Cumins v Deputy Commissioner of Taxation of the Commonwealth of Australia

[2008] HCATrans 159

[2008] HCATrans 159

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth   No P2 of 2008

B e t w e e n -

BRIAN CUMINS

Applicant

and

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

KIRBY J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 18 APRIL 2008, AT 2.00 PM

Copyright in the High Court of Australia

MR M.F. HOLLER:   May it please the Court, I appear for the applicant.  (instructed by Q Legal)

MR J.D. ALLANSON, SC:   May it please the Court, I appear for the respondent.  (instructed by Australian Government Solicitor)

KIRBY J:   Yes, Mr Holler.

MR HOLLER:   Your Honour, this matter raises a question of public importance and general application.  It can potentially affect all employees in Australia, given the attitude manifested by the Australian Taxation Office in this case.  Further, there are some inconsistent approaches of the Federal Court on the question of treatment of PAYG withholding payments.  The short issue is whether for bankruptcy notice purposes PAYG withholding payments made to the Commissioner of Taxation on behalf of an employee taxpayer are to be taken into account in a bankruptcy notice as line 5 post‑judgment deductions.  This in circumstance where ‑ ‑ ‑

KIRBY J:   Could I just get certain facts clear in my mind.  This is a case where your client had a judgment entered against him in, I think, the Supreme Court of Western Australia in the amount of $38 million, is that correct?

MR HOLLER:   Or thereabouts, yes.

KIRBY J:   It is a little bit over $38 million, I think.  The PAYG withholding credits that are in issue were $9,516?

MR HOLLER:   That is correct.  He was allowed post‑judgment in the line 5 item of the notice effectively credits for PAYG withholding payments for 2003 and 2004, but the $9,516 to which you refer is the 2005 PAYG withholding payments which were not deducted at line 5, the basis for that being that no tax assessment ‑ ‑ ‑

KIRBY J:   I just raise that because, looking at it as a matter of common sense and from the point of view of the work of this Court, $9,516 does not stack up for much against $38 million.

MR HOLLER:   No, that is correct, your Honour, but the point is whether there was compliance with the prescribed form of bankruptcy notice.  That form requires a deduction at line 5 of payments made and/or credits allowed post‑judgment.

KIRBY J:   I realise that, but we live in the real world and we try to deal with cases and distribute our favours in a way that deals with matters which involve significant or substantial questions.

MR HOLLER:   This is significant.

KIRBY J:   You say this is a significant question of general construction, but normally we deal with those in cases where there is a substantial issue on the merits as well, and this case does not scream out for intervention.

MR HOLLER:   We would say here there is a substantial issue on the merits because if it is found that the court erred below in characterising those payments as only being capable of being credits after a tax assessment was made but not constituting payments made, remembering the phrase is “payments made and/or credits allowed” in line 5, then it is a very significant consequence because that will determine whether the notice complied and was therefore valid or invalid as being a bankruptcy notice, and whether it is then liable to be set aside or not.

KIRBY J:   Yes.  You press on.  I just try to make the point that one would not normally want to deal with this issue in a matter where the stakes were larger than $9,516 over $38 million.

MR HOLLER:   That is one view of viewing the stakes.  The other way of viewing it is that it is $38 million and a potential bankruptcy that is in issue.  The question of general application, if I can come to that, your Honour, is this.  Potentially it affects all employees in Australia who are subject to the pay‑as‑you‑go withholding regime.  If they then face a bankruptcy notice founded on the judgment obtained by the Australian Taxation Office, it will be very important for them to know whether the treatment given in this matter to PAYG instalments, which is, after all, their money, was the correct treatment or not.

KIRBY J:   You shifted your ground as between the deputy district registrar and the Federal Court, did you not?

MR HOLLER:   On one view, yes, there is the argument ‑ ‑ ‑

KIRBY J:   What are you pressing now in this Court?

MR HOLLER:   We seek in a simple sense to revert back to the original ground, the ground that was always flagged in the notices of appeal all the way through, which were that line 5 deductions, whether they are characterised as payments made or credits allowed, were not in fact shown in line 5 in the true amount.

KIRBY J:   I take it you are not now pressing in this Court the grounds that you were arguing in your application book concerning the operation of the Taxation Administration Act?

MR HOLLER:   By and large, I am abandoning the running balance account argument that was the main theme in the Full Federal Court.  I am focusing on whether the payments undoubtedly made, which later founded the administrative credits, giving rise to the administrative credit under the Taxation Assessment Act for the PAYG instalments should rather have been properly characterised as payments made to the Commissioner rather than credits allowed for line 5 purposes.  When understood in that way, it is easy to see that of course that amount should have been brought in. 

If I can use this case as a suitable example, nine months before the Commissioner issued the bankruptcy notice he had received from the employer what used to be called a group certificate, now called a payment summary, identifying on whose behalf PAYG withholding payments had been made.  So the Commissioner for nine months had that information prior to issuing the bankruptcy notice yet failed to bring it into line 5 as a deduction for payments made, notwithstanding he had the money and knew he had the money, but rather sought to confuse, in my submission, the phrase “credits allowed for line 5 bankruptcy purposes” with “credits allowed for Taxation Administration Act purposes”. 

Two different statutes, two different regimes; no necessity or compulsion for ignoring the requirement in line 5 of the bankruptcy notice to show payments made simply because at that stage an administrative credit grounded by those payments had not been made under the Taxation Assessment Act.

KIEFEL J:   How do you say the Full Court was wrong in this respect?  How can you identify the error on what is a matter of statutory construction?

MR HOLLER:   Because the Full Court seemed to largely ignore the ground of appeal.  It said there was not a payment made or credit allowed.  That was in the grounds of appeal.  It was in items 3 and 7 of the appellant’s outline of submissions before the Full Court.  Rather, the Full Court seemed to shift very quickly its focus – and that may have been largely the fault of the applicant and the way the matter was run before the Full Court – but the focus seemed to be very much, were these PAYG withholding payments properly understood to be credits allowed for line 5 purposes and nobody seems to have touched on, or addressed, the preliminary question in line 5 whether these payments were rather payments made rather than credits allowed.

Once it is viewed in that way – because there can be no argument that the credits are administratively driven from the payments – the error becomes apparent.  Line 5 of the notice was simply not complied with.  The $9,516 had to be brought into account in that line and it was simply omitted.  If I could give an extreme example which highlight the absurdity of the current position.  A taxpayer might work for six months in a highly‑paid job, $60,000 of PAYG is withheld and remitted.  He then becomes unemployed.  After his payment summary – what used to be called a group certificate – is lodged a bankruptcy notice founded on an earlier unsatisfied judgment is issued for $20,000.

A later tax assessment for the current year would have allowed him $40,000 of PAYG credit in the tax assessment.  He fails to pay the $20,000 claimed in the notice in circumstances where the Commissioner already knows that the Commissioner has an excess payment of $40,000 which would not only result in satisfaction of the earlier $20,000 judgment but also a refund of $20,000 to the taxpayer when a tax assessment is finally made.  This is really a timing issue.

If we turn to the notice in this case, the credits allowed were for the 2003 and 2004 financial years for PAYG withholding, but the 2005 PAYG withholding – the payments which had undoubtedly been made which the Commissioner knew about for a nine‑month period – was simply not brought into account solely on the misconception that until those were administrative credits, which could only arise after a tax assessment issued, they did not need to be brought in as either payments made or credits allowed for line 5 bankruptcy notice purposes.  In my submission, that is clearly wrong.

KIEFEL J:   You have only referred to the provisions of the notice of assessment itself.  The Full Court dealt with it on the basis of what the Act requires.

MR HOLLER:   When you say that, your Honour, the Full Court dealt with it only on the basis of what the Taxation Administration Act requires.  It did not pay any attention to what the Bankruptcy Act requires and that is what these proceedings are in, in response to a bankruptcy notice.

KIEFEL J:   I am sorry.  Was the question of the requirements of the bankruptcy notice itself argued before the Full Court?

MR HOLLER:   I was not involved in the argument but from the record I can point your Honour to the application book at page 20 at line 590, which is a recitation by the Full Court of the grounds of appeal.  You will see there it says in summary:  “The notice of appeal against his Honour’s decision sets out one ground only ‑ ‑ ‑

KIEFEL J:   Perhaps it is more useful, though, to go to appellant’s contention on appeal, since the whole focus of the appeal shifted.  I am sorry.  I should be clearer there.  What the Full Court has noted as the appellant’s contentions on the appeal with which they deal – I cannot see a reference there to this being just a discrete question about the requirements of a bankruptcy notice.  This was about at what point the Taxation Administration Act required a credit to be taken into account.

MR HOLLER:   Yes, your Honour, but only as a step on the path to deciding whether line 5 of the bankruptcy notice had been complied with.  That is not in contention.

KIEFEL J:   But I do not see how you can have one without the other.  All you seem to be arguing is a technical point about the bankruptcy notice.

MR HOLLER:   It is what the case turns on, whether PAYG payments properly excluded as not being payments made for bankruptcy notice purposes.  The error was somehow conflating payments made and/or credits allowed.

KIEFEL J:   But you do not have a credit but you have to put in a notice unless that is an obligation arising under the Taxation Administration Act.  That is what the Full Court ‑ ‑ ‑

MR HOLLER:   That is the error.  That cannot be so.

KIEFEL J:   You are not dealing with it, then.  You have only spoken to us about the notice.  What is the error in the Full Court’s reasoning with respect to the Taxation Administration Act?

MR HOLLER:   Looking at the notice provision “payments made and/or credits allowed” and moving from that to focus on when for Taxation Administration Act purposes credits are allowed and completely missing the point that allowing of credits for Taxation Administration Act purposes is a simple administrative consequence of earlier payments that have been made.  The contention I am putting is that, if not bringing in for line 5 those amounts as credits allowed, they should properly have been brought in as payments made because the facts are that the PAYG withholding payments that grounded the later administrative credit for Taxation Assessment Act purposes were in the hands of the Commissioner and known to be in his hands on behalf of Mr Cumins for a nine‑month period before the bankruptcy notice was issued, yet they are not ‑ ‑ ‑

KIEFEL J:   It sounds more like a fairness argument than one of statutory interpretation.

MR HOLLER:   With respect, your Honour, it is a question of compliance with the prescribed form of a bankruptcy notice under the Act in circumstances where to not comply renders Mr Cumins liable to quasi penal consequences and a change of status.  The strict construction approach to be applied – it cannot be the case to say the Commissioner had the money for a nine‑month period.  He knew he had the money but somehow that is not the payment made to him in terms of line 5 of the notice, being payments made and/or credits allowed.  The fact it only later becomes a credit allowed does not change its status as a payment made.

KIRBY J:   It is probably fair to say, as I think you yourself indicated, that the Full Court did not really appear to deal with this issue and that would almost certainly be because of the way in which you or your predecessor or client conceived a new way of arguing the case in the Full Court.

MR HOLLER:   That is probably so, your Honour.

KIRBY J:   It is a very common thing in this Court to see cases which have had about five or six arguments at trial and then they come up to a Full Court and it is narrowed down to two and then it comes to us and it is usually one.  Justice Siopis dealt with this issue, did he not, in his reasons?

MR HOLLER:   His reasoning, again, was similarly quick to skim over the payment made point.  In fact, he heard the matter and delivered his ‑ ‑ ‑

KIRBY J:   What is the error that you point to in his Honour’s reasons?

MR HOLLER:   In line 89 on page 3 of the book:

I find that at the time of the issue of the bankruptcy notice on 17 March 2006, the sum of $9516 did not comprise an amount in respect of which a deduction should have been recorded [importantly] in the bankruptcy notice, as either a payment made or a credit due.

So, in my submission, the error there is somehow equating payment made with credit due for bankruptcy notice purposes when clearly, as illustrated by this case, you can have an earlier payment in your hands for a nine‑month period as the Commissioner but not for your administrative purposes issue a credit until a tax assessment issues.  But that is not to the point of saying you do not actually have the money in your hands and that the payment has not been made.  You have the money, you know you have it, you should have brought it into line 5 as a payment made.  In my view that is the error.

KIRBY J:   That is where you attack the reasons of the Federal Court?

MR HOLLER:   Yes, that is correct your Honour.  That is really the nub of the matter.  It is misconstruing for Bankruptcy Act purposes provisions in the Taxation Administration Act regarding administrative credits as somehow negating recognition of the underlying payments as payments made for bankruptcy notice purposes.

KIRBY J:   So we have to try to rescue this case and resuscitate an argument which it appears your client did not press before the Full Court and deal with it on the basis of the reasons that were given by Justice Siopis?

MR HOLLER:   That seems so, your Honour.  When I say it appears from the notice of appeal and the outline that was raised, but elsewhere from the record it does not appear to – and certainly if pressed not to have been considered.  Let me put it that way.  Those are my submissions.

KIRBY J:   Very well.  Thank you, Mr Holler.  Mr Allanson, how do we sort this out?  It does not appear as though this issue, which has now suddenly been revived, was dealt with by the Full Court, this is to say the validity of the bankruptcy notice.  Were you there in the Full Court?  Did you appear?

MR ALLANSON:   I was counsel, your Honour.  I was not counsel before Justice Siopis, but I appeared in the Full Court.

KIRBY J:   Is it the fact that the applicant before the Full Court – he appeared in person there, I think.

MR ALLANSON:   No, your Honour.  The applicant has been represented throughout.

KIRBY J:   I see.  When he was in the Full Court, did he advance this argument about the validity of the bankruptcy notice or not?

MR ALLANSON:   There are two things to say; one, as Mr Holler says, if you look at the notice of appeal, it does arise on a construction of the notice of appeal.  But, fortunately, we have before us the applicant’s written submissions in the Full Court.  The applicant has put those as part of the applicant’s list of authorities.  It is the last document behind tab 5.

KIRBY J:   Yes.  Just tell us what it says.

MR ALLANSON:   In particular, your Honour, paragraph 8 raises the way in which the applicant argued this matter in the Full Court, which is that the respondent, the Commissioner, was obliged to deal with the amount paid in accordance with Division 3 of the Taxation Administration Act and that then proceeded into the argument on running account balances and the like.

KIRBY J:   We know how it arose, but the Full Court does not seem to have dealt with it though it was, strictly speaking, a ground of appeal before them.

KIEFEL J:   It notes concessions, however, made about that being a matter of discretion, is that right?

MR ALLANSON:   The only argument that was advanced in the Full Court was the running balance account argument.

KIEFEL J:   The obligation to maintain one?

MR ALLANSON:   The obligation to maintain a running balance account, that either there was a running balance account or by virtue of the obligation to create a running balance account the Commissioner ought to be deemed to have created one and that certain consequences then flowed from the fact of there being either a running balance account in existence or the Commissioner should be deemed to have created one.  That is the way in which the matter was argued in the Full Court.  That explains why, when we look at the judgment of the Full Court and we look at the way in which the applicant is approaching it today, we do not actually find any challenge to anything that the Full Court has done.

KIRBY J:   There is a suggested challenge that the Full Court has failed to address a ground of appeal.  That is not a conclusion that one would come to lightly.  If it appears that the applicant before the Full Court advanced a new and different argument, as their Honours point out, and that he abandoned or conceded the other argument, then there is no criticism of the Full Court.  In any case, do you defend the validity of the bankruptcy notice on the basis of the reasons of Justice Siopis?

MR ALLANSON:   We do, your Honours, for this reason, that if in fact you go to the PAYG system as it is set out in the Taxation Administration Act what you find is that there is an obligation which is imposed on a payer, in this case not the applicant but the applicant’s employer, Cash Converters.  The Taxation Administration Act in Schedule 1 imposes an obligation on the payer to withhold amounts from certain payments and to remit those amounts to the Commissioner.  It is not an obligation which is imposed on the applicant, who is described in that legislation as the recipient, but it is imposed on the payer.

The Taxation Administration Act then goes on to deal with how those amounts which are withheld and paid to the Commissioner are to be dealt with. It does that, as your Honours have seen, in the very part that was conceded in the Full Court and that is in section 18-25 I think it is of the Taxation Administration Act where it says that, when those payments have been withheld and have been forwarded to the Commissioner, if an assessment of taxation is made in relation to their taxation, then they are to be credited with those payments.  It is only at that stage that it becomes a credit which is given to the taxpayer, to the recipient of the payment.

KIRBY J:   That appears to be the way Justice Siopis dealt with the matter in his reasons.

MR ALLANSON:   Yes, because up until that time it is an obligation which is imposed directly upon the payer, an obligation to withhold an amount of money, an obligation to remit that amount to the Commissioner, and it only becomes an amount which is credited to the recipient, to the applicant in this case, once an assessment of taxation has been made.  So his Honour Justice Siopis dealt with it in that way and we say dealt with it correctly.  When it came to the Full Court, the applicant sought to overcome that conclusion by an argument based upon either the existence of a running balance account or the obligation to maintain a running balance account and presented its argument in the Full Court in that way.

The Full Court rejected that argument and it now seems that the applicant is saying that it no longer wishes to press the argument it ran in the Full Court and is asking this Court in effect to grant special leave to enable it to go back and run an argument it did not run in the Full Court but which it says perhaps it should.

KIRBY J:   The only reason, Mr Allanson, we would look closely at it is that bankruptcy is, after all, a matter relating to the status of the applicant and therefore one would normally look at it with some care.  But essentially you say even if the applicant could overcome any procedural hurdle presented by the way he argued the matter in the Full Court, then if we go back to the reasons of Justice Siopis, the way his Honour dealt with the matter leaves beyond doubt the correctness of the proposition that the bankruptcy notice was valid and it was in a sense the realisation of that fact that led the applicant before the Full Court to be trying to mount an entirely new argument?

MR ALLANSON:   Without attributing realisation to the applicant at any stage, we would say that his Honour at first instance got it right because it is not simply a matter of saying these payments were made to the Commissioner and were received by the Commissioner and therefore they ought to be treated as payments made by the applicant.  You cannot ignore

the terms of the Taxation Administration Act in considering those payments.  The obligation is not on the applicant to make them.

KIRBY J:   We do not need any more assistance from you, Mr Allanson.

MR ALLANSON:   Thank you, your Honours.

KIRBY J:   Anything in reply, Mr Holler?

MR HOLLER:   Yes, your Honour.  Whose money is it is the question for PAYG withholding.

KIRBY J:   The question is the interpretation of the legislation.  That is the question.

MR HOLLER:   Yes, it is, so whether payments were made for line 5 bankruptcy purposes to the Commissioner, that should be construed as being payments made by or on behalf of the employee in this case.  The PAYG withholding under the regime of the Taxation Administration Act says at section 12‑35:

An entity must withhold an amount from salary . . . it pays to an individual as an employee –

So it is a withholding from the employee of the employee’s money.  My contention is that, when that withholding is then paid to the Commissioner, it is the employee’s money that is received by the Commissioner and he knows after 14 July each year, when the payment summary is sent in to the tax office, which particular employees have which amount of money attributed to them from the withholding payments that were made during the course of the year.  There would be no administrative problem nine months later on the issue of a bankruptcy notice bringing those moneys to account as payments made, even though credits have not yet been allowed.

KIRBY J:   Yes.  Anything else?

MR HOLLER:   Those are my submissions.

KIRBY J:   The Deputy Commissioner of Taxation issued a bankruptcy notice requiring the applicant to pay $38 million, the amount of summary judgment entered against the applicant in the Supreme Court of Western Australia, less previously assessed PAYG withholding credits of $9,516.

The applicant contested the alleged failure of the Deputy Commissioner of Taxation to offset the amount of tax credits against the judgment debt.  He says that the bankruptcy notice was invalid as overstating the amounts that he owed.  The Deputy District Registrar of the Federal Court dismissed the application by the applicant to set aside the bankruptcy notice.  An application for review was dismissed by a judge of the Federal Court (Justice Siopis). 

The applicant then appealed to the Full Court of the Federal Court.  He there raised for the first time a new argument to the effect that the Taxation Administration Act 1953 (Cth) Part IIB obliged the Commissioner to establish a running balance so as to allow for the offset tax credits. That argument failed in the Full Court. The Full Court responded to the arguments actually advanced before it by the applicant. The only argument that appears to have been advanced in the Full Court was the running balance account argument.

In this Court, today, the applicant abandoned the new argument in the Full Court.  He reverted to the argument that he had advanced about the validity of the bankruptcy notice, which argument had been urged upon Justice Siopis.  This explains the reasons why the reasons of the Full Court did not address the original objection as to the validity of the bankruptcy notice.

This development takes this Court back to the reasons of Justice Siopis which we have examined.  We have taken this course having regard to the consequence of the bankruptcy notice on the status of the applicant.  We are not persuaded that there is any reasonable prospect of success on the part of the applicant in overturning Justice Siopis’ finding as to the validity of the bankruptcy notice.  Accordingly, the application for special leave to this Court is dismissed.  The applicant must pay the respondent’s costs.

AT 2.30 PM THE MATTER WAS CONCLUDED