Deputy Commissioner of Taxation v Gashi

[2012] VSC 401

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION
PRACTICE COURT

No.  1590 of 2010

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
V
RASIM GASHI	First Defendant
and
MANUELA GASHI	Second Defendant

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JUDGE:	Chief Justice Warren
WHERE HELD:	Melbourne
DATE OF HEARING:	21 August 2012
DATE OF JUDGMENT:	6 September 2012
CASE MAY BE CITED AS:	Deputy Commissioner of Taxation v Gashi & Anor
MEDIUM NEUTRAL CITATION:	[2012] VSC 401

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PRACTICE AND PROCEDURE — Application to set aside freezing order against property of second defendant—Income tax recovery proceeding — Second defendant partially succeeded before single judge in Federal Court — Appeal filed by Commissioner — Whether sufficient alteration of circumstances underlying freezing order — Whether property of second defendant may stand in aid of judgment against first defendant — Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation [2006] VSCA 191 considered —Supreme Court (General Civil Procedure) Rules 2005, Order 37A —Taxation Administration Act 1953 (Cth), s 14ZZQ.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I D Martindale SC with Mr E F Wheelahan	Norton Rose Australia
For the Second Defendant	Dr N Orow	Kiatos & Co

HER HONOUR:

1. The second-named defendant, Manuela Gashi, seeks the discharge of freezing orders made on 26 March 2010 and continued on 14 April 2010. 

1. Justice Bell in his reasons for judgment for continuing the freezing orders[1] set out the facts of the proceeding.  Accordingly, I will not revisit the facts save to briefly summarise them as follows:

   [1]Deputy Commissioner of Taxation v Gashi [2010] VSC 120.

·The first defendant, Rasim Gashi, and the second defendant, notwithstanding substantial assets, declared very little taxable income and failed to lodge some or any tax returns from 2000-2006. 

·The Deputy Commissioner issued notices of assessment against each of Mr and Mrs Gashi. The notices for Mrs Gashi from 2000-2006 assessed her total taxable income across those years to be $3,407,851 and the total amount of her tax liability for those years to be $1,598,050.00 plus penalties.

·The Deputy Commissioner issued proceedings to recover  about $6 million in unpaid tax and penalties from both defendants. The Deputy Commissioner indicated before Bell J that, as at mid-April 2010, the defendants combined indebtedness would amount to the order of $9 million, with Mrs Gashi individually owing $4.7 million.

·The Deputy Commissioner sought a freezing order to prevent Mr Gashi and Mrs Gashi from dealing with their assets. 

·Mr Gashi admitted (before Bell J) that he bought the relevant properties in the names of Mrs Gashi and their children.  Justice Bell found that, on the evidence, Mr Gashi treated the properties as his own. 

·Justice Bell found that the financial and property affairs of both defendants had become ‘intermingled with the financial and property affairs of their children and the family company’. 

·On 14 April 2010, Bell J ordered under O 37A of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) that freezing orders be made in respect of the relevant property of Mr and Mrs Gashi.

1. Since the decision of Bell J, there have been the following developments:

·Mrs Gashi sought a review of the assessments and commenced an application to set aside the assessments in the Federal Court of Australia pursuant to Part IVC of the Taxation and Administration Act 1953 (Cth).  In the Federal Court proceedings, the Commissioner relied on the original assessments that formed the basis of the freezing orders by Bell J, and later assessments issued on 31 August 2010.[2] 

·Mrs Gashi was successful in the Federal Court.  An order was made that the assessment of her taxable income be amended consistently with an expert report filed by her in the proceedings.  The relevant expert report assessed the income of Mrs Gashi such that the total amount of tax payable by her for the years 2000-2006 was $41 981.06 plus penalties.  The Deputy Commissioner has filed an appeal from the judge at first instance in the Federal Court to the Full Court of the Federal Court. 

[2]Gashi v Commissioner of Taxation [2012] FCA 638.

1. A preliminary issue therefore arises as to whether the decision of the Federal Court alters the position of the Deputy Commissioner with respect to the assessment against Mrs Gashi. 

1. Under Part IVC of the Taxation Administration Act 1953 (Cth) (‘the TAA’) taxpayers who are dissatisfied with their assessment may make a ‘taxation objection’ to the Commissioner, who then makes an ‘objection decision’. If a taxpayer is still dissatisfied with their assessment an objection decision may be appealed to the Federal Court.

1. The Federal Court may ‘make such order in relation to the [objection] decision as it thinks fit, including an order confirming or varying the [objection] decision.’  Thus the Federal Court does not have the direct power to amend notices of assessment,  but merely the power to vary the objection decision made by the Commissioner, thus effectively ordering the Commissioner to issue an amended notice of assessment. 

1. In the past, the situation was somewhat different. The position under the now repealed provisions of the Income Tax Assessment Act 1938 was that, where the Supreme Court heard an objection appeal from a notice of assessment,[3] it could make ‘such order as it thinks fit, and may by such order confirm, reduce, increase or vary the assessment.’[4] Under this arrangement the Commissioner could not argue that no consequences could flow from the court’s order to alter the notice until the altered notice of assessment had actually been effected by the Commissioner.[5]

   [3]Per ss 187, 197, whereby an ‘objection’ is treated as an ‘appeal’ and forwarded to the Supreme Court by the Commissioner after making an ‘objection decision’ with which the taxpayer is dissatisfied.

   [4]Per s 199(1).

   [5]See, eg, Re Commissioner of Taxation of the Commonwealth of Australia Ex Parte: Just Jeans Pty Ltd [1986] FCA 70.

1. The question arises, therefore, whether the notice of assessment against Mrs Gashi remains extant or whether it has been affected in some way by the orders of the Federal Court. There was no issue between the parties that at this point in time the Commissioner has not amended the notice of assessment as issued against Mrs Gashi. The Deputy Commissioner appears to rely on s 14ZZQ of the Taxation Administration Act 1953 (Cth) (‘the TAA’). It provides:

Implementation of Federal Court order in respect of objection decision

(1)  When the order of the Federal Court in relation to the decision becomes final, the Commissioner must, within 60 days, take such action, including amending any assessment or determination concerned, as is necessary to give effect to the decision.

(2)  For the purposes of subsection (1):

(a) if the order is made by the Federal Court constituted by a   single Judge and no appeal is lodged against the order within                the period for lodging an appeal — the order becomes final at   the end of the period; and

(b) if the order is made by the Full Court of the Federal Court and            no application for special leave to appeal to the High Court            against the order is made within the period of 30 days after the                    order is made — the order becomes final at the end of the   period.

1. On 23 July 2012, the Commissioner filed a notice of appeal from the judgment of the single judge of the Federal Court dated 16 July 2012. Under s 14ZZQ of the TAA, the order of the single judge has not become ‘final’, as an appeal has been lodged against the order within the period for lodging an appeal.[6] 

   [6]The Commissioner also sought to rely on s 14ZZR of the TAA which provides: ‘The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending.’ However, it is clear from the wording and structure of Part IVC that the words 'an appeal … in relation to a taxation decision’ in this section can only relate to an appeal by a taxpayer and not by the Commissioner. See also discussion of the section in Deputy Commissioner of Taxation v Feldman; Deputy Commissioner of Taxation v Rozenstein [2006] NSWSC 378 which relies on the decisions of Deputy Commissioner of Taxation v Ho (4 April 1996, unreported decision of the Federal Court of Australia, Ireland J) and Deputy Commissioner of Taxation v Mackey (1982) 45 ALR 284. Cf the position under the formerly existing ss 201 and 202 of the Income Tax Assessment Act 1936 (Cth).

1. In addition, ss 175 and 177 of the Income Tax Assessment Act 1936 (Cth) continued to operate in relation to the notices of assessment notwithstanding the orders of the Federal Court at first instance. In particular, s 175 provides:

The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

1. In Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation,[7] Nettle JA said[8] that the legislative scheme established in relation to tax recovery, as manifested in the relevant provisions, reflects a clear policy in favour of the revenue against the taxpayer.  His Honour noted that the Commissioner is placed by the legislature in a position of special advantage and thus in general is free to pursue recovery proceedings, despite outstanding appeals and reviews against the disallowance of objections.[9]

   [7][2006] VSCA 191.

   [8]Ibid [19]-[22].

   [9]Citing Clyne v Deputy Commissioner of Taxation (NSW) (1983) 48 ALR 545, 547.

1. On the basis of the facts as described and the legislative scheme, Mrs Gashi continues to have an extant assessment against her.  All that she has achieved in the Federal Court is an order that her taxable income be amended in accordance with expert evidence she called at trial.  However, that order is the subject of an appeal.  Under the statutory scheme, the assessment remains in place and the obligation of Mrs Gashi that underlies the freezing order made by Bell J remains. 

1. Counsel for Mrs Gashi relied on Rule 36.08(1) of the Federal Court Rules 2011 which provide that an appeal does not operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal. Sub-s (2) further provides that an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. The Commissioner has not applied for a stay. However, pursuant to s 14ZZQ, the Commissioner does not need to apply for a stay as the order of the single judge in the Federal Court has not yet become final and therefore the Commissioner is not yet required to take any action in relation to Mrs Gashi’s notices of assessment and will not be so required until all appeal proceedings are exhausted or abandoned.

1. Counsel for Mrs Gashi submitted that there was a difference in Mrs Gashi’s position now, and at the time the freezing orders were made, in that the Commissioner no longer had a good arguable case against her in the amount of millions of dollars, as demonstrated by the decision of the single judge in the Federal Court.

1. Should the Commissioner fail on all grounds of appeal there would still be a delay between the finalisation of the order and the amendment of the notice of assessment.[10] Counsel for the Commissioner conceded that should that situation arise, an application to remove the freezing order might be effectively made straight away, despite the fact that the original notice of assessment, at that time, remained extant.  It would seem on that basis that, in situations such as Mrs Gashi’s, counsel for the Commissioner would need to demonstrate that the Commissioner had a good, arguable case on appeal in order to have the freezing order remain intact.

   [10]Similarly, should the Commissioner abandon his appeal or choose not to appeal there would be a delay between that decision and the order becoming ‘final’ and between the finalisation of the order and the alteration to the notice of appeal.

1. However, it is unnecessary to decide that issue as there is another reason for maintaining the freezing order. The court retains the discretion make a freezing order or ancillary order if it considers it to be in the interests of justice to do so, even against third parties.  For completion in the exercise of the discretion by Bell J, a relevant factor was the ownership by Mrs Gashi of real property in her name but on behalf of her husband Mr Gashi.  In addition, affidavits were filed for the purposes of this application that featured as evidence in the Federal Court proceeding.  In an affidavit in the Federal Court Mr Gashi deposed that he purchased property at Parkdale in Victoria in the name of Mrs Gashi only because he was a gambler.[11]  Furthermore, both Mr and Mrs Gashi deposed that the Parkdale property was funded, in part, by moneys provided by Mr Gashi.[12]  In addition, in an affidavit filed in this court, Mr Gashi deposed that he purchased property at Altona in the names of Mrs Gashi and their daughter but that the money was funded from his funds and that he intended to build townhouses on the land.[13]

   [11]Exhibit GK-9, para 40.

   [12]Exhibit GK-9, para 42;  Exhibit GK-7, para 9.

   [13]Affidavit of Rasim Gashi, sworn 6 April 2010 at para 15.

1. Putting aside the question of the assessment, it remains that Mrs Gashi arguably holds assets that were acquired through funds provided by Mr Gashi.  The assessment with respect to Mr Gashi remains extant.  The Commissioner has issued a certificate stating that Mr Gashi is indebted in the amount of about $6.04 million as at 20 August 2012.  The Commissioner submitted, and I accept, that there is sufficient evidence for me to be satisfied that the freezing order made by Bell J should be maintained against Mrs Gashi in aid of the judgment against Mr Gashi.  In this respect, I further observe that the judge at first instance in the Federal Court noted that the source of moneys in the relevant accounts of Mr Gashi was ‘highly controversial’ and was the subject of ‘scepticism’.[14] 

   [14]Gashi v Commissioner of Taxation [2012] FCA 638 [51].

1. Ostensibly, the second defendant came before the court seeking to vary the freezing order so far as it related to her essentially on the basis that there had been a change of circumstances.  Taking account of the fact that the property of Mrs Gashi may stand in aid of the debt owed by Mr Gashi, I am satisfied that the factual circumstances that underlay the decision of Bell J in continuing the freezing order have not sufficiently altered or varied such that I would exercise the discretion to set aside the freezing order.

1. It follows that the application by the second defendant should be dismissed. 

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CERTIFICATE

I certify that this and the 6 preceding pages are a true copy of the reasons for Judgment of Chief Justice Warren of the Supreme Court of Victoria delivered on 6 September 2012.

DATED this 6^th day of September 2012.

Associate to Chief Justice Warren