Dua and Commissioner of Taxation (Taxation)
[2022] AATA 1520
•3 June 2022
Dua and Commissioner of Taxation (Taxation) [2022] AATA 1520 (3 June 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2021/7635
Re:Divyanshu Dua
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member Dr Linda Kirk
Date:03 June 2022
Place:Sydney
The Reviewable Decision dated 11 February 2021 is affirmed.
...............................[SGD].........................................
Senior Member Dr Linda Kirk
CATCHWORDS
TAXATION - application for review of an objection decision - application for release from taxation liability - eligible and non-eligible taxation liabilities - whether taxpayer would suffer serious hardship if he were required to satisfy his taxation liabilities – meaning of phrase “serious hardship” – income/outgoing test – assets/liabilities test – other relevant factors in deciding whether to exercise discretion to grant release from taxation liabilities – no serious financial hardship found – other relevant factors weigh against exercising discretion - reviewable decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Burns and Commissioner of Taxation [2019] AATA 3860
Commissioner of Taxation and A Taxpayer [2006] FCA 888
Corlette v Mackenzie (1995) 62 FCR 584;
Corlette v Mackenzie (1996) 62 FCR 597
Dwyer v McGuire (1993) 114 FLR 325
Federal Commissioner of Taxation v A Taxpayer (2006) 63 ATR 450
GSJW and Commissioner of Taxation [2019] AATA 5170
M64/2015 v Minister for Immigration and Border Protection (2015) 258 CLR 173
Neimanis and the Commissioner of Taxation [2012] AATA 814.
Powell v Evreniades and Others (1989) 21 FCR 252
Re Adams and Commissioner [2010] AATA 744
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Re Filsell and Commissioner of Taxation [2004] AATA 1012
Re Huckle and Commissioner of Taxation [2014] AATA 362
Re Moriarty and Federal Commissioner of Taxation (2016) 104 ATR 190
Re Rasmussen and Commissioner of Taxation [2013] AATA 746; (2013) 95 ATR 155
Re Thomas and Commissioner of Taxation [2014] AATA 102
Schweitzer and Commissioner of Taxation [2019] AATA 1100
Shi v Migration Agents Registration Authority (2008) 235 CLR 286
Van Grieken v Veilands (1991) 21 ATR 1639Van Grieken v Veilands (1991) 22 ATR 630
SECONDARY MATERIALS
Practice Statement Law Administration 2011/17: Debt relief, waiver and write off
REASONS FOR DECISION
Senior Member Dr Linda Kirk
03 June 2022
INTRODUCTION
Divyanshu Dua (‘the Applicant’) is seeking review of a decision of the Commissioner of Taxation (‘the Respondent’) made on 11 February 2021 (‘the Reviewable Decision’),[1] in which the Respondent disallowed the Applicant’s objection dated 27 November 2020 and affirmed his decision of 13 November 2020 not to grant the Applicant a release from his tax liabilities (‘Tax Liabilities’) under section 340-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (‘TAA’).
[1] Section 37 ‘T-Documents’, T11-237
On 19 October 2021, the Applicant lodged an application for review with the Tribunal pursuant to section 14ZZ of the TAA.[2]
[2] Section 37 ‘T-Documents’, T1-1-7
The matter was heard at a hearing of the Tribunal on 6 December 2021. The Applicant appeared by video-conference and was self-represented.
The material before the Tribunal consists of:
·Respondent’s Section 37 T-Documents (T1-T20) (357 pages)
·Respondent’s Tender Bundle (R1-R10)
·Applicant’s Submission 1 filed 30 November 2021Applicant’s Submission 2 filed 1 December 2021
·Applicant’s Submission 3 filed 1 December 2021
·Applicant’s Submission 4 filed 1 December 2021
·Applicant’s Submission 5 filed 1 December 2021
·Applicant’s Submission 6 filed 1 December 2021
·Applicant’s Submission 7 filed 1 December 2021
·Applicant’s Submission 8 filed 2 December 2021
·Applicant’s Submission 9 filed 2 December 2021
·Applicant’s Bundle of Documents filed 30 November 2021
·Applicant’s Bundle of Documents filed 4 August 2021
·Applicant’s Bundle of Documents filed 6 July 2021
·Applicant’s Bundle of Documents filed 29 June 2021
·Letter from the Applicant to the AAT dated 5 July 2021
·Applicant’s financial statement undated.
·Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions dated 2 August 2021
·Respondent’s Statement of Facts, Issues and Contentions dated 28 July 2021
·Respondent’s submissions dated 3 December 2021
The Tribunal has reviewed all the evidence before it and refers to all relevant materials below.
LEGISLATION AND POLICY
Where a taxpayer is dissatisfied with an assessment, they may object against it in accordance with the requirements set out in Part IVC of the TAA. The Respondent must decide whether to allow, wholly or in part, or disallow, the taxpayer’s objection.[3]
[3] Section 14ZY TAA.
A taxpayer dissatisfied with the Respondent’s objection decision may apply to the Tribunal for a review of the decision or appeal to the Federal Court against it.[4] Subparagraph 14ZZK(b)(ii) of the TAA provides that on application for review of a reviewable objection decision, the Applicant has the burden of proving that the taxation decision should not have been made or should have been made differently.
[4] Section 14ZZ TAA.
Part 4-50 of Schedule 1 to the TAA provides for the release from particular taxation liabilities. Division 340 of Schedule 1 to the TAA grants the Respondent powers to release an individual or a trustee of the estate of a deceased person from income tax liabilities they have incurred if satisfying the liability would cause serious hardship.[5]
[5] Sections 340-1, 340-5, 340-10 TAA.
Division 340 of Schedule 1 to the TAA is titled, ‘Commissioner’s power in cases of hardship’. Section 340-1 outlines ‘What this Division is about’ and states:
The Commissioner may release you from a particular liability that you have incurred if you are an individual, or a trustee of the estate of a deceased person, and satisfying the liability would cause serious hardship.
Section 340-5 of Schedule 1 to the TAA provides:
340‑5 Release from particular liabilities in cases of serious hardship
Applying for release
1)You may apply to the Commissioner to release you, in whole or in part, from a liability of yours if section 340‑10 applies to the liability.
2)The application must be in the approved form.
3)The Commissioner may release you, in whole or in part, from the liability if you are an entity specified in the column headed “Entity” of the following table and the condition specified in the column headed “Condition” of the table is satisfied.
Entity and condition Item Entity Condition 1 an individual you would suffer serious hardship if you were required to satisfy the liability 2 a trustee of the estate of a deceased individual the dependants of the deceased individual would suffer serious hardship if you were required to satisfy the liability
Effect of the Commissioner’s decision
(4) If the Commissioner:
(a) refuses to release you in whole from the liability; or
(b) releases you in part from the liability;
nothing in this section prevents you from making a further application or applications under subsection (1) in relation to the liability.
Notification of the Commissioner’s decision
(5) The Commissioner must notify you in writing of the Commissioner’s decision within 28 days after making the decision.
(6) A failure to comply with subsection (5) does not affect the validity of the Commissioner’s decision.
Objections against the Commissioner’s decision
(7) If you are dissatisfied with the Commissioner’s decision, you may object against the decision in the manner set out in Part IVC.
Section 340-10 of Schedule 1 to the TAA outlines the taxation liabilities to which section 340-5(3) applies.
340-10 Liabilities to which this section applies
(1)This section applies to a liability if it is a liability of the following kind:
…
(e) a *PAYG instalment.
(2)This section also applies to a liability if it is a liability that is specified in the column headed “Liabilities” of the following table and the liability is a liability under a provision or provisions of an Act specified in the column headed “Provision(s)” of the table:
Liabilities and provision(s) Item Liabilities Provision(s) … 2 administrative penalty
in relation to fringe benefits tax or *tax
Part 4-25 in this Schedule 3 general interest charge (a) former section 163AA, former section 170AA, former subsection 204(3) or former subsection 221AZMAA(1),
221AZP(1), 221YD(3) or
221YDB(3) of the Income Tax Assessment Act 1936; or
(aa) section 5-15 in the Income Tax Assessment Act 1997; or
(b) section 45-80 or 45-620 or subsection 45-230(2), 45-232(2), 45-235(2) or 45-235(3) in this
Schedule
Relevantly to this review, taxation liabilities include income tax payable under section 4-1 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA’), General Interest Charges (‘GIC’), additional tax and certain administrative penalties (see the Table under subsection 340-10(2) of Schedule 1 to the TAA). Goods and Services Tax (‘GST’) and penalties for failure to lodge on time are not listed in subsection 340-10(1), or in the Table under subsection 340-10(2) and are ineligible for release.
Section 340-25 of Schedule 1 to the TAA explains the effect if a release is granted with respect to Pay As You Go Instalments (‘PAYGI’). It states:
340-25 Extinguishing your liability to pay a PAYG instalment if you are released
(1)This section applies if the Commissioner releases you from a liability to pay a *PAYG instalment.
(2)If your liability to pay the instalment is released in whole, you are taken, for the purposes of Division 45 of Part 2-10, not to be liable to pay the instalment.
Note: This means that for the purposes of section 45-30 you are not entitled to a credit for the instalment.
(3)If your liability to pay the instalment is released in part, you are taken, for the purposes of Division 45 of Part 2-10, to be liable to pay the instalment to the extent to which your liability has not been released.
Note: This means that for the purposes of section 45-30 you are entitled to a credit for the instalment to the extent to which your liability to pay the instalment has not been released.
Practice Statement Law Administration 2011/17
The Respondent has issued Practice Statement Law Administration 2011/17: Debt relief, waiver and write off (‘PSLA 2011/17’) which provides guidance to its officers in relation to making decisions pursuant to applications made under section 340-5 of Schedule 1 to the TAA. Relevantly it provides as follows:
8. Definition of serious hardship
‘Serious hardship’ is given its ordinary meaning.
We consider serious hardship to exist where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education.
We have tests to apply in helping you decide whether serious hardship exists. The object of the tests is to determine whether the consequences of paying the tax would be so burdensome that the person would be deprived of what are considered necessities according to normal community standards.
These tests are:
·the income/outgoings test
·the assets/liabilities test
·other relevant factors.
9. Income/outgoings test
The purpose of the income/outgoings test is to assess a taxpayer's capacity to meet their tax liability from their current income. We take into account household income and expenditure along with the taxpayer's ability to provide the necessities for family members or others for whom they have responsibility. In addition, the following are relevant considerations:
·the taxpayer's capacity to pay in a reasonable timeframe on the basis of their income and outgoings
·scope for the taxpayer to increase their income
·whether all expenditure could be considered reasonable and consideration of any discretionary components
·whether the taxpayer has made attempts to defer or reschedule other financial commitments.
10. Assets/liabilities tests
The purpose of the asset/liabilities test is to assess a taxpayer's equity in, or access to, assets which may be indicative of their capacity to pay.
Consideration is given to any property owned wholly or jointly by the taxpayer and their partner, privately or within a business structure.
There are several types of assets which are regarded as normal and reasonable possessions. These would not be expected to be surrendered in order to pay a tax debt, provided they are of a reasonable nature and include:
·ownership of, or interest in, a residential property which is the taxpayer's home
·a motor vehicle
·furniture and household goods
·tools of trade
·cash on hand or bank balances sufficient to meet immediate day-to-day living expenses
·funds put aside by aged persons to cover funeral expenses.
·All other significant assets need to be scrutinised to determine capacity to pay (either by sale or used as security for a loan). These assets include other real estate, multiple or luxury motor vehicles or boats, life insurance or annuity entitlements, shares and other investments, and collections for trading, investment or hobby purposes.
11. Other relevant factors
We are not bound to grant release even if a taxpayer can demonstrate serious hardship may be caused by payment of their liability. However we are obliged to act reasonably and not arbitrarily.
Examples of situations in which we may decide against granting release, even though implications of serious hardship may be drawn are where:
·a taxpayer appears to have unreasonably acquired assets ahead of meeting their tax liabilities
·a taxpayer appears to have disposed of funds or assets without giving consideration to their tax liability
·release would not alleviate hardship, such as where the person has other liabilities or creditors
·a taxpayer has paid other debts (either business or private), in preference to their tax debt
·the taxpayer, without good reason, has not pursued debts owed to them
·serious hardship is likely only to be short term
·the taxpayer has a poor compliance history
·the taxpayer is unable to show that they have planned for future debts
·the taxpayer has structured their affairs to place themselves in a position of hardship (for example, placing all assets in trusts or related entities over which they have control)
·the taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.
ISSUES FOR DETERMINATION
The issue before the Tribunal is whether the Applicant’s Tax Liabilities should be released in part or in full, pursuant to subsection 340-5(3) of Schedule 1 to the TAA. To determine this, the Tribunal must consider:
1)would the Applicant suffer serious hardship if he were required to pay the Tax Liabilities; and
2)if so, should the discretion to release him in full or in part for the Tax Liabilities be exercised?
EVIDENCE BEFORE THE TRIBUNAL
Background and family circumstances
The Applicant emigrated with his former wife to Australia in August 2006.[6] Their two sons were born in 2011 and 2012 respectively.[7] The Applicant is a medical practitioner and has worked in a range of positions and received wages and business income in Australia.[8] He became a permanent resident in 2010,[9] and was granted Australian citizenship in February 2011.[10]
[6] Transcript of proceedings, 6 December 2021, 3.
[7] Section 37 ‘T-Documents’, T3-015
[8] Section 37 ‘T-Documents’, T3-016, T15-336 to T15-337
[9] Transcript of proceedings, 6 December 2021, 3
[10] Transcript of proceedings, 6 December 2021, 4.
The Applicant lived and worked in the United Kingdom from 2004 to 2006 and completed his fellowship. He returned to the United Kingdom in 2013 and reinstated the bank accounts he held there from 2004 to 2006. He continues to have a HSBC account in the United Kingdom.[11]
[11] Transcript of proceedings, 6 December 2021, 4
The Applicant’s former wife did not work in Australia however she studied a Graduate Diploma from 2009 to 2010. From 2007, she experienced increased mental health issues and her gambling became more regular.[12] Between 2014 and 2017, the Applicant estimates his former wife incurred gambling losses totalling $250,000.[13]
[12] Transcript of proceedings, 6 December 2021, 4.
[13] Section 37 ‘T-Documents’, T7-025 paragraph c.
In June 2016 the Applicant was appointed in a part-time capacity as a staff specialist at the Canberra Hospital. The Applicant and his former wife bought their marital home in October 2016. They separated in late December 2016, and then subsequently resumed their relationship for a period to undergo counselling which was not successful.[14]
[14] Transcript of proceedings, 6 December 2021, 5
On 12 March 2017 the Applicant and his former wife separated.[15] Their family law proceedings (‘the Family Law Proceedings’) commenced on 10 September 2017,[16] and were ongoing between October 2017 and December 2019.[17] Final judgement in relation to the Family Law Proceedings was delivered on 6 December 2019.[18] The Applicant estimates he incurred legal costs of $300,000 in respect of the Family Law Proceedings.[19]
[15] Section 37 ‘T-Documents’, T7-026 paragraph l, T5-022 paragraph 15.
[16] Applicant’s letter to Tribunal filed 29 June 2021 at page 1.
[17] Section 37 ‘T-Documents’, T7-025 paragraph a
[18] Extract of Reasons for Decision delivered by Henderson J filed on 1 December 2021
[19] Section 37 ‘T-Documents’, T7-025 paragraph a.
From January 2018 to June 2021, the Applicant was party to criminal proceedings (‘the Criminal Proceedings’).[20] There was no criminal conviction recorded against him.[21] The Applicant did not see his children for a period of five months from January to May 2018. The Applicant claims he incurred legal costs of $50,000 in respect of the Criminal Proceedings.[22]
[20] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 2.
[21] Transcript of proceedings, 6 December 2021, 5
[22] Section 37 ‘T-Documents’, T7-026 paragraph n.
On 23 February 2018, the Applicant was suspended with pay from duty at the Canberra Hospital following an allegation of physical assault against another staff member within the workplace.[23] On 25 May 2018, the Applicant’s suspension from duty and the misconduct investigation ceased due to there being insufficient evidence of any misconduct.[24]
[23] Letter dated 26 February 2018 from Canberra Hospital & Health services filed on 4 August 2021 at page 1.
[24] Section 37 ‘T-Documents’, T7-219; Transcript of proceedings, 6 December 2021, 5
During the three-month suspension period the Applicant received only his basic salary and was paid no bonuses. Following his reinstatement, he was required to work under supervision for a period of 12 months, and he was not permitted to take more than two new referrals per week.[25]
[25] Transcript of proceedings, 6 December 2021, 5
In October 2018 the Applicant’s former wife made a complaint about him to the Australian Taxation Office (‘ATO’). She also complained to the Pharmacy Board, Therapeutic Goods Administration (‘TGA’), Medical Board of Australia, the Medical Board of the Australian Capital Territory and the Australian Medical Association. She made three further attempts for him to be suspended at the Canberra Hospital.[26] The allegations against him were in relation to illegal prescribing. The Applicant engaged indemnity lawyers to defend these allegations.[27]
[26] Transcript of proceedings, 6 December 2021, 6.
[27] Transcript of proceedings, 6 December 2021, 7.
As part of the Family Court Proceedings, a family report was prepared by Dr Anthony Milch in October 2018. He assessed that the Applicant’s former wife was suffering from a borderline narcissistic personality disorder which was incurable and could not be managed.[28] Following the report, the Applicant was permitted to see his children under supervision for four hours on alternate fortnights for four months which was subsequently increased to every fortnight.[29] This continued until January 2019 and then increased so that the Applicant had one, then two days supervised contact with the children per fortnight.[30]
[28] Transcript of proceedings, 6 December 2021, 6.
[29] Transcript of proceedings, 6 December 2021, 6.
[30] Transcript of proceedings, 6 December 2021, 7.
From 6 December 2019, pursuant to the final judgement of the Family Court, the Applicant and his former wife had 50/50 custody of the children per week including during the school holidays.[31]
[31] Transcript of proceedings, 6 December 2021, 8.
On or around 11 January 2020, the Applicant’s former wife attempted to end her life.[32] From this time, the Applicant assumed sole parental responsibility for his two children.[33]
[32] Section 37 ‘T-Documents’, T7-027
[33] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 10
Around this time, the Applicant’s father arrived in Australia and commenced residing with the Applicant.[34] The Applicant’s father is in receipt of a pension and does not have any other income.[35] The Applicant has incurred costs totalling $20,000 for three visa applications for his father.[36] He also has assumed his father’s responsibility for the payment of school fees for his sister’s son (his nephew).[37] The Applicant’s father’s visa expires in 2024.[38]
[34] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 10
[35] Transcript of proceedings, 6 December 2021, 8.
[36] Section 37 ‘T-Documents’, T15-346
[37] Applicant’s Submission 6 filed on 1 December 2021; Transcript of proceedings, 6 December 2021, 10
[38] Transcript of proceedings, 6 December 2021, 10.
On or around 27 February 2020, the Applicant’s former wife died.[39] The children were traumatised by the loss of their mother. Their attendance at school has provided them with some stability, and the school has provided them with a psychologist and other support.[40]
[39] Section 37 ‘T-Documents’,T7-027; Death Certificate filed on 2 December 2021
[40] Transcript of proceedings, 6 December 2021, 9.
On 15 September 2020, the Applicant informed his legal representatives that he did not wish to proceed with his defamation action against his former wife’s father who had started a Facebook campaign against him claiming he was responsible for his daughter’s death.[41]
[41] Section 37 ‘T-Documents’, T7-312; Transcript of proceedings, 6 December 2021, 11. It is unclear when the Applicant commenced the defamation proceedings.
The Applicant told the Tribunal that his circumstances are ‘unique’[42] and have been ‘extremely challenging.’[43] He has given priority to the payment of expenses in relation to his children’s living expenses, the Family Law Proceedings, and his Master of Business Administration degree (‘MBA).[44]
[42] Transcript of proceedings, 6 December 2021, 11.
[43] Transcript of proceedings, 6 December 2021, 13.
[44] Transcript of proceedings, 6 December 2021, 12.
Expenses incurred and assets purchased
On or around August 2017, the Applicant purchased a 2016 Audi A4 for $70,000.[45] The vehicle’s acquisition was financed through a loan.[46]
[45] Section 37 ‘T-Documents’, T3-018
[46] Section 37 ‘T-Documents’, T3-018.
On 3 October 2018, the Applicant commenced a two-year MBA degree.[47] The Applicant incurred a Higher Education Loan Program (‘HELP’) debt of $33,060 at the Australian Institute of Business over the two-year period.[48] The Applicant claims he incurred $24,000 in education costs over the two years.[49] He told the Tribunal that he studied this degree because he was concerned that he would lose his job, and he needed the qualifications for alternative employment.[50]
[47] Transcript of proceedings, 6 December 2021, 7; T-Docs at T15-346
[48] Section 37 ‘T-Documents’, T19-351.
[49] Section 37 ‘T-Documents’, T15-346.
[50] Transcript of proceedings, 6 December 2021, 12.
On or around 1 February 2020, the Applicant purchased a property at 56/7 Irving Street, Phillip in the Australian Capital Territory (‘ACT’) for $475,000.[51] The acquisition was subject to a mortgage in the amount of $450,000.[52]
[51] Section 37 ‘T-Documents’, T3-018.
[52] Section 37 ‘T-Documents’, T3-018.
On 29 June 2020, the Applicant purchased a ‘2019 Porsche Macan S Turbo’ for a purchase price of $125,000,[53] or $114,000.[54] The acquisition was financed through a loan.[55]
[53] Section 37 ‘T-Documents’, T16-347
[54] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 5.
[55] Section 37 ‘T-Documents’, T15-345.
On 14 December 2020, the Applicant entered into a contract for the purchase of a property at Volume 3004 Folio 791 at 512/15 Bowes Street, Phillip in the ACT.[56] Settlement occurred on 19 February 2021.[57] The purchase price was $479,900.[58] A mortgage was utilised to purchase the property.[59] The Applicant submits he decided to purchase the property in 2018 and paid an initial deposit of $1,000.[60]
[56] Section 37 ‘T-Documents’, T20-352 to T20-357.
[57] Section 37 ‘T-Documents’, T20-357.
[58] Section 37 ‘T-Documents’ T20-356
[59] Section 37 ‘T-Documents’, T20-353 to T20-354
[60] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 3.
On 21 September 2020, the Applicant acquired a 100% shareholding in Mildura Clinical Pty Ltd.[61] The Applicant claims he has held a 100% shareholding in Mildura Clinical Pty Ltd since October 2017.[62] The Applicant asserts the value of the business is nominal.[63]
[61] Section 37 ‘T-Documents’, T18-350
[62] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 3.
[63] Section 37 ‘T-Documents’, T15-343.
On 27 November 2020, the Applicant was informed in writing by National Capital Medical Specialists that they would no longer be able to accommodate his clinical session at their facilities, and his session will be terminated as of 1 June 2021.[64]
[64] Section 37 ‘T-Documents’, T7-200
Income earned in year ended 30 June 2020
For the income year ended 30 June 2020, the Applicant reported a taxable income of $330,000.25.[65]
[65] Respondent’s Tender Bundle, 14, 21.
For the year ended 30 June 2020, the Applicant earned interest income totalling $1,831.78 from the following accounts:[66]
[66] Section 37 ‘T-Documents’, T17-348.
Bank
Account
Interest
ANZ
2781167964
$1.62
Bank Australia
12191842
$573.81
Bank of Queensland
22846665
$21.17
IMB
200847387
$6.63
ING
800539848
$1,198.40
Macquarie
1974690
$0.39
Macquarie
1974856
$29.76
In addition, the Applicant received interest income of $145.11 from bank accounts in India.[67] The Applicant held a balance totalling $6,145.89 in these accounts.[68]
[67] Respondent’s Tender Bundle, 30
[68] Respondent’s Tender Bundle, 30
The Applicant also received unit trust distributions of $16.34 from the Trustee for Sydney Airport Trust 1.[69]
[69] Section 37 ‘T-Documents’, T17-348.
The Applicant received franked dividend income of $3,254.41 with an imputation credit of $1,394.76 from the following shareholdings:[70]
[70] Section 37 ‘T-Documents’, T12-328 to T12-329.
Company
Total dividends received (including imputation credits)
BHP Group Limited
$895.66
Coles Group Limited
$116.97
Medibank Private Limited
$222.85
National Australia Bank Limited
$154.15
Newcrest Mining Limited
$0.94
Qantas Airways Limited
$69.83
Ramsay Health Care Limited
$132.00
Rio Tinto Limited
$2,378.17
Telstra Corporation Limited
$142.06
Wesfarmers Limited
$292.84
Westpac Banking Corporation
$60.57
Woodside Petroleum Ltd
$143.40
Woolworths Group Limited
$39.73
Income earned year ended 30 June 2021
For the year ended 30 June 2021, the Applicant earned interest income totalling $722.59 from the following accounts:[71]
[71] Section 37 ‘T-Documents’, T17-348.
Bank
Account
Interest
Bank Australia
12191842
$276.24
Bank of Queensland
22846665
$4.61
IMB
200897326
$2.79
IMB
200847387
$2.51
ING
800539848
$434.05
Westpac
523764
$2.39
For the income year ended 30 June 2021, the Applicant received franked dividend income of $3,825.76 with an imputation credit of $1,639.61 from the following shareholdings:[72]
[72] Respondent’s Tender Bundle, 23-24.
Company
Total Dividends Received (including imputation credits)
Australia and New Zealand Banking
$32.14
BHP Group Limited
$926.15
Coles Group Limited
$108.05
Commonwealth Bank of Australia
$141.72
Medibank Private Limited
$172.86
National Australia Bank Limited
$168.85
Newcrest Mining Limited
$1.26
Ramsay Health Care Limited
$54.74
Rio Tinto Limited
$2,947.20
Telstra Corporation Limited
$194.97
Wesfarmers Limited
$416.82
Westpac Banking Corporation
$203.81
Woodside Petroleum Ltd
$56.40
Woolworths Group Limited
$40.40
Between 1 July 2021 and 29 October 2021, the Applicant purchased additional shares for $6,726.20.[73]
Compliance History
[73] Respondent’s Tender Bundle, 31.
Activity Statements
The Applicant’s tax liability that is subject to release relates to PAYG instalments (‘PAYGI’). The Applicant’s account has been in debit since 14 June 2017.[74] The amounts that remain unpaid for each activity statement period are as follows:
[74] Section 37 ‘T-Documents’, 1-7.
Period ended
Instalment amount
Current balance[75]
31 March 2017
$18,453.00
$0.00
30 June 2017
$51,749.00
$0.00
30 September 2017
$26,180.00
$0.00
31 December 2017
$26,180.00
$0.00
31 March 2018
$26,180.00
$0.00
30 June 2018
$26,180.00
$0.00
30 September 2018
$29,876.00
$0.00
31 December 2018
$29,876.00
$12,213.24
31 March 2019
$29,876.00
$26,516.00
30 June 2019
$29,876.00
$19,528.00
30 September 2019
$29,558.00
$28,837.00
31 December 2019
$31,990.00
$28,479.00
31 March 2020
$57,432.00
$53,896.00
30 June 2020
$0.00
$0.00
30 September 2020
$20,126.00
$0.00
31 December 2020
$20,126.00
$0.00
31 March 2021
$20,126.00
$0.00
30 June 2021
$20,126.00
$16,169.00
30 September 2021
$20,126.00
$0.00
TOTAL
$514,036.00
$185,638.24
[75] As a 2 December 2021.
The Respondent calculated the GIC to 30 November 2021, and as at 2 December 2021 the amount of outstanding GIC is $21,159.46.
The Applicant’s lodgement history for the last eight years is as follows:
Period ending
Due date
Lodgment date
Days late
30 September 2021
25 November 2021
21 November 2021
0
30 June 2021
25 August 2021
25 August 2021
0
31 March 2021
16 June 2021
11 June 2021
0
31 December 2020
2 March 2021
3 February 2021
0
30 September 2020
16 December 2020
16 December 2020
0
30 June 2020
25 August 2020
25 July 2020
0
31 March 2020
26 May 2020
25 July 2020
60
31 December 2019
28 February 2020
25 July 2020
148
30 September 2019
16 December 2019
16 December 2019
0
30 June 2019
16 September 2019
20 September 2019
4
31 March 2019
28 May 2019
24 May 2019
0
31 December 2018
28 February 2019
27 February 2019
0
30 September 2018
26 November 2018
26 November 2019
0
30 June 2018
27 August 2018
19 September 2018
23
31 March 2018
29 May 2018
19 September 2018
113
31 December 2017
28 February 2018
28 February 2018
0
30 September 2017
27 November 2017
13 December 2017
16
30 June 2017
25 August 2017
31 August 2017
6
31 March 2017
16 June 2017
14 June 2017
0
31 December 2016
28 February 2017
1 March 2017
1
30 September 2016
25 November 2016
25 November 2016
0
30 June 2016
25 August 2016
24 August 2016
0
31 March 2016
30 May 2016
30 May 2016
0
31 December 2015
29 February 2016
7 March 2016
7
30 September 2015
25 November 2015
25 November 2015
0
30 June 2015
25 August 2015
25 August 2015
0
31 March 2015
26 May 2015
25 May 2015
0
31 December 2014
3 March 2015
3 March 2015
0
On 1 May 2019, the Respondent notified the Applicant of the outcome of an audit.[76] The audit identified a shortfall in the goods and services tax (‘GST’) of $399 due to excess GST credits being claimed in the tax period ended 30 June 2016.[77] An administrative penalty of $199.50 was also imposed.[78] The GST shortfall has subsequently been addressed; however, the administrative penalty remains unpaid.
[76] Respondent’s Tender Bundle, 7
[77] Respondent’s Tender Bundle, 10
[78] Respondent’s Tender Bundle, 9
As at 2 December 2021, the Applicant had no outstanding tax liabilities associated with his activity statements other than the PAYGI amounts outlined at [47], the GIC reported at [48], and the administrative penalty outlined at [50].
HELP
The Applicant incurred a HELP debt at the Australian Institute of Business totalling $33,060 between November 2018 and September 2020.[79] This amount has been repaid in full.[80]
[79] Section 37 ‘T-Documents’, T19-351.
[80] Section 37 ‘T-Documents’, T19-351
Income Tax
The Applicant’s lodgement history of his income tax returns for the last ten years is as follows:
Income year ended
Due date
Received date
Days late
30 June 2021
31 March 2022
Not lodged
0
30 June 2020
31 March 2021
25 July 2020
0
30 June 2019
31 October 2019
10 January 2020
69
30 June 2018
11 June 2019
18 November 2019
160
30 June 2017
15 May 2018
23 July 2018
71
30 June 2016
15 May 2017
15 May 2017
0
30 June 2015
15 May 2016
13 May 2016
0
30 June 2014
15 May 2015
12 May 2015
0
30 June 2013
5 June 2014
16 September 2013
0
30 June 2012
5 June 2013
27 July 2012
0
On 1 May 2019, the Respondent notified the Applicant of the outcome of an audit.[81] The audit denied some deductions reported by the Applicant in the income year ended 30 June 2016, resulting in a tax shortfall of $13,782.25.[82] An administrative penalty was also imposed.[83]
[81] Respondent’s Tender Bundle, 7-12.
[82] Respondent’s Tender Bundle, 11
[83] Respondent’s Tender Bundle, 9
As at 2 December 2021, the Applicant had no outstanding income tax liability.
Division 293 Tax
The Applicant has been assessed with respect to Division 293 tax. A summary of the Applicant’s Division 293 tax liability is as follows:
Income year ended
Division 293 Tax liability
Current balance[84]
30 June 2015
$2,805.85
$0.00
30 June 2016
$4,500.00
$0.00
30 June 2017
$3,123.55
$0.00
30 June 2018
$2,230.50
$0.00
30 June 2019
$2,227.50
$0.00
30 June 2020
$2,520.35
$0.00
[84] As at 2 December 2021
PROCEDURAL HISTORY
Release Application
On 24 June 2020, the Applicant applied for a release of his tax liabilities due to serious financial hardship (‘the Release Application’).[85]
[85] Section 37 ‘T-Documents’, T3-013 to T3-018.
The Applicant declared the following income in the Release Application:[86]
[86] Section 37 ‘T-Documents’, T3-016.
Income
Amount per month (before tax)
Salary or wages
$10,000.00
Business income (after expenses)
$15,000.00
TOTAL
$25,000.00
The Applicant claimed he incurs expenses of $500 per quarter in support of his father,[87] either together with, or as part of, the following amounts as set out in the Release Application:[88]
[87] Applicant’s Submission 3 filed on 1 December 2021
[88] Section 37 ‘T-Documents’, T3-016 to T3-018
Expense
Amount per month
Mortgage
$1,700.00
Groceries
$500.00
Repairs and maintenance
$300.00
Electricity and gas
$300.00
Telephone (including mobile)
$250.00
Internet and pay TV
$150.00
Water and Council rates
$100.00
Insurance
$600.00
Vehicle registration and insurance
$200.00
Vehicle repairs and maintenance
$500.00
Fuel, petrol and oil
$300.00
Vehicle repayments
$900.00
Educational
$2000.00
Personal/health insurance
$300.00
Salary sacrifice
$350.00
Medical
$100.00
Childcare
$3,500.00
Loan repayments
$3,000.00
Credit card repayments
$3,000.00
Other expenses
$500.00
TOTAL
$18,550.00[89]
[89] The Release Application provides a total of $18,500 though the figures add up to $18,550.
The Applicant declared the following assets in the Release Application:[90]
[90] Section 37 ‘T-Documents’, T3-017 - T3-018.
Asset
Value
Property at 56/7 Irving Street
$475,000.00
Shares
$10,000.00
Westpac Account 483341
$2,610.91
ANZ Account 587592614
$11,610.00
2016 Audi A4
$17,000.00
TOTAL
$516,220.91
The Applicant declared the following liabilities in the Release Application:[91]
[91] Section 37 ‘T-Documents’, T3-017 - T3-018.
Debt
Balance owing
ANZ Bank Mortgage
$448,000.00
Macquarie Bank Credit Card
$25,000.00
HSBC Credit Card
$7,000.00
BOQ Specialist Loan
$181,000.00
2016 Audi A4 Loan
$40,000.00
TOTAL
$701,000.00
On 13 November 2020, the Respondent made an unfavourable decision with respect to the Applicant’s debt release application. Specifically:
a)The Respondent determined that the Applicant had a debt of $2,520.35 relating to Division 293 tax that was ineligible for release.[92]
b)The Respondent declined to release the Applicant from a tax debt of $229,349.85 that was eligible for release.[93]
[92] Section 37 ‘T-Documents’, T6-023.
[93] Section 37 ‘T-Documents’, T6-023.
On 13 November 2020, the Respondent granted a full remission of GIC, resulting in a remission of $35,020.15.[94]
[94] Section 37 ‘T-Documents’, T6-023.
On 27 November 2020, the Applicant lodged an objection (‘the Objection’) to the Respondent’s decision.[95]
[95] Section 37 ‘T-Documents’, T7-025 to T7-314.
On 29 January 2021, the Respondent contacted the Applicant by telephone and left a voicemail message advising the preliminary decision (‘the Preliminary Decision’) on the Objection was to affirm the Decision.[96]
[96] Section 37 ‘T-Documents’, T8-315.
On 29 January 2021, the Applicant lodged an application for a review of the Preliminary Decision with the Tribunal.[97] The application commenced proceedings 2021/0490 which was dismissed on 30 November 2021 for want of jurisdiction.
[97] Section 37 ‘T-Documents’, T9-316 to T9-320.
On 10 February 2021, the Respondent issued a decision to disallow the Objection.[98]
[98] Section 37 ‘T-Documents’, T10-321 to T10-326.
On 11 February 2021, the Respondent issued the Reviewable Decision.[99] It included updated reasons,[100] which corrected erroneous dates included in the decision dated 10 February 2021.
[99] Section 37 ‘T-Documents’, T11-327.
[100] Section 37 ‘T-Documents’, T2-008 to T2-012
On 19 October 2021, the Applicant lodged an application for a review of the Reviewable Decision with the Tribunal.[101]
[101] Section 37 ‘T-Documents’, T9-316 to T9-320.
Form 13 information
Pursuant to directions of the Tribunal, on 6 July 2021 the Applicant provided updated financial information (‘the Form 13’).[102]
[102] Section 37 ‘T-Documents’, T15-336 to T15-346
The Applicant declared the following income in the Form 13:[103]
[103] Section 37 ‘T-Documents’, T15-337
Income
Amount per week
Salary or wages before tax
$3,047.19
Bonus before tax
$2,000.00
Mildura Clinical Trust business income
$0.00
Moruya Outreach Clinic
$3,191.00
Cooma Outreach Clinic
$700.00
King Street Surgery
$81.16
Calvary Private
$497.16
Icon Canberra
$540.75
TOTAL
$10,057.26
The Applicant declared the following expenses in the Form 13:
Expense
Amount per week
Income tax
$2,293.33
Mortgage payments for 56/7 Irving Street
$455.05
Municipal rates
$28.84
Water
$13.90
Electricity
$25.00
Strata
$57.69
Cleaning
$100.00
Electrical repair
$1.69
General repair
$18.68
Life insurance
$67.97
Income protection insurance
$81.83
2019 Porsche loan repayments
$331.33
Vehicle registration
$20.91
Vehicle insurance
$19.23
Fuel
$100.00
Vehicle repair & service
$28.84
BQQ Specialist loan repayments
$584.50
Bankwest credit card repayments
$1,000.00
American Express credit cards
$1,000.00
BQQ Specialist Visa credit card
$1000.00
Internet
$25.00
Foxtel and paid TV
$15.00
Mobile phone
$60.00
Groceries
$200.00
Personal health insurance
$100.00
Professional registration
$192.02
Car park
$15.00
Clothing/shoes including dry cleaning
$25.00
Professional conferences
$300.00
CPD courses and ongoing education
$250.00
School fees
$952.90
Afterschool care
$585.00
Children’s health insurance
$50.00
Children’s weekend activities
$100.00
Children’s phone
$20.00
Applicant’s father’s health insurance
$30.00
Applicant’s father’s medication
$25.00
Applicant’s father’s clothes and daily expenses
$15.00
TOTAL
$10,188.71
The Applicant declared the following assets in the Form 13:[104]
[104] Section 37 ‘T-Documents’, T15-341 to T15-343
Asset
Value
Property at 56/7 Irving Street
$450,000.00
Westpac Account 483341
$8,802.76
ANZ Account 278167948
$50,313.90
ANZ Account 587592614
$67.52
Shares
$20,430.18
2019 Porsche Macan
$75,000.00
Mildura Clinical Pty Ltd
Nominal
Home contents
$10,000.00
TOTAL
$614,614.36
The Applicant declared the following liabilities in the Form 13:[105]
[105] Section 37 ‘T-Documents’, T15-344 to T15-345.
Debt
Balance owing
Home mortgage
$435,293.45
Unpaid income tax for last financial year
$14,287.70
Unpaid tax from prior years
$203,281.74
BQQ Specialist loan
$130,100.30
BQQ Specialist Visa
$12,663.30
AMEX Business
$1,581.11
David Jones AMEX
$1,026.32
Bankwest credit card
$2,817.57
Porsche car loan
$90,151.68
TOTAL
$891,203.17
On 19 October 2021, the Applicant lodged an application for a review of the Objection Decision,[106] commencing the proceedings in 2021/7635.
[106] T-Docs at T1-001 to T1-007.
On 2 November 2021, the Tribunal granted an extension of time for the Applicant to lodge the application for review.
CONSIDERATION AND REASONS
Tax liabilities eligible for release
The Applicant may only be released from a tax liability if it is a liability to which section 340-10 of Schedule 1 to the TAA applies.[107] There is no dispute between the parties that as at 2 December 2021, an amount of $206,797.70 was eligible for release, comprising $185,638.24 in PAYGI and $21,159.46 in GIC.
[107] TAA Schedule 1 s 340-5(1)
At the time of the Respondent’s decision, the Applicant owed $2,520.35 in Division 293 tax. It is common ground that this amount was not eligible for release.[108] The Division 293 tax liability has subsequently been paid.
[108] Section 37 ‘T-Documents’, T6-023, T7-025.
On 1 May 2019, the Respondent imposed an administrative penalty of $199.50 due to the Applicant incorrectly reporting GST credits for the tax period ended 30 June 2016.[109] This amount is not eligible for release.[110]
Two-stage process
[109] Respondent’s Tender Bundle, 9.
[110] TAA 1953 s 3AA(2), sch 1 s 340-10(2) Item 2.
Determination of whether a tax liability should be released in part or in full pursuant to subsection 340-5(3) of Schedule 1 to the TAA has been described as a two-stage process. In GSJW and Commissioner of Taxation (‘GSJW’)[111] the Tribunal explained this as follows:[112]
The determination of whether the Applicant should be released from his eligible taxation liability involves a two-stage process. This process was described by Deputy President McDermott in Lau and Commissioner of Taxation [2016] AATA 46 at paragraph [65]:
65. The Tribunal in Re Filsell and Commissioner of Taxation provided that a two stage approach should be applied determining whether the discretion to release should be exercised:
In the Tribunal’s opinion, the language of the legislation requires a two stage approach. First, the decision-maker must decide whether the settlement of the liability will result in serious hardship. If that decision is favourable to the applicant, the discretion offered by sub-section 340-5(3) then falls for consideration. In reaching the decision to release in whole or part, the question to be addressed is whether, in all circumstances, it is just and proper to provide the requested relief. Matters pertaining to the incidence and consequence of the tax and the effect of its exaction upon the affairs of the person will bear upon the issue of whether the relief is just and proper...
(Footnotes omitted)
The above approach from Re Filsell and Commissioner of Taxation [2004] AATA 1012 was cited and applied by the Federal Court in Commissioner of Taxation v Milne (2006) 153 FCR 52 at 61-62.
[111] [2019] AATA 5170.
[112] at [51]-[52].
A finding of serious hardship is a jurisdictional pre-condition for the exercise of the power to release a taxpayer from their tax liabilities. In Powell v Evreniades and Others (‘Powell’),[113] Hill J, referring to the predecessor provision section 265 of the ITAA, outlined the consequences of a finding that this jurisdictional precondition is not satisfied:
Once there is a finding that the exaction of the full amount of tax will not entail serious hardship it would have to follow that there was no power in the Board to release any tax at all.
Onus of proof
[113] (1989) 21 FCR 252.
The onus lies on the Applicant to establish that he meets the jurisdictional pre-condition for release of the Tax Liabilities. In Re Rasmussen and Commissioner of Taxation (‘Rasmussen’),[114] Deputy President Forgie explained that subparagraph 14ZZK(b)(ii) distinguished tax cases from other cases in the Tribunal where it is generally said that there is no burden of proof. The Deputy President stated:[115]
The individual who carries the burden of proof in relation to this decision must produce to the tribunal evidence on which it can be satisfied, on the balance of probabilities, of the findings of fact that are relevant, first, to the ultimate finding that a person would suffer serious hardship if required to satisfy the liability and, if so, then to the exercise of the discretion.[116]
[114] [2013] AATA 746 at [31]-[34],
[115] ReRasmussenandFederalCommissionerofTaxation (2013) 95 ATR 155, 167 [36].
[116] at [36]
The Deputy President further stated that if the applicant does not produce enough evidence, the decision under review will stand.[117] Accordingly, if the Tribunal is left with any doubt about any relevant factual matter of which it must be satisfied for it to find that payment by the Applicant of the Tax Liabilities would result in serious hardship, it must, in accordance with subparagraph 14ZZK(b)(ii), affirm the decision under review.
[117] at [38].
If the jurisdictional pre-condition for release is met, the Tribunal will then consider whether the discretion to release an applicant from that liability should be exercised. It is a matter of discretion for the Tribunal and not a matter of right for an applicant.[118]
[118] see Wilcox J in Corlette and Another v Mackenzie and Others in the context of section 265 ITAA.
The Respondent contends that the Applicant has not discharged his burden of proving he would suffer serious hardship if required to pay the Tax Liabilities.[119] The Respondent submits that the Applicant has failed to make a full and frank financial disclosure of his financial affairs, and accordingly has failed to discharge his burden.[120] In the alternative, the Respondent submits that the Applicant has failed to prove he would suffer serious hardship if required to satisfy the Tax Liabilities.[121] In the further alternative, the Respondent submits that the payment of the Tax Liabilities is not the cause of the Applicant’s serious hardship.[122]
Would the Applicant suffer ‘serious hardship’ if he were required to pay the Tax Liabilities?
[119] Respondent’s Statement of Facts, Issues and Contentions [38]-[42]
[120] Respondent’s Statement of Facts, Issues and Contentions [48], [58]
[121] Respondent’s Statement of Facts, Issues and Contentions [49]
[122] Respondent’s Statement of Facts, Issues and Contentions [45]
When is hardship assessed?
The Applicant contends that a determination of serious hardship should be confined to his known circumstances at the time of the Release Application.[123] The Applicant submits that consideration of his current or future financial decisions is unfair, unjust, and unethical.[124] The Respondent submits that the hardship should be assessed at the time of the Tribunal’s decision.[125]
[123] Section 37 ‘T-Documents’, T1-005.
[124] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions, 3.
[125] Respondent’s Statement of Facts, Issues and Contentions [42]
As Kirby J stated in Shi v Migration Agents Registration Authority:[126]
When making a decision, administrative decision-makers are generally obliged to have regard to the best and most current information available. This rule of practice is no more than a feature of good public administration. When, therefore, the Tribunal elects to make “a decision in substitution for the decision so set aside”, as the Act permits, it would be surprising in the extreme if the substituted decision did not have to conform to such a standard.
[126] ShivMigrationAgentsRegistrationAuthority (2008) 235 CLR 286, 299-300 [41].
In Rasmussen, when dealing with a debt release application, Deputy President Forgie concluded that the question of whether an individual would suffer hardship is framed at the time at which it is being answered.[127]
[127] ReRasmussenandFederalCommissionerofTaxation (2013) 95 ATR 155, 171 [53].
The Respondent accepts that if this interpretation is accepted by the Tribunal, the following events occurring after the date of the Release Application can be taken into consideration by the Tribunal in making its decision:[128]
·the Applicant made payments towards his liabilities as shown on the activity statements for the periods ended 30 September 2020, 31 December 2020, and 31 March 2021;[129]
·the Applicant incurred costs during the 2021 calendar year for his father’s visa;[130] and
·the Applicant discontinued the Defamation Proceedings in September 2020.[131]
[128] Respondent’s submissions [76]
[129] Applicant’s letter to Tribunal filed 29 June 2021, 1.
[130] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions, 10.
[131] Section 37 ‘T-Documents’, T7-029, T7-312.
At the time of the Release Application, the Applicant’s tax liability in relation to his activity statements was $187,624.64.[132] The Respondent submits that the Tribunal’s power to release liabilities which have accrued since the Release Application was made supports the view that the Tribunal can consider circumstances that have arisen since the lodgement of the Release Application.[133]
[132] Respondent’s Tender Bundle, 2; Respondent’s submissions [77].
[133] Respondent’s submissions [77]
The Tribunal is satisfied that it can consider circumstances which have arisen since the lodgement by the Applicant of the Release Application, and that the matters detailed in [89] can be taken into account in considering whether the Applicant would suffer serious hardship if he were required to pay the Tax Liabilities.
What is ‘serious hardship’?
As Deputy President Forgie noted in Schweitzer and Commissioner of Taxation (‘Schweitzer’)[134] there is no statutory definition of ‘serious hardship’ in Division 340 of Schedule 1 to the TAA. Nor does the Division set out any guiding factors or principles that may be relevant in assessing serious hardship. In Powell, Hill J, in considering the predecessor provision, observed:[135]
There is no definition in section 265 of what is meant by “serious hardship” nor would one expect there to be. Each of the words in the phrase is an ordinary English word having a well understood meaning. The context in which the word appears makes it clear that the Relief Board is to consider whether the exaction of the full amount of tax would involve the dependants of a deceased taxpayer [the individuals concerned in that case] in a financial difficulty which in all the circumstances can be said to be serious. The financial difficulty will be such that the dependants will be in significant need warranting action by the Relief Board to relieve their condition.
[134] [2019] AATA 1100 at [100].
[135] at 258.
In Commissioner of Taxation and A Taxpayer,[136] Stone J approved the principles established by Hill J in Powell and stated:[137]
… ‘‘serious hardship’’ is itself the test that has to be applied to an applicant’s circumstances to decide if that applicant is eligible for relief from a tax debt. There is no other test, although there may be issues about which factors, in the particular circumstances, are or are not relevant to this determination. It is because the assessment is based so squarely on the individual circumstances that Hill J in [Powell] thought it was inappropriate to try and identify, in the abstract, the circumstances that would give rise to serious hardship.
… In [Powell], Hill J gave such an example when he recognised that there would be ‘‘severe financial hardship’’ if persons were left ‘‘destitute without any means of support’’. The Taxation Ruling gives a similar example when it says that there would be serious hardship if a taxpayer were left ‘‘without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements’’. I do not see any inconsistency in these examples. Effect must be given to the qualification of ‘‘reasonable’’ in the Taxation Ruling and, consistently with the reasoning of Hill J, these examples do not exclude the possibility that something less than destitution will constitute serious hardship. Whether this is so depends on the particular circumstances of each case… Implicitly, the Tribunal was assessing the respondent’s individual circumstances by reference to normal community standards.
[136] [2006] FCA 888.
[137] at [16]-[17] and [55].
It is clear from the authorities that, in assessing whether ‘serious hardship’ is established, consideration must be given to whether the taxpayer, if required to pay the tax liabilities would experience financial difficulties which are serious, however not necessarily at the level of causing destitution.
In Schweitzer, Deputy President Forgie summarised a number of principles recognised in the authorities as relevant to the determination of whether an Applicant for release would experience ‘serious hardship’.[138] Relevantly, these include:
·The relevant ‘hardship’ is financial hardship, not physical or social hardship: see Hill J in Powell;[139] Re Filsell and Commissioner of Taxation (‘Filsell’)[140]; Re Adams and Commissioner (‘Adams’).[141]
·The resources of the household, and not just of the applicant are to be considered in determining the relevant assets and income as against liabilities and expenditure: Van Grieken v Veilands.[142] This was affirmed by the Full Court, where the Court rejected an argument that his Honour had taken into account an irrelevant consideration, noting that “it cannot be irrelevant to consider what the judge below in his judgment referred to as ‘the financial affairs of the taxpayer, including his financial relations with the other members of his household, and with any family company’”.[143] See also Filsell at [21]; Adams at [22]; and Neimanis and the Commissioner of Taxation.[144]
·The Tribunal is not limited to consideration of the financial situation at the time of the application but is entitled to consider the position of the Applicant at the time of the hearing and may also consider any evidence about probable future financial position.[145]
[138] at [101].
[139] at 258.
[140] [2004] AATA 1012 at [13].
[141] [2010] AATA 744 at [17].
[142] (1991) 21 ATR 1639 per Gummow J at 1646.
[143] Van Grieken v Veilands (1991) 22 ATR 630 at 632.
[144] [2012] AATA 814.
[145] see Schweitzer at [101]-[103].
Another requirement that has been consistently recognised is that there must be a causal relationship between the requirement to satisfy the tax liability and the serious hardship. As Forgie DP explained in Rasmussen: [146]
Although I look at what is meant by the expression “serious hardship” in this section of my reasons, I must keep in mind that s 340-5(3) requires me to do more than decide whether Mr Rasmussen is in serious hardship or would be having regard to his circumstances. The issue that I must come back to and decide is whether he would suffer serious hardship “... if he were required to satisfy the liability”. The need to focus on this becomes clear from the authorities which have considered the criteria that must be met under s 340-5(3) and the discretion that must be exercised.
[emphasis in the original]
[146] At [40].
This approach was adopted by the Tribunal in Re Thomas and Commissioner of Taxation[147] and Re Huckle and Commissioner of Taxation.[148]
[147] [2014] AATA 102 at [46].
[148] [2014] AATA 362 at [45].
Policy guidelines
While policy guidelines are not binding law, there is an extensive body of case law that recognises the desirability for decision-makers to make consistent decisions, and that consistency in decision-making is facilitated by the existence of policy guidelines: Re Drake and Minister for Immigration and Ethnic Affairs (No 2).[149] In M64/2015 v Minister for Immigration and Border Protection the High Court stated:[150]
Policy guidelines... promote values of consistency and rationality in decision-making, and the principle that administrative decision-makers should treat like cases alike. In particular, policies or guidelines may help to promote consistency in “high volume decision-making”. Thus in Re Drake and Minister for Immigration and Ethnic Affairs (No 2), Brennan J, as President of the Administrative Appeals Tribunal, said that “[n]ot only is it lawful for the Minister to form a guiding policy; its promulgation is desirable” because the adoption of a guiding policy serves, among other things, to assure the integrity of administrative decision-making by “diminishing the importance of individual predilection” and “the inconsistencies which might otherwise appear in a series of decisions”.
[149] (1979) 2 ALD 634 at 642.
[150] (2015) 258 CLR 173 at [54].
This approach has been endorsed by the Federal Court in the context of the statutory power to release a taxpayer from a taxation debt. In Corlette v McKenzie,[151] Beazley J (as her Excellency then was), found that the Board was entitled to apply a policy to its decision-making, so long as it did not do so inflexibly. This approach has also been adopted in Tribunal decisions, for example, Schweitzer,[152] GSJW,[153] and Burns and Commissioner of Taxation.[154]
[151] (1995) 62 FCR 584 at 595-596. Affirmed by the Full Federal Court (1996) 62 FCR 597.
[152] at [104]-[109] and [118].
[153] at [56].
[154] [2019] AATA 3860 at [28].
PS LA 2011/17
In Rasmussen, the Tribunal adopted the tests set out in PS LA 2011/17 that assist in determining whether a tax debt should be released in full or in part. These tests are the income/outgoings test, the assets/liabilities test, and other relevant factors.
The tests are designed to determine if the consequence of paying the tax liabilities would be to deny the applicant of necessities.[155] It is necessary in determining whether the Applicant would suffer serious hardship to consider the Applicant’s financial affairs including his current income and expenses.[156]
[155] PS LA 2011/17 [8].
[156] ReMoriartyandFederalCommissionerofTaxation (2016) 104 ATR 190, 193 [15].
The Respondent submits that the Applicant must prove he does not have capacity to pay his tax liabilities under these tests. He argues that the Applicant has provided insufficient information to demonstrate he does not have capacity to pay his tax liabilities.[157]
(a) Income/outgoings test
[157] Respondent’s submissions [85]
Factors relevant to a consideration of this test are listed in clause 9 of PS LA 2011/17 and include:
·the Applicant’s capacity to pay in a reasonable timeframe on the basis of his income and outgoings
·the scope for the Applicant to increase his income
·whether all the Applicant’s expenditure could be considered reasonable, and consideration of any discretionary components.
Income
The Applicant’s annual gross household income is the income earned by him as a medical practitioner and from interest and dividend income. He relies on the considerable household expenditure in support of his claim that he satisfies the income/outgoings test for the determination of serious hardship.
The Applicant provided income information in the Release Application and in the Form 13 as detailed in [58] and [71] above. The information he provided is summarised below:
Income
Amount Per Month (Release Application dated
24 June 2020)
Amount Per Month[158] (Form 13 filed on 6 July
2021)
Variance
Salary or Wages $10,000.00 $13,204.49 +$3,204.49 Business Income
(after expenses)
$15,000.00
$21,710.30
+$6,710.30
Bonus $0.00 $8,666.67 +$8,666.67 Total $25,000.00 $43,581.46 +$18,581.46 [158] Calculated by multiplying weekly amount by 52 and dividing total by 12.
The Respondent submits the variation in income in the Release Applicant and the Form 13 is significant and places doubt on the veracity of the claimed amounts.[159] He further observes that the Applicant has provided no documentary records to verify his income.[160] The Applicant declared a taxable income of $330,000.25 for the 2020 financial year.[161] This amount differs from the income he listed in the Release Application and the Form 13.
[159] Respondent’s submissions [87]; Transcript, 16.
[160]Respondent’s submissions [87]; Transcript, 16
[161] Respondent’s Tender Bundle, 23, 24.
The Respondent also contends that the Applicant has failed to declare interest income or dividend income in either the Release Application or the Form 13, and that the evidence demonstrates the Applicant was in receipt of interest and dividend income in the income years ended 30 June 2020 and 30 June 2021.[162]
[162] Respondent’s submissions [88]; Section 37 ‘T-Documents’, T12-328 to T12-329, T17-348 to T17-349; Respondent’s Tender Bundle, 23-24, 30.
The Applicant submits that his interest and dividend income was not available to him at the time of lodging the Release Application and the Form 13.[163] The Release Application was dated 24 June 2020.[164] No dividends were paid between 24 June 2020 and 30 June 2020.[165] The Respondent accepts that the interest for the month of June 2020 may have been unknown to the Applicant, however he would have been able to estimate monthly interest income from the prior 11 months.[166] The Form 13 was filed on 6 July 2021, and all dividend and interest income earned in the income year ended 30 June 2021 should have been reasonably ascertainable at that time.
[163] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 11
[164] Section 37 ‘T-Documents’, T3-013.
[165] Section 37 ‘T-Documents’, T12-328 to T12-329
[166] Respondent’s submissions [89].
In determining whether the Applicant will suffer serious hardship if required to pay the tax liability, the Tribunal has considered the income derived by other members of his household.[167] The Applicant’s evidence is that his father has no means of support in Australia and for this reason he requires financial support from the Applicant.[168] The Applicant submits that his father’s Indian bank account has a balance of only 750 Indian Rupees.[169] The Applicant has confirmed that his father is in receipt of a pension of $600 per month.[170] No evidence of the income the Applicant’s father receives from overseas, nor of the Applicant’s father’s capacity to assist with household expenses is before the Tribunal.
[167] Van Grieken v Veilands (1991) 21 ATR 1639, 1646.
[168] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 2.
[169] Applicant’s Submission 3 filed on 1 December 2021
[170] Applicant’s Submission 1 filed on 30 November 2020; Transcript of proceedings, 6 December 2021, 34.
On the basis of the evidence before it, the Tribunal finds that the Applicant’s income as declared in his income tax return, the Release Application and the Form 13 varies considerably. Furthermore, it finds that the Applicant failed to declare in either the Release Application or the Form 13, the interest income and dividend income he received in the income years ended 30 June 2020 and 30 June 2021.
Outgoings
The following table summarises the monthly expenditure of the Applicant’s household:
Expense
Amount Per Month (Release Application dated
24 June 2020)
Amount Per Month (Form 13 filed on 6 July 2021) Variance
Mortgage $1,700.00 $1,971.88 +$271.88 Groceries $500.00 $866.67 +$366.67 Repairs and
Maintenance
$300.00
$88.27
-$211.73
Cleaning
$0.00
$433.33
+$433.33
Electricity and Gas
$300.00
$108.33
-$191.67
Telephone
$250.00
$346.67
+$96.67
Internet and Pay
TV$150.00
$173.33
+$23.33
Water and Rates
$100.00
$185.21
+$85.21
Strata Levy
$0.00
$249.99
+$249.99
Insurance
$600.00
$600.00
+$0.00
Vehicle Registration and
Insurance$200.00
$173.94
-$26.06
Vehicle Repairs
and Maintenance$500.00
$124.97
-$375.03
Fuel, Petrol and Oil
$300.00
$433.33
+$133.33
Vehicle
Repayments$900.00
$1,435.76
+$535.76
Car Park
$0.00
$65.00
+$65.00
Education/CPD
Courses$2,000.00
$1,083.33
-$916.67
Health/Personal
Insurance$300.00
$1,429.13
+$1,129.13
Salary Sacrifice
$350.00
$0.00
-$350.00
Medical
$100.00
$108.33
+$8.33
Child Care
$3,500.00
$2,535.00
-$965.00
School Fees
$0.00
$4,129.23
+$4,129.23
Weekend Activities
(Children)$0.00
$433.33
+$433.33
Loan Repayments
$3,000.00
$2,532.83
-$467.17
Credit Card
Repayments$3,000.00
$13,000.00
+$10,000.00
Other Expenses
(Not specified)$500.00
$0.00
-$500.00
Tax
$0.00
$9,937.76
+$9,937.76
Professional
Registration$0.00
$832.09
+$832.09
Clothing
$0.00
$173.33
+$173.33
Professional
Conferences$0.00
$1,300.00
+$1,300.00
Total
$18,550.00
$44,751.04
+$26,201.04
The Applicant’s household expenses listed in the Release Application are more than double those he disclosed in the Form 13. The Respondent submits that the veracity of the claimed amounts is in doubt and notes the Applicant has not provided any documentary evidence to support his claims, except for his father’s health insurance expense.[171]
[171] Respondent’s submissions [93]; The Applicant’s father’s health insurance cover costs $513.15 per quarter, being $40.86 per week, which is slightly higher than the $30 per week claimed in the Form 13: Section 37 ‘T-Documents’, T15-341.
In the Form 13, the Applicant claimed to make a minimum payment of $1,000 per week for three of his four credit cards,[172] increasing the credit card repayments per month by $10,000 compared to the $3000 per month disclosed in the Release Application. The total balance of all four credit cards was listed as $18,088.30.[173] The Respondent submits that a weekly minimum repayment of one sixth of the balance is unlikely to be accurate.[174]
[172] Section 37 ‘T-Documents’, T15-340. The minimum payment for a credit card is ordinarily a percentage of the closing balance for the statement period.
[173] Section 37 ‘T-Documents’, T15-344.
[174] Respondent’s submissions [94].
The Respondent also observes that in the Release Application, the Applicant claims to expend only the minimum payment of $1,500 per month on credit card repayments,[175] while simultaneously paying $3,000 per month towards the credit cards.[176] The same discrepancy, in the same amounts, appear with respect to the Bank of Queensland loan.[177]
[175] Section 37 ‘T-Documents’, T3-017
[176] Section 37 ‘T-Documents’, T3-016
[177] Section 37 ‘T-Documents’, T3-016 to T3-017
The Applicant claims to incur costs for childcare.[178] It is unclear if the amounts declared are before or after any entitlement to childcare subsidy. The Applicant also claims to have paid school fees for his nephew.[179] It is unclear if this expense has been included in the expenses listed in either the Release Application or the Form 13.
[178] Section 37 ‘T-Documents’, T3-016, T15-341
[179] Applicant’s Submission 6 filed on 1 December 2021 at page 1
According to the Form 13, the Applicant incurs $4,129.23 per month in school fees for his children. It is not clear why this expense was not disclosed in the Release Application.
In assessing the income/outgoings of the Applicant for the purposes of clause 9 of PSLA 2011/17 the Tribunal finds that the discrepancy between the Applicant’s income and expenses as declared in the Release Application and the Form 13, and the omission by him of interest and dividend income, indicates that he failed to make a full and frank financial disclosure.
Based on the evidence before it, the Tribunal finds that the Applicant’s expenditure listed in [111] includes a number of expenses that do not involve “what are considered necessities according to normal community standards”: PSLA 2011/17 clause 8. It finds that some of the expenditure incurred by the Applicant is discretionary and/or excessive. For example, he spends more than $100 per week on weekend activities for his children,[180] $100 per week on cleaning,[181] and $15 per week on paid television.[182]
[180] Section 37 ‘T-Documents’, T15-341.
[181] Section 37 ‘T-Documents’, T15-338.
[182] Section 37 ‘T-Documents’, T15-340.
The evidence before the Tribunal is that minimum payment per month for the Applicant’s Bank of Queensland loan is $1,500.[183] The Applicant claimed to be paying $3,000 per month in the Release Application,[184] or $584.50 per week in the Form 13.[185] The Tribunal finds that the Applicant’s payment of more than the minimum payment per month on this loan is a discretionary expense.
[183] Section 37 ‘T-Documents’, T3-017
[184] Section 37 ‘T-Documents’, T3-016
[185] Section 37 ‘T-Documents’, T15-339
The Applicant’s evidence is that his father came to Australia to help him fulfil his domestic responsibilities, but he was required to stay due to the COVID-19 pandemic.[186] He did not provide any reasons as to why his father’s Indian pension is inadequate to support himself and he needs to be supported by the Applicant. Although the Applicant has no legal duty to maintain his father,[187] the Tribunal accepts that the Applicant was under a moral duty to support his father during the period he was unable to leave Australia due to a lack of repatriation flights. However, with the easing of border restrictions, the Tribunal finds that the Applicant’s continuing support of his father is a discretionary expense.
[186] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 6; Applicant’s Submission 1 filed on 30 November 2021.
[187] DwyervMcGuire (1993) 114 FLR 325, 343.
The Applicant expends in excess of $4,000 per month on private school fees for his children. PSLA 2011/17 refers to the need for a taxpayer not to be left ‘without the means to afford basics such as ... reasonable education’. The Applicant’s evidence is that he has kept his children in their private school to provide them with some stability following their mother’s tragic death.[188] During the Family Law Proceedings, he petitioned the Family Court to allow him to enrol his children in public schools due to financial hardship making the private school fees unaffordable.[189] The Tribunal finds that an annual expenditure by the Applicant of almost $50,000 on private school fees is a discretionary amount that could be reduced or eliminated if the children were to transfer to public schools.
[188] Transcript of proceedings, 6 December 2021,at page 9
[189] Section 37 ‘T-Documents’, T7-026 paragraph h.
The Tribunal finds, based on the evidence before it, that a reduction in the Applicant’s household expenditure would leave a surplus which would allow him to meet his Tax Liabilities in a reasonable time without impacting upon his ability to provide reasonable accommodation, food, clothing, medical supplies and education for himself and his family.
For the reasons above, the Tribunal finds that the income/outgoings test is not satisfied and this weighs against the Applicant being granted a release from his Tax Liabilities.
(b) Assets/liabilities test
Relevant to a consideration of this test are the assets held by the Applicant and his current liabilities.
Assets
The Applicant declared the following assets in the Release Application and Form 13:
Assets Value (Release
Application dated 24 June 2020)
Value (Form 13
filed on 6 July 2021)
Variance
House $475,000.00 $450,000.00 -$25,000.00 Shares $10,000.00 $20,430.18 +$10,430.18 Westpac Bank
Account
$2,610.91
$8,802.76
+$6,191.85
ANZ Bank Account
ending 614
$11,610.00
$67.52
-$11,542.48
ANZ Bank Account
ending 948
$0.00
$50,313.90
+$50,313.90
2016 Audi $17,000.00 $0.00 -$17,000.00 2019 Porsche $0.00 $75,000.00 $75,000.00 Mildura Clinic
(Business)
$0.00
$0.00
$0.00
Total $516,220.91 $604,614.36 +$88,393.45
The Applicant has provided no documentary evidence to support the claimed value of these assets.[190]
[190] Respondent’s submissions [100].
The Applicant’s cash assets significantly increased, and the shares doubled in value, in the twelve months between his lodgement of the Release Application and the Form 13. For example, the Form 13 records the Applicant had a cash balance in an ANZ bank account of $50,000. At the date of the Release Application, the total amount in the Applicant’s bank accounts was $14,220. The Applicant submits that the increase in assets is due to the lack of legal expenses and gambling expenses of his former wife, and an improved superannuation balance.[191] The Release Application does not include any legal expenses or gambling expenses to explain the additional capacity for the Applicant to improve his asset position. The Form 13 reflects that the Applicant’s weekly expenditure exceeded his expenses which would not have enabled him to have saved the significant amounts of cash or to have purchased additional shares.
[191] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 2.
Bank accounts
The evidence before the Tribunal is that the Applicant earned interest from the following bank accounts in both income years ended 30 June 2020 and 30 June 2021:
Financial Institution Account Number Bank Australia …1842 Bank of Queensland …6665 IMB …7387 ING …9848
None of these accounts were included in the Applicant’s Release Application. The evidence also shows that the Applicant holds bank accounts overseas.[192] None of these overseas accounts were declared by the Applicant in either the Release Application or the Form 13.
[192] Respondent’s Tender Bundle, 30.
The Applicant claims he had no intention of hiding the overseas accounts.[193] The Respondent submits that the Applicant’s submission should not be accepted.[194] The Applicant admits the accounts were in active use to pay his nephew’s school fees,[195] and as a result it is unlikely that the accounts were forgotten or overlooked. The Respondent made clear that there were concerns that the Applicant has not made a full and frank financial disclosure of his financial affairs.[196] The Applicant responded by condemning the accusation,[197] but still failed to declare his foreign bank accounts.
[193] Applicant’s Submission 6 filed on 1 December 2021.
[194] Respondent’s submissions [103].
[195] Applicant’s Submission 6 filed on 1 December 2021
[196] Respondent’s Statement of Facts, Issues and Contentions at page 13 [48].
[197] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 9.
The Applicant only declared interest earned from Australian bank accounts in his income tax return for the year ended 30 June 2020.[198] He only admitted to holding the overseas bank accounts on 1 December 2021,[199] after the Respondent had filed his tender bundle which included evidence of the bank accounts. The Applicant claims the maximum balance of the foreign bank accounts is $3,000,[200] despite the evidence indicating a balance of twice this amount.[201] He questions why his overseas bank accounts are now important when they were not considered in the Decision or the Objection Decision.[202] The fact that these accounts were not taken into account at an earlier stage is irrelevant to the Tribunal’s consideration, as it must have regard to the best and most current information available at the time of its decision.
[198] Respondent’s Tender Bundle at pages 13 to 20; T17-348.
[199] Applicant’s Submission 6 filed on 1 December 2021.
[200] Applicant’s Submission 6 filed on 1 December 2021.
[201] Respondent’s Tender Bundle at page 30.
[202] Applicant’s Submission 6 filed on 1 December 2021.
The Applicant contends that the amounts in his overseas bank accounts would be insufficient to pay the Tax Liabilities.[203] The assets/liabilities test requires the Tribunal to consider all the Applicant’s assets to determine if he can satisfy part or all of the Tax Liabilities.
[203] Applicant’s Submission 6 filed on 1 December 2021.
The Tribunal finds that none of the assets the Applicant declared in the Release Application or the Form 13 has a declared value that would be sufficient to address the entire Tax Liabilities, other than his home.
Shares
The Applicant received dividends on shares held in three companies as follows:[204]
[204] Respondent’s submissions [106].
Company Payment Date Franked
Dividend
Declared Dividend
Per Share
Number of
Shares
BHP Group
Limited
23 March 2021 $414.39[205] $1.311[206] 316 Rio Tinto
Limited
15 April 2021 $1,463.42[207] $5.171[208] 96 Wesfarmers
Limited
31 March 2021 $141.68[209] $0.88[210] 161 [205] Respondent’s Tender Bundle, 23.
[206] Respondent’s Tender Bundle, 49.
[207] Respondent’s Tender Bundle, 23.
[208] Respondent’s Tender Bundle, 57.
[209] Respondent’s Tender Bundle, 23.
[210] Respondent’s Tender Bundle, 64.
The Respondent estimates the value of the shares held in these three companies as follows:[211]
[211] Respondent’s submissions [107].
Company Number of Shares Value Per Share Total Value BHP Group Limited 316 $39.37[212] $12,440.92 Rio Tinto Limited 96 $96.12[213] $27,201.96 Wesfarmers Limited 161 $58.34[214] $9,392.74 TOTAL $49,035.62 [212] Respondent’s Tender Bundle, 46.
[213] Respondent’s Tender Bundle, 54.
[214] Respondent’s Tender Bundle, 61.
The Tribunal notes that the estimated value of the shares held by the Applicant in these companies significantly exceeds the share value of $10,000 he declared in the Release Application,[215] or $20,000 he declared in the Form 13.[216]
[215] Section 37 ‘T-Documents’, T3-017.
[216] Section 37 ‘T-Documents’, T15-342.
Business Assets
The Applicant claims the value of the business known as Mildura Clinic is nominal.[217] The Applicant has not provided a valuation for the business to support his claim that the value of the business is nominal.
[217] Section 37 ‘T-Documents’, T15-343.
Vehicle
The Applicant purchased a 2019 Porsche Macan on 29 June 2020,[218] being five days after the date of the Release Application. The Tribunal finds that the purchase by the Applicant of a luxury vehicle is not consistent with the financial circumstances he reported in either the Release Application or the Form 13.
[218] Section 37 ‘T-Documents’, T16-347.
Residential property
On 14 December 2020, the Applicant entered into a contract for the purchase of a property at Volume 3004 Folio 791 at 512/15 Bowes Street, Phillip in the Australian Capital Territory.[219] The settlement date was 19 February 2021.[220] The Applicant did not declare ownership of this property in the Form 13. The Applicant obtained a mortgage for the purchase of the property.[221] This mortgage was not declared in the Form 13. The Applicant has not provided any information in relation to any income or expenses associated with this property. The Tribunal finds that the purchase of this property is not consistent with the financial circumstances the Applicant reported in either the Release Application or the Form 13.
[219] Section 37 ‘T-Documents’, T20-352 to T20-357.
[220] Section 37 ‘T-Documents’, T20-357.
[221] Section 37 ‘T-Documents’, T20-353 to T20-354; Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 10.
Liabilities
The Applicant declared the following liabilities in the Release Application and Form 13:
Creditor Value (Release
Application dated 24 June 2020)
Value (Form 13
filed on 6 July 2021)
Variance
Macquarie Bank
Credit Card
$25,000.00
$0.00
-$25,000.00
HSBC Credit Card $7,000.00 $0.00 -$7,000.00 Bank of
Queensland Visa
$0.00
$12,663.30
+$12,663.30
American Express
Business
$0.00
$1,581.11
+$1,581.11
David Jones
American Express
$0.00
$1,026.32
+$1,026.32
Bankwest Credit
Card
$0.00
$2,817.57
+$2,817.57
2016 Audi Car
Loan
$40,000.00
$0.00
-$40,000.00
2019 Porsche Car
Loan
$0.00
$90,151.68
+$90,151.68
Total $701,000.00 $673,633.73 -$27,366.27
The Tribunal notes that credit cards declared in the Form 13 are different from those declared in the Release Application.[222] The Applicant successfully applying for four credit cards is inconsistent with the financial circumstances reported by him in either the Release Application or the Form 13.
[222] Section 37 ‘T-Documents’, T3-017, T15-340.
The Applicant purchased additional shares between 1 July 2021 and 29 October 2021 for $6,726.20.[223] The acquisition by the Applicant of additional shares is not consistent with the financial circumstances he reported in the Form 13.
[223] Respondent’s Tender Bundle, 31.
The Applicant submits that the variations between the Release Application and the Form 13 are the consequence of a lack of detail in the Release Application form.[224] The Respondent contends this submission should be rejected.[225] The Release Application form specifically provides space to include other income and other expenses not otherwise identified in the form.[226] A similar provision is made for other assets and liabilities.[227] The Release Application form also invites further information to be provided as separate pages attached to the Release Application.[228] Accordingly, the Respondent submits there is no reasonable reason for the Applicant not to have provided all his financial information with the Release Application.[229] The Respondent further notes that items included in both the Release Application and the Form 13 vary considerably.[230] For example, the Release Application shows the Applicant was expending $3,000 per month to repay his credit cards,[231] while the Form 13 indicates the Applicant is expending $3,000 per week on the same liability.[232]
[224] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 2.
[225] Respondent’s submissions [116]
[226] Section 37 ‘T-Documents’, T3-016.
[227] Section 37 ‘T-Documents’, T3-017.
[228] Section 37 ‘T-Documents’, T3-017
[229] Respondent’s submissions [116].
[230] Respondent’s submissions [116].
[231] Section 37 ‘T-Documents’, T3-016.
[232] Section 37 ‘T-Documents’, T15-340.
Based on the evidence before it, the Tribunal finds that the Applicant failed to make a full and frank disclosure of his financial affairs. The Tribunal must however assess whether the Applicant would suffer financial hardship if he were required to satisfy the Tax Liabilities.
Will the Applicant suffer serious hardship?
Serious hardship will exist where an applicant is left without the means to acquire basic necessities for themselves or their dependants.[233] Depending on the circumstances of the case, something less than destitution may constitute serious hardship.[234] What constitutes a reasonable acquisition is referenced by normal community standards.[235] The Tribunal may draw on its own knowledge in determining normal community standards.[236]
[233] PS LA 2011/17 [8].
[234] Federal Commissioner of Taxation v A Taxpayer (2006) 63 ATR 450, 454 [17].
[235] Federal Commissioner of Taxation v A Taxpayer (2006) 63 ATR 450, 454 [55].
[236] Re Rasmussen and Federal Commissioner of Taxation (2013) 95 ATR 155, 170 [50].
The Respondent submits that, taken at its highest, the Applicant’s evidence does not demonstrate he would suffer serious hardship if required to satisfy the Tax Liabilities.[237]
[237] Respondent’s submissions [119].
Notwithstanding the Respondent’s submissions relating to the veracity of the information in the Form 13, the Tribunal observes that the Form 13 records that the Applicant has cash assets of $59,184.18 and shares valued at $20,430.18.[238] This demonstrates that the Applicant has the means of paying approximately $70,000 towards his tax debt in a lump sum, while still retaining some cash reserves for emergencies or unexpected situations.
[238] Section 37 ‘T-Documents’, T15-342.
The Applicant claims to have been expending $3,000 per week on his credit card repayments.[239] The balance of his credit cards as at 6 July 2021 was $18,088.30. Based on this information, the Applicant’s credit card liabilities would have been repaid within seven weeks from 6 July 2021. This would accordingly reduce the Applicant’s expenses by $3,000 per week.
[239] Section 37 ‘T-Documents’, T15-340.
The Form 13 records that the Applicant has a weekly income of $10,057.26 and weekly expenses of $10,188.71.[240] This leaves a weekly shortfall of $131.45.[241] Following the discharge of the credit card repayments, the Applicant will have available to him an amount of $2,868.55 per week which may be utilised to pay his Tax Liabilities. Based on a balance of $206,997.20, which includes the administrative penalty ineligible for release, the Tax Liabilities would be repaid within 73 weeks, not accounting for any additional GIC.
[240] Section 37 ‘T-Documents’, T15-336.
[241] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 6.
On the basis of the evidence before it, the Tribunal is not satisfied that the Applicant has met his onus of establishing that if he were required to meet his Tax Liabilities this would result in serious hardship within the meaning of section 340-5 of Schedule 1.
Having found that the jurisdictional pre-condition for the exercise of the power to release the Applicant from all or part of his Tax Liabilities is not satisfied, there is no need for the Tribunal to consider whether the discretionary power should be exercised.
However, for the reasons that follow, the Tribunal is satisfied that even if the discretionary power were enlivened to release the Applicant from his Tax Liabilities, it is not appropriate in the Applicant’s circumstances that it be exercised to permit such a release in whole or in part.
2) Should the discretion to release the Applicant from his Tax Liabilities be exercised?
If an applicant proves that payment of the tax liability would cause them serious hardship, the decision as to whether to release the applicant from their liability is discretionary.[242] As Wilcox J stated in Corlette v MacKenzie:[243]
It would be extremely odd if a taxpayer who was the author of his or her misfortunes, through imprudent or extravagant expenditure, was entitled, as a matter of right, to a release of unpaid income tax.
[242] Corlette v MacKenzie (1996) 62 FCR 597, 598.
[243] Ibid.
Clause 11 of PSLA 2011/17 sets out other relevant factors which may be considered in deciding whether to exercise the discretion to grant a release from taxation liabilities. Of relevance is whether the taxpayer has a poor compliance history and whether the taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.
The Respondent submits that the Applicant’s circumstances weigh against an exercise of the discretion. The Respondent submits that the following factors are relevant:[244]
·the Applicant appears to have unreasonably acquired assets ahead of meeting his Tax Liabilities;
·the Applicant has disposed of funds or assets without giving consideration to his Tax Liabilities;
·release would not alleviate the Applicant’s hardship;
·the Applicant has paid other debts in preference to theTax Liabilities;
·serious hardship is likely to be short term; and
·the Applicant has a poor compliance history.
[244] Respondent’s submissions [133].
Compliance
The Applicant submits that he was up to date with his PAYGI obligations until 1 September 2017.[245] The Applicant also contends that he has entered into payment arrangements to address his other tax debts.[246] The Respondent acknowledges that the Applicant took steps to mitigate his circumstances and address overdue tax obligations.[247]
[245] Applicant’s letter to Tribunal filed 29 June 2021 at page 1.
[246] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 9.
[247] Respondent’s submissions [134].
The Tribunal finds that the Applicant’s lodgement history outlined in [47]-[50] above is poor. It accepts however that the Applicant’s compliance issues appear to have commenced around the time of his separation from his former wife, and the payment plans demonstrate an attempt by the Applicant to address the tax debts. Accordingly, the Tribunal gives no weight to this factor.
Acquiring Assets
The Applicant purchased a property on 1 February 2020, being the Applicant’s home.[248] He then purchased another property on 14 December 2020, with settlement occurring on 19 February 2021.[249] The Applicant submits he decided to purchase the property in 2018 and paid an initial deposit of $1,000.[250] The Respondent submits that the process of purchasing both properties commenced while the Applicant had, and was aware, of his tax debts.[251]
[248] Section 37 ‘T-Documents’, T3-017.
[249] Section 37 ‘T-Documents’, T20-357.
[250] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 3.
[251] Respondent’s submissions [137].
The Tribunal does not accept the Applicant’s justification for the purchase of the second property. There is no evidence he was obliged to continue with the purchase two or more years after paying a deposit of $1,000.[252]
[252] Section 37 ‘T-Documents’, T3-018.
The Applicant purchased a 2016 Audi A4 in August 2017.[253] He purchased a 2019 Porsche Macan S Turbo on 29 June 2020. Both purchases were made while the Applicant was aware of his Tax Liabilities. The Applicant claims that the characterisation by the Respondent of the 2019 Porsche Macan S Turbo as a ‘luxury car’ is an attempt to sway the Tribunal,[254] and maligns his character.[255] He argues that the purchase of the Porsche was necessary to transport his father and his walking frame and his children and their sports and music equipment.
[253] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 5
[254] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 5.
[255] A New Tax System (Luxury Car Tax) Act 1999 (Cth) s 25-1(1).
The Respondent submits that the Applicant’s claim should be rejected, as there are cheaper vehicles that would accommodate his and his family’s requirements.[256] The Respondent points out that a luxury car is one whose value exceeds the luxury car tax threshold,[257] and the Porsche is properly characterised as a luxury car on this basis.
[256] Respondent’s submissions [138].
[257] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 5.
The Applicant also claims the purchase of the Porsche was necessary to enable him to claim the instant asset write off.[258] The Respondent submits this claim should be rejected and points out that the instant asset write off is subject to the car limit determined under s 40-230 of the ITAA. For the year ended 30 June 2020, this was $57,581.[259] The Respondent also observes that the transport of the Applicant’s family is a non-deductible purpose and only the business portion of the car’s use, multiplied by the car limit, can be claimed as a deduction. The Respondent submits the tax savings do not justify the purchase.[260]
[258] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 4-5.
[259] Respondent’s submissions [140].
[260] Respondent’s submissions [140].
In addition to the purchase of the residential properties and the luxury vehicle, the Applicant accumulated cash and shares referred to in [73] above. The Applicant has also made the further purchase of shares since 1 July 2021.[261]
[261] Respondent’s Tender Bundle, 31.
Based on the evidence before it, the Tribunal finds that the Applicant has unreasonably acquired assets ahead of meeting his Tax Liabilities.
Disposing of funds
The Applicant commenced an MBA on 3 October 2018.[262] The Applicant contends this was necessary as a fall-back career given his three-month suspension from the Canberra Hospital.[263] The suspension was lifted on 25 May 2018,[264] and there is no evidence the Applicant was subject to further misconduct allegations which would cause him to believe that his employment was under threat.
[262] T-Docs at T15-346.
[263] Applicant’s Response to Respondent’s Statement of Facts, Issues and Contentions at page 10.
[264] T-Docs at T7-219.
The Applicant contends that the cost of the MBA was $24,000,[265] however he incurred a HELP debt of $33,060.[266] The Respondent submits this cost was unnecessary and was a disposal of funds by the Applicant without regard to his Tax Liabilities.
[265] T-Docs at T15-346.
[266] T-Docs at T19-351.
On the basis of the evidence before it, the Tribunal finds that the Applicant unnecessarily expended funds on fees for his MBA in circumstances where he had secure ongoing employment as a medical specialist at the Canberra Hospital.
Favouring Other Creditors
The Respondent submits that the payment by the Applicant of more than the minimum payment on his credit cards demonstrates the Applicant has favoured other creditors over his Tax Liabilities.[267] It further observes that if only the minimum payment was made towards the Bank of Queensland loan, no more than $19,500 should have been paid toward this loan between the date of the Release Application and the Form 13. In contrast the balance has reduced by $50,899.70.[268]
[267] Respondent’s submissions [145].
[268] Respondent’s submissions [145].
Based on the evidence before it, the Tribunal finds that the Applicant favoured the payment of debts owed to other creditors ahead of meeting his Tax Liabilities.
Short-term hardship
The Respondent contends that any financial hardship suffered by the Applicant would be short-term. Once he has paid the outstanding amounts on his credit cards, the Applicant’s capacity to pay the Tax Liabilities will improve.[269]
[269] Respondent’s submissions [146].
Based on the evidence before it, the Tribunal finds that the Applicant’s capacity to repay the Tax Liabilities will improve within a reasonable period of time, and that any financial hardship he may suffer will be of a short duration.
Release will not alleviate hardship
The Respondent submits that a release of the Applicant’s Tax Liabilities will not alleviate any financial hardship suffered by the Applicant.[270]
[270] Respondent’s submissions [148].
As outlined in [149] above, there is a significant shortfall between the Applicant’s declared income and his expenditure, which will continue irrespective of whether he is released from his Tax Liabilities. Accordingly, the Tribunal finds that the release will not alleviate the Applicant’s financial hardship.
To summarise, on the basis of the evidence before it, the Tribunal finds the other relevant factors do not support the grant of a release of the Applicant from his Tax Liabilities.
For these reasons, the Tribunal finds that even if the payment of the Applicant’s liabilities would result in serious hardship, there is no basis upon which it would be appropriate for the Tribunal to exercise the discretionary power to release the Applicant from his Tax Liabilities.
CONCLUSION
On the basis of the evidence before it and applying the relevant authorities and policy guidance, the Tribunal finds that the Applicant has not established that the Reviewable Decision should not have been made or should have been made differently. Accordingly, the Tribunal finds that the Applicant has not discharged his onus under section 14ZZK of the TAA.
DECISION
The Reviewable Decision dated 11 February 2021 is affirmed.
I certify that the preceding 177 (one hundred and seventy-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr Linda Kirk
.................................[SGD].......................................
Associate
Dated: 03 June 2022
Date(s) of hearing: 6 December 2021 Applicant: In person Solicitors for the Respondent: Mr V Nellailingam, Australian Taxation Office
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