Deputy Commissioner of Taxation v Nugawela - [2015] WASC 468

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DEPUTY COMMISSIONER OF TAXATION -v- NUGAWELA [2015] WASC 468

CORAM: KENNETH MARTIN J

HEARD: 19 AUGUST 2015

DELIVERED : 19 AUGUST 2015

FILE NO/S: CIV 2686 of 2014

BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND
PATRICK ALLAN NUGAWELA
Defendant

Catchwords:

Summary judgment - Taxation - Assessment - Default assessment - No substantive defence raised - Judgment for Commissioner - Turns on own facts

Legislation:

Nil

Result:

Summary judgment issued

Category: B

Representation:

Counsel:

Plaintiff: Mr C M Slater
Defendant: Mr R J Butcher

Solicitors:

Plaintiff: Australian Taxation Office
Defendant: Butcher Paull & Calder

Case(s) referred to in judgment(s):

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2009) 237 CLR 473
Southgate Investment Funds Ltd v Deputy Commissioner of Taxation [2013] FCAFC 10; (2013) 211 FCR 274
KENNETH MARTIN J:
(This judgment was delivered extemporaneously on 19 August 2015 and has been edited from the transcript.)

I am dealing with an application by the Deputy Commissioner of Taxation seeking summary judgment based upon a statement of claim, which is attached to the Deputy Commissioner's writ of summons that issued out of this court on 9 December 2014.

The application for summary judgment

The application for summary judgment was filed on 12 May 2015. It requires an extension of time, since ordinarily applications under O 14 of the Rules of the Supreme Court 1971 (WA) (RSC) (for, effectively, judgment without a trial on the basis that the plaintiff's case is so overwhelming, that there is no defence and the matter should be the subject of immediate judgment) need to be brought within 21 days of the statement of claim being filed.
However, the reasons for an application for summary judgment not being pursued until 12 May 2015 are fully explained in affidavit materials before me. In short, there was a process of mediation and informal conferral with the defendant in relation to his position and some time was extended to him for the purpose of negotiation and also considering his position, as regards assertions of a disability inhibiting the defendant from complying with his taxation obligations over some considerable period.
In all events, I am of the view that leave to apply should be given and I did, actually, on the last directions hearing on 6 August 2015, grant leave for the application to be brought beyond the 21‑day period that ordinarily applies. I did that for two reasons. First, it seems to me that the reasons for the application not being brought within a 21‑day period have been explained. Second, I have assessed there to be prima facie merit in the plaintiff's claim to, effectively, pursue a debt due to the Commonwealth for unpaid income tax liabilities, spanning a period between the 2003 financial year to the 2010 financial year, along with penalties for failure to file tax returns and general interest charges (payable on unpaid income tax and for late payment of administrative penalty).
I needed to make some revisions to prior directions concerning filing of responsive material by the defendant in terms of potential defence against the Deputy Commissioner's application for judgment. The requirements of O 14 of the RSC, effectively, have now been fully met by the plaintiff Deputy Commissioner, in terms of a verification of the underlying facts which are relied upon in respect of a claim for a monetary judgment, as pursued by the statement of claim.
I am satisfied that the jurisdictional prerequisites, in terms of verifying the underlying facts, have been met.
As regards affidavit materials relied on for the plaintiff, I refer to the affidavit of Ms Burke, affirmed 27 April 2015 and filed 12 May 2015.
For clarity, I note that the plaintiff is the Deputy Commissioner of Taxation (the 'Deputy Commissioner') who, in his or her official name, is entitled to sue to recover debts due to the Commonwealth of Australia and payable to the Commissioner of Taxation (the 'Commissioner').

The plaintiff's claim

Default assessments were issued by the Commissioner against the defendant, in respect of eight financial years, beginning with the income year ended 30 June 2003 and concluding with the income year ending 30 June 2010, in the absence of any tax return for those years having been filed by Dr Nugawela.
Notices of assessment in relation to those default assessments were issued by the Commissioner on 30 November 2011 and on 8 December 2011. They are contained in attachment CB1 through to CB8 to Ms Burke's affidavit.
Under the applicable income tax legislation, when a person is assessed to pay income tax for a certain year and a notice of assessment in respect of that year is served on them, and the income tax for that year becomes due and payable but the person assessed fails to pay the income tax before the relevant due dates, then by reason of their failure to pay income tax by the time date it is due to be paid, the person is liable to pay the general interest charges on the unpaid amount. That secondary aspect of the plaintiff's claim is also invoked and identified within the statement of claim as verified by Ms Burke.
In addition to the eight financial years in which the defendant was assessed as liable to pay income tax and the Commissioner has issued to the defendant notices of assessment indicating the assessed amounts of taxable income and the consequent income tax liability for the defendant, following paragraphs 10 through 15 of the statement of claim contend that in the financial years that followed, namely, the years ending 30 June 2011, 30 June 2012 and 30 June 2013, no income tax returns were filed by the defendant.
Consequently, under the applicable income tax laws (which are referred to in those pleaded paragraphs), administrative penalties apply and were incurred. They are in respect of the 2011 financial year, $550; in respect of the 2012 financial year, $670; and in respect of the 2013 financial year, $850.
Moreover, a general interest charge exposure is incurred in respect to late payment of the administrative penalties as well. The amounts are the subject of calculated tabulation and, in aggregate, are identified as a further amount of total penalties and interest charges in respect of Dr Nugawela's failure to file any tax returns in those following three financial years.
Default assessments for income tax have not issued yet in respect to those financial years, although the tax returns by the defendant are obviously well and truly out of time.

Defendant's response to RSC O 14 application

By way of his resistance to the plaintiff's claim against him, which is essentially for a statutory liquidated debt, Dr Nugawela, through his solicitors, filed an affidavit of 13 August 2015 plus a written outline of submissions. His short affidavit, essentially, reads in these terms at par 2:
The plaintiff issued a series of tax assessments to me in respect of the period after 2003, as I did not file tax returns.
Then at par 3:
I did not file tax returns because I encountered a number of personal problems in the past few years. For example, my medical practice was flooded due to a pipe burst in January 2014. I was engaged in legal proceedings with my former landlord. Most significantly, I was suffering from psychological problems after 2003.
He goes on to say at par 4:
The psychological problems prevented me from fulfilling my liability to file tax returns with the plaintiff, resulting in the present action. One of my symptoms was severe procrastination in relation to anything that did not relate to the practice of medicine.
At par 5 he says:
I sought psychiatric assistance for my problem and am still seeking treatment.
Then at par 6:
I have now lodged my tax returns for the financial years ending June 2007 and June 2008.
Dr Nugawela goes on to say:
These two returns were lodged on 12 August 2015.
Dr Nugawela attaches the two tax returns for those two financial years to his affidavit as attachments A and B. He then says, par 8:
My accountant assessed my tax liability for the financial year ending June 2007 to be $55,947.30.
He continues:
The plaintiff has wrongly assessed my tax liability for the same period to be $122,600.40.
Dr Nugawela says in par 9:
Similarly, my accountant assessed my tax liability for the financial year ending June 2008 to be $1380.40.
He says:
The plaintiff has wrongly assessed my tax liability for the same period to be $211,813.95.
Dr Nugawela then continues, par 10:
Based on the tax returns for the years '07 and '08, I verily believe that the assessments made by the plaintiff, as to my tax liability, need to be reconsidered for these years as the current assessments are based on assumed information as to my income, expenses and liabilities, which is not correct.
He says, par 11:
The assessments made by the plaintiff, as to my tax liability for the periods between June 2003 and 2006 and June 2009 and June 2010 need to be reconsidered, as the assessments are based on incomplete information as to my income, expenses and liabilities and are not correct.
Then, in par 12, Dr Nugawela relates how, in his experience, his medical practice was not a high earning venture. He talks about average income of the practice and average expenses. He talks about averages and figures for 2009 and 2010.
Dr Nugawela then says, at the end of par 12:
Based on these assessments, the tax assessments made by the plaintiff, as to my tax liability, need to be reconsidered. For these years, as the current assessments are based on incomplete information as to my income, expenses and liabilities and are not correct.
He continues, par 13:
I'm in the process of instructing my accountants in relation to preparing tax returns for the balance years and I will be lodging them in the near future. This process has been made complex and time consuming, as I lost most of my financial records in a flood in my office in 2014.
At par 14 he says:
I accept that I do owe money for tax, which I will pay, but my tax liability could be better ascertained by the plaintiff after I've filed the tax returns for the balance years.
Firstly, Dr Nugawela concludes at par 15:
I verily believe that the plaintiff's application for summary judgment ought be deferred and reasonable time be given for me to file my tax returns for the balance years.
As was amplified by counsel for Dr Nugawela speaking this morning, the amount of time that Dr Nugawela seeks is a 'reasonable time' to file his outstanding tax returns for financial years 2003 through to 2013. So far the only tax returns filed by Dr Nugawela are for the 2007 and 2008 financial years, which were only filed a week ago. The amount of time Dr Nugawela seeks, as was articulated this morning, is a month for all that to happen.

Submissions

By a written outline of submissions filed on 3 July 2015, the plaintiff articulates its position claiming a liquidated debt from Dr Nugawela by reference to the provisions of the Income Tax Assessment Act 1936 (Cth), the Income Tax Assessment Act 1997 (Cth), the Income Tax (Transitional Provisions) Act 1997 (Cth), and the Taxation Administration Act 1953 (Cth).
On the face of it, that legislative framework presents as somewhat complex. But the underlying principles are straightforward. Ordinarily, there is an obligation upon a citizen, who earns a certain amount of taxable income, to file their tax return, on an annual basis and within a specified period.
There is also an obligation to pay tax due for a given financial year, that amount being determined on the basis of an assessment issued by the Commissioner of Taxation of an amount of the taxable income for that taxpayer and an amount of tax payable thereon (that assessment is typically informed, at least in part, by the information provided in the person's tax return for that year).
The obligation to pay an assessed tax liability applies, even if the citizen wishes to dispute the correctness of the assessment. There are procedures open to a citizen taxpayer of Australia to have an assessment of income tax reviewed in the Administrative Appeals Tribunal or in the Federal Court. But those review paths need to be invoked and a review conducted in a timeous way and in accordance with well-established procedures.
Dr Nugawela filed some written submissions in support of his position, on 13 August 2015. They were in very brief terms. They make reference to the fact that he has - very belatedly (ie, on 12 August 2015) - lodged income tax returns through his accountants for the 2007 and 2008 financial years. He says these returns show tax liabilities for those years that are significantly different to the tax liabilities as assessed by the plaintiff.
The plaintiff's assessments were, of course, default assessments made by the Commissioner in 2011, made under provisions of the relevant income tax legislation, relating to circumstances where there has been a failure by the taxpayer to furnish an income tax return.
In the written submissions filed on his behalf, Dr Nugawela then identifies contentions concerning the 2007 and 2008 tax years (in circumstances where those belated tax returns have been filed on 12 August this year). He states, at par 8 of those written submissions:
The defendant submits that the assessments made by the plaintiff as to the defendant's tax liability need to be reconsidered as the current assessments are based on incomplete information as to his income, expenses and liabilities.
Dr Nugawela then goes on to say that he does not deny that he would owe money to the plaintiff and he concludes, at par 10, asking that the hearing of today's application for summary judgment be deferred, until he lodges his tax returns for the 'balance' years and the plaintiff then considers the returns filed for the 2007 and 2008 financial years.

Disposition

In my view, the arguments Dr Nugawela put up, effectively, for a deferral of today's application for summary judgment do not withstand intellectual scrutiny or analysis. They are very weak arguments and could apply at best in respect of only two financial years, namely 2007 and 2008, where only at the eleventh and a half hour has Dr Nugawela caused his accountants to actually file tax returns for those years. It is therefore somewhat audacious, in my view, of Dr Nugawela to contend that the tax assessments, which were default assessments that issued in respect of those two financial years (ie, 2007 and 2008), are wrong.
As it is explained in the materials, the default assessments, in respect of the eight financial years between 2003 and 2010, were default assessments that the Commissioner was, in effect, forced to make - by reason of a complete failure of Dr Nugawela to furnish a tax return in respect of those years. Notices of assessment relating to those default assessments were issued to the defendant in November and December 2011.
If it is Dr Nugawela's intention to challenge his default assessments for those years, there are provisions in pt IVC of the Taxation Administration Act which allow persons to make taxation objections when they are dissatisfied with an assessment made in relation to them, although an application for an extension of time may be required.
Certain remedies beyond that can be pursued, either in the Administrative Appeals Tribunal or in the Federal Court, if the Commissioner declines to extend time or declines, in effect, to disallow the assessments that were made.
But none of that detracts from the prima facie obligation of a taxpayer to meet (ie, pay) an ostensibly valid income tax assessment that issues to them. Case authority supporting that proposition is overwhelming.
The case authority is identified in the Deputy Commissioner's written submissions, including the observations by the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2009) 237 CLR 473. In particular, see the reasons addressing the taxation legislation by the plurality (Gummow ACJ, Heydon, Crennan & Kiefel JJ) commencing at [25] and extending to [39]. In particular, I refer to the observations at [33] about conclusive evidence provisions in the Commonwealth income tax legislation.
Likewise, reference has been made this morning by counsel for the plaintiff to the Full Court of the Federal Court decision in Southgate Investment Funds Ltd v Deputy Commissioner of Taxation [2013] FCAFC 10; (2013) 211 FCR 274. In particular, I note the observations made by that three member coram of the Full Federal Court (comprising McKerracher, Jagot & Griffiths JJ) at [77] and eleven sub‑principles as identified in that paragraph. All of which, I observe, are well‑known to practitioners in the area of income tax law. Those points in Southgate Investment Funds were also made in a context in which there was a pending pt IVC proceeding.
To reiterate, the fact that someone disputes a tax assessment does not, on the face of it, entitle them to withhold from paying the amount indicated as payable in their assessment (whether those amounts be tax liabilities, general interest charges, or otherwise).
It is open, as was done in the Southgate case, to apply for a stay of a motion for a summary judgment, or of the execution of a summary judgment in respect of tax recovery proceedings - where there are pending tax objection proceedings under pt IVC of the Taxation Administration Act. Those situations do not lead inevitably to the grant of a stay. And, as I have mentioned, the proposition is even more remote in the present case - because there are no pt IVC proceedings commenced by Dr Nugawela.
To return to Dr Nugawela's affidavit and the multiple excuses he proffers for not filing income tax returns except for two very belated returns, I am not persuaded to grant relief by the assertion that his medical practice was flooded due to a pipe bursting in January 2014. January 2014 is a long time remote to the 2003, 2004, 2005, 2006, 2007, 2008, 2009 and 2010 financial years - where no tax returns were lodged.
A temporal disjunct as between when Dr Nugawela was supposed to file tax returns and the asserted flood in 2014 also arises in respect of the 2011, 2012 and 2013 financial years. The January 2014 flood scenario is a relatively recent phenomenon in a scenario of almost a decade's worth of prior defaults in terms of filing any tax returns.
Dr Nugawela next says, in rather bland terms:
I was engaged in legal proceedings with my former landlord.
No further detail beyond that is provided. On the face of it, that situation would not throw up even a weak excuse for failing to discharge one's obligations in respect of filing annual income tax returns.
Dr Nugawela then says:
Most significantly, I was suffering from psychological problems after 2003.
There is nothing before me other than Dr Nugawela's assertion about that. No detail was provided. There is no reliable detailed expert report, such as from a clinical psychologist or a psychiatrist or somebody with expertise about that. All I have is Dr Nugawela, who I understand to be a general practitioner, putting out an assertion about his personal condition. That is simply not good enough.
Dr Nugawela then continues to the effect that these psychological problems prevented him from fulfilling his obligation to file tax returns.
The asserted psychological problem would appear to have endured in respect of the financial years from 2003 right up to the present time, in which only a week ago (on 12 August 2015) tax returns were filed for the 2007 and 2008 financial years. I would need a lot more detailed expert psychological or psychiatric evidence in terms of such a problem, before I could afford the assertion any credence.
I certainly do not attribute any credence to it on the basis of Dr Nugawela's mere assertion, with no underlying explanation, albeit he may be a general practitioner. Plainly, he would have difficulty treating himself for such a condition, even if it was a genuine condition. Likewise, his assertion of the personal symptom of severe procrastination strikes me as unsupported by anything that I could take serious cognisance of today.

He also says:
I sought psychiatric assistance -
using the past tense for his problem. And then:
and am still seeking treatment.
An overall paucity of information in terms of what assistance was sought, what was the diagnosis and the nature of the treatment that Dr Nugawela is still 'seeking' is apparent. What is said by Dr Nugawela is absolutely bereft of any reliable detail sufficient for me to credibly attribute weight to his assertion this morning.
Likewise, Dr Nugawela's assertion about 'wrong' assessments as to his tax liability in respect of the 2007 and 2008 financial years, seems to me to be, as I indicated before, an audacious comment - bearing in mind that tax returns for those years were only filed a week ago, in circumstances where those returns were wildly out of time in terms of when they ought otherwise to have been filed.
One would expect, for instance, the 30 June 2007 financial year return would be filed not later than about the end of November 2007. Likewise for 2008. As matters have matured, no doubt, in the course of this action for the tax debt recovery (recalling that notices of assessment were issued to the defendant in November and December 2011), it has taken until August 2015 for even those returns to be filed.
Whether or not Dr Nugawela's objections to his assessed tax liabilities have any substance in terms of their merits or demerits, would appear to depend on whether the default notices of assessment are ultimately reconsidered, and then how such a reconsideration occurs, such as by pt IVC proceedings commenced by the defendant (for which an application for an extension of time may be necessary).
But merely to file tax returns many years out of time and then contend that the earlier default assessments that have issued are 'wrong' or 'incorrect', seems to me to be an extravagantly erroneous submission. It is erroneous because the provisions of the income tax legislation provided that the production of a notice of assessment shall be conclusive evidence that the assessment was properly made and that the amounts and particulars of the assessment are correct. Nothing has been done, therefore, to undermine the prima facie correctness of the default assessments made in respect of those two financial years. And, of course, filing returns for two financial years very late says nothing about the other years where assessments have issued and for which the defendant has provided no tax returns at all.
A bland assertion by Dr Nugawela about thinking that the amounts of tax owing might require readjustment or reassessment comes very late in the day, in respect of notices of assessment that issued in either November or December 2011 in circumstances where Dr Nugawela had not filed income tax returns at all in respect of financial years from 2003 thereafter. Nothing else really is put up in that affidavit other than the fact that there was a flood in Dr Nugawela's professional office in 2014. That event is, no doubt, unfortunate. But I need a lot more detail - perhaps an affidavit from an accountant for Dr Nugawela indicating that the accountant has been inhibited in terms of taking steps towards the preparation of a tax return for those years - and I do not have that. So at the moment it is only a bare assertion of no weight or substance.
Dr Nugawela accepts he does owe money for tax. That seems to me to be a gross understatement, given the scale of liabilities he has been assessed for. Then he says that he requires some more time in order to file tax returns for the balance of the years for which he has not filed a return. But in this particular case, Dr Nugawela looks to me to have a chronic inability to file tax returns on time.
A bare assertion that more time is required by reason of Dr Nugawela having belatedly, within the last week, caused an accountant to file tax returns, sits inconsistently with the fact that Dr Nugawela has not, apparently, commenced any pt IVC proceedings, or even applied for any extension of time to do so.
All that speaks much, I think, in terms of how Dr Nugawela underestimates the dire position that he is in, in terms of his liabilities and obligations.
Thus, it seems to me, with respect, that Dr Nugawela significantly understates the poor position that he is in. He makes reference to acknowledging his obligations to pay tax. But nothing is before me to indicate that he has taken any step towards actually making a tax payment in respect of years such as 2003, 2004, 2005 and 2006, where those amounts have been assessed and are not, in effect, the subject of any current challenge at all.

Conclusion

In the circumstances, I am satisfied that the Deputy Commissioner has discharged the obligation to show that the case brought for the statutory debts in respect of income tax, penalties and interest charges against Dr Nugawela has not been met by any arguable defence of which I can take cognisance today. In those circumstances, there should be summary judgment.
I have already indicated that leave should be issued for that application for judgment to be made and, accordingly, I will issue judgment in terms of the minute of proposed orders which has been provided to me by the plaintiff this morning. This indicates a due amount of $1,668,164.16 being due as of today, upon which interest accrues according to provisions of the Income Tax Assessment Act 1997 and the Taxation Administration Act identified under par 2 of that minute, and there will be judgment in those terms at 10.20 am, Wednesday, 8 August 2015.