Foxhat Employment Service Pty Ltd v Deputy Commissioner of Taxation
[2014] VSC 218
•15 May 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
S CI 2013 4339
| FOXHAT EMPLOYMENT SERVICE PTY LTD (ACN 100 749 380) | Plaintiff |
| v | |
| DEPUTY COMMISSIONER OF TAXATION | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 March 2014 Last submissions filed 4 April 2014 | |
DATE OF JUDGMENT: | 15 May 2014 | |
CASE MAY BE CITED AS: | Foxhat Employment Service Pty Ltd v Deputy Commissioner of Taxation | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 218 | |
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CORPORATIONS —Application to set aside a statutory demand issued by the Deputy Commissioner of Taxation on the basis of alleged genuine disputes pursuant to s 459G of the Corporations Act 2001 (Cth) — Assessments generated pursuant to Superannuation Guarantee (Administration) Act 1992 alleged not to have been raised in good faith and conclusivity displaced on application of principle in R v Hickman; Ex Parte Fox & Clinton — Liability on Running Balance Account alleged to be subject of genuine dispute by reason that liability said to be subject of covenant not to sue — Plaintiff did not establish genuine disputes — Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J.D.S. Barber | James G. Sloan |
| For the Defendant | Ms W.Y. Tai | Legal Services Branch, Australian Taxation Office |
HIS HONOUR:
On 30 July 2013, the defendant (the Deputy Commissioner) served a statutory demand issued pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act) on the plaintiff (Foxhat), demanding payment of $905,505.40. The demand was accompanied by an affidavit of Karen Humphrey, an officer employed in the Australian Taxation Office, which verified that the amount was due and payable by Foxhat as required by s 459E(3) of the Act.
The schedule to the demand divides the amount demanded into two components. The first component is in respect of a Running Balance Account (RBA) deficit debt owing as at 30 July 2013 of $814,495.00. That debt is said to be made up of amounts due under the BAS provisions of the Income Tax Assessment Act 1997 (the ITAA 1997), estimates due under Division 268 in Schedule 1 to the Taxation Administration Act 1953 (the TAA 1953) and Division 8 of Part VI of the Income Tax Assessment Act 1936 (the ITAA 1936), administrative penalties due under Part 4-25 of Schedule 1 of the TAA 1953, and the general interest charge (GIC) payable under s 8AAZF of the TAA 1953. These debts are said to collectively be a debt due and payable by Foxhat pursuant to s 8AAZH of the TAA 1953.
The second component of the demand is in respect of an assessment for Superannuation Guarantee charges (SGC) for various quarters for the financial year ended 30 June 2009, beginning with the quarter commencing 1 October 2008, penalties imposed on those amounts pursuant to Part 7 of the Superannuation Guarantee (Administration) Act 1992 (the SGAA), and the interest charge payable pursuant to s 49 of the SGAA 1992 and Part IIA of the TAA 1953.
On 21 August 2013, Foxhat made application pursuant to s 459G of the Act for an order that the demand be set aside. It alleges that there are genuine disputes in relation to the debts claimed in the demand.
The principles to be applied in applications under the section were collected by the Court of Appeal in this state in Troutfarms Australia Pty Ltd v Perpetual Nominees
Ltd.[1] At [5] Osborn JA stated:
[1][2013] VSCA 176.
The phrase ‘a genuine dispute’ uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact. Nevertheless its application is illuminated by the authorities referred to by Robson J in Rhagodia Pty Ltd v National Australia Bank:[2]
[2](2008) 67 ACSR 367, [91]-[94] (citations in original); see also, Powerhouse Australasia Pty Ltd v Viarc Pty Ltd [2006] VSC 508; Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, 464.
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd[3] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) said:
[3](2008) 66 ACSR 67 (‘TR Administration’).
[56] The court, in the context of an application to set aside a statutory demand, must determine whether there is a genuine dispute about the existence or amount of the debt or whether the company has a genuine off-setting claim.
[57] No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction. Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.
Dodds-Streeton JA further said:
[71] As the terms of s 459H (sic) of the Corporations Act 2001 and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something “between mere assertion and the proof that would be necessary in a court of law” may suffice. A selective focus on a part of the formulation in South Australia v Wall,[4] divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.
[4](1980) 24 SASR 189.
In Eyota,[5] McClelland CJ of the Supreme Court of New South Wales said:
[5]Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787-8 (‘Eyota’).
It is, however, necessary to consider the meaning of the expression “genuine dispute” where it occurs in s 450H. In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan),[6] or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall.[7]
[6][1980] AC 331, 341.
[7](1980) 24 SASR 189, 194.
But if it does mean that, except in such an extreme case, a court required to determine whether there is a genuine dispute should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute and, on the other hand, determining the merits of, or resolving, such a dispute. In Mibor Investments[8] Hayne J said, after referring to the state of the law prior to the enactment of Div 3 of Pt 5.4 of the Corporations Law, and to the terms of Div 3:
[8]Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362, 366–7 (‘Mibor Investments’).
These matters, taken in combination, suggest that at least in most cases, it is not expected that the court will embark upon any extended inquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the court conclude that there is a dispute and that it is a genuine dispute.
In Re Morris Catering (Aust) Pty Ltd[9] Thomas J said:
[9](1993) 11 ACSR 601, 605.
There is little doubt that Div 3 … prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a “genuine dispute” and whether there is a “genuine claim”.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it), the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple — to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).
I respectfully agree with those statements.
In TR Administration,[10] Dodds-Streeton JA (with whom Neave and Kellam JJA concurred) cited this passage with apparent approval[11] and noted it was also cited by the Full Federal Court in Spencer Constructions Pty Ltd v GAM Aldridge Pty Ltd.[12]
[10](2008) 66 ACSR 67.
[11]At [64].
[12](1997) 76 FCR 452.
Applying these principles in the context of this application, the dispute alleged must have sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim that is not arguable at law.
Foxhat relies on several affidavits of Murray John King sworn 20 August 2013, 13 December 2013 and 22 January 2014, together with affidavits of Nicole Angela Muir sworn 12 March 2014 and 13 March 2014.
The Deputy Commissioner opposes the application and relies on affidavits of Santana Theofilopoulos affirmed 15 October 2013 and 22 January 2014.
Foxhat contends that it has genuine disputes in respect of the SGC charge debt by reason that the assessments raised in respect of those debts were not raised in good faith and were therefore not protected by the conclusive evidence provisions of s 75 of the SGAA. The alleged genuine dispute in respect of the RBA component of the debt is said to arise because such debt is alleged to be the subject of a covenant not to sue evidenced by a letter of the Deputy Commissioner of 16 February 2011.
The SGAA debt
The debt in respect of the SGC charge liabilities arises from three quarters, ending 31 December 2008, 31 March 2009 and 30 June 2009. Each of those quarters was the subject of assessments dated 22 March 2012.[13] The assessment for the December 2008 quarter was the subject of an amended assessment dated 10 April 2013.[14]
[13]Exhibits ST-4, ST-3 and ST-2 respectively.
[14]Exhibit ST-8.
The debt arises from a series of audits conducted by the Deputy Commissioner’s officers, as a result of which assessments were issued.
Foxhat raised objections to those assessments. The Deputy Commissioner wrote to Foxhat in a letter dated 18 March 2013, enclosing an Australian Taxation Office SGC worksheet.[15] The worksheet is in spreadsheet form, listing employees of Foxhat, the amount of the superannuation contribution paid in respect of each employee, whether the contribution was remitted to the relevant fund on time and other details that included a summary of the evidence in regard to the remission made on behalf of the employee concerned. The Deputy Commissioner issued an amended assessment in respect of the December 2008 quarter as a result of the objections but maintained the assessments for the other quarters.
[15]Exhibit MJK-21.
Foxhat’s evidence and submissions
Mr Barber, counsel for Foxhat, submitted that the SGC worksheet demonstrates that the Deputy Commissioner has gone about the generation of the SGC assessments in such an unsatisfactory way that the maintenance of the assessments demonstrates bad faith on the Deputy Commissioner’s part. Mr Barber submitted that the Deputy Commissioner has committed a number of errors in that he has ignored evidence of payment of superannuation contributions, has assumed that payments were made late in the face of clear evidence that they were not, and has superimposed an SGC for an employee whom the Deputy Commissioner acknowledges was no longer employed by Foxhat during the period in which the assessment liability was raised. Further, it was submitted that, despite acknowledging that Foxhat is entitled to carry forward late payments to a subsequent period, the Deputy Commissioner has nonetheless issued a statutory demand calculated as if there were no such entitlement.
In this regard, Mr Barber in his submissions identified six examples of deficiencies and errors in the process of the generation of the SGC assessments. They were as follows:
(a)the Deputy Commissioner claims an SGC for the June 2009 quarter in respect of several employees without acknowledging amounts paid in respect of those employees which are said to be demonstrated by bank statements exhibited to Mr King’s affidavit. It is said that the ATO’s SGC worksheet that accompanied the letter of 18 March 2013 to Foxhat shows that the Deputy Commissioner had received the relevant employer returns in respect of those employees;
(b)the Deputy Commissioner acknowledges that Foxhat had paid $118.80 in respect of superannuation for an employee, Michelle Deane, for October 2008. However, the Deputy Commissioner seeks to impose an SGC for this amount by reason that it is “unknown” whether the payment was made by the due date. The Deputy Commissioner, however, acknowledges that Foxhat remitted payment to the relevant fund on 25 November 2008 and Foxhat’s banking records indicate that its cheque in payment of such obligation was honoured on 24 December 2008, over a month before the due date of payment, 28 January 2009;
(c)in respect of an employee, Joseph Heim, the Deputy Commissioner acknowledges that Foxhat paid $630.96 in respect of his superannuation entitlements for October 2008. However, the Deputy Commissioner seeks to impose an SGC for this amount, again on the basis that the payment date is “unknown”. This is despite the Deputy Commissioner acknowledging that Foxhat sent payment to the relevant fund on 25 November 2008 and that Foxhat’s banking records show that its cheque was honoured on 24 December 2008;
(d)in respect of an employee, Linda Grundy, the Australian Taxation Office worksheet acknowledges that Foxhat paid $350.34 in respect of her superannuation for October 2008. The Deputy Commissioner, however, seeks to impose an SGC for this amount, again on the basis that the payment date is “unknown”. The banking records for Foxhat show that Foxhat’s cheque was honoured on 29 December 2008;
(e)in respect of an employee, Deborah Dillon, the worksheet acknowledges that she ceased to be employed on 28 January 2009 but the Deputy Commissioner has made no adjustment to the amount of the SGC for the March 2009 quarter or the June 2009 quarter.
Mr Barber also stated that the Deputy Commissioner has assessed a large number of payments as having been made, but having been made late. He accepted that a late payment by Foxhat gave rise to an obligation to pay an SGC. However, he submitted that the Deputy Commissioner, having assessed Foxhat’s liability in this way and having acknowledged that Foxhat was entitled to carry forward the payment to the next quarter for crediting against any obligation to pay superannuation for the relevant employee for that next quarter, has generated an assessment for the SGC for the next quarter without regard to such entitlements.
In his evidence, Mr King deposes that the nature of the business carried on by Foxhat until April 2009 was the provision of traffic control at building and construction work sites. Personnel employed by Foxhat were engaged to stand in streets where construction works were being carried out with a sign and control traffic. The employees were employed on a casual basis and many of them had several other employers through whom they also obtained casual work. The work was irregular and often at odd hours at night and at weekends and sometimes for long shifts. He states that for this reason, much of the pay received by these employees did not constitute “ordinary time earnings” that would attract a right to employer superannuation contributions.
He states that in responding to the ATO’s audits and assessments, Foxhat has encountered difficulties with certain superannuation fund trustees who have refused to provide confirmation of receipt of contributions from Foxhat and he details those trustees, which include AMP, Media Super, MLCF, Colonial Super and BT Superannuation. He states that other funds were able to confirm receipt of payments for individual members, but were unable to differentiate between employers where employees had worked for a number of different employers in the same period.
Foxhat contends that for the period 1 October 2008 to 31 December 2008, Foxhat’s liability for superannuation obligations was, on a true reckoning, $17,329.96 for which it has paid $19,704.11, an overpayment of $1,744.15. The Deputy Commissioner, however, maintains that the liability for that period is $19,080.67. In respect of the period 1 January 2009 to 31 March 2009, for which the Deputy Commissioner demands the sum of $23,053.44, Mr King asserts that on a true reckoning the amount payable was only $14,961.51. Foxhat has actually paid $18,475.71, an overpayment of $3,514.20 and as such, no amount is payable by Foxhat for that period. For the period 1 April 2009 to 30 June 2009, the Deputy Commissioner demands payment of $22,764.48, whereas Mr King contends in his evidence that the obligation was only to pay $2,622.35. Foxhat has actually paid $3,462.66 and therefore it contends that there has been an overpayment of $840.11 and no amount is owing for that period.
Mr Barber submitted that if the late payments in respect of superannuation are carried forward from the December 2008 quarter to the March 2009 quarter, and from the March 2009 quarter to the June 2009 quarter, the principal amount of the SGC charge claimed in the statutory demand is very substantially reduced. Mr Barber contended that even if this analysis were confined to the payments that the Deputy Commissioner acknowledges were made in the Australian Taxation Office worksheet[16] (but that the Deputy Commissioner has not taken into account in generating the revised December 2008 assessment), the principal SGC amount claimed in the statutory demand is reduced by more than 50% with a concomitant reduction in interest and penalty.
[16]Exhibit MJK-21.
Foxhat has apparently been involved in disputes with the Deputy Commissioner for several years in respect to the amount he claims as owing by Foxhat.
The Deputy Commissioner’s evidence and submissions
In her evidence, Ms Theofilopoulos deposes as to her familiarity with the record system maintained by the Deputy Commissioner.
Regarding the SGC debt and the penalty attaching to it, Ms Theofilopoulos states that on 22 March 2012 the Deputy Commissioner generated assessments of Foxhat’s SGC liabilities and Part 7 penalty for the quarters commencing 1 October 2008, 1 January 2009 and 1 April 2009. Subsequently, on 28 February 2013, the Deputy Commissioner issued advices of reduction of SGC additional charges for those quarters to Foxhat. On 10 April 2013, the Deputy Commissioner issued a Notice of Amended Assessment for SGC in relation to the quarter commencing 1 October 2008. As a result of the amended SGC assessment, on 18 April 2013 the Deputy Commissioner issued a further advice of reduction of the SGC additional charge for the quarter commencing 1 October 2008.
Ms Theofilopoulos deposes that as at 30 July 2013 Foxhat was indebted to the Commonwealth in respect of SGC, Part 7 penalties and GIC in the amount of $91,010.40. The assessments, which are exhibited to Ms Theofilopoulos’ affidavit, were served on Foxhat on or about the date they were issued.
It was submitted that pursuant to s 75 of the SGAA, the SGC default assessments and the amended SGC assessment are conclusive evidence, save for proceedings under Part IVC of the TAA 1953, that the amounts and particulars of the assessments are correct. Ms Theofilopoulos deposes that there are presently no Part IVC objections or reviews pending on the SGC default assessments, the Part 7 penalties or the amended SGC assessment. I observe that even if there were such an appeal on foot, it would not be the basis of a genuine dispute on an application of the High Court of Australia in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd.[17]
[17][2008] HCA 41 (‘Broadbeach’).
Legal principles
Section 75 of the SGAA provides:
75 Evidence
(1) The mere production of:
(a) a notice of assessment; or
(b)a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of a notice of assessment;
is conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amounts and all of the particulars of the assessment are correct.
Mr Barber contended that the assessments in respect of SGC were not raised in good faith. In making this submission, he accepted that the position laid down by the High Court in Broadbeach was, in essence, that production by the Deputy Commissioner of Notices of Assessment operates to conclusively demonstrate that the amounts and particulars in the assessments and declarations are correct, and that the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer to set aside a statutory demand.
In Broadbeach, the plurality stated at paragraphs 57 and 58:[18]
[57]… Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment … conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct. That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner.
[58]The use by the Commissioner of the statutory demand procedure in aid of a winding up application is in the course of recovery of the relevant indebtedness to the Commonwealth by a permissible legal avenue. The phrase "may be recovered" in ss 14ZZM and 14ZZR of the Administration Act applies to the statutory demand procedure. That state of affairs places the existence and amounts of the "tax debts" outside the area for a "genuine dispute" for the purposes of s 459H(1) of the Corporations Act.
[18][2008] HCA 41.
In the earlier decision of the High Court in FJ Bloemen Pty Ltd v Federal Commissioner of Taxation, Mason and Wilson JJ held that s 177(1) of the ITAA 1936, which like s 75 of the SGAA is a “conclusive evidence” provision, was ‘intended to make it impossible for a tax payer, in proceedings other than appeal against it, to challenge an assessment on any ground’.[19]
[19](1981) 147 CLR 360, 375.
Mr Barber submitted, however, that the conclusivity of assessments are subject to the exception that arises from the principle described by Dixon J in R v Hickman; Ex Parte Fox & Clinton.[20] He submitted that the operation of a provision such as s 75 of the SGAA is conditional upon the exercise of the power, in this instance the issuing of the Notices of Assessment, being a bona fide attempt to exercise such power. In Hickman, after referring to the relevant regulation the subject of consideration, Dixon J stated:[21]
Regulation 17 provides that a decision of a Local Reference Board shall not be challenged, appealed against, quashed or called into question, or be subject to prohibition, mandamus or injunction, in any court on any account whatever. The presence of this provision in the Regulations makes it necessary to say whether and to what extent it is ineffectual to protect the decision of the Board from invalidation. In the first place, it is clear that such a provision cannot, under the Constitution affect the jurisdiction of this Court to grant a writ of prohibition against officers of the Commonwealth when the legal situation requires that remedy. But a writ of prohibition is a remedy that lies only to restrain persons acting judicially from exceeding their power or authority. It is therefore necessary to ascertain before issuing a writ whether the persons or body against which it is sought are acting in excess of their powers; and that means whether their determination, when made, would be void.
[20](1945) 70 CLR 598 (‘Hickman’).
[21](1945) 70 CLR 598, 614.
At 615 Dixon J went on to say:
Such a clause is interpreted as meaning that no decision which is in fact given by the body concerned shall be invalidated on the ground that it has not conformed to the requirements governing its proceedings or the exercise of its authority or has not confined its acts within the limits laid down by the instrument giving it authority, provided always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body.
The matter has been expressed in somewhat different ways. In Baxter v New South Wales Clickers’ Association, O’Connor J said that such a provision should be construed as freeing the court or authority from the control or supervision of the superior court in all cases where the proceedings of the former show on the face of them that they have relation to the subject matter over which the statute has given it jurisdiction. Isaacs J treated the same provision as excluding prohibition in relation to any decision so long as the power of the judicial authority is exercised bone fide for the purpose for which it is conferred. (Citations omitted). (Emphasis added).
In Deputy Commissioner of Taxation v Richard Walter Pty Ltd,[22] Brennan J, in referring to the operation of s 177 of the ITAA 1936 stated:[23]
It is conceivable that a purported assessment could be made in bad faith so as to forfeit the protection which s 175 would otherwise confer on the assessment. If such a case were to occur, neither s 175 nor s 177(1) would transform the purported but invalid assessment into a source of liability. The purported assessment would be a nullity. But an assessment which has been made in a bona fide attempt to exercise the power to make it is not invalid merely on account of a disconformity between the amounts assessed and the amounts properly assessable under the general provisions of the Act. (Emphasis added).
[22](1995) 183 CLR 168 (‘Richard Walter’).
[23](1995) 183 CLR 168, 197.
Deane and Gaudron JJ stated:[24]
As has been seen, s 177(1) of the Act is inconsistent with s 75(v) of the Constitution only to the extent that it purportedly precludes the Court from determining, in the exercise of the original jurisdiction conferred by that sub-section, a claim that an assessment is invalid on the ground that it is not bona fide. Section 177(1) is also inconsistent with any other provision of the Constitution directly conferring original jurisdiction upon the Court to the extent that it would purportedly preclude the proper judicial determination of such a claim in circumstances where the determination of the claim was a necessary step in the exercise of that jurisdiction. That inconsistency does not, however, give rise to total invalidity. Clearly, s 177(1) can be read down, in accordance with s 15A of the Acts Interpretation Act 1901 (Cth), to avoid the excess of legislative power. The appropriate method of reading the sub-section down is, in our view, to read it as simply inapplicable in relation to the issue of the validity of an assessment which is alleged, in such proceedings in this Court, to be not “bona fide” in the sense explained above.
[24](1995) 183 CLR 168, 213.
The Court of Appeal of the Supreme Court of Victoria in Commissioner of State Revenue v Gas Ban Pty Ltd (in liquidation) stated, in relation to very similar conclusive evidence provisions in Victorian revenue legislation:[25]
An assessment is not tentative or provisional in the sense which may deny it the status of a valid assessment unless it appears ex facie or from surrounding documentation that it is conditional or subject to revision or if it appears aliunde that the assessment has been issued by the commissioner knowing that it does not reflect any rational assessment of the taxpayer’s liability to tax, or with reckless indifference to whether it does or does not reflect any such assessment, or otherwise in bad faith (in the sense of a “conscious maladministration of the assessment process”). (citations omitted).
[25](2011) 31 VR 397, 408 (‘Gas Ban’).
Mr Barber accepted that the onus lay on his client to establish that in these circumstances the SGC assessments were made in bad faith.
Mr Barber pointed to the errors outlined above and stated that it must be concluded in the circumstances that the assessments were issued by the Deputy Commissioner in the knowledge that they did not reflect any rational assessment of the liability of Foxhat to SGC or with ‘reckless indifference’ to whether they did or not reflect any such assessment. As such, he says, the raising of a genuine dispute about the existence and amount of the claimed debt is not foreclosed by s 75 of the SGAA.
In this regard, Mr Barber submitted that the evidence revealed that the vast bulk of the June 2009 assessment related to employees who were not employed in that quarter at all. Those who remained in employment during that quarter ceased employment during April 2009. Mr Barber stated that although the Deputy Commissioner’s calculation of individual amounts lacks the transparency to enable analysis, it is apparent from a comparison with the amount claimed for the previous quarter that the June 2009 quarter claim is greatly overstated. It was said that in the circumstances, the claim relating to the SGC component of the demand should be excluded or otherwise substantially reduced in amount. He submitted that as the amount of the reduction is so difficult to calculate, it should be set aside entirely.
In response to the matters raised by Mr Barber, Ms Tai on behalf of the Deputy Commissioner relied on the conclusivity of the assessments arising by operation of the provisions that have been referred to. When I enquired as to whether it was accepted that there were errors, she stated that she understood there was a process of review presently being undertaken but that this did not impeach the assessments which are the subject of the demand. She stated that Foxhat has not established lack of good faith in the generation of the subject assessments.
Conclusion as to SGAA debt
The question that arises for consideration in respect of the SGC debt is whether Foxhat, which bears the burden of establishing it, has demonstrated on the balance of probabilities that the assessments were not raised in good faith or that, adopting the formulation of Dixon J in Hickman, the assessments were not a bona fide attempt to exercise the power that related to the subject matter of the legislation, nor were they reasonably capable of reference to the power given to the Deputy Commissioner.
Whilst errors may have been shown in the production of the assessments, I do not consider that Foxhat has established that the assessments were not raised in good faith. The fact that errors have occurred does not establish that the assessments have not been generated via a bona fide attempt to exercise the power under the SGAA. The assessments are not invalid merely on account of differences between the amounts assessed and the amounts properly assessable under the general provisions of the Act. Nor, adopting the formulation of the Court of Appeal in Gas Ban, do I consider that it has been established that the Commissioner has raised the assessments knowing that they do not reflect any rational assessment of Foxhat’s liability, or alternatively, with ‘reckless indifference’ to whether it does or does not.
Further, I do not consider that Foxhat has established that the assessments have otherwise been raised in bad faith in the sense of there having been a conscious maladministration of the assessment process. Whilst the evidence would suggest that, prima facie, Foxhat has legitimate grievances with the quantum of the assessments that are detailed in its evidence, I do not consider that this ought result in a conclusion that the assessments have been raised in the absence of good faith. As Brennan J pointed out in Richard Walter, an assessment made in a bona fide attempt to exercise the power to make it is not invalid merely on account of a disconformity between the amounts assessed and the amounts properly assessable under the general provisions of the Act.
In my opinion Foxhat has not discharged the onus of establishing that the assessments generated pursuant to the SGAA were not carried in good faith, and as such has not made out that there is a genuine dispute in respect of the debt.
The RBA debt
RBAs are the subject of Part IIB of the TAA 1953. Under that Part, the Commissioner of Taxation is empowered to establish one or more systems of accounts for primary tax debts, with each account to be known as an RBA.[26] The Commissioner’s evidence is that an RBA was established under s 8AAZC of the TAA 1953 and primary tax debts owed by Foxhat to the Commissioner were allocated to it.
[26]See generally, Australia DIS Pty Ltd v Deputy Commissioner of Taxation [2012] VSC 331.
Section 8AAZH(1) of the TAA 1953 provides:
If there is an RBA deficit debt on an RBA at the end of a day, the tax debtor is liable to pay to the Commonwealth the amount of the debt. The amount is due and payable at the end of that day.
Section 8AAZF provides for the imposition of interest charges on an RBA deficit debt computable daily.
Section 8AAZI provides:
(1) The production of an RBA statement:
(a) is prima facie evidence that the RBA was duly kept; and
(b)is prima facie evidence that the amounts and particulars in the statement are correct.
(2) In this section:
"RBA statement" includes a document that purports to be a copy of an RBA statement and is signed by the Commissioner or a delegate of the Commissioner or by a Second Commissioner or Deputy Commissioner.
The Deputy Commissioner’s evidence and submissions
Ms Theofilopoulos deposes that the Deputy Commissioner established an RBA in respect of the primary tax due by Foxhat under the BAS provisions as defined in sub-section 995-1(1) of the ITAA 1997 and for administrative penalties under Part 4-15 of Schedule 1 of the TAA 1953, including penalties for failure to lodge activity statements on time. She states that the Deputy Commissioner allocated the primary tax debts to the RBA pursuant to the provisions of s 8AAZD of the TAA 1953 and that any applicable payments and other credits were allocated pursuant to Division 3 of Part IIB of the TAA 1953.
Ms Theofilopoulos deposes that from time to time the balance of the RBA was in favour of the Deputy Commissioner and was accordingly an RBA deficit debt as defined in s 8AAZA of the TAA 1953. As such, she contends, at the end of each day on which there was an RBA deficit debt, Foxhat became liable to pay the general interest charge on that RBA deficit debt and the balance of the RBA was altered in the Deputy Commissioner’s favour by the amount of the general interest charge payable pursuant to sub-section 8AAZF of the TAA 1953.
Ms Theofilopoulos exhibits an RBA statement dated 30 July 2013 generated pursuant to s 8AAZI of the TAA 1953.[27] That statement describes all of the transactions on Foxhat’s RBA for the period 1 July 2002 to 30 July 2013, the latter being the date the demand was issued. The RBA statement shows that on that date, 30 July 2013, Foxhat had an RBA deficit debt of $814,495.00 which was comprised of self-assessed Goods and Services Tax (GST) and Pay As You Go Withholding (PAYGW) liabilities, GST and PAYGW liabilities assessed by the Australian Taxation Office, GST shortfall penalties, PAYGW shortfall penalties, penalties for failure to lodge activity statements and the general interest charge. This debt is that claimed at paragraph (a) of the schedule to the statutory demand.
[27]Exhibit ST-1.
Foxhat’s evidence and submissions
Foxhat did not appear to contend that the amount said to be owed on the RBA is in issue. Rather, its position is that by reason of the terms of a letter of the Deputy Commissioner of 16 February 2011 to Foxhat,[28] the Deputy Commissioner is not entitled to seek payment of the amount owing by Foxhat on the RBA and that the prima facie presumption provided by s 8AAZ is thereby displaced.
[28]Exhibit MJK-18.
Mr King states in respect of the RBA component of the debt that Foxhat has been involved in disputes with the Deputy Commissioner in respect of the amounts of the claims for several years. He further states that all GST and PAYG instalments due have been paid. He deposes that:
The plaintiff has a note from the defendant stating that if the PAYG obligations were made no other obligations in relation to GST or interest would be sort [sic]. That is, the obligations for GST and interest have been waived following the payment of GST obligations which were made. All PAYG instalments were paid.
On 1 July 2010, Mr King’s accountants, Pitcher Partners wrote to the Deputy Commissioner in reference to a Director Penalty Notice of 23 March 2010 directed to Mr King and a garnishee notice issued by the Deputy Commissioner under the TAA 1953 to Australia and New Zealand Banking Group Limited. Pitcher Partners indicated that Mr King wished to enter into a payment arrangement in relation to the sum owing, that being $237,256.00 as at that date. He proposed to do so by payments of $10,000.00 a month commencing in August 2010.
On 30 July 2010, the Deputy Commissioner wrote to Foxhat advising of his agreement to accept an arrangement for payment of Foxhat’s liability integrated client account by instalments. This was set out in the schedule on the first page of that letter.
In an email of 14 February 2011, Mr Claughton of Pitcher Partners wrote to Ms Redfern at the Australian Taxation Office regarding the implementation of the new payment arrangement. The subject of the email was “Director Penalty Notice”. The email stated:
Thank you for putting a new payment arrangement into place.
I note that the ATO confirmation dated 10 February 2011 (copy attached) contemplates specific payments on specific dates, for example $6,000 on 2 March 2011. The documentation provided included a remittance advice for this payment and for each other payment that is specified in the confirmation of the payment arrangement.
…
I also note that the arrangement is addressed to the Trustee for the Foxhat Service Trust. As you are aware, this payment arrangements [sic] relates to the Director Penalty Notice dated 23 March 2010 that was addressed to Mr Murray King. While we understand that the Running Balance Account to which the payments are directed is in the name of the Trustee for the Foxhat Service Trust, the payment arrangement is intended to reduce the debt owed personally by Mr King, albeit that at the same time it reduces the debt owed by the trust.
Can you please confirm that the payments that Mr King has made and will continue to make under this arrangement and a previous arrangement are in reduction of his personal liability under the Director Penalty Notice.
It seems clear that the context of Mr Claughton’s email was directed to ensuring that amounts paid by Mr King would be appropriated to income tax withholding liabilities for which Mr King was liable under his Director Penalty Notice, for which he was jointly and severally liable with Foxhat.
In response, the Deputy Commissioner wrote to Pitcher Partners on 16 February 2011. That letter is the “note” referred to by Mr King in his affidavit as operating to discharge Foxhat’s obligations for GST and interest which is referred to above. The letter stated as follows:
We refer to your telephone call of 16 February 2011 regarding the payment arrangement entered into by the director for the Director Penalty portion of this debt.
Given that the company is no longer trading, has no assets and a wind up would result in little or not return to the ATO, we are exercising our discretion not to actively pursue the full debt owed by the company at this time as it is not economically viable. If however, new information comes to light or the financial position of the company changes, the debt may re re‑raised and recovery action recommenced.
The ITW component of the debt however, which the Director is jointly and severally liable for, is being actively pursued and is currently in a payment arrangement with payments being made by the director. When the ITW amounts have been addressed by the payments being made by the director, the remaining debt on the company account will not be actively pursued as long as the company situation remains as is and pursuit is considered uneconomical for the ATO, as outlined above. If the current payment arrangement defaults recovery action for the outstanding ITW liabilities will be undertaken against the director personally. (emphasis added).
In his evidence, Mr King deposes that the director penalty payments were made by him on a regular basis and that this is evidenced by the appearance of such payments in the RBA statement. He states that as far as he is aware, no information has come to light and the financial position of the company did not change between 16 February 2011 and 30 July 2013 when the statutory demand was issued. He states that he has received no notice from the Australian Taxation Office that the debt has been re‑raised or that recovery action would be recommenced apart from service of the statutory demand.
I note that in regard to the last matter, on 14 June 2012, the Deputy Commissioner wrote to Foxhat care of Pitcher Partners giving notice of intended legal action stating that the sum total of $874,954.13 was owing by Foxhat and that if it was not paid, it was the Deputy Commissioner’s intention to issue legal proceedings for the recovery of that amount.
Mr King contends that Foxhat has not incurred any Fringe Benefits Tax liabilities nor any deferred company instalments and that therefore the charge for administrative penalties is not due because the substantive amounts were not payable.
Mr Barber’s submission in regard to the RBA liability was that the letter of 16 February 2011 constitutes a covenant not to sue by the Deputy Commissioner, such that the Deputy Commissioner cannot now demand payment of the RBA liability.
Mr Barber submitted that this letter is evidence of a settlement agreement to the effect that if the Director Penalty liability were paid according to the agreed payment arrangement, the rest of the RBA liability would not be pursued, unless the financial position of Foxhat changed. He submitted that as such, the letter is by its terms a covenant not to sue and that Foxhat’s evidence demonstrates that he has complied with his Director Penalty Notice obligations and that there is no evidence or contention to the contrary. Further, there is no evidence that the financial position of Foxhat has changed. As such, it is submitted that the RBA cannot be pursued and the statutory demand insofar as it relates to the RBA must be set aside.
Mr Barber also stated that the fact that the Commissioner could issue a statutory demand in the face of such an agreement may be a further illustration of the Commissioner’s lack of good faith in dealing with Foxhat.
Conclusion as to RBA debt
I do not accept those submissions. In my opinion, the letter merely reveals the reason why, as of 16 February 2011 (“at this time”) the Deputy Commissioner had decided not to pursue the debt. Those reasons were that the company was no longer trading, had no assets and as pursuit of the debt would result in little or no return to the Deputy Commissioner, it was not an economically viable course. The letter did not, in my view, prevent the Deputy Commissioner from bringing recovery action in the future if he chose to do so. The Deputy Commissioner had reserved his position in that regard and it was his decision whether or not to bring recovery action in the future. When the letter was written, Mr King was jointly and severally liable under the Director Penalty Notice for the income tax withholding component of the RBA debt, for which he had entered into instalment arrangements, and as such, even if the letter could be construed as an agreement or covenant not to sue by the Deputy Commissioner, it is not supported by consideration.
The second paragraph of the letter of 16 February 2011 extracted above merely states that when the Income Tax Withholding amounts had been applied to discharge Mr King’s liability, it was not the intention of the Deputy Commissioner at that time to pursue Foxhat as he regarded it as being uneconomic to do so. Given Mr King’s joint and several liability, the payment by him of the ITW instalments was merely the performance of an obligation he already had under the Director’s Penalty Notice. I also reject the submission that the reactivation of the matter was illustrative of bad faith on the Deputy Commissioner’s part.
I do not consider that the dispute in respect of the RBA component of the demand gives rise to a serious question to be tried, as the Deputy Commissioner’s letter of 16 February 2011 does not operate as a covenant not to sue by the Deputy Commissioner in respect of the balance owing on the RBA debt.
In the circumstances, as neither of the grounds for disputing the respective components of the debt has been established by Foxhat, the application should be dismissed with costs.
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