Deputy Commissioner of Taxation v Li
[2010] VCC 409
•17 May 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-08-03902
| DEPUTY COMMISSIONER OF TAXATION | Plaintiff |
| v | |
| WEN LIANG LI | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 10 May 2010 |
| DATE OF JUDGMENT: | 17 May 2010 |
| CASE MAY BE CITED AS: | Deputy Commissioner of Taxation v Li |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 0409 |
REASONS FOR JUDGMENT
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Catchwords: Taxation - claim on Running Balance Account which includes a general interest charge - whether matter should proceed in defendant’s absence pursuant to Rule 49.02(1)(b) of the County Court Civil Procedure Rules 2008 – whether defendant liable in respect of general interest charge where Commissioner has not given notice under s8AAZN(2) of the Taxation Administration Act 1953
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S.D. Hay | ATO Legal Services Branch |
| For the Defendant | No appearance | |
| HER HONOUR: |
1 In this proceeding, the Deputy Commissioner claims a Running Balance Account (“RBA”) deficit debt amounting to $262,990.62.
Absence of defendant
2 When the trial of this proceeding was called on, Mr Li did not appear.
3 However, I determined that the matter should proceed to trial pursuant to Order 49.02(1)(b) of the County Court Civil Procedure Rules 2008 and indicated that I would detail the reasons for doing so herein.
4 This matter was first listed for trial on 29 April 2010 at which time Mr Li was represented by Chadwicks, the law firm.
5 On 11 March 2010, His Honour Judge Shelton gave leave to Chadwicks to file a Notice Ceasing to Act on behalf of Mr Li, which Notice was subsequently filed on 12 March, 2010.
6 An affidavit of Mr Isaac Szmerling of 15 February 2010 was filed in relation to the application by Chadwicks. In paragraph 5 of that affidavit, Mr Szmerling stated that he had not been able to obtain any instructions from Mr Li for the further conduct of the proceeding since 23 September 2009.
7 The trial date was subsequently altered to 10 May following a directions hearing on 23 April 2009 at the request of the Deputy Commissioner. Since that time various documentation has been returned notwithstanding it was served on Mr Li at the address for service contained in the Notice Ceasing to Act.
8 However, in an affidavit of Mr Rebechi, solicitor, of 7 May 2010, Mr Rebechi states that on 6 May he rang Mr Li on 0425 860 496 (which number he had obtained from a service report) though there was no answer. Further:
“On 7 May 2010, sometime between 9.00am and about 10.10am, I again called the number 0425 860 496. A male answered the phone. I asked if he was Wen Liang Li to which he answered that he was (Wen Liang Li). I asked the Defendant whether he was aware that there was a hearing in his matter on Monday 10 May 2010. Mr Defendant said that it was ‘not his problem’, that he had someone else working for him and that it was ‘someone else’s problem’. He again repeated that it was not his problem. It was difficult to understand the Defendant as he did not speak English well. I advised the Defendant that I would call him during the day. The Defendant suggested that I call him at 4.30pm after work. I gave the Defendant details of my name and work telephone number (03) 9285 1863. The Defendant said he would speak to his solicitor. I said to the Defendant that the hearing was on Monday 10 May 2010, in the County Court of Victoria at Melbourne 250 William Street Melbourne”.[1]
[1] Affidavit of Frank Rebechi sworn 7 May 2010 at paragraph 9.
9 Although the affidavit of Mr Rebechi does not indicate that a time for hearing on Monday, 10 May was given, there is no suggestion that Mr Li sought clarification of this date by contacting Mr Rebechi on the number provided, or otherwise made any effort to appear on 10 May.
10 Given:
•
the prejudice to all parties (including Mr Li) in this matter being relisted with further costs incurred;
•
the fact that Mr Li has been given notice of the date by reason of the matters set out in the affidavit of Mr Rebechi, above; and
•
the evident lack of interest shown by Mr Li in defending this proceeding, including the absence of any apparent effort being made to clarify/ inquire as to the progress of this proceeding, and if/when the matter had been listed for trial;
I was satisfied that it was appropriate to proceed with the trial, unopposed.
11 Since reserving this decision the court has received a further affidavit of Mr Rebechi dated 12 May 2010. In that affidavit Mr Rebechi states that on 10 May 2010 he rang Mr Li on 0425 860 496 and spoke to a man who identified himself as Mr Li. Mr Rebechi advised him, inter alia, that a decision would be delivered today.
12 Mr Li suggested that he would ask Mr Szmerling to contact Mr Rebechi and confirmed that he would not be attending today “because he had no documents.”
13 Mr Rebechi has not received a call from Mr Szmerling (who, as indicated already, had previously ceased to act due to a lack of instructions).
14 Further, although Mr Li raised an issue about documents, he appears to have made no attempt to advise the court of any such difficulties, consistent with his previous lack of interest in defending this proceeding.
15 In all of these circumstances, there is no reason to defer delivery of this judgment.
Evidence
16 The Deputy Commissioner adduced evidence by way of an affidavit of Ms Grace Lemeray of 13 April 2010. Ms Lemeray also gave oral evidence which generally confirmed the contents of this affidavit, which evidence is summarised below.
17 In about January, 2001, the Commissioner established an RBA in respect of the “primary tax debts” due from Mr Li pursuant to s8AAZC of the Taxation Administration Act 1953 (“TAA”). These primary tax debts are defined as any amount due to the Commonwealth directly under a taxation law (under s8AAZA) and included amounts due from Mr Li under the business activities statement provisions referred to in sub-s.995-1(1) of the Income Tax Assessment Act 1997.
18 During the period 1 January 2001 to 18 September 2008, Mr Li notified his tax liabilities in BAS statements lodged with the Tax Office. As a result of Mr Li claiming GST input tax credits in his BAS during the period July 2005 to June 2007, inclusive, Mr Li was entitled to refunds in the total sum of $96,619.16 which amount included the GST input credits claimed, less Pay as You Go withholding tax, less GST liabilities, less general interest charge.
19 Amounts totalling $96,619.16 were subsequently transferred to Mr Li during the 2005 to 2007 period.
20 However, on 20 May 2008, the Deputy Commissioner assessed the GST net amount for each of the periods 1 July 2005 to 30 June 2007 and issued a notice of assessment. That notice was provided to Mr Li under correspondence of 20 May, 2008 and indicated that $185,472 had been debited to Mr Li’s running balance account which included an administrative overpayment of $96,619.16. The correspondence also stated that Mr Li could obtain up to date details of his account balance by phoning a specified number and also reminded him that general interest charge accrued on any outstanding balance.
21 Following the debiting of the $185,472 an RBA statement dated 12 April 2010 showed a closing balance as at 15 September 2008 at $218,260.29.
22 Ms Lemeray also produced a certificate dated 10 May 2010[2] under s.8AAZJ of the TAA, which showed that, after taking into account payment of $156.15 transferred on 10 October 2008, and a further general interest charge of $44,886.48 payable on the RBA deficit debt, the sum of $262,990.62 was, at 10 May 2010, due and payable by Mr Li.
[2] Which replaced a previous certificate annexed to her affidavit as GL5 which contained an error in calculation of the further general interest charge
Issues 23 Only two issues arose for the court’s consideration:
(a)
whether or not Mr Li had sustained the matters claimed in paragraph 8 of his defence filed 29 April 2009 (prior to his solicitor ceasing to act); and
(b)
whether or not the entire RBA deficit amount was payable notwithstanding that it includes an amount for general interest charge, in circumstances where 30 days notice had not been given pursuant to s.8AAZN(2).[3]
[3] This matter was, fairly, raised by the Deputy Commissioner as it does not squarely arise on the defence itself (although, in paragraph 6, Mr Li does “not admit” that he became liable to pay general interest charge pursuant to s8AAZF(1))
Defence
24 Paragraph 8 of the Defence filed suggested that the Deputy Commissioner had acted “in bad faith” in raising the RBA deficit debt.
25 However, no evidence was adduced by the defendant in support of this serious allegation.
26 The court has also been provided with evidence that the amount claimed is correct. Thus:
•
pursuant to s.105-100 of the TAA, production of the notice of assessment of 20 May 2008 is conclusive evidence that the assessment was properly made and, except in proceedings under Part IVC, that the amounts and particulars in the assessment are correct. (The court was advised that no Part IVC proceedings had been instituted);
•
pursuant to s.8AAZI, the production of the RBA statement dated 12 April, 2010 is prima facie evidence that the RBA was duly kept and is also prima facie evidence that the amounts and particulars in the statement are correct; and
•
finally, the certificate under s8AAZJ dated 10 May 2010 is prima facie evidence of the matters contained therein, including that the amount specified is the RBA deficit debt on the date of the certificate.
27 Therefore, in the absence of any evidence from Mr Li which purports to challenge or rebut the evidence, above, I accept that evidence and reject the assertions in the Defence.
28 However, it remains to consider the issue raised by the Deputy Commissioner as to the general interest charge.
Absence of 30 days notice
Administrative overpayments provisions
29 Section 8AAZN deals with “administrative overpayments” which are defined as an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled (s8AAZN(3)).
30 Pursuant to s.8AAZN(1)(a), an administrative overpayment (or overpaid amount) is a debt due to the Commonwealth by the person to whom the overpayment was made. Further, pursuant to s8AAZN(1)(c), it may be recovered in a court of competent jurisdiction by the Commissioner or by a Deputy Commissioner suing in his or her official name.
31 However, pursuant to s.8AAZN(2), the recipient is only liable to pay the general interest charge on the unpaid amount if the Commissioner has given a notice to the recipient in respect of the overpaid amount specifying a due date for payment that is at least 30 days after the notice is given.
32 Recovery pursuant to s.8AAZN is therefore premised on 30 days notice being given. However, as indicated already, the Commissioner conceded that no such notice had been given in this case.
RBA provisions
33 Pursuant to s.8AAZN, an administrative overpayment is a debt due to the Commonwealth. It is therefore a “primary tax debt” pursuant to s8AAZA.
34 Under s.8AAZD, the Commissioner may allocate the administrative overpayment (as a primary tax debt) to an RBA, as was done in this case. Further, pursuant to s.8AAZF(1), if there is an RBA deficit debt at the end of the day then general interest charge “is payable” by the tax debtor on the RBA deficit debt for that day. Pursuant to s8AAZF(2), the balance of the RBA “is altered” in the Commissioner’s favour by the amount of the general interest charge payable.
35 General interest charged on an RBA therefore accrues under s.8AAZF regardless of any action or omission of the Deputy Commissioner.
36 The Commissioner therefore submits that general interest charge accrues on the balance of the RBA deficit debt pursuant to s8AAZF even where no notice of 30 days is given pursuant to s 8AAZN(2).
Purposes of RBA provisions
37 In the decision of Hvar Steel Services Pty Ltd v Deputy Commissioner of Taxation [4], Wheeler JA, (who delivered the leading judgment in the Western Australian Court of Appeal) said that the RBA “is designed as a way of facilitating the collection of a variety of different types of taxes which owe their existence to a variety of other pieces of tax legislation”.
[4] [2005] WASCA 71 at [17]
38 An extract from the explanatory memorandum provided by the Deputy Commissioner states that the main outcome sought by the RBA provisions are:
“…the production of regular account statements showing the total of all outstanding tax debts for indebted taxpayers. The statements will be similar to commercial credit card and cheque account statements; and the application of a single daily interest rate in the form of a GIC to the outstanding account balance.”[5]
[5] Explanatory memorandum at 1.82.
39 Thus, the RBA appears to have been designed to ensure an integrated debt collection system regardless of the original source of the primary tax debt.
Cases De Angelis
40 The Commissioner referred the court to the unreported decision of Deputy Commissioner of Taxation v De Angelis, which was heard by Master Rice on 7 March, 2007[6], and then, on appeal, by Judge Shaw in the District Court of South Australia on 14 August, 2008.[7]
[6] No 2093 of 2005
[7] [2008] SADC 103
41 In that matter, the Commissioner sought summary judgment on an RBA deficit debt in circumstances where an administrative overpayment had been allocated to the RBA.
42 Master Rice in that case referred to “tension” between s.8AAZN and s.8AAZF, and considered that the two provisions could not work together when the basis of the claim was a mistaken overpayment (at [132]). Master Rice then entered summary judgment but did not accept that the Commissioner was entitled to general interest charge in the absence of notice under s8AAZN(2) of the TAA.
43 On appeal, Judge Shaw set aside the summary judgment and found that there was a genuine dispute in relation to the existence of the alleged debt in circumstances where the defendant had instituted a Part IVC proceeding.
44 Her Honour also suggested that it was “at least reasonably arguable that s.8AAZN(2) of the TAA is a specific provision applicable to the recovery of administrative overpayments as defined in s.8AAZN(3) of the TAA”. Further, that it could not be overridden by the more general provision relating to recovery of primary tax debts through their allocation to an RBA (at [143]).
45 It is important to recognise, however, that the issue in Angelis was whether the defence raised a triable issue. Her Honour was therefore not called upon to come to any final views.
46 There have also been a number of other relevant decisions cited by the Deputy Commissioner.
Other cases
47 In a decision of this Court in Deputy Commissioner of Taxation v Cannon (unreported) 10 December 2007, His Honour Judge Howie was concerned with recovery of a deficit debt owing on an RBA in circumstances where an administrative overpayment had been allocated to the RBA. Following an ex parte hearing, His Honour included general interest charged on the RBA under s.8AAZF notwithstanding that no notice had been given under s.8AAZN(2).
48 Further, in the decision of Deputy Commissioner of Taxation v Darryl Peter Smith[8], Her Honour Judge Truss was also concerned with the recovery of an RBA deficit debt which included administrative overpayments.
[8] (2008) DCNSW (unreported), 19 September 2008
49 Her Honour said that it would have been open to the Commissioner to seek to recover the overpayment as a self-contained cause of action in which case the giving of notice under s.8AAZN(2) would be required. In her view, the RBA provisions provided an alternative method to s.8AAZN for recovery of administrative overpayment (at [7]-[8]).
50 Her Honour referred to the decision of De Angelis, and understood Judge Shaw to be saying that s8AAZN(2) cannot be overridden by the general provision relating to the recovery of primary debts through being allocated to an RBA. However, the legislation entitles the Commissioner to allocate administrative overpayments to the RBA. Once this has occurred GIC becomes payable under s8AAZF and is no longer payable under s8AAZN(2). “The Commissioner’s claim in this case is not for an administrative overpayment under section 8AAZN(1) but for an RBA deficit debt due and payable under section 8AAZH” (at [13]).
51 In the view of Judge Truss, therefore, once the “characterisation of the debt” had, in accordance with the legislation, been changed from an administrative overpayment to the RBA, s.8AAZN(2) no longer has any application (at [14]).
52 The conclusions of Judge Truss were similar to the conclusions expressed by Her Honour Judge McIntyre in Deputy Commissioner of Taxation v Citech Research Pty Ltd decided on 15 December, 2009.[9]
[9] (2009) SADC 140
53 Judge McIntyre was satisfied that the RBA provisions “provide an alternative method to s.8AAZN for the recovery of administrative payments and penalties” (at [11]) and concluded (at [12]):
“Section 8AAZF operates to impose the GIC on the amount of an RBA deficit debt at the end of each day. The balance of the RBA is altered to include the GIC. Accordingly the GIC is imposed on, and itself becomes a component of, the RBA deficit debt. There is no requirement to give notice. GIC is payable by reason of the operation of s.8AAZF. Section 8AAZN(2) does not have any application in these circumstances.”
Resolution
54 The preponderance of authority supports the approach of the Deputy Commissioner. The decision of De Angelis may be against this trend, but was concerned with a summary judgment application.
55 Full recovery is also consistent with the evident policy of the legislation. That policy suggests a more integrated approach is to be embraced, such that the Commissioner need not follow different regimes for recovery where primary tax debts have been allocated to an RBA.
56 In my view, then, the RBA provisions provide the Commissioner with an alternative mode of recovery of administrative overpayments. Section 8AAZN still has “work to do” in providing a specific mode for recovery of administrative overpayments, should that be preferred. However, consistent with Smith, above, once an administrative overpayment is allocated to an RBA, it “changes its character” from an administrative overpayment to an RBA. Section 8AAZF then operates to impose the GIC on the total amount of the deficit debt and the Commissioner is not required to comply with section 8AAZN(2).
Conclusion
57 The Deputy Commissioner is entitled to judgment for the full amount in the certificate of 10 May of $262,990.62.
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