Deputy Commissioner of Taxation v McMahon

[2010] NSWDC 257

CITATION:	Deputy Commissioner of Taxation v McMahon [2010] NSWDC 257
HEARING DATE(S):	27 September 2010
EX TEMPORE JUDGMENT DATE:	27 September 2010
JURISDICTION:	Civil
JUDGMENT OF:	Gibson DCJ
DECISION:	(1) Judgment for the plaintiff for the sum of $164,926.37. (2) Defendant pay the plaintiff’s costs.
CATCHWORDS:	TAXES AND DUTIES - Income tax and related legislation - collection and recovery of tax - proceedings for recovery - defence pleads an appeal is pending from the assessment of tax - "pay now and argue later" nature of tax legislation
LEGISLATION CITED:	Income Tax Assessment Act 1936 (Cth) Income Tax Regulations 1936 (Cth) Taxation Administration Act 1953 (Cth), Part IIA and s 14ZZM
CASES CITED:	Cywinski v Deputy Commissioner of Taxation [1990] VR 193 Deputy Commissioner of Taxation v Denlay [2010] QCA 217 Deputy Federal Commissioner of Taxation v Akers (1989) 89 ATC 4725
PARTIES:	Plaintiff: Deputy Commissioner of Taxation Defendant: Paul McMahon
FILE NUMBER(S):	2009/00333497
COUNSEL:	Plaintiff: Mr J S Walsh Defendant: Ms R Graycar
SOLICITORS:	Plaintiff: ATO Legal Services Branch Defendant: Bryan Gorman & Co

JUDGMENT

[1] HER HONOUR: The plaintiff, by statement of claim filed on 9 February 2009, claims a liquidated sum, at the time $138,805.53, but now $164,926.37, inclusive of interest to today’s date. The plaintiff brings these proceedings in her capacity as Deputy Commissioner of Taxation, for which she is entitled to sue to recover debts due to the Commonwealth of Australia which are payable to the Commissioner of Taxation.

[2] The circumstances leading to the claim may briefly be stated. The defendant was assessed to pay income tax for the year of income ended 30 June 2003. A notice of assessment was served on him in accordance with the Income Tax Assessment Act 1936 (Cth) (hereafter “ITAA”) and Income Tax Regulations 1936 (Cth). The defendant failed to pay his income tax for that financial year, and by reason of that failure, became liable to pay the general interest charge pursuant to s 204 of the ITAA and Part IIA Taxation Administration Act 1953 (Cth) (hereafter “TAA”).

[3] The quantum of the claim as set out in the statement of claim is supported by two affidavits of Mr Anton Fernando Pulle, sworn on 12 May and 24 September 2010 and, as my orders reflect, that figure is not mathematically in dispute. The defence to these proceedings is effectively a mere traverse.

[4] The plaintiff’s claim was fixed for hearing as a half-day matter on 14 July 2010, the hearing date then allocated being 3 September 2010. On 1 September the defendant filed a notice of motion seeking orders for a stay of these proceedings, or in the alternative a stay of the proceedings, “pending the completion of proceedings between the parties in the Administrative Appeals Tribunal, or until further order of the court”.

[5] Although the orders made on 2 and 3 September are not particularly clear, it would appear that order 1, namely the application to adjourn these proceedings, was dealt with by Judge Sorby on 3 September, when a short adjournment to today’s date, 27 September, was granted, but the application appears otherwise to have been dismissed and I am indebted to counsel for both parties for their assistance in describing what occurred on that occasion and making the appropriate concessions.

[6] Orders were made for the filing of affidavit material on behalf of the defendant by 10 September. An affidavit of Mr Gorman was filed on 17 September, but nothing turns on this delay. What is important is that the affidavit in question does not go to the merits of the defence, but more to the application for a stay which is order 2 of the orders which are sought today.

[7] What, then, is the defendant’s defence to the claim? In addition to pointing out that the defendant has served no evidence, counsel for the plaintiff, in his very helpful written submissions, puts to me (written submissions paragraphs 11 to 14) that the pleadings do not disclose an arguable defence to the Deputy Commissioner’s claim. This is because these legislative procedures are what is referred to as a “pay now and argue later” regime (Deputy Commissioner of Taxation v Denlay [2010] QCA 217 at [39]; see also Deputy Federal Commissioner of Taxation v Akers (1989) 89 ATC 4725). Section 204(1) ITAA provides that any income tax assessed becomes due and payable by the date specified on the notice and, pursuant to s 235-5(1) TAA thereby a debt due and payable to the Commonwealth.

[8] The Deputy Commissioner may accordingly sue to recover this unpaid sum of tax (Cywinski v Deputy Commissioner of Taxation [1990] VR 193 at 196 per Kaye J; s 235-5(2) TAA) and by reason of s 177(1) ITAA, the taxpayer is precluded from impugning the veracity of the assessment notice in those proceedings. The conclusive nature of notices of assessment has been an uncontroverted feature of this “pay now and argue later” regime (to borrow the phrase of Nathan J), and this is the case here, notwithstanding the defendant’s application for a review to the Administrative Appeals Tribunal.

[9] Accordingly, the fact that an appeal has been lodged, in the form of an application before the Administrative Appeals Tribunal, does not affect these proceedings, which are commenced to recover pursuant to a notice of assessment which cannot be impugned, by reason of the provisions of s 14ZZM of the TAA. Section 14ZZM provides:

“ 14ZZM pending review not to affect implementation of taxation decisions

The fact that a review 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 review were pending”.

[10] As the only ground identifiable as a defence as pleaded is that there is an appeal to the AAT for a review, the defence must fail. I note that, as I have recorded in order 2 of these orders, no other submissions as to the merits of the defence were made.

[11] Accordingly, for these reasons, I have made an order for judgment for the plaintiff for the sum of $164,926.37 and I shall now hear from the parties as to costs and also as to the stay application which is order 2 in the notice of motion filed on 1 September 2010. Yes?

WALSH: Your Honour, I seek costs of the proceedings. We are here because we were put to proving our case. There was no defence. This is a matter which shouldn’t have got this far on the merits, whatever may happen in relation to the costs of the stay application.

HER HONOUR: What do you say about costs, Ms Graycar?

GRAYCAR: Your Honour, we don’t have instructions to consent to costs.

HER HONOUR: Order 2 will be that the defendant pay the plaintiff’s costs.

Orders

(1) Judgment for the plaintiff for the sum of $164,926.37.

(2) Defendant pay the plaintiff’s costs.

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