GSJW and Commissioner of Taxation (Taxation) - [2019] AATA 5170

GSJW and Commissioner of Taxation (Taxation) [2019] AATA 5170 (3 December 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2018/6993
Re:GSJW
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Senior Member Dr M Evans

Date:3 December 2019
Place:Perth

The Reviewable Decision dated 22 November 2018 is set aside.
A new decision is substituted that the Applicant is granted a partial release of the portion of his eligible tax debt that comprises the General Interest Charges. This means that the Applicant must pay all of the remaining income tax that he owes, but that he is released from the payment of the General Interest Charges component of his eligible tax debt.
.................................[sgd].......................................
Senior Member Dr M Evans
Catchwords
TAXATION – application for review of an objection decision – whether to grant release of tax liabilities – whether Applicant would suffer serious financial hardship if required to satisfy his eligible tax liabilities – poor compliance due to medical condition known as Attention Deficit Hyperactivity Disorder (ADHD) – income/outgoings test – assets/liabilities test – other relevant factors - whether Applicant paid debts ahead of meeting taxation obligations – whether Applicant acquired assets ahead of meeting taxation obligations – whether a poor compliance history – Reviewable Decision set aside and substituted with a new decision granting partial release
Legislation
Income Tax Assessment Act 1936 (Cth) – s 265 (superseded)
Income Tax Assessment Act 1997 (Cth) – s 4-1
Taxation Administration Act 1953 (Cth) – ss 14ZZK, 14ZZK(b)(ii), Division 340 of Schedule 1, Division 340(1) of Schedule 1, 340-5 of Schedule 1, 340-5(3) of Schedule 1, 340-10 of Schedule 1, 340-10(1) of Schedule 1, 340-10(2) of Schedule 1
Cases
Commissioner of Taxation v Milne (2006) 153 FCR 52
Corlette and Another v Mackenzie and Others (1996) 62 FCR 597
Lau and Commissioner of Taxation [2016] AATA 46
Re Filsell and Commissioner of Taxation [2004] AATA 1012
Schweitzer and Commissioner of Taxation [2019] AATA 1100
Secondary Materials
Practice Statement Law Administration 2011/17: Debt relief, waiver and write off – cl 5, 6, 7, 8, 9
REASONS FOR DECISION
Senior Member Dr M Evans
3 December 2019
ISSUE

The issue that requires determination by the Tribunal is whether the Applicant should be granted a whole or partial release from his eligible taxation liabilities under s 340-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) on the basis of serious hardship, as defined in cl 5 of the Practice Statement Law Administration 2011/17: Debt relief, waiver and write off (the PSLA).
As the reasons below show, the current amount owed by the Applicant is almost entirely comprised of General Interest Charges (GIC), with only a small portion of income tax owing.
FACTS
The Applicant is currently 60 years of age (T28, page 400).
In the relevant period, the Applicant conducted a business as an instrumentation consultant through a family trust (T28, page 408; Exhibit A2, paragraph [8]).
The family trust was owned by a company of which the Applicant was a director, shareholder and public officer (T37, pages 459-462). The company was the subject of deregistration proceedings by the Australian Securities and Investments Commission between 17 March 1995 and 28 March 1995, but those proceedings were resolved (T37, page 459).
In 1995, the Applicant was diagnosed with Attention Deficit Hyperactivity Disorder (ADHD), although he has suffered from the condition since childhood (T25, page 392).
In his witness statement, the Applicant described how his ADHD impacted upon his ability to comply with his taxation obligations (Exhibit A2, paragraphs [10]-[14]):
10.During the period from the 1997 tax year to the 2015 taxation year, I did not comply with my tax obligations, in that I failed to make the required tax lodgements and payments on time.
11.When GST was introduced in 2000, I found myself completely overwhelmed by the additional compliance required, having already struggled to attend to the Taxation requirements in place up to that time.
12.At some time about 2005 [sic], the ATO told my accountant to have me lodge my BAS statements for the most recent period, and then work back to the earlier outstanding BAS.
13.As a result, I was always trying to catch up with the latest outstanding BAS, and not being able to complete the earliest BAS. Consequently, I was unable to prepare the earlier years’ trust returns, which meant that I could not get to preparing my personal tax returns for those years.
14.During the 2015 tax year, with considerable assistance from my accountant, I brought my taxation lodgements up-to-date, and paid off the primary tax associated with those assessments.
The Applicant’s psychiatrist, Dr Johann Combrinck (Dr Combrinck), who has been treating the Applicant since 2011, is a Consultant Psychiatrist whose qualifications are a Bachelor of Medicine and Bachelor of Surgery (M.B.Ch.B), and a Master of Medicine in Psychiatry (M.Med (Psych)). He is also a Fellow of the Royal Australian and New Zealand College of Psychiatrists (F.R.A.N.Z.C.P). Dr Combrinck stated in a letter dated 8 August 2016 (T25, page 391) that:
Hereby to confirm that the abovenamed [the Applicant] has been diagnosed with ADHD for some time.
This neurobiological disorder manifests with disorganisation, executive function difficulties and time management problems.
It is not uncommon for people to have difficulty with submitting things on time and/or procrastination especially when it comes to administrative tasks.
In a further letter dated 2 September 2016 (T25, page 392), Dr Combrinck stated (T25, pages 392-393):
He has especially [sic] difficulty with submitting things on time compounded by procrastination especially when it comes to administrative tasks. His condition has hampered his ability to adequately attend to his tax affairs, including lodgement of his tax returns, and payment of his tax liabilities by the due dates.
This resulted in a significant tax liability being raised against him. He has taken steps (in conjunction with his accountant) to regularize [sic] his tax affairs, but a large amount of GIC (in the order of $900,000) remains outstanding.
In my clinical opinion this imposition resulted from ADHD symptomatology which were beyond his control. The treatment/medication improved core vocational functioning as supported by his sustained employment since on treatment compare [sic] to inconsistent employment previously. He was in eleven different employment positions prior to treatment. Irrespective of some success in his case he still battles with residual inattention and these symptoms resulted in the failure to comply with tax affairs. Due to hypertension I was unable to prescribed [sic] higher doses that perhaps could have improved his symptoms further.
In a more recent letter dated 9 May 2019 (Exhibit A3), Dr Combrinck commented on the Applicant’s ability to comply with his tax obligations due to his ADHD (Exhibit A3, page 1, question 1):
ADHD is a hereditary neurobiological disorder… manifest mostly with inattention symptoms in adulthood.
These symptoms include; trouble wrapping up final details of project [sic], disorganisation, problems remembering appointments or obligations, avoids mentally challenging tasks or delay in getting started, careless mistakes when working, attention sustaining difficulties when doing boring/repetitive work, poor conversational focus, misplacing or having difficulty finding things, easily distracted by activity or noise, not completing task [sic] that are uninteresting or difficult.
Often experiences difficulty with written materials unless it is very interesting or easy, have [sic] trouble planning in what order to do a series of tasks or activities, works on more than one project at a time and fails to finish many of them.
Most of these symptoms have been experienced by [the Applicant] and although he enjoyed and was passionate about his vocation, report writing was always an issue.
For adults living with ADHD, prioritizing [sic] tasks and managing the most important things on a to-do list can be a major problem. Executive functioning difficulties can cause an overwhelming feeling when facing with different responsibilities and tasks to complete. This often leads to nothing being completed as in [the Applicant’s] case regarding taxation obligation [sic].
In his letter of 9 May 2019, Dr Combrinck also explained the impact of the Applicant’s ADHD on his ability to rectify the non-compliance with his tax obligations (Exhibit A3, page 2, question 2):
Executive functioning involves planning, initiating, orchestrating, monitoring, evaluating, adapting different strategies to accomplish different tasks. It requires the ability to analyze [sic] situations, plan and take action, focus and maintain attention, and adjust actions as needed to get the job done.
ADHD inattention core symptom manifestation is poor executive functioning responsible for the inability to rectify the non-compliance, “always on the mind but never able to translate in action”.
Dr Combrinck also commented on the Applicant paying other debts in preference to his tax debt (Exhibit A3, page 2, question 3):
The complexity of executive functioning failure often manifest [sic] in certain tasks and obligations getting done e.g. paying certain debts and purchasing assets while other more important tasks e.g. tax obligations are getting ignored as in [the Applicant’s] case. The lack of prioritising tasks is a common finding and further complicated by poor time awareness and procrastination.
Dr Combrinck stated that this was also the reason why the Applicant acquired other assets while still having a significant tax debt (Exhibit A3, page 2, question 4).
In response to the assertion that the Applicant’s ability to discharge his professional duties ought to have been indicative of him having the ability to discharge his taxation obligations, Dr Combrinck opined that (Exhibit A3, pages 2-3, question 5):
It is not uncommon that ADHD sufferer’s [sic] can sustain functioning in certain domains while struggling in other areas of their live [sic]. His ability to maintain professional functioning while not discharging his tax obligations is explained by “default mode network dysregulation theory” which is supported by brain imaging research.
This research explains the phenomena among ADHD patients to maintain concentration and functioning on tasks that interest them but not on other routine and less interesting tasks or obligations. This is a common anecdotal finding in clinical practice. [The Applicant] is keenly interested in his work as an instrument analyst and in all the time he consulted me he never complained about his work and to the contrary he is actually quite passionate about his work.
As a closing point I want to reiterate that treatment improve [sic] symptoms around organisation and attention but often only partially with residual problems ongoing as in this his [sic] case. His hypertension has contradicted further stimulant dose increases.
The Applicant and his wife have a residential home, purchased as joint tenants on 25 January 1985, which is situated in the Perth area (Residential home) (T33, page 422). A valuation obtained in 2019 showed the Residential home to be valued at approximately $740,000 (T39, page 483).
In a letter dated 17 July 2007, the Applicant wrote to the Respondent requesting an extension to court orders requiring lodgement of outstanding returns within one month. The Applicant also stated that he had been working with his accountant to lodge outstanding Business Activity Statement (BAS) returns, from most recent to least recent (T35, page 424).
From 7 September 2007 to 31 December 2015, the Respondent sent the Applicant 17 reminders regarding his overdue BAS for the tax periods between 1 April 2007 and 31 December 2015 (T36, pages 425-458).
From 16 April 2015 to 6 August 2015, the Applicant progressively lodged personal income tax returns for the financial years ending 30 June 1997 through to 30 June 2015 (T3 to T21).
The Respondent progressively issued assessments on those returns between 22 April 2015 and 7 August 2015 for a total personal income tax debt amounting to a total of $811,152.83 (Exhibit R4, paragraph [19]). The Respondent separately imposed penalties for late lodgements and GIC (T38, pages 465-482).
The Applicant progressively made payments towards his taxation obligations between 28 May 2015 and 15 July 2015, totalling $678,773.16 (Exhibit R4, paragraph [20]). By 15 July 2015, the balance owing to the Respondent, comprising income tax, penalties and GIC, totalled $662,499.87 (T38, page 474).
On 28 August 2015, the Applicant and his wife purchased a second property in a rural region to be their retirement home (Rural property) (T34, page 423). The purchase price of the Rural property was $630,000 plus costs including stamp duty (T41, page 486), and it was financed with an interest only mortgage of $660,000 (T43, page 492), registered against the Residential home and the Rural property (T33 and T34).
According to the Applicant, the Rural property was purchased following a recommendation from the Applicant’s accountant. The Applicant stated that his accountant “did not regard our tax liability as an issue, as he was confident that we could obtain remission of the GIC…” (Exhibit A2, paragraph [26]).
In a letter dated 30 April 2018, the Applicant’s legal representative stated that the value of the Rural property at that time was $530,000 (T27, page 408). However, in February 2019, the Rural property was valued at $606,247 (T40, page 484).
On 16 August 2016, the Applicant’s legal representative wrote to the Respondent to request a remission of the GIC imposed (T24, pages 385-386). The letter referred to the Applicant’s non-compliance being due to his ADHD, noting that it was a circumstance beyond the Applicant’s control, rather than any deliberate omission on his behalf. The letter also referred to the Applicant’s efforts, with the assistance of his accountant, to bring his tax lodgements up-to-date. A copy of a letter from Dr Combrinck was attached in support of the request.
The Applicant’s legal representative sent a follow-up letter to the Respondent on 15 February 2017 because he had not received a response from the Respondent (T25, page 388).
In a letter dated 17 June 2017, the Respondent advised the Applicant that his application for remission was refused (T26, pages 395-396). The reason for the decision was:
Despite his illness, the client has been able to earn a significant amount of income. If his illness does not prevent him from earning, it should not prevent him from meeting his tax obligations.
A letter from the Respondent dated 31 August 2017 (T27, pages 397-398) stated that the Respondent had conducted a review of its refusal decision dated 17 June 2017, and had decided to partially remit the GIC applied in the period of the delayed response by the Respondent. However, the remission of the rest of the GIC was refused (T27, page 398).
In a form dated 29 April 2018, the Applicant made an application for release (T28, page 399-404). It was submitted with a letter from the Applicant’s legal representaive and a supporting letter from Dr Combrinck (T28, pages 405-408).
In a letter to the Applicant dated 28 June 2018, the Respondent advised that after considering the Applicant’s application for release and reviewing his circumstances, a decision was made refusing to grant him a release (T29, page 409). The reasons for not granting the release were that:
·     You own an asset which you could sell or borrow against to pay your tax debt without causing serious hardship.
·     All taxpayers have a responsibility to manage their affairs to ensure they can pay their taxes. You have consistently failed to meet your tax obligations.
·     You haven’t lodged on time, which has resulted in your debt growing to the point where you can’t pay.
The letter stated that, as at the date of refusal to grant the release (28 June 2018), the total amount owed by the Applicant was $990,869.95 (T29, page 409). This amount consisted of:
(a)income tax of $15,932.60 for the financial year ending 30 June 2017; $98,134.65 for the financial year ending 30 June 2014; $14,857.45 for the financial year ending 30 June 2013; and
(b)GIC of $861,945.25 (Exhibit R4, paragraph [30]).
In a form dated 9 July 2018, the Applicant objected to the decision dated 28 June 2018 (T31, page 413-417). The form was sent under cover of a letter from the Applicant’s legal representatives (T31, pages 418-420). This letter responded to the Respondent’s reasons for refusing to grant the release as follows:
1)    Sell or Borrow Against an Asset - My client and his wife own both their principal residence and a property which was intended to be their retirement home. As the evidence shows, the “retirement home” has no equity in it (in fact it has negative equity), so they have no ability to borrow against it. Similarly, were they to sell it, the entire proceeds would be payable to the Mortgagor [sic], with no amount remaining for payment to the ATO. Given their age and their medical conditions, they have no ability to borrow against their home.
2)    Failure to Meet Tax Payment Obligations - As the evidence shows, my client’s failure to meet his tax obligations stems from his medical condition, and not from any wilful default on his part. It should accordingly not be used to defeat his Application for Release.
3)    Failure to Meet Tax Lodgement Obligations - As the evidence shows, my client’s failure to meet his tax obligations stems from his medical condition, and not from any wilful default on his part. It should accordingly not be used to defeat his Application for Release.
(Original emphasis.)
On 22 November 2018, the Respondent disallowed the objection (T32, page 421; T2, pages 3-8), deciding that the original taxation decision not to grant the Applicant release from his tax debt was correct. This is the Reviewable Decision currently before the Tribunal.
In the reasons for the Reviewable Decision, the Respondent conceded that the income/outgoings test was satisfied because the Applicant’s fortnightly surplus amount was insufficient to service the debts (T2, page 6). The Respondent also conceded that the Applicant met the criteria for the assets/liabilities test because his net liabilities indicated a non-capacity to service his income tax liabilities within a reasonable timeframe (T2, pages 6-7).
However, the Respondent contended that other relevant factors against granting the Applicant a release from his tax debt weighed more significantly against the Applicant, including (T2, page 7):
·     you have paid other debts (either business or private) in preference to your tax debt
·     you appear to have unreasonably acquired assets ahead of meeting their [sic] tax liabilities
·     you have a responsibility to manage your affairs to ensure you can pay your taxes and you have consistently failed to meet your tax obligations
·     you haven’t lodged on time which had resulted in your debt growing to the point where you can’t pay.
The Respondent acknowledged the Applicant’s “personal circumstances”, but was nevertheless of the opinion that granting the Applicant a release would give him an advantage over other tax payers who lodged and paid on time (T2, page 7).
The Applicant lodged an application in the Taxation and Commercial Division of this Tribunal on 28 November 2018 (T1, pages 1-2) for a review of the Reviewable Decision dated 22 November 2018 (T2, pages 3-8).
As at January 2019, the Applicant owed: income tax of $15,932.60 for the financial year ending 30 June 2017; income tax of $26,192.35 for the financial year ending 30 June 2014; and GIC of $907,240.45, being a total of $949,365.40 (Exhibit R4, paragraph [33]).
THE PROCEEDINGS

The hearing of this application took place on 21 June 2019.
The Applicant appeared in person and was represented by Mr McCoy.
Mr Slater appeared as counsel for the Respondent.
The Applicant gave evidence and was cross-examined. The Tribunal found him to be an honest and credible witness, as evidenced by his disclosure of additional fortnightly surplus income which may have been detrimental to his application. The Applicant called his treating psychiatrist, Dr Combrinck who gave evidence regarding the Applicant’s ADHD condition and who was also cross-examined.
The Tribunal admitted the following documents into evidence at the hearing:
(a)Statement of Facts, Issues and Contentions (SFIC) of the Applicant, filed with the Tribunal on 19 February 2019 (Exhibit A1);
(b)Witness statement of the Applicant dated 8 May 2019 (Exhibit A2);
(c)Report of Dr Combrinck dated 9 May 2019 (Exhibit A3);
(d)Briefing letter to Dr Combrinck dated 2 May 2019 (Exhibit A4);
(e)Section 37(1AB) (T-documents) numbered T1 to T32 (Exhibit R1);
(f)Supplementary T-documents numbered T33 to T40 (Exhibit R2);
(g)Supplementary T-documents numbered T41 to T53 (Exhibit R3); and
(h)SFIC of the Respondent dated 19 March 2019 (Exhibit R4).
During the Applicant’s evidence at the hearing it became apparent that the Applicant’s circumstances had changed since the application for release was first made. As a consequence, the Respondent, who initially conceded that the Applicant met the income/outgoings test and the assets/liabilities test (see Exhibit R4, paragraphs [35] and [36]) now submits that the income/outgoings test is no longer satisfied. The Respondent further submitted that the two properties could be sold to realise a surplus to pay towards the Applicant’s taxation debt (Respondent’s Closing submissions dated 16 August 2019, paragraphs [25]-[28]).
In summary, these changed circumstances were that:
(a)the Applicant had taken on a new job as an employee (in order to earn more income to pay his tax debts) and at the time of the hearing was earning an average of approximately $7,000 per fortnight (transcript, page 9). This differed from his initial estimate of $5,200 per fortnight;
(b)the Applicant’s wife was now working 2 days per week (transcript, page 8), whereas the initial estimate of her income was $0 per fortnight. Despite giving the Applicant the opportunity to provide details as to the amount of his wife’s fortnightly income in closing submissions, the Tribunal was not provided with this information. The Tribunal accepts the Applicant’s evidence that his wife has suffered from a chronic illness for the last 7 years which has restricted her ability to work (Exhibit A2, paragraph [21]);
(c)the Applicant was expecting to inherit some shares and cash assets in a company from his late father which he estimated would be approximately $10,000 (transcript, page 12);
(d)the Applicant and his wife have savings in joint bank accounts totalling approximately $98,000 (transcript, page 19), which is slightly higher than the balances stated in the Applicant’s application for release which totalled approximately $85,965; and although the sum of $98,000 was put to the Applicant during the hearing, the Respondent’s Closing submissions dated 16 August 2019 refer to a figure of $110,000 based on bank transaction statements (T47, page 512, T48, page 514, T50, page 516, T51, page 517).
At the time of the hearing the Applicant and his wife still jointly owed approximately $660,000 on the Rural property loan (T49, page 515), plus approximately $20,000 on another minor loan (transcript, page 20). The Applicant disagreed with the valuation of the Rural property being $606,247, stating that the opinion of the real estate agent who sold him the property was that it was worth approximately $50,000 less than the Respondent’s valuation (transcript, page 20).
In order to ensure procedural fairness to the parties, and to ensure that the Tribunal had submissions from both parties with respect to the changed circumstances that emerged at the hearing, the Tribunal made directions that the parties would file written closing submissions. Accordingly, the following written closing submissions were filed subsequent to the hearing:
(a)Applicant’s closing submissions dated 23 July 2019;
(b)Respondent’s closing submissions dated 16 August 2019; and
(c)Applicant’s supplementary closing submissions dated 6 September 2019.
LEGISLATIVE OVERVIEW
The Applicant has the burden of proving that the Respondent’s decision to refuse to release him from his eligible taxation liability should have been made differently

(s 14ZZK(b)(ii) of the TAA). In this case, the Applicant has the burden of proving that the Respondent should have released him in whole or in part from the eligible taxation liability.
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 of the TAA provides, in part, that:
(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.
…
(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.
The Table under s 340-5(3) of the TAA specifies that the condition that needs to be satisfied for an individual is whether “you [the Applicant] would suffer serious hardship if you were required to satisfy the liability”.
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) [2006] 153 FCR 52 at 61-62.
In summary, it is first necessary for the Tribunal to determine whether the Applicant will suffer serious hardship if he were required to satisfy his taxation liability. If the answer to this question is “yes”, the Tribunal will then consider whether the discretion to release him from that liability should be exercised in his favour. It is a matter of discretion for the Tribunal and not a matter of right for an Applicant (see Wilcox J in Corlette and Another v Mackenzie and Others (1996) 62 FCR 597 at 598 in the context of s 265 of the Income Tax Assessment Act 1936 (Cth), which was the precursor to s 340-5 of Schedule 1 of the TAA).
Section 340-10 of Schedule 1 to the TAA sets out the taxation liabilities to which s 340-5(3) applies. The taxation liabilities that are eligible for release include tax under s 4-1 of the Income Tax Assessment Act 1997 (Cth), GIC, additional tax and certain administrative penalties (see the Table under s 340-10(2) of Schedule 1 to the TAA). Goods and Services Tax and penalties for failure to lodge on time are not listed in s 340-10(1), or in the Table under s 340-10(2) and are ineligible for release.
As at January 2019, the Applicant’s taxation liabilities total approximately $949,365 (R4, paragraph 33). These liabilities comprised approximately $42,125 in income tax, and associated GIC of $907,240. Both of these are eligible for relief.
“Serious hardship” is not defined 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. The Commissioner has, however, issued Practice Statement Law Administration 2011/17: Debt relief, waiver and write off (the PSLA) which defines “serious hardship” in

cl 5, as follows:
‘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 education.
Tests are applied to determine 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.
Three tests are used to determine the merits of a serious hardship application:
·the income/outgoing test
·the asset/liabilities test, and
·other relevant factors.
The definition of “serious hardship” has also been discussed in Court and Tribunal decisions. These were usefully summarised by Deputy President Forgie in Schweitzer and Commissioner of Taxation [2019] AATA 1100 at paragraph [101] as follows:
101. The expression “serious hardship” has been considered both in this context and in others. The principles that can be drawn from them include:
(1) Provisions in s 265(1) of ITAA36 “... assume the existence of the tax liability and provide for relief on special grounds beyond those considered in the process of assessment.”: Van Grieken v Veilands per Gummow J.
(2) The expression “serious hardship” is an ordinary English expression but one influenced by its context:
“... The context in which the words appear 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 in 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.”: Powell v Evreniades per Hill J.
(3) “... Clearly, there is a distinction between, on the one hand hardship which is serious, and on
the other hand, hardship which may be said to be extreme although it is obvious enough that what will constitute either will depend upon the circumstances of a given case.
... Clearly there would be severe financial hardship if the dependants of a deceased person were left destitute without any means of support. That is not to say that in any particular case something less than that will not constitute serious hardship.”: Powell v Evreniades per Hill J.
(a)     “... In Evreniades, 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.”: Commissioner of Taxation v A Taxpayer per Stone J.
(4) “... ‘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 Evreniades [Powell v Evreniades] thought it was inappropriate to try and identify, in the abstract, the circumstances that would give rise to serious hardship.”: Commissioner of Taxation v A Taxpayer per Stone J.
(5) The task lies in “... assessing the ... [taxpayer’s] individual circumstances by reference to normal community standards”: Commissioner of Taxation v A Taxpayer per Stone J.
(a)     What amounts to “reasonable acquisitions” of relevant necessities is assessed by reference to what is “... not excessive or unreasonable in all the circumstances...”: Commissioner of Taxation v A Taxpayer per Stone J.
(b)     Those matters can be assessed by the decision-maker “... from its own knowledge and experience, determine what were and what were not reasonable living costs...”: Powell v Evreniades per Hill J.
(c)     The expression “normal community standards” is not a term used in item 1 of s 340-5(3) or in Division 340 generally. The principles that can be drawn from cases that have considered the expression in other areas of the law suggest that community standards relate to a variety of matters and cannot be the subject of evidence. The decision-maker, be it a jury, a magistrate or an administrative decision-maker is expected to draw on its own collective knowledge of such things.
(d)     “... There can be no doubt that the jury would have understood, from the general directions given by her Honour, that they were to assess any injury to the plaintiff’s reputation resulting from the imputations and they were to undertake that assessment from the point of view of ordinary reasonable decent members of the community. ... In that regard they had been told that the question was whether ordinary reasonable members of the community would think less of the plaintiff. ...”: Radio 2UE Sydney Pty Ltd v Chesterton per French CJ, Gummow, Kiefel and Bell JJ.
(e)     “In Reader’s Digest [Reader’s Digest Services Pty Ltd v Lamb] Brennan J emphasised that any standard to be applied must be one common to society, rather than one which reflects an attitude of a section of it...” Radio 2UE Sydney Pty Ltd v Chesterton per French CJ, Gummow, Kiefel and Bell JJ
(6) In assessing serious hardship, an individual’s potential bankruptcy may be relevant in assessing his or her capacity to work and so to generate income: Corlette and Another v Mackenzie and Others per Wilcox, Einfeld, Foster and Einfeld JJ.
(a)     An example is found in Commissioner of Taxation v A Taxpayer in which Stone J decided that the Tribunal’s decision that serious hardship was very likely to follow should the individual be made bankrupt was a reasonable decision. It was reasonable even though the applicant’s income was substantial when reference was made to community standards. His circumstances, though, were not usual when assessed by those same standards for he faced complications arising from his wife’s illness if his income were jeopardised by his being made bankrupt. Those complications centred on his wife’s illness and the costs associated with her illness, domestic support and educating his children. The costs themselves are assessed by reference to what would be regarded as reasonable according to community standards.
(Footnotes omitted.)
WOULD THE APPLICANT SUFFER SERIOUS HARDSHIP IF HE IS REQUIRED TO PAY HIS TAXATION DEBT?
As noted in paragraph [56] above, the PSLA identifies three tests that assist in determining the merits of a serious hardship application. These are the income/outgoings test, the assets/liabilities test, and other relevant factors.
Income/outgoings test
The income/outgoings test is defined in cl 6 of the PSLA as:
The purpose of the income/outgoing test is to assess a taxpayer's capacity to meet their tax liability from their current income. It is necessary to identify and consider individuals who are dependent on the taxpayer and the degree of responsibility, together with the taxpayer's partner. In particular, the following factors are considered relevant:
·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, and
·whether the taxpayer has made attempts to defer or reschedule other financial commitments.
(Footnotes omitted.)
At the time of the hearing, the Applicant disclosed that his fortnightly income had increased to $7,000, because he had undertaken a “FIFO” (fly-in-fly-out) role to try to increase his income because “my expenses at the moment are greater than they were” (transcript, page 8). This was an increase from the $5,200 fortnightly income which he disclosed at the time of making his application for release. Thus, instead of leaving a surplus of $16 per fortnight, the Applicant now has a surplus of approximately $3,376 per fortnight with which to pay his tax debt (see Respondent’s Closing Submissions dated 16 August 2019, page 5). As noted above, the Applicant’s wife is currently working 2 days per week, which would, in part, contribute to household expenses.
However, the Applicant submitted (see Applicant’s Supplementary Closing Submissions, paragraph [9]) that “the Applicant’s current contract will soon end and that a significant portion of the increased income derived during the period of the contract was expended on funding the present proceedings”. Additionally, according to the Applicant’s legal representative, “While it had been his [the Applicant’s] hope to work well into his 60s, his medical condition is likely to preclude this” (T28, page 408). There does not, however, seem to be any other evidence before the Tribunal in support of these assertions. The Tribunal does, however, note the Applicant’s age, as well as his wife’s ill-health may impact their future earning capacity. Even if the Applicant was able to work for another 10 years, whilst maintaining this fortnightly surplus (which would total approximately $877,760), he would fall short of being able to repay the GIC owing (approximately $907,240) by approximately $29,480. Additionally, this figure does not take into account any further GIC that would continue to accrue. Accordingly, the Tribunal finds that, even if the Applicant could maintain this surplus (assuming that he was medically able to work, and that his contract continued to be renewed), he could not repay the debt in a reasonable timeframe.
For the reasons described above, including the finding that the Applicant could not repay the debt in a reasonable timeframe, the Tribunal finds that the income/outgoings test is satisfied. Therefore this test weighs in favour of the Applicant being granted a release from his tax debt.
Assets/liabilities test
The assets/liabilities test is defined in cl 7 of the PSLA as:
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 modest nature and include:
·ownership of, or equity 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, and
·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, luxury motor vehicles or boats, life insurance or annuity entitlements, shares and other investments, and collections for trading, investment or hobby purposes.

The Tribunal notes that, notwithstanding the amount of the Applicant’s assets and liabilities having changed from those stated in his application for release (which were considered in the reasons for Reviewable Decision – see T2, page 6-7), the difference is not substantial.
By way of illustration, this is evident when the table in the Respondent’s reasons for the Reviewable Decision (T2, page 6-7), which was compiled from the Applicant’s application for release (T28, pages 403-404), is updated to include the:
(a)new evidence from the Applicant at the hearing that the Applicant has between $98,000-$110,000 in bank accounts (held jointly with his wife) which is a slight increase (of between $12,036 to $24,000) from the $85,964 in his application for release;
(b)approximate $10,000 which the Applicant is expecting to inherit from the winding up from his father’s estate; and
(c)most up to date valuation of the Rural property being approximately $606,247 (T40, page 484), instead of the $530,000 stated in the application for release.
However, these additional amounts would be counter-balanced against the:
(a)value of the Applicant’s residential home being $740,000 (based on the 2019 valuation - T39, page 483) instead of the $840,000 stated in the application for release;
(b)actual amount of the loan on the Rural property being $660,000 (transcript, pages 17 and 20; T43, page 492; T49, page 515) instead of $600,000 (T2, page 6);
(c)existence of another minor loan under $20,000 (transcript, page 20).
Thus, if one takes these adjustments into account, the Applicant’s liabilities are higher than when they were calculated in the Respondent’s reasons for decision in that the Applicant’s net liabilities, when compared to the Applicant’s assets, show slightly more of an incapacity to pay his tax debt.
The Respondent has submitted that if the Applicant were to sell both properties, that the proceeds of sale would clear the mortgage and that there would be a surplus (which may partly be claimed by the Applicant’s wife) to apply towards the tax debt. The Respondent further submitted that the money that the Applicant would have paid as interest on the mortgage could instead be applied towards renting (Respondent’s Closing Submissions dated 16 August 2019, paragraph 6(d)(v)(1) and (2)). However, as noted by the Applicant (Supplementary Closing Submissions, paragraphs [10]-[11]), the sale of the Residential home of the Applicant and his wife is contrary to cl 7 of the PSLA which provides that the residential home is a type of asset that would “not be expected to be surrendered in order to pay a tax debt”. The Tribunal finds that it is not a reasonable or preferable option for the Applicant to sell the Rural property for a loss, together with selling his (and his wife’s) residential home. If both properties were sold for the full amount of their valuation ($740,000 plus $606,247, being a total of $1,346,247), the amount remaining after payment of the mortgage ($660,000) would be $686,247, which would leave the Applicant without a home, and in debt to the Respondent in excess of $250,000.
The Tribunal therefore agrees that the Applicant satisfies the assets/liabilities test, as the Applicant’s debts exceed his available assets. Therefore, this test weighs in favour of the Applicant being granted a release from his tax debt.
Other relevant factors
Clause 8 of the PSLA sets out other relevant factors which may be considered in deciding whether to exercise the discretion to grant a release from taxation liabilities. The opening sentence refers to the discretionary nature of the decision:
The Commissioner is not bound to grant release even though a taxpayer may demonstrate serious hardship. However the Commissioner is obliged to act reasonably and responsibly, and should not act arbitrarily or capriciously. Examples of situations in which the Commissioner 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
·where a taxpayer appears to have disposed of funds or assets without giving consideration to their tax liability
·where release would not result in reduction of hardship, such as where the person has other liabilities or creditors
·where a taxpayer has paid other debts (either business or private), in preference to their tax debt
·where the taxpayer, without good reason, has not pursued debts owed to them
·where serious hardship is likely only to be short term
·where the taxpayer has a poor compliance history
·where the taxpayer is unable to show that they have planned for future debts
·where 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), and
·where the taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.
(Footnotes omitted.)
The Respondent submitted that several of these other relevant factors weighed against the Applicant being granted a release from his tax liabilities. Specifically, these were that, the Applicant had acquired the Rural property after he had received his tax assessments. At that time he still had a substantial balance remaining to be paid off his tax debt of approximately $662,499.87 (Exhibit R4, paragraphs [20] and [37]; transcript, page 5). Further, instead of addressing his tax debt, the Applicant had paid other debts ahead of his tax obligations, namely the repayments on the interest only loan (Exhibit R4, paragraphs [38] and [39]; transcript, page 5).
The Tribunal agrees that, notwithstanding the poor accounting advice the Applicant received that GIC was likely to be waived, the GIC had not been waived, and there was no confirmation from the Respondent that they would be. It was therefore not reasonable for the Rural property to be acquired when a substantial tax debt remained. The problem was compounded by the interest only loan, with the monthly loan payments being made to the mortgagee that could otherwise have been applied to the tax debt. Consequently, the Tribunal agrees that these factors (unreasonably acquiring an asset ahead of meeting tax liabilities, and paying other debts ahead of his tax debts) weigh against the Applicant being granted a release from his tax debt.
The Respondent conceded that the Applicant “has ADHD being a diagnosable condition which in part affected his ability to address and complete his tax obligations” (Exhibit R4, paragraph [40]). However, the Respondent submitted that “the circumstances are not sufficiently compelling to exercise a discretion to release the Applicant” (Exhibit R4, paragraph [46]). In summary, the Respondent submitted that many taxpayers have chronic conditions and are able to comply with their tax obligations, and the Applicant managed other complex administrative tasks including running his business and earning an income through a trust and company. That is, in totality, the Respondent did not regard the Applicant’s ADHD condition as being serious enough so as to prohibit him from managing his tax obligations within time, and in any event, he could (and did) have professional assistance in doing so.
Although the Respondent made extensive submissions regarding the significance of the Applicant’s ADHD (Exhibit R4, paragraphs [40]-[46]; Respondent’s Closing submissions dated 16 August 2019, paragraphs [6], [29]-[34]), the only medical evidence before the Tribunal is that of the Applicant’s treating psychiatrist Dr Combrinck. The Tribunal is therefore of the opinion that to prefer the submissions of the Respondent, over the evidence of Dr Combrinck, would involve speculation on the part of the Tribunal.
Consequently, the Tribunal accepts Dr Combrinck’s evidence that the Applicant’s medical condition is beyond his control, that it was difficult to increase his medication to further control the condition due to the Applicant’s hypertension and diabetes (transcript, page 28), and that it is “very seldom” or “just not possible” for adults with this neurological condition to go into remission (transcript, page 26). The Tribunal accepts Dr Combrinck’s evidence that the Applicant’s “condition has hampered his [the Applicant’s] ability to adequately attend to his tax affairs, including lodgement of his tax returns, and payment of his tax liabilities by the due dates” (T25, pages 392-393). Dr Combrinck was also able to address why the Applicant’s ADHD resulted in his paying other debts and acquiring other assets ahead of paying his tax debt, and was able to explain why the Applicant was able to discharge his professional duties ahead of his tax obligation (see relevant excerpts from Exhibit A3, page 2 which are discussed in paragraphs [8]-[14] above).
Dr Combrinck’s evidence is also consistent with the Applicant’s evidence of feeling “completely overwhelmed” and his evidence that he had “struggled to attend to ...[his] taxation requirements” (Exhibit A2, paragraph [11]). The Applicant also described having to take time off work, and to work part-time to try to “work through” his taxation issues (transcript, pages 19-20), indicating that he struggled to manage full time work and taxation compliance. The Tribunal finds, based on the medical evidence before it, that the Applicant’s poor compliance history was not a deliberate attempt to avoid his tax obligations, but rather attributable to the diagnosed medical condition of ADHD. This weighs in favour of the Applicant being granted a release from his tax debt.
CONCLUSION
In summary, the Tribunal has found that the Applicant:
(a)satisfies the income/outgoings test, which weighs in favour of release from his tax debt;
(b)satisfies the assets/liabilities test which weighs in favour of release from his tax debt; and
(c)with respect to the other relevant factors test:
(i)the Applicant unreasonably acquiring an asset (the Rural property) ahead of meeting his tax liabilities and paying other debts (the interest-only mortgage payments) ahead of his tax liabilities, weighs against granting him release from his tax debt;
(ii)however, the Applicant’s poor compliance was, on the evidence before the Tribunal, due to a diagnosed medical condition of ADHD, which weighs in favour of granting him release from his tax debt.
Overall, after weighing each of these tests, and the relevant evidence, the Tribunal finds that Applicant has established that the Reviewable Decision should not have been made, or should have been made differently. Accordingly, the Tribunal finds the Applicant has discharged his onus under s 14ZZK of the TAA. The Tribunal finds that the correct or preferable decision is to grant a release.
With respect to whether the release should be in part, or in full (cl 9 PSLA), the Tribunal finds that a partial release, amounting to a release of the GIC component of the Applicant’s eligible tax debt, is appropriate in the circumstances, given that the non-compliance resulting in in the GIC was caused by the Applicant’s ADHD. This means that the Applicant must pay all of the remaining income tax that he owes, but that he is released in full from the payment of the GIC component.
DECISION
The Reviewable Decision dated 22 November 2018 is set aside.
A new decision is substituted that the Applicant is granted a partial release of the portion of his eligible tax debt that comprises the GIC. This means that the Applicant must pay all of the remaining income tax that he owes, but that he is released from the payment of the GIC component of his eligible tax debt.

I certify that the preceding 81 (eighty-one) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr M Evans

...........................[sgd]....................................
Associate
Dated: 3 December 2019
Date of Hearing:  21 June 2019
Counsel for the Applicant:                  Mr M McCoy, Ryan & Durey Solicitors
Counsel for the Respondent:             Mr C Slater
Solicitor for the Respondent:             Mr S Hotger, Australian Taxation Office