Deputy Commissioner of Taxation v Murray
[2017] VSC 785
•20 December 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S CI 2015 00371
| DEPUTY COMMISSIONER OF TAXATION | Plaintiff |
| v | |
| MICHAEL MURRAY | Defendant |
– AND BETWEEN –
S CI 2015 00372
| DEPUTY COMMISSIONER OF TAXATION | Plaintiff |
| v | |
| DEBBIE PITMAN | Defendant |
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JUDGE: | DERHAM AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 November 2017 |
DATE OF JUDGMENT: | 20 December 2017 |
CASE MAY BE CITED AS: | Deputy Commissioner of Taxation v Murray |
MEDIUM NEUTRAL CITATION: | [2017] VSC 785 |
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PRACTICE AND PROCEDURE – Taxation liability – Adjournment – Whether an absence of records available to challenge an assessment is grounds for an adjournment – Summary Judgment – Applicable test – Civil Procedure Act 2010 (Vic), s 61; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158; Mandie v Memart Nominees Pty Ltd [2016] VSCA 4.
TAXATION AND REVENUE – Recovery proceedings in State Court – Notices of assessment conclusive evidence of taxation debt – Defendant taxpayers cannot impugn validity of notices in recovery proceedings – Taxation Administration Act 1953 (Cth), s 350-10(1) – Income Tax Assessment Act 1936 (Cth), s 175 – Federal Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473; Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation [2017] NSWCA 17.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff in both proceedings | Ms M L Baker | Australian Government Solicitor |
| For the Defendants in both proceedings | Dr B F Orow | Stanton Grant Legal |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background......................................................................................................................................... 2
Adjournment application................................................................................................................. 3
Application........................................................................................................................................ 10
Murray’s Tax Debt...................................................................................................................... 11
Pitman’s Tax Debt....................................................................................................................... 12
Shortfall Interest Charge................................................................................................... 14
Administrative Penalties.................................................................................................. 16
Summary Judgment test.................................................................................................................. 17
Submissions and consideration.................................................................................................... 19
Conclusion......................................................................................................................................... 24
HIS HONOUR:
Introduction
The plaintiff applies for summary judgment against the defendants in two proceedings pursuant to s 61 of the Civil Procedure Act 2010 (Vic) (‘CPA’) and r 22.03 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’).
In proceeding S CI 2015 00371 against Michael Murray (‘Murray’s proceeding’), the plaintiff is seeking to recover a series of tax-related liabilities as follows:
(a) income tax assessed in the notices of amended assessment issued to Murray in respect of each of the years of income ended 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011 (‘Murray’s relevant years’);
(b) shortfall interest charge (‘SIC’) on the additional income tax payable under each of the notices of amended assessment as notified in those assessments;
(c) administrative penalties assessed in the notice of assessment of shortfall penalty for the relevant years; and
(d) general interest charge (‘GIC’) that has continued to accrue in respect of each of the unpaid tax-related liabilities.
In proceeding S CI 2015 00372 against Debbie Pitman (‘Pitman’s proceeding’), the plaintiff is seeking to recover similar tax-related liabilities as follows:
(a) income tax assessed in notices of assessment or amended assessment issued to Pitman in respect of each of the years of income ended 30 June 2011, 30 June 2012, and 30 June 2013 (‘Pitman’s relevant years’);
(b) SIC on the additional income tax payable in relation to the notice of amended assessment issued to Pitman;
(c) administrative penalties assessed in the notice of assessment of shortfall penalty for the relevant years; and
(d) GIC that has continued to accrue in respect of each of the unpaid tax-related liabilities.
Background
Both proceedings were commenced by writ on the same day in respect of income tax assessments, for the Murray and Pitman relevant years, SIC, administrative penalties and GIC. The defendants filed appearances and defend the proceedings.
In Murray’s defence he claims that the assessments for the 2008, 2009, 2010 and 2011 years were incorrect because they took into account income from a company and the proceeds of the sale of a business paid by instalments, which would otherwise attract capital gains tax, and the notices of assessment do not reflect his actual income.
In Pitman’s defence she –
(a) says that the assessments for the relevant years were based on bank statements that incorrectly reflected her taxable income;
(b) says that her bank account was used by her de facto partner, Michael Murray, for business purposes and therefore the majority of the credits into the account are not her income;
(c) says that she occasionally used the bank account but had no involvement in her partner’s business and received no benefit from the revenue nor did she have any claim to the monies credited to her bank account and related business transactions;
(d) admits the notices of assessment, but says that the assessments do not reflect her actual taxable income for the reasons given; and
(e) denies her liability to pay the assessments, SIC, administrative penalties and GIC.
Adjournment application
The defendants applied for an adjournment of the hearing of the two applications for summary judgment. So far as the Court is aware, notice of the application for an adjournment was given by filing of the affidavits of Sonja Radovic and Bronwyn Jane Goddard, both made on 21 November 2017, in the Pitman proceeding. These affidavits were relied on in both proceedings.
The substance of the evidence advanced in support of the adjournment was that ‘substantial documents’ belonging to Murray and/or Pitman, including bank statements, computers and other business records associated with a gymnasium at Hallam were seized by Victoria Police in raids conducted on or about 19 February 2014 (‘seized documents’). These documents are said to contain information that the defendants require in order to be able to effectively defend the claims in these proceedings.
The affidavit of Ms Goddard and its exhibits reveal that an objection to the assessments the subject of this proceeding was lodged on behalf of Pitman on 6 February 2015, that further information was sought and provided to the plaintiff regarding the objection, and that the objection was disallowed on 31 October 2016, with extensive reasons.
The defendants have attempted to retrieve their documents from the Victoria Police, or copies of them, without success. They seek to defend themselves and need the documents in order to progress any review of or appeal against the disallowance of the objection to the assessments.
Dr Orow of Counsel argued that the methodology used by the plaintiff in arriving at the assessments and amended assessment in relation to Pitman (there being no evidence before me in relation to the methodology used in relation to the assessments relating to Murray[1]) by using the credit amounts revealed in her bank statements, when the inference from the material before the Court was that the plaintiff had available, or access to, the seized documents, was flawed and this exposed the assessments to invalidity. This was, in my view, a reference to a challenge to the assessments of the kind referred to by the High Court in Federal Commissioner of Taxation v Futuris Corp Ltd,[2] as ‘conscious maladministration’ and as such involves an unlawful and bad faith assessment.
[1]Although he contended that the method was the same: transcript, 23 November 2017, p. 20-21.
[2](2008) 237 CLR 146 [25] (Gummow, Hayne, Heydon and Crennan JJ) (‘Futuris’).
However, Dr Orow confirmed that he had no basis to make an allegation of that kind, nor would it be appropriate for Counsel to make that allegation from the Bar table without proper justification. But he did submit that, given the methodology adopted by the Commissioner, where he simply took a the credit entries from bank statements and added them and made an assessment, without looking at the actual documents to explain them, without accessing those documents, that provides a basis for an inference that the assessments may be tentative or provisional and that the assessment process has not been completed or has not been completed properly.
The inference that the plaintiff had available, or access to, the seized documents was said to emerge from an affidavit filed on behalf of the plaintiff in support of an application under s 130 of the Evidence Act 2008 (Vic) (‘Evidence Act’) to redact or use a pseudonym to exclude from admitting into evidence identifying details of the deponent of an affidavit in support of this summary judgment application.[3]
[3]Affidavit sworn on 13 April 2017.
That affidavit refers to National Anti-Gangs Squad (‘NAGS’) which was established for the purpose of targeting the criminal activities of outlaw motor cycle gangs (‘OMCG’) as an initiative of the National Organised Crime Response Plan 2015-2018. It also reveals that Murray was allegedly the head of the Hallam Chapter of the Comanchero OMCG and the Victorian Commander of that OMCG. Further, in April 2014, the ATO Liaison with NAGS prepared an information report on the defendants and a company associated with them, Nitro Gym Pty Ltd, for the purposes of referring the defendants’ matters to audit by the Australian Taxation Office (‘ATO’). However, the context in which the information report is referred to shows that it lead to the production of an OH&S Risk Assessment to determine whether it was necessary to take steps to protect the identity of the auditors involved in auditing the defendants. There is no indication that the information report included any reference to material comprised in the seized documents, nor that such material was available for use in making the assessments in issue.
Counsel for the defendants also submitted that there could be no proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) (‘TAA’), by way of review to the Administrative Appeals Tribunal (‘AAT’) or appeal to the Federal Court, because the defendants could not pursue either course without the seized documents. An adjournment was sought to enable the defendants’ defences to be amended, to obtain discovery from the plaintiff of all the documents in his possession custody or control, and to enable the validity of the assessments to be tested as all subsequent averments and statutory certificates proving the plaintiffs’ claims depend on the validity of those assessments. It was submitted that Murray and Pitman would be denied procedural fairness unless an adjournment were allowed to enable these steps to be taken.
Dr Orow relied on the proposition that the conclusive evidence provisions in the TAA and Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’), to which reference is made below, depend for their operation on a valid assessment. He submitted that if and to the extent that a particular document is not a valid assessment, then it does not enjoy any protection of those provisions, nor does it create a debt that is payable to the plaintiff and he is not entitled to rely on it. Murray and Pitman do not have, and have not had, access to the seized documents. They have not been able to properly prepare an objection that addresses the particular assessments and put forward proper grounds of objection. Nor can the defendants put forward proper grounds to argue in this Court that the assessments are invalid.
In support of the application for an adjournment, Dr Orow relied on a passage from Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd.[4] In that case the High Court upheld an appeal by the Deputy Commissioner of Taxation (‘DCT’) from the Supreme Court of Queensland. In brief summary, what happened in Broadbeach was that the DCT had issued assessments of tax to the taxpayers who objected to the assessments. The objections were disallowed. The taxpayer reviewed the assessments in the AAT under Part IVC of the TAA. The reviews were pending even at the time of the judgment in the High Court. The DCT issued statutory demands under s 459E of the Corporations Act 2001 (Cth) (‘Corporations Act’) in respect of the tax related liabilities arising from assessments. The taxpayers applied to set aside the statutory demands, which the primary judge did and, on appeal by the DCT, the Court of Appeal upheld the primary judge and dismissed the appeals.
[4](2008) 237 CLR 473 (Gummow ACJ, Heydon, Crennan and Kiefel JJ) (‘Broadbeach’).
The High Court had to resolve the interaction between two statutory regimes established by federal law. The first being for the winding up of companies in insolvency found in Part 5.4 (ss 459A-459T) of the Corporations Act, including provisions for the service of statutory demands on companies for payment of debts. The second statutory regime was that established by the provisions for the assessment and collection of income tax and goods and services tax (GST).[5]
[5]Income Tax Assessment Act 1936 (Cth), Income Tax Assessment Act 1997 (Cth), A New Tax System (Goods and Services Tax) Act 1999 (Cth), Taxation Administration Act 1953 (Cth), Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth).
The High Court allowed the Commissioner’s appeals and said:[6]
The sequel will be that if there are failures to comply with the then outstanding statutory demands,[7] on timely applications by the commissioner to wind up the respondents in insolvency the court hearing those applications must presume that the respondents are insolvent: s 459C(2)(a).
[6]Broadbeach [12].
[7]The time for compliance ends 7 days after the s 459G applications are ‘finally determined or otherwise disposed of’: s 459F(2)(a)(ii).
The Court then noted:
Notwithstanding the presumption of insolvency that would apply under s 459C(2)(a), in written and oral submissions to this court the commissioner made an important concession. This was that upon the hearing of such winding-up applications the court might properly have regard to whether the taxpayer had a “reasonably arguable” case in proceedings under Pt IVC of the Administration Act, if those proceedings then still be on foot; questions of the kind canvassed in General Steel Industries Inc v Commissioner for Railways (NSW)[8] might arise.
[8](1964) 112 CLR 125.
Dr Orow submitted that this was authority for the proposition that where the taxpayer has a reasonably arguable position in the AAT on review, or in the Federal Court on appeal, then it is open for a Court in a winding up proceeding (based on a presumption of insolvency) not to grant that application. By parity of reasoning, it was submitted, that equally applies in recovery proceedings in this Court.
There are a number of reasons why I do not accept this submission. First, the concession by the Commissioner does not provide any binding ruling of the Court that I must follow. Second, it is unclear in what circumstances an application under s 459P and 459Q of the Corporations Act might give rise to questions of the kind canvassed in General Steel Industries Inc v Commissioner for Railways (NSW),[9] a decision concerned with the defendants’ application to strike out pleadings and for summary judgment against a plaintiff where the question was whether it the plaintiff’s claim was hopeless, in the sense that it disclosed a case which could not succeed, because of the operation of provisions of the Patents Act 1952-1960.
[9](1964) 112 CLR 125.
Third, discovery in this proceeding in aid of an issue that might be raised in an amended defence as to the validity of the assessments is not a possibility. A challenge to the validity of the assessments of the kind advanced by Murray and Pitman involves an application under s 39B of the Judiciary Act 1903 (Cth) (‘Judiciary Act’). The Supreme Court does not have jurisdiction in matters in which a writ of mandamus or prohibition is sought against an officer of the Commonwealth, of whom the plaintiff is one.[10] Further, s 9(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) has the effect that a State Court has no jurisdiction under s 39(2) of the Judiciary Act to grant certiorari or make a declaration in relation to the making of a taxation assessment under the ITAA 1936.[11]
[10]See s 38(e) of the Judiciary Act and Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation [2017] NSWCA 17 [61]–[64] (‘Anglo American’).
[11]Anglo American [65]–[74].
In addition, this Court does not have jurisdiction to grant relief in the nature of certiorari or a declaration in relation to the making of a tax assessment under the ITAA 1936. Proceedings of that kind, if commenced by Murray or Pitman, would be a ‘special federal matter’ (as one which is within the original jurisdiction of the Federal Court by virtue of s 39B of the Judiciary Act) and the provisions of s 6 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) would need to be complied with, so that the proceeding is transferred to the Federal Court.[12]
[12]Anglo American [75]–[77].
Fourth, for reasons that will emerge when I consider in detail the material advanced in support of the summary judgment application, there is no answer at law to the claims that the plaintiff makes in these proceedings. It cannot affect the liability of the defendants at the present that in the future they may be able, after obtaining the seized documents, at some indeterminate time, to review or appeal the decision of the plaintiff to disallow their objections to the assessments made. The fact that the defendants say they are hamstrung in challenging the assessments by the absence of documentation in consequence of the seized documents being in the custody of the Victoria Police does not affect their liability to pay the amounts claimed by the plaintiff in the two proceedings. That liability arises under the various provisions of the taxation legislation mentioned below. It is no answer to the claims that they might be wrong. Moreover, the challenge to the validity of the assessments that Counsel for the defendants raises can only be pursued in judicial review proceedings under s 39B of the Judiciary Act, or perhaps in appeal to the Federal Court under Part IVC of the TAA, and not in this Court in these proceedings.
I have nevertheless reviewed the reasons advanced by the plaintiff in disallowing Pitman’s objection to the assessments.[13] What those reasons reveal is that there is more material available to Pitman than is disclosed in the affidavit of Ms Goddard, that the reasons of the plaintiff in disallowing the objection are sound and convincing and that Pitman’s claim that – in effect – she cannot defend the claim made against her without the documents rings hollow. There is, as the reasons of the plaintiff aptly reveal, a great deal more that could be said about the assessments (based as they are on bank statements), if only from the knowledge that she and Murray must have even without documents.
[13]Affidavit of Ms Goddard, exhibit BJG-4. There was no material relating to the reasons for rejecting Murray’s objection before me.
I also note that before these proceedings were commenced in January 2015, the purported objection by Murray had been dealt with. The plaintiff’s affidavit in support of the application in the Murray proceeding[14] (‘plaintiff’s Murray affidavit’) shows that Murray lodged an objection by letter dated 23 September 2014. That objection was considered by the plaintiff to be not a valid objection and Murray was so advised by letter dated 26 September 2014. Pitman’s objection was lodged on 6 February 2015, after the commencement of the proceeding, and finally dealt with and disallowed by notice of objection decision dated 31 October 2016, with extensive reasons. As at the dates of the plaintiff’s Murray and Pitman affidavits there were no outstanding objections. In the ordinary course, a taxpayer who wishes to challenge the disallowance of an objection by way of taxation review or appeal proceedings brought under Part IVC of the TAA has 60 days within which to bring those proceedings. There is no suggestion by Murray or Pitman that those proceedings have been brought.
[14]Affidavit sworn 6 September 2017.
There have been multiple adjournments since the commencement of the proceeding. During that time, according to the information provided to the Court, there were settlement discussions between the plaintiff and the defendants. On 4 August 2017 Croft J made orders permitting the plaintiff to exclude identifying details of the deponent of the affidavit in support of the summonses seeking summary judgment. The affidavits were sworn on 6 September 2017. The summonses seeking summary judgment were filed on 10 October 2017. The affidavits of Radovic and Goddard were not sworn until 21 November 2017. No step has been taken to subpoena the seized documents for the purposes of this proceeding, which could have been done using the subpoena power in order 42A. No amended defences have been proffered. No proceeding under s 39B of the Judiciary Act has been commenced or even foreshadowed. In short, there are no discretionary considerations supporting the grant of any adjournment.
For these reasons I refuse to adjourn the plaintiff’s applications.
Application
In preparing the reasons that follow I have been greatly assisted by the submissions made by Counsel for the plaintiff, both written and oral, and the careful treatment she undertook in those submissions of the complicated legislative provisions applicable to the tax liabilities the subject of the claim. None of them were disputed by Counsel for the defendants.
Each proceeding was commenced by Writ indorsed with a statement of claim. In each case the pleading commences with the statement ‘the plaintiff pleads his cause of action, and avers and states pursuant to section 255-50 of Schedule 1 of the [TAA], as follows’. Each of the statements and averments in the plaintiff’s statement of claim about a matter is prima facie evidence of that matter pursuant to s 255-50 of Schedule 1 to the TAA. That section provides, in part, that in:
…a proceeding to recover an amount of a tax‑related liability, a statement or averment about a matter in the plaintiff’s complaint, claim or declaration is prima facie evidence of the matter.
The plaintiff’s applications are supported by affidavits in each proceeding sworn on 6 September 2017, the plaintiff’s Murray affidavit, and one in the Pitman proceeding (‘plaintiff’s Pitman affidavit’).[15] The identifying details of the deponent of that affidavit have been redacted in accordance with Orders made by Croft J in each proceeding on 4 August 2017 pursuant to s 130 of the Evidence Act.
[15]See s 255-55 of Schedule 1 to the TAA.
Income tax which remains unpaid after it has become due and payable is a tax-related liability that the plaintiff is entitled to sue to recover in a Court of competent jurisdiction.[16] Specifically, income tax is a tax-related liability, as defined, under item 37 of the table in s 250-10(2) of Schedule 1 to the TAA as an amount that was due and payable under s 5-5 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’).[17]
[16]Section 255-5 of Schedule 1 to the TAA, which provides that the amount of a tax‑related liability that is due and payable is a debt due to the Commonwealth payable to the Commissioner and that a Deputy Commissioner may sue in his or her official name in a court of competent jurisdiction to recover an amount of a tax‑related liability that remains unpaid after it has become due and payable.
[17]Division 5 of the ITAA 1997 applies in relation to income tax or SIC that a taxpayer must pay for the 2010-2011 financial year and later financial years: see s 5-5 of the Income Tax (Transitional Provisions) Act 1997 (Cth).
Evidentiary certificates prepared for the purposes of s 255-45 of Schedule 1 to the TAA are exhibited to the plaintiff’s affidavits.[18] They are prima facie evidence of the total amounts of debt due and payable by the defendants in respect of their tax-related liabilities. These debts continue to accrue GIC for each day that they remain unpaid. The amounts have since been updated by further certificates exhibited to further redacted affidavits, one in each proceeding.[19]
[18]Exhibits 5, 7 and 8 to the plaintiff’s Murray affidavit. Exhibits 4, 6 and 7 to the plaintiff’s Pitman affidavit.
[19]In Murray’s proceeding it is the affidavit of 22 November 2017, with a certificate under s 255-45 of Schedule 1 of the TAA showing a debt due of $1,751,985.47 as at 22 November 2017. In Pitman’s proceeding it is an affidavit of the same date with a certificate under the same section showing a debt due of $2,044,112.60 as at that date.
Murray’s Tax Debt
The plaintiff seeks summary judgment in respect of Murray’s income tax and Medicare levy liabilities, which amounted to $755,590.10 including associated interest charges as at 6 September 2017,[20] together with further interest charges to the date of judgment. The defendant’s income tax and Medicare levy liabilities comprise:
[20]Exhibit 5 to the plaintiff’s Murray affidavit.
(a) an additional amount of income tax and Medicare levy of $449,855.30 in respect of the year of income ended 30 June 2008 (‘2008 year’), which was notified by a notice of amended assessment issued on 7 August 2014 and became payable on 1 September 2014;[21]
[21]Exhibit 1 to the plaintiff’s Murray affidavit. The certificate dated 6 September 2017 at exhibit 5 was issued pursuant to s 255-45 of Schedule 1 to the TAA, and is prima facie evidence that the notices of amended assessment of income tax for the relevant years were served on Murray.
(b) an additional amount of income tax and Medicare levy of $79,246.67 in respect of the year of income ended 30 June 2009 (‘2009 year’), which was notified by a notice of amended assessment issued on 7 August 2014 and became payable on 1 September 2014;[22]
[22]Exhibit 2 to the plaintiff’s Murray affidavit.
(c) an additional amount of income tax and Medicare levy of $21,650 in respect of the year of income ended 30 June 2010 (‘2010 year’), which was notified by a notice of amended assessment issued on 7 August 2014 and became payable on 1 September 2014;[23]
(d) an additional amount of income tax and Medicare levy of $45,850 in respect of the year of income ended 30 June 2011 (‘2011 year’), which was notified by a notice of amended assessment issued on 7 August 2014 and became payable on 1 September 2014;[24] and
(e) GIC, which has accrued on each of the defendant’s unpaid income tax liabilities from the date on which the income tax became payable.
[23]Exhibit 3 to the plaintiff’s Murray affidavit.
[24]Exhibit 4 to the plaintiff’s Murray affidavit.
Pitman’s Tax Debt
The plaintiff seeks summary judgment in respect of Pitman’s income tax and Medicare levy liabilities, which amounted to $1,145,322.25 including associated interest charges as at 6 September 2017,[25] together with further interest charges to the date of judgment. Pitman’s income tax and Medicare levy liabilities comprise:
[25]Exhibit 4 to the plaintiff’s Pitman affidavit.
(a) an additional amount of income tax and Medicare levy of $80,825 in respect of the year of income ended 30 June 2011 (‘2011 year’), which was notified by a notice of amended assessment issued on 7 August 2014 and became payable on 1 September 2014;[26]
[26]Exhibit 1 to the plaintiff’s Pitman affidavit. The certificate dated 6 September 2017 at exhibit 4 was issued pursuant to s 255-45 of Schedule 1 to the TAA.
(b) income tax and Medicare levy of $369,865.62 in respect of the year of income ended 30 June 2012 (‘2012 year’), which was notified by a notice of assessment issued on 7 August 2014 and became payable on 21 November 2012;[27]
(c) income tax and Medicare levy of $333,006.99 in respect of the year of income ended 30 June 2013 (‘2013 year’), which was notified by a notice of assessment issued on 7 August 2014 and became payable on 21 November 2013;[28] and
(d) GIC, which has accrued on each of Pitman’s unpaid income tax liabilities from the date on which the income tax became payable.
[27]Exhibit 2 to the plaintiff’s Pitman affidavit.
[28]Exhibit 3 to the plaintiff’s Pitman affidavit.
The notices of assessment of income tax[29] dated 7 August 2014 issued to Pitman are conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the TAA on review or appeal relating to the assessment, that the amount and particulars of the assessment are correct.[30]
[29]Including the notice of amended assessment issued to the defendant for the 2011 year: see the definition of ‘this Act’ in s 6(1) and s 173 of the ITAA 1936.
[30]Item 2 of s 350-10(1) in Schedule 1 of TAA.
GIC has accrued (and continues to accrue) on the unpaid income tax liabilities of Pitman in accordance with s 5-15 of the ITAA 1997.[31] GIC is calculated daily on a compounding basis in accordance with Part IIA of the TAA and the GIC for a given day becomes due and payable at the end of that day under s 8AAE of the TAA. GIC due and payable under s 8AAE of the TAA is a tax-related liability that the plaintiff is entitled to sue to recover in a Court of competent jurisdiction.[32]
[31]The dates on which the income tax became due and payable notified in the assessments issued to Pitman are calculated in accordance with s 5-5(5) and (7) of the ITAA 1997.
[32]Section 255-5 of Schedule 1 to the TAA and item 70 of the table in s 250-10(2) of Schedule 1 to the TAA.
Medicare levy and Medicare levy surcharge are treated in the same way as income tax under both Schedule 1 to the TAA and the ITAA 1997.[33] This means that the applicable provisions set out above apply with equal force to the Medicare levy notified in the notices of assessment and amended assessment of income tax issued to Pitman in the relevant years.
[33]Section 90-1 of Schedule 1 to the TAA.
Shortfall Interest Charge
The plaintiff also seeks summary judgment in respect of Murray and Pitman’s liability to pay SIC. Murray’s SIC amounted to $344,595.33 including associated interest charges as at 6 September 2017,[34] together with further interest charges to the date of judgment. Pitman’s SIC amounted to $19,884.61, including associated interest charges as at 6 September 2017,[35] together with further interest charges to the date of judgment.
[34]Exhibit 8 to the plaintiff’s Murray affidavit.
[35]Exhibit 7 to the plaintiff’s Pitman affidavit.
The liability to pay SIC in respect of income tax is imposed under s 280-100(1) of Schedule 1 to the TAA in circumstances where an additional amount of income tax is payable because the Commissioner issues an amended assessment of income tax in a given year of income. The liability to pay SIC is calculated by reference to each day in the period beginning when the income tax would have originally been due to be paid under the taxpayer’s original assessment and the date when the assessment is amended.[36]
[36]Subsection 280-100(2) of Schedule 1 to the TAA.
The Commissioner notified:
(a) Murray of the SIC he was liable to pay in the notices of amended assessment of income tax that were issued to him in respect of the relevant years on 7 August 2014.[37] The amounts of SIC notified to Murray were:
[37]Section 280-110 of Schedule 1 to the TAA.
(i) $216,890.65 in respect of the 2008 year, which became payable on 1 September 2014;[38]
[38]Exhibit 1 to the plaintiff’s Murray affidavit. The certificate dated 6 September 2017 at exhibit 8 to the plaintiff’s Murray Affidavit, which was issued pursuant to s 255-45 of Schedule 1 to the TAA, is prima facie evidence that the notices of SIC for the relevant years were served on Murray.
(ii) $30,209.25 in respect of the 2009 year, which became payable on 1 September 2014;[39]
[39]Exhibit 2 to the plaintiff’s Murray affidavit.
(iii) $6,163.50 in respect of the 2010 year, which became payable on 1 September 2014;[40] and
[40]Exhibit 3 to the plaintiff’s Murray affidavit.
(iv)$8,570.95 in respect of the 2010 year, which became payable on 1 September 2014.[41]
(b) Pitman of the SIC she was liable to pay in the notice of amended assessment of income tax for the 2011 year that was issued to Pitman on 7 August 2014.[42] The amount of SIC notified to Pitman in respect of the 2011 year was $15,109, which became payable on 1 September 2014.[43]
[41]Exhibit 4 to the plaintiff’s Murray affidavit.
[42]Section 280-110 of Schedule 1 to the TAA.
[43]Exhibit 1 to the plaintiff’s Pitman affidavit. The certificate dated 6 September 2017 at exhibit 7 to the plaintiff’s Pitman affidavit, which was issued pursuant to s 255-45 of Schedule 1 to the TAA, is prima facie evidence that the notice of SIC for the 2011 year was served on Pitman.
The notices of amended assessment of income tax issued to each of Murray and Pitman, which notified them of their liability to pay SIC, are prima facie evidence of their liability to pay SIC in respect of each relevant year.[44]
[44]Subsection 280-110(3) of Schedule 1 to the TAA.
Shortfall interest charge which remains unpaid after it has become due and payable is a tax-related liability that the plaintiff is entitled to sue to recover in a Court of competent jurisdiction.[45] Specifically, for the 2011 year, SIC was a tax-related liability, as defined, under item 73 of the table in s 250-10(2) of Schedule 1 to the TAA.[46]
[45]Section 255-5 of Schedule 1 to the TAA.
[46]Item 73 of s 250-10(2) of Schedule 1 to the TAA was repealed with effect from the 2012-2013 income year, with item 37AA inserted to deal with SIC: items 17 and 20 of Part 2 of Schedule 3 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Act 2013 (Cth) (‘2013 Amending Act’), and item 39 of Part 3 of Schedule 3 to that Act.
GIC has accrued (and continues to accrue) on the unpaid SIC liability of Pitman in accordance with s 5-15 of the ITAA 1997.[47] GIC is also a tax-related liability that the plaintiff is entitled to sue to recover in a Court of competent jurisdiction.[48]
[47]Shortfall interest charge becomes due and payable 21 days after the day on which the Commissioner gives you notice of the charge: s 5-10 of the ITAA 1997.
[48]Section 255-5 of Schedule 1 to the TAA and item 70 of the table in s 250-10(2) of Schedule 1 to the TAA.
Administrative Penalties
The plaintiff seeks summary judgment in respect of Murray and Pitman’s liability to pay administrative penalties. In the case of Murray this was in the amount of $617,852.36, including associated interest charges as at 6 September 2017,[49] together with further interest charges to the date of judgment. In the case of Pitman, the amount was $839,297.53, including associated interest charges as at 6 September 2017,[50] together with further interest charges to the date of judgment.
[49]Exhibit 7 to the plaintiff’s Murray Affidavit.
[50]Exhibit 6 to the plaintiff’s Pitman affidavit.
Murray was assessed with administrative penalty in respect of each of Murray’s relevant years in accordance with s 298-30 and Division 284 of Schedule 1 to the TAA by a notice of assessment of shortfall penalty that issued on 7 August 2014.[51] Pitman was similarly assessed with administrative penalty in respect of each of Pitman’s relevant years in accordance with the same provision by a notice of assessment of shortfall penalty that issued on the same day.[52]
[51]Exhibit 6 to the plaintiff’s Murray Affidavit. The certificate dated 6 September 2017 at exhibit 7 to the plaintiff’s Murray Affidavit, which was issued pursuant to s 255-45 of Schedule 1 to the TAA, is prima facie evidence that the notice of assessment of shortfall penalty for the relevant years was served on Murray.
[52]Exhibit 5 to the plaintiff’s Pitman affidavit. The certificate dated 6 September 2017 at exhibit 6 to the plaintiff’s Pitman affidavit, which was issued pursuant to s 255-45 of Schedule 1 to the TAA, is prima facie evidence that the notice of assessment of shortfall penalty for the relevant years was served on Pitman.
Murray was assessed as being liable to pay administrative penalty in the amounts of $337,391.45 (2008 year), $71,322 (2009 year), $19,485 (2010 year) and $41,265 (2011 year). Pitman was assessed as being liable to pay administrative penalties of $60,618.75 (2011 year), $332,879.05 (2012 year) and $299,706.30 (2013 year).
The notice of assessment of shortfall penalty dated 7 August 2014 issued to each of Murray and Pitman is conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the TAA on review or appeal relating to the assessment, that the amount and particulars of the assessment are correct.[53]
[53]Item 2 of the table in s 350-10(1) of Schedule 1 to the TAA. Formerly s 298-30(3) of Schedule 1 to the TAA: see items 11 and 71 of Part 1 and item 73 of Part 2 of Schedule 2 to the 2015 Amending Act. Item 2 of s 350-10(1) was substituted on 1 April 2017 by s 2 and item 88 of Part 2 of Schedule 4 of the 2017 Amending Act.
The notices of assessment of shortfall penalty, which notified Murray and Pitman of their liability to pay the penalty for the purposes of s 298-10 of Schedule 1 to the TAA, stated that the penalty was due for payment on 1 September 2014.[54] Administrative penalties that remain unpaid after they are due and payable are a tax-related liability that the plaintiff is entitled to sue to recover in a Court of competent jurisdiction.[55] Administrative penalties are a tax-related liability, as defined, under item 140 of the table in s 250-10(2) of Schedule 1 to the TAA.
[54]Section 298-15 of Schedule 1 to the TAA.
[55]Section 255-5 of Schedule 1 to the TAA.
GIC has accrued (and continues to accrue) on the unpaid administrative penalty liabilities of Murray and Pitman in accordance with s 298-25 of Schedule 1 to the TAA. GIC is also a tax-related liability that the plaintiff is entitled to sue to recover in a Court of competent jurisdiction.[56]
[56]Section 255-5 of Schedule 1 to the TAA and item 70 of the table in s 250-10(2) of Schedule 1 to the TAA.
Summary Judgment test
Part 4.4 of the CPA sets out the test for summary judgment: a Court may give summary judgment if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, has no real prospect of success (s 63).
This liberalises the rules governing summary judgment in Victoria, such that it is easier to dispose of unmeritorious claims or defences summarily. The Court of Appeal has stated that the test:
[S]hould be construed as one of whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success; that the ‘real chance of success’ test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not ‘hopeless’ or ‘bound to fail’, it does not have a real prospect of succeeding.[57]
[57]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 at [29] (per Warren CJ and Nettle JA (Neave JA agreeing)) (‘Lysaght’).
The test must be applied according to its own terms and not according to considerations of whether the proceeding is ‘hopeless’ or ‘bound to fail’. To adopt ‘an unduly constrained, historical approach to the construction of s 63’ would ‘subvert the purpose of the provision’.[58]
[58]Ibid [25].
Courts must, however, continue to exercise the power to terminate proceedings summarily with caution. Courts should therefore only exercise the power if it is clear that there is no real question to be tried. This is so irrespective of whether an application for summary judgment is made on the basis that: the pleadings do not disclose a reasonable cause of action, and no amendment could cure this error; or the action is frivolous, vexatious or an abuse of process; or the application for summary judgment is supported by evidence.[59]
[59]Ibid [35] (Warren CJ and Nettle JA (Neave JA agreeing)).
The power to give summary judgment must be exercised in accordance with the overarching purpose of the Act and taking into account the fact that, if granted, a party will be deprived of the chance to pursue its claim or defence.[60]
[60]Ibid [42] (Neave JA).
These principles were confirmed by the Court of Appeal in Mandie v Memart Nominees Pty Ltd[61] where Kyrou, Ferguson and McLeish JJA observed:
According to Lysaght: a prospect which is not ‘real’ is ‘fanciful’; although the ‘no real prospect of success’ test in s 63(1) of the CP Act is more liberal than the common law test of ‘hopeless’ or ‘bound to fail’, there may not be much difference between them in practice; and, properly understood, a real question to be tried is one which realistically might result in the respondent to an application for summary judgment succeeding in the proceeding.
[Footnotes omitted].
[61][2016] VSCA 4 [45].
If there is no real prospect of success, a Court may nevertheless allow a matter to proceed to trial if:
(a) it is not in the interests of justice to summarily dispose of the proceeding (s 64(a)); or
(b) the dispute is of such a nature that only a full hearing on the merits is appropriate (s 64(b)).
Whether a proceeding should be allowed to go to a full hearing on the merits must be determined according to the circumstances of each case: Barber v State of Victoria.[62]
[62][2012] VSC 554 [15].
Submissions and consideration
Both Murray and Pitman’s defences claim that the assessments of income tax and shortfall penalty for their relevant years were incorrect,[63] and that as a consequence the GIC and SIC liabilities claimed by the plaintiff were also incorrect.[64] The material in support of their applications for an adjournment, reveals that Pitman made a formal objection to the assessments in respect of each relevant year and the assessments were rejected, with substantial reasons giving sound legal justification for the rejections. Murray claims to have lodged an objection against the notices of amended assessment of income tax[65] and the notices of assessment of shortfall penalty under s 298-30 of Schedule 1 to the TAA.[66]
[63]Murray Defence [2], [5], [8], [11]–[14]. Pitman’s Defence [3], [5], [8], [11]–[14].
[64]Murray Defence [6], [15(b)], [17]–[19]. Pitman Defence [6], [15(b)], [17]–[19].
[65]Particulars to [5] of the Defence.
[66]Defence [8], [14].
The plaintiff relies upon the assessments and the provisions of the TAA. Item 2 of s 350-10(1) of Schedule 1 to the TAA provides that a notice of assessment is conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the TAA on review or appeal relating to the assessment, that the amount and particulars of the assessment are correct. That is a complete answer to Pitman’s allegation that the assessments of income tax and shortfall penalty for the relevant years were incorrect.
Item 2 of s 350-10(1) of Schedule 1 to the TAA forms part of a statutory regime that implements a long-standing policy to protect the interests of the revenue[67] by placing the Commissioner in a position of ‘special advantage’ with respect to the recovery of tax-related liabilities.[68]
[67]Broadbeach [44].
[68]Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 48 ALR 545, 547 (Gibbs CJ). See also Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation [2006] VSCA 191 [19]–[20] (Nettle JA).
Sections 14ZZM and 14ZZR of the TAA permits the Commissioner to recover amounts notwithstanding any pending taxation review or appeal proceedings brought under Part IVC of the TAA. They are also a part of that statutory regime. Section 14ZZM is in Division 4 of Part IVC of the TAA, which relates to AAT reviews of objection decisions and extension of time refusal decisions, and 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.
Section 14ZZR is in Division 5 of Part IVC of the TAA, which relates to Court appeals against objection decisions, and provides
14ZZR Pending appeal not to affect implementation of taxation decisions
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.
With respect to income tax assessments, s 175 of the ITAA 1936, which provides that the validity of any assessment shall not be affected by reason that any of the provisions of the Act[69] have not been complied with, must also be read together with item 2 of s 350-10(1) of Schedule 1 to the TAA.[70] The effect of these provisions is to preclude Murray and Pitman from arguing that an assessment has not been made by the Commissioner and, except in taxation appeal or review proceedings brought under Part IVC of the TAA, from disputing the substantive liability notified by the assessment.[71]
[69]Which includes the ITAA 1997, Part IVC of the TAA and Schedule 1 to the TAA: see the definition of ‘this Act’ in s 6(1) of the ITAA 1936.
[70]Futuris [24]–[25], [64]–[66].
[71]FJ Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360, 375–376 (Mason and Wilson JJ); Deputy Commissioner of Taxation v Collie [1998] 2 VR 106, 111–112 (McDonald J).
It is clear that s 350-10(1) of the TAA has an identical effect to s 177 of ITAA 1936, which it replaced. The scope of the former s 177(1) was considered by the High Court in Futuris. The question in Futuris was the effect of ss 175 and 177 of ITAA 1936 (and thus s 350-10(1) of Schedule 1 to the TAA) in ‘recovery proceedings’ (which these proceedings are) on the one hand, and an application for judicial review under s 75(v) of the Constitution or s 39B of the Judiciary Act, on the other. The plurality said:[72]
The evident policy referred to in the terms of s 177(1) is the facilitation of proceedings for the recovery of tax which are instituted by the Commissioner under s 209 of the Act in a court of competent jurisdiction. Corresponding provision is made elsewhere in the Act for the recovery of other amounts. The action for recovery is facilitated by the “conclusive evidence” provision in s 177(1). That sub-section, as the Commissioner correctly submitted, is not a privative clause in the ordinary use of that term. It does not purport to oust the (necessarily federal) jurisdiction conferred upon any other court in matters arising under the Act. To the contrary, it recognises that there may be Pt IVC proceedings and in those proceedings the “conclusive evidence” provision does not apply.
In recovery proceedings, s 177(1) operates to change what otherwise would be the operation of the relevant laws of evidence. But, given the presence of Pt IVC, s 177(1) does not operate to impose an incontestable tax or otherwise fall foul of the principles which were considered in Nicholas v R and which respect usurpation of the federal judicial power by deeming to exist an ultimate fact.
What of the operation of s 177(1) as a limitation upon the evidence which may be received in an application for judicial review under s 75(v) of the Constitution or s 39B of the Judiciary Act? What will be in issue there, as explained earlier in these reasons, are allegations of corruption and other deliberate maladministration. The attribution “correct” given by the concluding word of s 177(1) is inapt to describe the situation which would arise were such allegations (properly pleaded) made good in the judicial review proceeding. Considerations applied above in the construction of s 175 apply here also. The result is that, on its proper construction and its application to the present s 39B case, s 177(1) did not conclude against Futuris curial consideration of alleged deliberate maladministration of the Act with respect to the Second Amended Assessment.
It follows from what has been said respecting s 177(1) that not only is it not a privative clause, but there is not the conflict or inconsistency between s 177(1), s 175 and the requirements of the Act governing assessment which calls for reconciliation of the nature identified in Plaintiff S 1572002 v Commonwealth. The point sought to be made here respecting the relationship between ss 175 and 177(1) and those requirements was expressed in Deputy Federal Commissioner of Taxation v Richard Walter Pty Ltd:
The requirements of the Act which govern the making of an assessment do not produce any inconsistency with the provision that a notice of assessment constitutes conclusive evidence in recovery proceedings. That is because s 175 provides that the validity of any assessment shall not be affected by reason of the fact that any of the provisions of the Act have not been complied with ... Having regard to s 175, there is no inconsistency, apparent or otherwise, between the requirements of the Act relating to the making of an assessment and s 177(1), and no reconciliation is called for. Indeed, as I have said, s 177(1) does no more than give evidentiary effect to s 175.
[72]Futuris [64]–[67] (citations omitted); see also Anglo American [41]–[42].
The principle that emerges from these passages is that s 177 (and thus s 350-10(1) of the TAA) applies according to its terms as ‘conclusive evidence’ in recovery proceedings.[73] It means that the notices of assessment in evidence in these proceedings conclusively establish that the assessments were ‘properly made’ and ‘the amounts and particulars of the assessment are correct’. That is not the case, however, in proceedings under Part IVC of the TAA because those proceedings are specifically excepted from the operation of the that part of s 350-10(1) of the TAA. Nor would it be the case in judicial review proceedings under s 75(v) of the Constitution or s 39B of the Judiciary Act.[74]
[73]Anglo American [43].
[74]Futuris [4], [47]–[48], [66]; Anglo American [45].
The effect of these provisions are graphically illustrated in Broadbeach[75] to which I have already referred. In that case the Court referred to the tax related legislation, much of which is also relied on by the plaintiff in these proceedings, and after referring to the fact that, notwithstanding that the assessment may be under review or appeal, the tax assessed is payable as if it were in effect undisputed, the Court said:
But harsh though the operation of these provisions may be, they implement a long-standing legislative policy to protect the interests of the revenue. In Deputy Commissioner of Taxation v Niblett,30 Asprey J struck out pleas of non-liability to a recovery action instituted by the Deputy Commissioner in the Supreme Court of New South Wales while objections were pending under what was then s 185 of the Assessment Act. His Honour observed:
It may be thought to be a hardship that a taxpayer should have to pay the tax assessed when an objection to the assessment has not been decided upon but there are obvious financial considerations of high policy that must be weighed in the balance against cases of individual hardship with which the Commissioner through the appropriate use of his powers under [the Assessment Act] can cope ... Where the meaning of the words of a statute is clear “it is not open to the Court to narrow or whittle down the operation of the Act by seeming considerations of hardship or of business convenience or the like” -- Attorney-General v Carlton Bank.31
[75](2008) 237 CLR 473 [43]–[44].
Because all the tax-related liabilities that the plaintiff seeks to recover in these proceedings are amounts that have been assessed, or are amounts that are owing as a consequence of the assessments, such as SIC and GIC, the effect of s 350-10 of Schedule 1 to the TAA is that Murray and Pitman cannot raise any argument that the amounts assessed are incorrect as a defence in these proceedings.
The evidence filed on behalf of Pitman shows that objection lodged by her was finalised on 31 October 2016 and has been disallowed in full.[76] There is no evidence that Pitman has appealed against the objection decision or that she has sought review of that decision by the AAT in accordance with Part IVC of the TAA.[77]
[76]Affidavit of Bronwyn Jane Goddard sworn 21 November 2017, exhibit BJG-4. See also paragraph 25 of the plaintiff’s affidavit.
[77]Section 14ZZ of the TAA.
Murray claims in his defence that he has lodged an objection against the assessments issued to him in respect of the Murray relevant years. The plaintiff’s records show that there is no outstanding objection lodged by Murray to be determined by the Plaintiff.[78]
[78]Paragraph 30 of the plaintiff’s Murray Affidavit.
However, even if Murray or Pitman had appealed against an objection decision or they had sought review of that decision by the AAT in accordance with Part IVC of the TAA, the existence of the objection would not preclude the tax-related liabilities from being recovered by the plaintiff. Sections 14ZZM and 14ZZR of the TAA, to which I have already referred, manifest a policy that the recovery of tax debts is intended to be distinct from any challenge to assessments made through the objection, objection decision and taxation review and appeal processes provided for in Part IVC of the TAA.[79]
[79]Part IVC of the TAA applies to taxation objections: s 14ZL of the TAA.
In these circumstances, not only am I satisfied for the purposes of s 63 of the CPA that Murray and Pitman’s defences have no real prospect of success, I am in effect precluded by the operation of the income tax legislation and the TAA from allowing such a defence to be run in this Court. It can only be pursued in the AAT or the Federal Court. Accordingly, Murray and Pitman’s defences have no real prospects of success and this is a case where there are no other circumstances that would warrant the Court allowing the proceeding to go to trial under s 64 of the CPA.
Dr Orow submitted that the same matters advanced to support an adjournment also support the proceedings going to trial in the exercise of the Court’s discretion under s 64 of the CPA. For the reasons I have already given in relation to the adjournment, and those just given –
(a) it is not in the interests of justice for the proceedings to proceed to trial;
(b) the disputes in these proceedings are not of such a nature that only a full hearing on the merits is appropriate
Conclusion
For the reasons given above, there is no answer at law to the claims that the plaintiff makes in these proceedings and the plaintiff in each proceeding is entitled to judgment for the amounts of the debts claimed. I expect that since the date of the hearing, further general interest charges have accrued and I invite the plaintiff in each proceeding to produce updated certificates pursuant to s 255-45 of Schedule 1 to the TAA. There is at present no reason exposed in the material before me why the costs should not follow the event. I will ask the plaintiff to submit minutes of proposed orders.
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