Deverell and Commissioner of Taxation

[2007] AATA 1312

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1312

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2006/918

GENERAL ADMINISTRATIVE DIVISION			)
Re         MARK DEVERELL

Applicant

And        COMMISSIONER of TAXATION

Respondent

DECISION

Tribunal Mr R G Kenny, Member

Date11 May 2007 

PlaceBrisbane

Decision The Tribunal affirms the decision under review.

………SGD……………  

RG Kenny

Member

CATCHWORDS

TAXATION – Higher Education Loans Scheme – deferral of assessment – assessment is not such as would cause serious hardship – no special reasons that make it fair and reasonable to defer the assessment – decision affirmed

Higher Education Support Act 2003 (Cth) ss 154-35, 154-45

Taxation Administration Act 1953 (Cth) s 14ZZK

Income Tax Assessment Act 1936 (Cth) s 265
Taxation Ruling IT 2440  para 24.6.17, 24.6.18

Powell v Evreniades and Others (1989) 87 ALR 117
The Taxpayer and Commissioner of Taxation [2004] AATA 1073
Filsell v Commissioner of Taxation [2004] AATA 1012

REASONS FOR DECISION

11 May 2007     Mr RG Kenny, Member

Application

1.      On 10 September 2006, Mark Deverell completed an application form in which he requested that he be permitted by the Commissioner of Taxation (the respondent) to defer payment of a Higher Education Loan Programme (HELP) repayment in the amount of $1,487.80.  This was incurred by him through the operation of the Higher Education Support Act 2003 (the Act) during his tertiary studies.  His application was refused by the respondent on 17 October 2006 and that decision was affirmed on 22 November 2006.  Mr Deverell now seeks review of the decision by the Administrative Appeals Tribunal (the Tribunal). 

Issues for Determination

2.      It is not disputed and I am satisfied that Mr Deverell has a HELP liability in the amount of $1,487.80.  While the Act makes provision for loans to be made to students, it also provides for the repayment of such loans once the student obtains employment and has an income above a repayment threshold.  It is not disputed and I am satisfied that Mr Deverell’s HELP liability related to the 2005/6 financial year, that it was due for repayment on 21 November 2006, that the income repayment threshold for 2005/6 was $36,185 and that his taxable income for that year was $37,195.00. 

3.      Mr Deverell’s contention is that he would experience financial difficulty if his request for deferral were not granted.  He also contended that the liability had arisen through the actions of his employer company which, contrary to the arrangement he had entered into with the company, had not deducted periodic amounts from his wages during the year to meet his HELP liability.  For the respondent, Ms Balkin submitted that the legislative basis for deferral would be met only if it could be shown that Mr Deverell would experience serious hardship if the assessment were made or that there were special reasons to defer the assessment.  Those grounds arise under section 154-45 of the Act and the issue for the Tribunal is whether Mr Deverell’s circumstances meet those requirements.   

Evidence

4.      On 8 March 2007, Mr Deverell completed a statement of his personal details in which he declared his gross fortnightly income to be $1,443.00 and his nett fortnightly  income to be $1,106.  He also provided the following details of his fortnightly expenses which, in his evidence, he confirmed as being current:

expenditure item	fortnightly amount
mortgage	$225.00
food and household supplies	$150.00
electricity/gas	$50.00
water/land rates	$190.00
clothing	$50.00
communications	$15.00
motor vehicle registration and insurance	$42.00
motor vehicle repairs/petrol	$50.00
loan repayments	$279.00
total	$1,051.00

5.      Mr Deverell and his mother are the joint owners of the house in which they live.  It is subject to a mortgage of approximately $22,000 and his estimate of the equity that they have in the property is over $200,000. He and his mother were sharing the mortgage repayments until she lost her job in January 2007. Since then, Mr Deverell has assumed full responsibility for the mortgage payments.  Mr Deverell owns a motor vehicle and, in his statement, he estimated its value at $10,000.  He conceded that the amount allocated in his statement to “water/land rates” was a generous estimate.  This was because his local council had advised that, in the near future, all homes in its area would be fitted with water meters and charged for water usage.  He was uncertain how much this would cost.  He and his mother had always been in credit for council payments so that they would not be surprised by any rate increases. 

6.      In 2006, Mr Deverell had various debts relating to matters such as his credit card usage and loans he had taken out for purchases of items such as a new computer.  In February 2007, he consolidated these with a financial institution so that there was a single debt which he is now repaying.  Mr Deverell said that, if he was not successful in obtaining deferral of his HELP liability, he would deal with this through a further consolidation of his debts.

7.      Mr Deverell considered that it was unfair for him to have to repay his HELP liability because of the inaction of his employer.  At the time of his engagement by the company, he made it clear that he wanted payments to be made to the ATO when his income exceeded the relevant threshold amount.  The company had not done this and, as a result, the full amount is now required to be paid by him.  He also referred to the uncertain state of his mother’s health with the prospect of her having to undergo medical treatment for a knee injury and with a consequential reduction in her capacity to obtain further employment and assist in meeting household expenses.     

Consideration

8.      Under section 154-35 of the Act, the Commissioner may make an assessment of a person’s accumulated HELP debt.  Deferral of the assessment may be obtained under section 154-45 of the Act if the Commissioner is of the opinion that:

(a)      if the assessment were made, payment of the assessed amount would cause serious hardship to the person; or

(b)      there are other special reasons that make it fair and reasonable to defer making the assessment.

9. In the application of that provision, the burden of proving that the decision should have been made differently rests with Mr Deverell: see s 14ZZK(b)(iii) of the Taxation Administration Act 1953.

10.     The meaning of the term "serious hardship" is not provided in the Act.  What constitutes serious hardship was considered in Powell v Evreniades and Others (1989) 87 ALR 117 in relation to the term as it was used in section 265 of the Income Tax Assessment Act 1936. There, Hill J said that the term should be given its ordinary meaning - is the taxpayer "in financial difficulty which in all the circumstances can be said to be serious?" His Honour described a spectrum of degrees of hardship and distinguished between hardship which is severe and hardship which is slight with the discretion to find serious hardship somewhere between those extremes and with the decision resting on the circumstances of a given case (at 122-3).  Guidance for those making decisions under the Act is also provided in The Australian Taxation Office Receivables Policy (the Policy).  This reflects the content of Taxation Ruling IT 2440 and has been relied upon in previous Tribunal decisions in the context of higher education support legislation: see The Taxpayer and Commissioner of Taxation [2004] AATA 1073. In part, it reads:

24.6.17. The term 'serious hardship' is not defined at law and must be given its ordinary meaning. The Commissioner determines whether serious hardship exists by applying several tests which are designed to ascertain whether payment of the tax would produce unduly burdensome consequences for the person such that they would be deprived of necessities according to normal community standards.

24.6.18. Thus, serious hardship would be seen to exist where payment of a tax liability would result in the person being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements. On the other hand, elements of hardship may be regarded as marginal or minor - rather than serious - if the consequences of payment of tax are seen, for example, as limitation of social activities or entertainment, or loss of access to goods or services of a more luxurious nature or standard.

11.     The Policy then identifies aspects of a person’s circumstances to be considered when evaluating the merits of particular cases including the balance between income and outgoings and between assets and liabilities.  In Filsell v Commissioner of Taxation [2004] AATA 1012, the Tribunal applied the ATO Receivables Policy and, in determining serious hardship, it accepted that the matching of income and expenditure and the assessment of assets and liabilities are appropriate tests.

12.     In Mr Deverell’s case, his own estimates of expenditure leave him with an excess of income over outgoings in the amount of $55 per fortnight. His estimate of council water and rate charges are an overstatement made through an abundance of caution on his part.  I am satisfied that the need for him to meet his taxation obligations should not be displaced by such cautionary measures.  Disregarding that additional amount further increases the surplus of his income over his expenses.  Mr Deverell lives with his mother in their own home which is subject to a relatively small mortgage.  He is not married and has no dependants.  He continues in full-time employment and I am satisfied that his financial situation is one which will enable him to meet his HELP liability without serious detriment to his living standards.

13.     I have noted Mr Deverell’s references to his mother’s health and to the actions of his employer.  As to the former, the question of medical treatment is speculative at this stage and any associated costs may not be realised.  As to the latter, the employer had an obligation to deduct payments from Mr Deverell’s wages.  While I accept that this was not done, it does not alter the obligation of Mr Deverell to meet his HELP liability.  I am satisfied that these are not special reasons which would justify deferral. In so finding, I also consider it to be relevant that, in February 2007 when he was well aware of the need to make repayments to the Australian Taxation Office, Mr Deverell consolidated other debts and made no attempt to include the HELP liability in that arrangement.   The substantial equity that he has in his car and in the house he owns with his mother would have facilitated his capacity to do this.

Decision

14.     The decision under review is affirmed.

I certify that the 14 preceding paragraphs are a true copy of the reasons for the decision herein of Mr RG Kenny, Member

Signed:…………………………………………………………..
  Legal Research Officer

Date of Hearing  23 April 2007
Date of Decision  11 May 2007
The Applicant  was unrepresented
For the Respondent                  Ms M Balkin