it is caused by an illness or condition that spending takes on a different light.  If the irresponsible spending is caused by an illness or condition that the affected person is taking steps to address it takes on a different light yet again.  Moreover, the more radical the steps are to try and stop the spending, the more that spending can be excused.  In the present case, an adult is placed on, and subjects himself to, a regime which restricts his money supply and punishes him with food deprivation if he spends inappropriately.  These are extreme measures.

30.The Applicant’s circumstances are unusual to the point of being exceptional when considered together.  There are financial difficulties which must be present for exercise of the Discretions, there is illness and erroneous advice, and these are matters to be taken into account in support of the Applicant’s claim.

31.While not at the end of the spectrum that would warrant relief if the Discretions had the effect of permanently excusing the Applicant from meeting the repayments assessed, the circumstances are sufficient to be regarded as special in the context of a temporary relief discretion.  Such an exercise would not frustrate the policy of the statutory system.  To the contrary, it utilises a feature (relieving provisions) that is incorporated as an integral part of the system.

Decision

32.The Tribunal sets aside the reviewable decision and in substitution exercises the Discretions by deferring those parts of the assessed repayment obligations for the Accumulated HELP and financial supplement debts for the 2007 and 2008 years that have were not satisfied by applying PAYG deductions outlined at paragraph [2] above.

I certify that the thirty-two [32] preceding paragraphs are a true copy of the reasons for the decision herein of:

Mr Frank O’Loughlin, Senior Member

Signed: .....................................................................................
  Grace A Carney, Members' Support Team

Date of Hearing  3 May 2010

Date of Decision  1 October 2010
Advocate for Applicant              Self-represented
Advocate for the Respondent   Mr K Malcolm, ATO Legal Services Branch

Appendix A

Table of defined terms

Defined term Meaning

accumulated financial supplement debt	accumulated financial supplement debt within the meaning of s 1061ZZEQ of the Security Act.
accumulated HELP debt	accumulated HELP debt within the meaning of s140-25 of the Support Act; refer to Appendix A for defined terms.
AD/HD	attention deficit/hyperactivity disorder
Discretions	The Security discretion and the Support discretion
Security Act	Social Security Act 1991 (Cth)
Security discretion	The discretion conferred by s.1061ZZFK of the Security Act.
Support Act	Higher Education Support Act 2003 (Cth)
Support discretion	The discretion conferred by s.154-50 of the Support Act
year	a 12 month period ending on 30 June