Hyder v Commissioner of Taxation

[2022] FCA 264

FEDERAL COURT OF AUSTRALIA

Hyder v Commissioner of Taxation [2022] FCA 264

File number(s):

QUD 314 of 2020

Judgment of:

GREENWOOD J

Date of judgment:

22 March 2022

Catchwords:

TAXATION – consideration of an application under s 39B(1) of the Judiciary Act 1903 (Cth) for the grant of the constitutional writ of prohibition and injunctions in relation to a claim of invalidity in the issuing of amended assessments for the 2015 and 2016 income years to one taxpayer (Mr Hyder) and the issuing of an alternative assessment to the Trustee of the particular Trust for the 2015 income year

TAXATION – consideration of the jurisprudence in relation to the statutory scheme under the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth) by which a taxpayer is provided with an opportunity in Part IVC proceedings to challenge the validity of an assessment (in this case, alternative assessments to Mr Hyder and the Trustee)

TAXATION – consideration of the relationship between proceedings under s 39B of the Judiciary Act 1903 (Cth) and Part IVC proceedings under the Taxation Administration Act 1953 (Cth)

TAXATION – consideration of the exercise of the Court’s original jurisdiction arising under s 39B(1A)(c) and the relationship between proceedings in reliance on that source of the Federal Court’s original jurisdiction and Part IVC proceedings

TAXATION – consideration of the conduct of the Commissioner in seeking to enforce recovery of debts due under both alternative assessments (and related SIC and penalties) prior to the final resolution of a genuine dispute about the correctness of the alternative assessments in the context of the sequence of exchanges between the parties and the observations of their Honours Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 67 – consideration of whether the conduct of the Commissioner is properly characterised as an example of oppressive conduct

TAXATION – consideration of whether declarations ought to be made concerning the conduct of the Commissioner

TAXATION – consideration of whether the decision‑maker in reaching a decision on 26 February 2021 in the exercise of a discretion conferred by s 255‑10(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) engaged in error of law

Legislation:

Federal Court of Australia Act 1976 (Cth), ss 21 and 23

Income Tax Assessment Act 1997 (Cth), s 6‑5, Part 3‑1, Div 115, s 115‑215(3), Part 3‑2, Div 105, s 102‑5,

Income Tax Assessment Act 1936 (Cth), ss 92, 95, 97, 99A(4), 100A(1), 109C, 109D, 109T, 166, 166A, 170(1), 172, 173, 175A, 175, 177(1), 177F(1)(a), 177F(2)

Judiciary Act 1903 (Cth), ss 39B(1), 39B(1A)(c)

Taxation Administration Act 1953 (Cth), ss 14ZZO, 14ZW; Schedule 1, ss 255‑5(1), 255‑10(1), 350‑10(3), 350‑12(2)

Cases cited:

ARM Constructions Pty Ltd v Deputy Commissioner of Taxation (1987) 17 FCR 19

ARM Constructions Pty Ltd v Deputy Commissioner of Taxation (1986) 17 ATR 459

Barina Corporation Ltd v Deputy Commissioner of Taxation (1985) 6 FCR 368

Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288

Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55

Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168

Elias v Commissioner of Taxation (2002) 123 FCR 499

Federal Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146

Glennan v Commissioner of Taxation [2003] HCA 31

Harts Fidelity Pty Ltd v Deputy Commissioner of Taxation (1999) 42 ATR 438

Minister for Aboriginal Affairs v Peko‑Wallsend Ltd (1986) 162 CLR 24

Minister for Immigration and Citizenship v Li (2013) 249 CLR 332

Nestle Australia Ltd v Commissioner of Taxation (1987) 16 FCR 167

Rawson Finances Pty Ltd v Deputy Commissioner of Taxation (2011) 86 ATR 108

R v Anderson:  Ex parte Ipec‑Air Pty Ltd (1965) 113 CLR 177

R v Toohey; Ex parte Northern Land Council (1981) 151 CLR 170

Re Refugee Tribunal; Ex parte Aala (2000) 204 CLR 82

Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192

Shrimpton v The Commonwealth (1945) 69 CLR 613

SZFDE v Minister for Immigration and Citizenship (2007) 232 CLR 189

Thurecht v Deputy Commissioner of Taxation (1984) 84 ATC 4

Division:

General Division

Registry:

Queensland

National Practice Area:

Taxation

Number of paragraphs:

260

Date of last submission/s:

21 September 2021

Date of hearing:

23 September 2021

Counsel for the Applicants:

Mr M Robertson QC and Mr P Bickford

Solicitor for the Applicants:

Small Myers Hughes Lawyers

Counsel for the Respondent:

Mr P A Looney QC and Ms F J Chen

Solicitor for the Respondent:

HWL Ebsworth Lawyers

ORDERS

QUD 314 of 2020

BETWEEN:

ELTON MATTHEW HYDER IV

First Applicant

EMH IV PTY LTD ACN 131 764 031 AS TRUSTEE FOR THE EMH IV FAMILY TRUST

Second Applicant

ACN 603 939 939 PTY LTD (ACN 603 939 939)

Third Applicant

AND:

COMMISSIONER OF TAXATION

Respondent

ORDER MADE BY:	GREENWOOD J
DATE OF ORDER:	22 MARCH 2022

THE COURT ORDERS THAT:

1.The applicants are directed to submit within seven days proposed orders giving effect to the reasons for judgment published today and, in particular, the matters the subject of [253] and [260] of the reasons.

2.The costs of and incidental to the proceeding are reserved for later determination. 

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GREENWOOD J:

Background

1. In these proceedings the first applicant, Mr Elton Hyder IV (“Mr Hyder”), the second applicant, EMH IV Pty Ltd (the trustee for the EMH IV Family Trust, respectively described as the “Trustee” and the “Trust”), and the third applicant, formerly described as Screaming Eagle Pty Ltd (“SEPL”), seek relief “under section 39B” of the Judiciary Act 1903 (Cth) as set out in a further amended originating application filed 31 August 2021 (the “FAOA”). 

2. All three applicants seek an order under s 39B for the issue of the constitutional writ of prohibition directed to the Commissioner of Taxation (the “Commissioner” and his officers) to prevent the Commissioner from:

   … unlawfully seeking to recover income tax otherwise due and payable by [Mr Hyder] and otherwise due and payable by [the Trustee of the Trust] for the 2015 year of income on trust income assessed as derived by each of them in the alternative to the extent that income tax on that trust income, which has been further assessed to [SEPL] for the 2015 year of income, has already been taken by [the Commissioner] from [SEPL].

   [original emphasis]

3. The essential contention said to engage the Court’s jurisdiction under s 39B so as to warrant the grant of prohibition is that in seeking to recover income tax from Mr Hyder under the amended assessments, or from the Trustee of the Trust as assessed in the alternative, in circumstances where the alternative assessments to each of them includes income tax already assessed on the same source of Trust income distributed to and already paid by SEPL in the same income year, without recognising or bringing SEPL’s earlier payment of tax to account, engages the Commissioner in conduct, said to be unlawful, of seeking to recover income tax twice (or thrice) over in respect of the “same source of income” for the “same period of time”:  FAOA, para A.  The challenge goes to the validity of the exercise of the power to issue the particular assessments and recover tax under them. 

4. The contended invalidity or unlawfulness of the challenged conduct is said to take the Commissioner outside the scope of the proper exercise of the power to issue each of the alternative assessments in a jurisdictional sense.  Thus, it will be necessary to examine the contentions as to the conduct and the extent to which a remedy under s 39B is engaged (assuming the conduct contentions are made good), having regard to the principles identified in the authorities including Federal Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146 (“Futuris”); Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 (“Richard Walter”); and Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 (“Richardson”). 

5. The conduct comprehended by para A of the FAOA is said to be unlawful by reason of principles identified in Richardson, Starke J at 197; and on appeal, Dixon J at 205 and Evatt J at 212. The principles identified at the references just mentioned which the Commissioner is said to be ignoring in exercising his statutory powers is that the Income Tax Acts of the Commonwealth in issue in Richardson (a principle which is said to equally apply to the Income Tax Assessment Act 1936 (Cth) (the “ITAA 36”); the Income Tax Assessment Act 1997 (Cth) (the “ITAA 97”); and the Taxation Administration Act 1953 (Cth) (the “Administration Act”)) “do not authorise the Commissioner to take income tax twice over in respect of the same source for the same period of time”.  Thus, the subsequent assessments are said to be beyond power. 

6. By para B of the FAOA, the applicants seek a permanent injunction in reliance upon s 39B to restrain the Commissioner from “oppressively seeking to recover income tax” [original emphasis] otherwise due and payable by Mr Hyder and by the Trustee for the 2015 year of income on income assessed as derived by each of them in the alternative, to the extent that income tax on that income, which has been further assessed to SEPL, has already been paid by SEPL to the Commissioner. 

7. By para C of the FAOA, the applicants seek an injunction framed in the same terms as para B but with particular limitations.  The applicants seek an injunction in the terms described at [6] of these reasons “unless and until”:

   (i)the [Commissioner] refunds that income tax and interest thereon to [SEPL];

   (ii)the appeals to this Court against the [Commissioner’s] objection decisions in respect of the 2015 Notices of Assessment issued to [Mr Hyder and the Trustee] have been determined and the Court’s orders are final under s 14ZZO [of] Part IVC [of the] Taxation Administration Act 1953 [Administration Act].

8. By para D of the FAOA, the applicants seek the same relief as framed by paras A to C, in relation to penalties imposed on Mr Hyder and the Trustee in relation to income tax assessed to them, in the alternative, for the 2015 income year which already has been assessed to and paid by SEPL. 

9. Apart from the claim for the grant of the writ of prohibition and the injunctions as framed, Mr Hyder and the Trustee, by para E of the FAOA, seek review under the provisions of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the “ADJR Act”) of the Commissioner’s decision of 26 February 2021 refusing a request made on 8 October 2020 under s 255‑10 of Schedule 1 to the Administration Act by them, of the Commissioner, to defer the due date for payment of a “tax‑related liability” (without conceding the validity of the assessments in question).  I will return to that aspect of the application later in these reasons. 

10. To inject some content into the claims, it is convenient to now note the chronology of events in some detail.  Much of what follows is cross‑referenced to the documents.  To the extent that the applicants attribute a particular characterisation or treatment to payments or receipts or both, or the contended capacity in which distributions, payments or receipts were made or received, I note the basis upon which the applicants assert that treatment. The Commissioner contests the characterisation adopted by the applicants in relation to the relevant events and I will note the contentions of the Commissioner. In Part IVC proceedings, the applicants seek to demonstrate that the assessments in issue are excessive for the purposes of s 14ZZO of the Administration Act.  These proceedings, however, address an anterior question of whether the contended conduct of the Commissioner is “unlawful” giving rise to remedial relief under s 39B of the Judiciary Act having regard to the jurisprudence that determines that question. 

11. The events (and contended characterisation) are these. 

12. On 29 June 2015, the Trustee of the Trust distributed the net income of the Trust to six beneficiaries in particular amounts in a particular sequence with the remaining balance of the net income of the Trust distributed to a contended presently entitled seventh beneficiary described as the “Screaming Eagle Partnership” (the “Partnership”).  The amount of the distribution was $18,028,722.00 made up of net income of $15,669,518.00 (other than net capital gains) and net capital gains of $2,359,204.00 (according to the Trust’s tax return for 2015). 

13. The Partnership was established by an agreement executed on 29 January 2015 between Mr Hyder and SEPL in which Mr Hyder is described as the “Principal” and SEPL as the “Ordinary Partner”.  The Ordinary Partner and the Principal agreed to contribute capital and share in the profits and losses of the Partnership in the ratio 99%:1%, respectively.  A Partnership bank account was established into which the Trustee made payments. 

14. On 16 October 2015, the Trustee of the Trust lodged its Trust Tax Return with the Commissioner for the 2015 income year. It discloses total net income of the Trust (said to engage the definition of “net income” in s 95, ITAA 36) of $18,534,970.00 (Item 26) comprising net income other than capital gains of $15,970,766.00 (Item 20) and capital gains of $2,564,204.00 (Item 21 A). The Statement of Distribution (Item 54) discloses the Partnership as receiving a share of the income of the Trust estate in an amount of $18,028,722.00 (Item 54 W) made up of a share of income of $15,669,518.00 and capital gains of $2,359,204.00 (Item 54 F).

15. The amount of $18,028,722.00 is described by the Commissioner as the appointment of Trust income by the Trustee by way of the resolution in the 2015 income year to the Partnership (on 29 June 2015). 

16. On 19 May 2016, the Partnership tax return for the 2015 income year was lodged (said to engage Div 5, ITAA 36) disclosing net income of $15,678,015.00 (Item 20 S) including the distribution of the net income of the Trust (less capital gains) of $15,669,518.00 (Item 8 R, said to engage s 97, ITAA 36) to the Partnership. The return discloses Mr Hyder’s share of the Partnership income as 1%, that is, $156,780.00. It discloses SEPL’s share as 99%, that is, $15,521,235.00.

17. On 19 May 2016, SEPL lodged its company tax return for the 2015 income year. It discloses a gross distribution from partnerships (Item 6 D, said to engage s 92, ITAA 36) of $15,521,235.00 (being SEPL’s 99% share of the Partnership income of $15,678,015.00 which included 99% of the distribution of the net income of the Trust, but not including capital gains). The return also disclosed SEPL’s 99% interest in the net capital gains of the Trust estate (said to engage Part 3‑2, Div 105, s 102‑5, ITAA 97), that is, 99% of $2,359,204.00 amounting to $2,335,612.00 (Item 7 A). The taxable income of the company after deductions of $8,337.00 (Item 6 Q) was $17,848,510.00. The tax payable (at the rate of 30c in the dollar) was $5,354,553.00 (Calculation Statement T 5) less an eligible credit of $128.79 resulting in tax payable by SEPL of $5,354,424.21. The applicants emphasise that by operation of s 166A, ITAA 36, the Commissioner is taken for the purposes of s 166, ITAA 36, to have made an assessment of the taxable income of SEPL and the tax payable on that assessed income in terms of the respective amounts shown in SEPL’s return.

18. The due date for payment of SEPL’s tax for the 2015 income year was 16 May 2016.  SEPL failed to pay the tax due on that date.  On 28 October 2016, SEPL was placed in voluntary liquidation by its sole director, Mr Dreves.  On 1 November 2016, the Commissioner lodged a proof of debt with the liquidator for the full amount of the tax due.  The proof remained unsatisfied and SEPL was deregistered.  On 17 May 2019 (the Commissioner having commenced an income tax audit of the affairs of the taxpayers associated with SEPL), Mr Hyder commenced proceedings to cause SEPL to be reinstated on the basis that the liquidator had failed to identify a significant asset of SEPL consisting of its entitlements under the Partnership agreement.  Orders were made in the Supreme Court of Queensland on 3 October 2019 for the reinstatement of SEPL.  The orders included an order that SEPL pay the Commissioner $5,577,228.08 in full settlement of SEPL’s liability to the Commissioner made up of the amount of tax due on 16 May 2016 of $5,354,424.21 and an amount representing the general interest charge to that date of $222,803.87. 

19. On 7 November 2019, SEPL paid the Commissioner $5,577,228.08. 

20. One of the complaints of the applicants is that the Commissioner in issuing amended alternative assessments to Mr Hyder on the one hand, and the Trustee on the other, failed to bring to account as a credit in either alternative assessment, SEPL’s assessment to tax and the tax paid as assessed (which is neither challenged nor refunded) by SEPL of $5,354,424.21 on 99% of the Trust distribution received by SEPL as the 99% participant in the presently entitled beneficiary of the Trust, that is, the Partnership. 

21. I will turn to the amended alternative assessments shortly. 

22. As to Mr Hyder’s individual tax return for the 2015 income year dated 19 May 2016, it discloses a taxable income of $114,104.00. It discloses assessable income (Item 13 O, distribution from partnerships) of $156,780.00 (said to engage s 92, ITAA 36) being Mr Hyder’s 1% interest in the Trust distribution to the Partnership (not including capital gains). As to capital gains, it discloses as assessable income, capital gains of $23,592.00 (said to engage Part 3‑1, Div 115, s 115‑215(3), ITAA 97) representing Mr Hyder’s 1% interest in the net capital gains of the Trust of $2,359,204.00 distributed to the Partnership.

23. On 15 June 2016, the Commissioner issued an assessment to Mr Hyder showing taxable income of $114,104.00 and tax payable of $30,165.48 less a refundable offset of $98.00.  Mr Hyder’s income tax liability arising out of the assessment was discharged by reason of his PAYG credits. 

24. The applicants contend that, by reason of s 350‑10(1) of Schedule 1 to the Administration Act, SEPL’s assessment (for the purposes of ss 166 and 166A, ITAA 36) is conclusive evidence that the assessment was “properly made” and except in proceedings under Part IVC on review or appeal relating to the assessment, the amount and particulars of the assessment are correct. They say that since there is no challenge by SEPL to the assessment (and the tax has been paid) and SEPL has no intention to challenge the assessment (and nor could it since the time within which to do so expired on 15 May 2020 by reason of s 14ZW, Administration Act), the 2015 return and the 2015 assessment to tax (on the basis of that return) of $5,354,424.21 are correct and remain correct. The applicants do not accept that any power under ITAA 36 or ITAA 97 or the Administration Act is engaged which confers power on the Commissioner to call the proper making of SEPL’s assessment into question.  The Commissioner contends otherwise, a matter to which I will return. 

25. On 24 April 2018, the Commissioner commenced an income tax audit of the affairs of the Partnership.  On 6 May 2020, the Commissioner provided Mr Hyder with a “Position Paper” explaining the Australian Taxation Office’s (“ATO”) position on “Trust Distributions and [Mr Hyder] and [SEPL] for the period 1 July 2014 to 30 June 2016”. 

26. In a letter dated 19 May 2020 to Mr Hyder (care of his solicitors), Deputy Commissioner Day observed that the period of review concerning Mr Hyder would expire on 15 June 2020 and would expire for the Trustee of the Trust on 7 June 2020.  Deputy Commissioner Day advised that based on the Position Paper issued to Mr Hyder, “the amended assessments will be raised and issued shortly, with the primary tax payable and the SIC for yourself and the alternative assessment for the Trustee of the [Trust]” [emphasis added].  Deputy Commissioner Day advised that penalty assessments on the tax shortfall amounts had not been raised at that point and that a “Penalty position paper” would be raised shortly for Mr Hyder’s consideration. 

1. The following amended assessments were issued to Mr Hyder in May 2020:

Date of Notice	Income Year	Class of Notice	Amount
21 May 2020	2015	Notice of Liability to pay shortfall interest charge (SIC)	$1,340,494.60
21 May 2020	2016	Notice of Liability to pay SIC	$331,428.50
22 May 2020	2015	Notice of Amended Assessment	$6,486,122.46
22 May 2020	2016	Notice of Amended Assessment	$2,262,660.45
Total	$10,420,706.01

1. As to the two amended income tax assessments (the 2015 and 2016 income years), the Notice for the 2015 income year recites Mr Hyder’s previous taxable income of $114,104.00 and amends it to $13,364,104.00 by assessing as taxable income an additional $13,250,000.00 representing withdrawals made by Mr Hyder from the Partnership bank account in three amounts during the 2015 income year for, in the Commissioner’s view, his personal use: see the determinations made by Deputy Commissioner Geale on 8 February 2021 (engaging s 97, ITAA 36) described at [78] of these reasons. The Commissioner also contends that these receipts are assessable income under s 6‑5, ITAA 97. The amended assessment records amended assessed tax payable of $5,987,295.80 which, having regard to other liabilities recorded in the Notice resulted in an amended assessment of tax payable of $6,486,122.46 for the 2015 income year.

2. As to the 2016 income year, the amended assessment records amended taxable income of $4,677,654.00 (and previous taxable income of $689.00) resulting in amended tax payable of $2,078,474.30 which, having regard to other liabilities recorded in the Notice of amended assessment, resulted in an amended assessment of tax payable of $2,262,660.45 for the 2016 income year. 

3. The Commissioner does not accept that the Partnership is a bona fide commercial partnership and treats the amounts drawn from the Partnership bank account by Mr Hyder (drawn from deposits made by the Trustee of the Trust into the Partnership bank account throughout the 2015 income year) as receipts by him for his personal use. The particular characterisation adopted by the Commissioner concerning those receipts having regard to ITAA 36 and ITAA 97 will be discussed later in these reasons.

4. The applicants say that the withdrawals by Mr Hyder from the Partnership bank account were withdrawals by the Principal partner for which he must account to the Partnership (his partner, SEPL) according to the orthodox understanding of obligations between partners inter se taking into account the Partnership agreement, and that the amount of $13.250m paid into the Partnership bank account forms part of the distribution of the net income of the Trust made to the presently entitled beneficiary in the form of the Partnership (of $18,028,722.00) by force of the resolution on 29 June 2016.  Thus, the applicants say that the amount of $13.250m is part of the same source of income in the same income year on which SEPL has already paid tax of $5,354,424.21 and the amended assessment to Mr Hyder for the 2015 year ought properly recognise the earlier SEPL payment on that source of income.  The applicants say that if Mr Hyder’s amended assessed tax payable had taken account of the earlier tax paid by SEPL on the distribution (said to be the same source of income in the same income year), his amended assessed tax (before other elements recited in the Notice) would not have been $5,987,295.80 but rather $632,871.59.  Other criticisms of the amended assessments are identified later in these reasons. 

5. As to the 2015 income year, the accounts of the Trust record payments to the Partnership of $13,304,054.61 and a revenue adjustment of $14,167.00.  They show a balance owing to the Partnership at 30 June 2015 of $4,710,500.66.  The payments, adjustment and balance owing, amount to $18,028,724.00 (virtually the amount of the distribution the subject of the resolution on 29 June 2015, but for $2.00).  The unpaid amount at 30 June 2015 of $4,710,500.66 was treated by the Trustee (and Mr Hyder) as an “unpaid present entitlement” (a “UPE”). 

6. As to the 2016 income year, Mr Hyder withdrew $1,357,000.00 from the Partnership bank account on 1 September 2015.  The Commissioner contends that the payment into the Partnership bank account on the same day had the effect of reducing the 30 June 2015 balance owing of $4,710,500.66 (rounded in the ATO Position Paper) to $3,353,501.00.  The applicants contend that the payment by the Trustee into the Partnership bank account was not treated as a payment in partial discharge of the UPE.  The entries for 30 June 2016 record a journal entry “Move Screaming Eagle loan [apparently the unpaid UPE treated as a loan] to MH [Mr Hyder’s] Capital introduced” and show an amount of “4 710 500.66”, which seems to suggest that the full amount owing at 30 June 2015 remained owing at 30 June 2016 subject to the journal entry, and was converted into a capital contribution made by Mr Hyder. 

7. Nevertheless, a question to be ultimately resolved is whether the 2016 payment by the Trustee into the Partnership bank account and the withdrawal by Mr Hyder is a part reduction of the UPE with the balance of $3,353,501.00 treated as a capital contribution by Mr Hyder to the Trust, or whether a capital contribution of $4,710,501.00 was made by Mr Hyder. 

8. As mentioned, I will return to the various contentions of the Commissioner as to the way in which the various payments and receipts are to be characterised, in his view, for the purposes of ITAA 36 and ITAA 97 later in these reasons, but for present purposes it is important to keep in mind that these proceedings are addressing an anterior question of whether the contended conduct of the Commissioner (and his officers) gives rise to invalidity or unlawfulness according to the jurisprudence applied to the relevant facts so as to give rise to the remedial orders of prohibition and the injunctions as sought by the applicants under s 39B. 

9. As to the Trustee of the Trust, described by Deputy Commissioner Day on 19 May 2020 as being issued with an “alternative” assessment to that of the “primary” amended assessment issued to Mr Hyder (arising out of the Position Paper), the Commissioner issued an assessment to the Trustee for the 2015 income year on the basis that the Partnership was not presently entitled to the net income of the Trust represented by the distribution of $18,028,722.00 made to the Partnership and that no beneficiary of the Trustee was presently entitled to the distribution with the result that the Trustee was liable to be assessed (under s 99A(4), ITAA 36) and pay tax on the distribution.

10. Accordingly, on 20 May 2020, the Commissioner issued a Notice of assessment to the Trustee reciting the Trustee’s taxable income as $18,028,722.00 resulting in assessed tax payable of $8,473,499.34 which, together with the Medicare Levy, resulted in tax payable by the Trustee of $8,833,943.65.

11. As to the assessment to the Trustee, the applicants contend that it cannot stand (that is, is invalid) together with the 2015 assessment of the Trust distribution to the Partnership and thus 99% to SEPL (and 1% to Mr Hyder) as assessed. As to that matter, the applicants contend that the correctness of SEPL’s assessment (taken, by operation of s 166A, ITAA 36, to have been made by the Commissioner) is not challenged in these proceedings (or otherwise) and, accordingly, the power under s 173, ITAA 36, to refund the tax collected from SEPL is not engaged.  The applicants also contend that the Commissioner is in no doubt that SEPL is (and was) liable to pay tax on 99% of the Trust distribution (and Mr Hyder 1%) as the 2015 alternative assessments were issued “expressly on this basis”.  It is true that the position adopted in the Position Paper is that the Trust distribution to SEPL of $17,848,510.00 is assessable to tax in the hands of SEPL as income and the distribution to Mr Hyder of the 1% is assessable to tax in his hands as income.  There is no suggestion by the Commissioner, however, that the amended assessment to Mr Hyder in respect of the payments received by him in the 2015 income year (that is, the drawings from the Partnership bank account of $13.250m paid into that account by the Trustee and said by the applicants to be a part of what is otherwise characterised as the Trust distribution to the presently entitled beneficiary) is an alternative assessment to the SEPL assessment (and payment). 

12. The nub of the complaint of the applicants (said to give rise to invalidity) is that the Commissioner metaphorically wants to keep in his left pocket all of the tax paid so far by SEPL on $17,848,510.00 (being 99% of the distribution of $18,028,722.00) and assess and collect into his right pocket, tax on $13.250m of the receipts otherwise representing part of the distribution, as payments made to Mr Hyder for the 2015 income year (tax of $6,486,122.46) together with tax from Mr Hyder in the 2016 income year on the balance of $4,710,500.66 (of the receipts otherwise representing the distribution; tax of $2,262,660.45) or, in the alternative to the primary amended assessments to Mr Hyder, assess and collect into his right pocket (while retaining in his left pocket SEPL’s payment of tax of $5,354,424.21) tax from the Trustee on $18,028,722.00 (the full amount of what is otherwise characterised by the applicants as the distribution to the presently entitled beneficiary) of $8,833,943.65, or alternatively, as the applicants apprehend, recover tax from all three entities, SEPL, Mr Hyder and the Trustee, and in the meantime pending the Part IVC proceedings, require Mr Hyder and the Trustee (both within, put simply, the Hyder “camp” or “group”) to pay the full amount of both alternative assessments including the general interest charge or pay 50% of the total debt and provide “security” for the balance from entities and persons within the Hyder camp or group. 

13. Clearly enough, the amended assessments to Mr Hyder and the assessment to the Trustee are described by Deputy Commissioner Day as alternative assessments (described as primary (Mr Hyder) and alternative (the Trustee)).  However, neither assessment (primary or alternative) is said to be an alternative to the earlier SEPL assessment and SEPL’s payment of $5,354,424.21. 

14. The applicants contend that the Commissioner’s position that the tax (described by the Commissioner as “properly paid” by SEPL as assessed for the purposes of ITAA 36), is “separate and distinct” from the amended assessments to and disputed by each of Mr Hyder and the Trustee, means that the income tax treatment and liability to tax for the 2015 income year of the distribution by the Trustee to SEPL and Mr Hyder has been “genuinely and finally determined and collected by the Commissioner” (tax on 99% of the distribution to SEPL and 1% to Mr Hyder).

15. The decision to issue the primary amended assessments to Mr Hyder and an alternative assessment to the Trustee could only be made by the Commissioner (leaving aside for the moment the invalidity claim described at [38] of these reasons) on the footing that he was unsure about the ultimate position concerning which of those two taxpayers properly bears the burden of tax as between each of them on the relevant receipts and payments and thus, in order to protect the revenue, the Commissioner formed the view that it was necessary to issue alternative assessments.  In Practice Statement PS LA 2006/7 (Alternative Assessments), the Commissioner recognises that alternative assessments are made on the basis of the information available at the time and that there must be “genuine doubt” about which assessment is “appropriate” with the Commissioner holding the view that each assessment is “capable of being correct”.  The Commissioner recognises that alternative assessments are made where the “uncertainty” on the facts or operation of the law cannot be practicably resolved to ensure a single correct assessment is made (within the relevant time limit):  see the Statement of Principle at para 445 of the Commissioner’s Position Paper of 6 May 2020 and the discussion later in these reasons at [205] to [209]. 

16. Thus, the Commissioner must have held “genuine doubt” about whether the amended assessments to Mr Hyder were “appropriate” assessments or whether the assessment to the Trustee was the “appropriate” assessment. 

17. If the ultimate resolution of the Commissioner’s genuine doubt proves to be that the assessment to the Trustee is correct, it is difficult to see how the Commissioner could take the view that, on the one hand, he could collect tax from the Trustee on $18,028,722.00 of $8,833,943.65 and at the same time, on the other hand, retain tax paid by SEPL of $5,354,424.21, on 99% of the distribution.  It may also be difficult to see how the Commissioner could, without acting oppressively, call for payment from the Trustee and Mr Hyder (before the “appropriateness” of the assessment issued to each of them is determined thus resolving the Commissioner’s “genuine doubt”), of the full amount of the assessments issued to both taxpayers and, so far as the Trustee is concerned, the assessment issued to the Trustee of tax of $8,833,943.65 without taking into account the alternative nature of that assessment and the payment by SEPL of $5,354,424.21.  However, in order to determine the character of the impugned conduct of the Commissioner, it is necessary to look closely at the detail of the circumstances, the contended conduct of the Commissioner reflected in the relevant correspondence and events and the legal character of that conduct. 

18. The amended assessments to Mr Hyder ($6,486,122.46 for the 2015 income year; SIC of $1,340,494.60 (2015); $2,262,660.45 for the 2016 income year; and SIC (2016) $331,428.50) fell due for payment on 15 June 2020. 

19. The alternative assessment to the Trustee ($8,833,943.65) recites a due date of payment of 7 June 2016. 

    The events occurring after 21 May 2020

20. On 28 May 2020, the ATO (by Ms Cupay) sent an email to Mr Hyder’s solicitors (Mr Wojtasik) under the reference “Elton Matthew Hyder and the Trustee for the EMHIV Family Trust” advising that the “above cases” had been allocated to her for “debt management”.  Ms Cupay notes that Mr Hyder and the Trustee would be lodging objections against the assessments (and penalties).  Those objections were said to be under preparation.  Ms Cupay notes that the liabilities raised against Mr Hyder would not be due until 15 June 2020 but that the alternative assessment to the “Family Trust” was due and payable.  The email notes that Mr Wojtasik and Mr Hyder would be discussing how to address “the debts” pending determination of the objections to be lodged.  Ms Cupay notes Mr Wojtasik’s advice that “the taxpayer” did not have sufficient funds to pay the liabilities.  Ms Cupay suggested that providing securities for the liabilities pending the determination of the objections was one option.  Alternatively, a corporate guarantee might be considered.  In relation to the recovery of debts under dispute, Ms Cupay referred Mr Wojtasik to PS LA 2011/4 noting that the Practice Statement provides that the Commissioner may initiate recovery action for collection of unpaid disputed debts at any time, including before determination of an objection, based on an analysis of the risk associated with the case.  Ms Cupay called for a “security proposal” to address the liabilities raised by the assessments, by 15 June 2020.  Ms Cupay noted the following options available to the taxpayer: 

    •payment of the whole debt by instalments

    •payment of 50% of the disputed debt in a lump sum with the balance being paid by instalments

    •payment of 50% of the disputed debt together with the provision of acceptable security for the remaining balance

    •provision of acceptable security for the whole debt

    •provision of financial documents to substantiate that payment of the disputed debt would cause serious financial hardship [citing two authorities]

21. Ms Cupay requested the following information in support of any proposal emerging from the taxpayers:

    1.The source of funds that the taxpayer intends to draw upon to meet the liability to the Commissioner in the event that the assessment is confirmed;

    2.Statement of Assets and Liabilities;

    3.Income and Expenditure; and

    4.Security, if any, that or any associates that may be willing to offer to obtain a deferment of legal action. 

22. Ms Cupay advised that acceptable securities would be a first party mortgage over real property; an equitable mortgage of land together with a caveat; a first charge over company assets and property; a mortgage of securities issued in a “blue chip” publicly listed entity; and a bank guarantee.  Ms Cupay attached to her email a copy of the assessments issued to Mr Hyder and the Trustee and the respective “penalty notices” (by which Ms Cupay must have meant the SIC notices). 

23. The applicants note that the ATO was not seeking to protect the revenue for the difference between the rate of 30c in the dollar and the relevant marginal rate.  The applicants also note that no consideration is given to the possibility that the tax already paid by SEPL of $5,354,424.21 might need to be taken into account in resolving the Commissioner’s uncertainty as to who ultimately bears the burden on the relevant payments and receipts that led to the election to issue a primary assessment and an alternative assessment, or that should the assessment to the Trustee prove to be the appropriate assessment, the earlier payment by SEPL relevantly related to the receipts and payments would or might well need to be taken into account.  The earlier payment by SEPL would be a relevant material matter in undertaking the Commissioner’s analysis of the risk to the revenue. 

24. On 11 June 2020, by letter to Ms Cupay, Mr Wojtasik referred to the tax assessments issued to Mr Hyder and the Trustee and the SIC Notices (all called assessments). Mr Wojtasik sought, on behalf of both taxpayers, a deferral (under s 255‑10(1) of Schedule 1, Administration Act) of the time at which the assessments were to be due and payable (essentially until the expiration of a period of 14 days after a final decision exhausting all rights of appeal).  Mr Wojtasik notes the amounts due by Mr Hyder under the amended assessments and SIC Notices on 15 June 2020 ($10,420,706.01 in all) and the amount due by the Trustee on 7 June 2016 of $8,833,943.65.  Mr Wojtasik sought to demonstrate that the considerations set out at para 32 of PS LA 2011/14 were satisfied in all the circumstances.  The requests to defer the due date for payment of the assessments and a deferral of recovery action were made assuming, for the purposes of the correspondence and the application, that all of the assessments were validly issued. 

25. At point 4 of Mr Wojtasik’s letter, he draws Ms Cupay’s attention to the following consideration:

    4)apart from anything else, and as noted in the audit Position Paper dated 6 May 2020, on 7 November 2019, [SEPL] paid the [ATO] an amount of $5,577,228.08 for income tax previously assessed to [SEPL] for the year ended 30 June 2015 plus interest charges [although the amount quoted includes the GIC] with respect to the same income that the Assessments are based on. 

26. Mr Wojtasik’s letter seeking each deferral was supported by written submissions.  The written submissions develop the contentions about the distribution by the Trustee to the Partnership in 2015, the lodging of SEPL’s return, the assessment and the payment by SEPL of $5.354m in tax based on that assessment (representing 99% of the Trustee’s distribution) and asserts that the amended assessments to Mr Hyder (amounting to $8,748,782.91, leaving aside the amount of the SIC Notices) ought to be seen or characterised as alternative assessments to the SEPL assessment (and payment).  Mr Wojtasik asserts that if the matter of SEPL’s earlier payment is taken into consideration, the primary assessment to Mr Hyder is, in effect, satisfied to the extent of 61.2% (on the numbers).  Mr Wojtasik also set out at paras 27 to 31 of the submissions, the features of the relationship between Mr Hyder, the Family Trust, the critical property development projects undertaken by “Legacy Property” (Mr Hyder’s property development company) and the relationship between that Unit Trust, the Trustee of the Trust and Mr Hyder. 

1. Ms Cupay responded on 16 June 2020 advising that the “request to defer payment of the outstanding debts” had been refused.  Ms Cupay notes that the debt “as it currently stands is substantial and poses a risk to the revenue”.  Ms Cupay notes Mr Wojtasik’s advice that the client does not have the capacity to pay the amount of the debt outstanding.  Ms Cupay requests Mr Hyder and the Trustee to consider providing security for the outstanding debts pending objections and appeals being determined consistent with the “50‑50 payment option” set out in Ms Cupay’s letter.  Under that proposal, Ms Cupay again emphasises that lodgement or an intention to lodge an objection does not require the Commissioner to withhold action for recovery of the taxation liability assessed under the relevant assessments and, to that end, the Commissioner applies PS LA 2011/4.  Ms Cupay emphasises paras 2, 11, 15 and 52 of PS LA 2011/4 (and quotes those paragraphs).  Paragraph 11 of PS LA 2011/4 emphasises that the Commissioner may initiate recovery action for collection of unpaid disputed debts at any time based on an analysis of the risk associated with the case (cross‑referencing to PS LA 2011/6).  Paragraph 52 of PS LA 2011/4 sets out options the Commissioner considers to be an alternative to instigating recovery action.  Those options involve payment of the whole debt within 14 days, payment of the whole debt by instalments, payment of 50% of the debt in a lump sum with the balance either paid by instalments or made subject to the provision of acceptable security. 

2. Ms Cupay emphasised that if there was little or no risk associated with the case (the risk of obtaining payment), the Commissioner would generally grant a deferral of legal action pending the determination of the objection.  Ms Cupay called upon Mr Hyder and the Trustee to provide information about the source of funds to pay the debt, an assets and liabilities statement and an income and expenditure statement by 7 July 2020 with a view to a “50‑50 payment option” being put to the Commissioner by Mr Hyder and the Trustee.  That option would involve payment of 50% of the “disputed debt” in a lump sum with the balance paid by instalments or protected by security. 

3. The liabilities to be brought within such an arrangement were these (as set out in Ms Cupay’s letter):  Mr Hyder’s tax liability (2015 and 2016) of $8,748,782.91 with 50% to be paid by lump sum being $4,374,391.46 (and the balance by instalments or security); the Trustee’s liability of $8,833,943.65 with 50% to be paid by lump sum being $4,416,971.82 (and the balance being paid by instalments or security).  Thus, Ms Cupay was seeking payment of 50% of both alternative assessments (an amount of $8,791,363.28) with a proposal for the payment of the balance 50% by instalments or the provision of acceptable security in relation to it.  No reference is made in Ms Cupay’s letter to any of the submissions concerning the tax paid by SEPL of $5,354,424.21 on the distribution to it in 2015 of 99% of the distribution to the Partnership or whether the prior payment is relevant at all to the question of the Commissioner’s risk assessment.  No recognition is given to the circumstance that the assessments to Mr Hyder are the “primary” assessments and the assessment to the Trustee is an “alternative” assessment to those assessments (with the question of where the true burden lies as between the two (one burden), remaining a matter to be decided in the relevant forum).  Ms Cupay’s letter does not engage with the possibility that the earlier payment by SEPL, in the context of the alternative assessments, might bear on the Commissioner’s risk assessment or debt exposure.  Ms Cupay reminded Mr Wojtasik that the general interest charge would apply on any and all unpaid amounts at the rate of 7.89%. 

4. On 7 July 2020, Mr Wojtasik responded to Ms Cupay’s letter, advising that objections on behalf of Mr Hyder and the Trustee would be lodged within time (due 19 July and 21 July 2020) noting that the content of the objections would be a matter relevant to Ms Cupay’s debt management considerations.  Mr Wojtasik said that a statement of assets, income and expenditure and liabilities would be prepared to 30 June 2020.  He enclosed the affidavit that had been relied upon in support of the reinstatement order concerning SEPL and, referring to the earlier correspondence, emphasised that the tax of $5.354m paid by SEPL “represents the tax on the same income assessed in May 2020 to [the Trustee of the Trust] and also to Mr Hyder personally”.  The proposition put to the ATO was this:

   These are alternative assessments.  One of the alternative assessments, that is, the assessment to [SEPL], has been paid in full.  Your 16 June 2020 correspondence does not provide a basis upon which the Commissioner can collect tax on two alternative assessments. 

   We note that the [$5.354m] already paid represents more than 50% of the disputed tax arising from the assessment [of the Trustee of the Trust] ($8,833,943.65), or the tax arising from the individual assessments [$8,748,782.91].  Your 16 June 2020 correspondence does not provide a basis upon which the Commissioner’s own criteria for a 50/50 arrangement have not already been satisfied. 

   We refer also to your refusal to defer payment of the disputed debts and note that no reasons have been provided. We ask for a statement of reasons [under the ADJR Act]. The decision should be reconsidered with reference to the merits of the request …

5. On 17 July 2020, Mr Wojtasik lodged objections to the two amended assessments and SIC Notices issued to Mr Hyder and the assessment issued to the Trustee of the Trust. 

6. On 18 July 2020, Mr Wojtasik provided Ms Cupay with the objections to the disputed tax liabilities on the footing that the content of the objections would be “relevant to your debt management considerations”. 

7. On 21 July 2020, Deputy Commissioner Ravanello sent a letter to Mr Wojtasik responding to Mr Wojtasik’s email of 7 July 2020, noting the contents of that email. Deputy Commissioner Ravanello notes that reasons had not been provided explaining the decision to refuse to “defer the due date for payment resulting from the issue of the amended assessments”. He advised that that question had not been addressed due to an oversight. The Deputy Commissioner notes that the ATO’s letter of 16 June 2020 addressed a request for “deferral of recovery action” and not the request to defer “payment of the disputed debt” (by which he means the request to defer the “due date” under s 255‑10(1) of Schedule 1). Deputy Commissioner Ravanello advised that his letter of 21 July 2020 would “now seek to address” that matter.

8. The Deputy Commissioner advised that the deferral request had been refused based upon four considerations.  The first reason identified by Deputy Commissioner Ravanello was that the “quantum of [the] tax debt for both Mr Elton Hyder and the Trustee for [the Trust] [totalled] $17,582,726.56 (excluding GIC)” [emphasis added] and that the “debt as it currently stands is substantial and poses a risk that the outstanding amount will not be paid”.  The combined debt of $17,582,726.56 is made up of the amounts set out in Ms Cupay’s letter of 16 June 2020:  Mr Hyder’s amended assessments for 2015 and 2016 (totalling $8,748,782.91) and the Trustee’s assessment of $8,833,943.65.  Deputy Commissioner Day had made it plain previously that Mr Hyder’s assessments were the primary assessments and the assessment to the Trustee was an alternative assessment. 

9. Deputy Commissioner Ravanello also says that Mr Hyder had not provided sufficient evidence that payment of the total debt ($17.582m) could not be made because of circumstances beyond Mr Hyder’s control; that Mr Hyder had said that he had no capacity to pay the debt and had not been able to provide security for the debt to support deferral; and that Mr Hyder had been given “ample time” to pay or provide security.  Having dealt with the matter of the due date, Deputy Commissioner Ravanello then addresses the topic of “debt recovery actions” and says that, as previously advised, “the request to defer recovery action is refused” and “[a]ccordingly, debt recovery action will continue if payment is not made or security is not provided as outlined in our letter” (the letter of 16 June 2020). 

10. In this letter, Deputy Commissioner Ravanello responds to the various contentions concerning the payment of tax by SEPL, put to the ATO by Mr Wojtasik.  Deputy Commissioner Ravanello said this:

    Payments made against [SEPL] (“the company”)

    Until the dispute in relation to the characteristics of the income received and the attribution of that income are determined, the issue of notices of assessment or amended assessment is conclusive evidence of the due making of an assessment and, except in proceedings in relation to a review or appeal, that the assessment is valid and the amount and particulars of the assessment are correct hence collectable. 

    [emphasis added]

11. Deputy Commissioner Ravanello acknowledged that SEPL had “made payments” (that is, put accurately, SEPL had paid the full amount of the tax as assessed on 99% of the distribution by the Trustee and had paid the general interest charge, amounting in all, to $5,577,228.08), but noted that, “[h]owever the notices of assessments issued to the taxpayers are payable, are separate and distinct from the income tax returns lodged by the company and the payment it has made” [emphasis added]. Mr Hyder is, of course, a “separate and distinct” entity from the Trustee of the Trust just as SEPL is a separate and distinct entity from each of them. However, assessments had issued to Mr Hyder and the Trustee concerning what appears to be the same set of payments and receipts (with differences of treatment arising out of the characterisation of the payments and receipts and the capacity in which receipts occurred) on an expressly alternative basis. So too, another separate and distinct taxpayer, SEPL, had been assessed to tax in relation to the same body of payments and receipts in the same 2015 income year and had paid the tax, as assessed (by operation of the deeming provision in ITAA 36). Deputy Commissioner Ravanello seems to be saying that no account will be taken of, or consideration given to, the circumstance of SEPL’s payment of tax on the relevant receipts in the 2015 income year either in relation to the deferral of the due date or, it seems, in relation to any aspect of the “debt recovery actions”.

12. The position, at this point, seems to be that in relation to an original series of payments and receipts in question amounting to $18,028,722.00 in the 2015 income year (and some in the 2016 income year), the Deputy Commissioner seeks to retain tax paid of $5,354,424.21 and requires the taxpayers to pay or secure the full amount of the alternative assessments to Mr Hyder and the Trustee of $17,582,726.56. 

13. On 7 August 2020, Mr Wojtasik responded to the letter of 21 July 2020 by letter to Ms Cupay.  Mr Wojtasik requested the ATO to provide a Statement of Reasons concerning the decision “to refuse to defer the due date for payment” suggesting that the letter of 21 July 2020 was addressing reasons for not deferring recovery action.  The letter however seems clearly enough to be addressing the due date point (and the consequences of refusing deferral of recovery actions). 

14. Mr Wojtasik also responds to the reasoning of Deputy Commissioner Ravanello set out in the letter of 21 July 2020 and, as to SEPL, says this:

    The first [reason set out in Deputy Commissioner Ravanello’s letter] is that the quantum of the tax debt is $17,582,726.56, the debt is substantial, and there is a risk that the amount will not be paid. 

    The reasoning incorrectly proceeds on the basis that the amount of $17,582,726.56 is collectable by the Deputy Commissioner.  As explained in both our 11 June 2020 deferral application, and the 7 July 2020 email, the amounts assessed to [the Trustee of the Family Trust] and to Mr Hyder are alternative assessments.  The Deputy Commissioner cannot collect both of these two amounts.

    There is a further alternative assessment, being the assessment issued to [SEPL], which has been paid.  Consequently, the Deputy Commissioner has already collected the tax payable on one of the alternative assessments. 

15. Mr Wojtasik then set out further remarks reflected in the earlier submissions of 11 June 2020 to the effect that payment of the recently issued assessments could not be made by the taxpayers without abandoning current property development activities.  Mr Wojtasik explained that the Trustee of the Trust is the unitholder and ultimate beneficiary in the Legacy Property Holdings Unit Trust (“LPHUT”) and that as the statement of assets and liabilities set out, LPHUT had substantial cash investments in various property developments amounting to substantial assets under control well in excess of the disputed amounts.  Mr Wojtasik contended that accessing those assets at that moment in time would cause significant property development activities to halt giving rise to substantial costs being incurred and contended loss of jobs. 

16. Mr Wojtasik contended that it was incorrect to assert that the recently issued assessments were separate and distinct from the SEPL assessment and payment of tax. He asserted that “all of these assessments are alternatives” and that “all of these assessments assess the same income, albeit on different bases”. Mr Wojtasik requested the ATO to reconsider the decision of 21 July 2020 and in any event to provide a Statement of Reasons under the ADJR Act as requested in his email of 7 July 2020 concerning the request to defer the due date.

17. On 7 September 2020, the following Notices of “assessment for a shortfall penalty” were issued by Deputy Commissioner Smith:

Taxpayer	Income Year	Amount	Due Date
Mr Hyder	2015	$3,243,061.20	29 September 2020
Mr Hyder	2016	$1,357,596.20	29 September 2020
The Trustee	2015	$4,416,971.80	29 September 2020

1. As at 29 September 2020, Mr Hyder’s tax‑related liabilities to the Commissioner under all of the “primary” amended assessments and Notices amounted to $15,021,359.41 and the tax‑related liability of the Trustee under the “alternative” assessment and Notices amounted to $13,250,915.45 (leaving aside the GIC in each case), amounting in all to $28,272,274.86. 

2. On 15 September 2020, Deputy Commissioner Ravanello sent a letter to Mr Wojtasik. The letter enclosed a Statement of Reasons under the ADJR Act outlining the basis of the ATO’s decision to refuse the request under s 255‑10(1) of Schedule 1 to defer the due date for payment of tax‑related liabilities. The Statement of Reasons dated 15 September 2020 recites that Ms Maria Llorca is the decision‑maker in relation to the decision made on 21 July 2020. Deputy Commissioner Ravanello says in the letter that apart from the Statement of Reasons, the points raised in Mr Wojtasik’s letter of 7 August 2020 had already been addressed in the letter of 21 July 2020. Deputy Commissioner Ravanello took up the response of 21 July 2020 and said this in his letter of 15 September 2020:

   As per our response, the payment made by [SEPL] after it was re‑instated is not a payment that can be attributed as 50% payment against the taxpayers’ liabilities as it is a separate entity.  Any payments made by the company towards its tax do not have any bearing to the taxpayers’ current outstanding liabilities unless a determination has been made under objection, review of appeal to state otherwise. 

   Until the dispute in relation to the characteristics of the income and attribution is determined, the issue of notices of assessment and amended assessment are conclusive evidence of the due making of an assessment.  The assessments are valid, and the amount and particulars of the assessments are correct hence collectable until the disputes are determined. 

   [emphasis added]

3. Deputy Commissioner Ravanello then takes up the options by which the taxpayers might provide security for the debt and expresses observations in relation to a corporate guarantee over the assets of Legacy Property Holdings Unit Trust and the contended restrictions in doing so due to the property development projects underway. 

4. As to the Statement of Reasons, Ms Llorca observes as a background matter that at 15 September 2020, Mr Hyder and the Trustee of the Trust were indebted to the Commissioner in an amount of $23,368,417.38 (including general interest charges).  That seems an odd matter to mention in identifying the reasons which informed her decision made on 21 July 2020 (see para 1 of the Statement of Reasons).  If Mr Hyder and the Trustee were indebted in that amount including the GIC as at 15 September 2020, the additional Notices described at [70] of these reasons issued on 7 September 2020 would have resulted in a combined debt at 29 September 2020 of $32,386,046.58 (including GIC to 15 September 2020). 

5. In the Statement of Reasons, Ms Llorca says that she has taken into account paras 32 and 33 of PS LA 2011/14.  Ms Llorca also notes the shortfall penalty issued to the Trustee of the Trust on 29 September 2020 (which was also not a matter before the decision‑maker on 21 July 2020).  Ms Llorca notes Mr Wojtasik’s email of 7 July 2020 and the proposition put to the ATO that the amended assessments issued to Mr Hyder and the alternative assessment to the Trustee of the Trust are properly considered as alternative assessments to SEPL’s assessment (and tax as paid), and the proposition that there is no basis on which the Commissioner can collect tax on two alternative assessments.  In Ms Llorca’s Statement of Reasons, she does not identify how any aspect of PS LA 2006/7 was taken into account in reaching the decision.  In making the decision, Ms Llorca observed that the debt as it stood at 15 September 2020 (presumably looking forward from the date of the decision on 21 July 2020) was substantial and posed a risk that it would not be paid and noted, presumably as at 15 September 2020, that “the debt continues to escalate with GIC accruing in the amount of approximately $1.9M per month” [emphasis added]. 

6. On 1 October 2020, Mr Hyder and the Trustee lodged objections in relation to the penalty assessments.  On 8 October 2020, Mr Wojtasik sent a letter to Ms Cupay referring to Ms Llorca’s observation in the Statement of Reasons that no suitable security had been obtained by the Commissioner in respect of the debt and that the debt continued to escalate (including GIC) in an amount of $1.9m per month.  Mr Wojtasik observed that the deferral of the due date for payment of a tax‑related liability would have the effect of deferring the accrual of GIC.  He observed that associated entities of the taxpayers anticipated a substantial return of capital from various property development activities and referred to the three examples he had earlier given noting that it would not be until a return had been realised that payment could be made of the disputed tax‑related liabilities.  He observed that the decision not to defer the due date would substantially prejudice the ability of the taxpayers to attend to the payment tax‑related liabilities. 

7. Mr Wojtasik observed that the refusal to defer the due date for payment would mean that the quantum to be secured would be substantially larger than the disputed tax‑related liabilities.  Mr Wojtasik made the following request:

   Further, we ask that you reconsider your decision to not defer recovery action knowing that the tax‑related liabilities are disputed, the objections are meritorious, and that the prospects of recovery substantially improve should the Commissioner accommodate the taxpayers financial circumstances discussed above and in previous correspondence. 

8. On 8 February 2021, Deputy Commissioner Geale made an objection decision not allowing each of the objections made by Mr Hyder to the amended assessments, the assessment of shortfall penalties and the Notice of Liability to pay SIC. Deputy Commissioner Geale made an objection decision on the same day not allowing the objections made by the Trustee to the assessment and the shortfall penalty notice. Deputy Commissioner Geale also made a determination on 8 February 2021 under s 177F(1)(a), ITAA 36 that the amount of $13.250m, being the whole or part of a “tax benefit” referrable to an amount that has not been included in the assessable income of Mr Hyder for the 2015 year of income, be included in the assessable income of the taxpayer for that year. Deputy Commissioner Geale further determined under s 177F(2), ITAA 36 that the amount be deemed to be included in the assessable income of the taxpayer by virtue of s 97, ITAA 36. The determination took effect at the date of issue of the amended assessments to Mr Hyder on 22 May 2020.

1. It is convenient to note at this point the contention of the applicants said to be the “critical aspect” of the objection decision made by Deputy Commissioner Geale concerning Mr Hyder. The critical matter is said to be that Deputy Commissioner Geale confirmed that SEPL and Mr Hyder were each presently entitled, respectively, to a “fixed” share (99% and 1%) of the Trust distribution and each was assessable to tax on that fixed share under s 97, ITAA 36, in the 2015 income year. The applicants emphasise paras 34.3.2 and 35.1 of the objection decision and it is convenient to set those paragraphs out here:

   34.3.2There is no tax law partnership between Mr Hyder and [SEPL] for the receipt of trust distributions from the [Trust] in the 2015 income year. The Trustee resolution for the 2015 year is effective to identify as beneficiaries for the purposes of the trustee exercising its discretion, as being those persons who at the relevant time when the Trustee’s discretion is exercised, were the members of the Partnership. The effect of the Trustee exercising its discretion in this way is to make the members of the purported Partnership (as then existing) who were eligible beneficiaries of the [Trust] presently entitled to a “fixed” share of the net income of the Trust under subsection 97(1) of the ITAA 1936. It is the exercising of the Trustee’s discretion that includes the statutory income in the individual members of the purported Partnership’s assessable income.

   35We refer to paragraphs 229‑302 of the Position Paper, which outlines in detail the Commissioner’s reasons for his position that the withdrawals totalling $13,250,000 in the 2015 income year (the 2015 withdrawals) are assessable income to Mr Hyder either under Division 7A of the ITAA 1936 or under section 6‑5 of the ITAA 1997. No additional documents have ever been provided, no new contentions articulated, and the Commissioner has not changed his position on the substantive issues. In summary:

   35.1There is no general law partnership or even if there is a general law partnership, the trust distributions do not form part of the Partnership net income.  As outlined above at paragraph 34, the Taxpayer and [SEPL] were both presently entitled to a “fixed” share of the net income of the [Trust], under subsection 97(1) of the ITAA 1936. The funds the subject of the 2015 withdrawals were paid from the Trust to satisfy the present entitlement of [SEPL] to trust income. Relevantly it is the Commissioner’s position that [four propositions are then set out which it is not presently necessary to reproduce here].

2. The second “critical aspect” of the objection decision is said to be the Commissioner’s “confirmation” that the “inconsistent assessments” to the Trustee under s 99A, ITAA 36, on 100% of the Trust distribution, and to Mr Hyder on an additional $13.250m “of the Trust distribution” are alternative assessments within PS LA 2006/7. The applicants contend that it is common ground that if the 2015 alternative assessment to the Trustee under s 99A, ITAA 36, on 100% of the distribution is correct, then no other assessment on the Trust distribution can stand with that assessment as correct. 

3. On 18 February 2021, Mr Hyder filed a notice of appeal against the appellable objection decision.  The Trustee also filed a notice of appeal on 18 February 2021. 

4. On 26 February 2021, Deputy Commissioner Smith by letter addressed to Mr Wojtasik responded to the letter of 8 October 2020.  It seems, however, that the letter was sent by Ms Llorca to Mr Wojtasik by email on 17 March 2021.  Deputy Commissioner Smith advised Mr Wojtasik that the requests for deferral of the due date for payment of the taxpayers’ tax‑related liabilities had been refused based on an attached Statement of Reasons (the “Statement”).  Deputy Commissioner Smith advised that as the objections of the taxpayers had been disallowed in full, the tax debt remained immediately due and payable.  The letter encouraged the taxpayers to propose a reasonable arrangement to pay the outstanding amounts for the consideration of the ATO.  Mr Wojtasik was reminded that the general interest charge was accruing at the rate of 7.02% per annum on the outstanding balance until the entire amount had been paid. 

   The Statement of Reasons of Ms Llorca dated 26 February 2021

5. The Statement of Reasons dated 26 February 2021 attached to Deputy Commissioner Smith’s letter of 26 February 2021 recites that Ms Llorca is the decision‑maker (para 4), acting as the duly authorised officer of the Commissioner. 

6. The applicants seek review under the ADJR Act of Ms Llorca’s decision made on the basis set out in her Statement. At para 7, Ms Llorca sets out the Notices of amended assessments and Notices of SIC issued to Mr Hyder (including amounts due under Div 293 Notices issued on 19 June 2020 amounting to $9,000.00), amounting in all to $15,030,363.41.

7. The Statement recites the assessment and Notice of shortfall penalty issued to the Trustee amounting to $13,250,915.45. 

8. The combined amount is $28,281,278.86. 

9. At paras 26 and 27, however, Ms Llorca records that the combined amount due as at 11 January 2021, including the general interest charge amounted to $32,376,959.21. 

10. At Part C of the Statement, Ms Llorca sets out the history of the exchanges between Mr Wojtasik on behalf of Mr Hyder and the Trustee, and the Commissioner, commencing on 11 June 2020 until 8 October 2020.  These exchanges have been extensively set out in these reasons.  At para 21 of the Statement, Ms Llorca says that in making her decision, she has considered all of the correspondence sent to the ATO on behalf of the taxpayers since 28 May 2020 in relation to the taxation liabilities in respect of which the taxpayers were seeking a deferral of the due date for payment or, alternatively, deferral of recovery action by the Commissioner.  Ms Llorca says that she has considered PS LA 2011/4, 2011/14, 2011/18 and 2006/7 on the topic of Alternative Assessments. 

11. At para 25, Ms Llorca sets out the documents she considered, including the Notices of objection lodged on behalf of Mr Hyder and the Trustee, the objection decision in relation to those objections and the applications constituting the appeal to the Court from the objection decisions. 

12. At Part E of the Statement, Ms Llorca sets out findings on material questions of fact.  Ms Llorca notes that the amount of $32,376,959.21, due as at 11 January 2021, is due and payable. 

13. At para 29, Ms Llorca sets out her understanding of the findings arising out of the audit conducted by the Commissioner.  Ms Llorca notes that a determination was made that Mr Hyder had entered into a contrived arrangement through a purported partnership with a private company [SEPL] as a partner and then utilised the private company’s profits for private purposes or retained profits for working capital purposes.  Ms Llorca notes that six particular groups of facts were “established” in the course of the audit.  They included:  that Mr Hyder set up the Partnership as a controlling partner; that Mr Hyder resolved, as the controller/director of the Trustee, to make the Partnership presently entitled to income of approximately $18m; that Mr Hyder withdrew $13.250m from the Partnership bank account in the 2015 income year for his own use and a further amount of $1.357m in the 2016 year; that a remaining amount of $4.710m was retained in the Trust and reclassified as a capital contribution; that the Partnership was then dismantled; and that the Commissioner takes the view that the Partnership arrangement is contrived, lacks commercial substance and is part of an attempt by the taxpayers to avoid tax. 

14. At para 29(f), Ms Llorca says that she also concludes “that this was a contrived arrangement to avoid tax”. 

15. At paras 30 and 31, Ms Llorca notes matters asserted by Mr Hyder relating to steps taken by him to fund the property development activities of the LPH Unit Trust and Mr Hyder’s statement that his estimated net assets have a value of $56m of which $18m are immediately available although Mr Wojtasik’s correspondence says that “there are no assets available to secure such an amount” (quoted at para 31). 

16. At Part F of the Statement, Ms Llorca identifies the reasons for deciding that she is not satisfied that the circumstances of the taxpayers warrant the exercise of the Commissioner’s discretion under s 255‑10, Schedule 1, Administration Act. 

17. At para 33, Ms Llorca observes that the Commissioner “expects that all debts owed by taxpayers, including those subject to dispute, will be paid on time”. Ms Llorca observes that the legislative framework underpinning the Commissioner’s policy is designed to ensure that taxation debts are due and payable notwithstanding that they may be disputed. Ms Llorca observes that there is a “wide discretion” under s 255‑10 to defer the due date for payment of a tax‑related liability and the discretion is to be exercised “having regard to the circumstances of the taxpayer’s particular case”.

18. Ms Llorca observes at para 34 that one “critical effect” of granting a deferral of the due date for payment would be that GIC would not be payable even if the Commissioner were to be ultimately successful in any proceeding under Part IVC of the Administration Act. 

19. Ms Llorca observes at para 35 that decisions of the Federal Court “make clear that the taxpayers’ prospects of success (and by extension, the contents of any notices of objection) is not a factor that the Commissioner can reliably take into account, unless the outcome is obvious in that the taxpayer’s objection is bound to succeed” [emphasis added]. 

20. In the case of assessments issued to two taxpayers on an alternative basis where, as in this case, the primary assessment is directed to Mr Hyder and an alternative assessment is directed to a trustee of which Mr Hyder is the controlling director concerning a Family Trust, it would be apparent in the very nature of an alternative assessment that one of the objections is bound to succeed, as it would be extremely difficult to identify any circumstances in which both assessments, expressed in the alternative, would succeed. 

21. At para 36, Ms Llorca observes that although she notes that the tax liability is disputed before the Court by way of appeal, the objections were nevertheless disallowed in full on 8 February 2021.  Ms Llorca observes that, regardless of the appeal, she is of the view that “the outcome of the taxpayers’ appeal is not such that it will obviously result in an outcome that is in the taxpayer’s favour or that the appeal is bound to succeed” [emphasis added].  Thus, Ms Llorca seems to take the view that the Commissioner is likely to succeed on both appeals and establish the appropriateness of both assessments and a total debt due to the Commissioner of $32,376,959.21 as at 11 January 2021 with the general interest charge accumulating from that date at the prevailing rate. 

22. At para 38, Ms Llorca observes that “[a]lthough alternative assessments have been issued to [the Trustee of the Trust], I do not consider that of itself to be a ground to defer the time by which the tax liability becomes payable” [emphasis added]. Ms Llorca observes that in any event, the amended assessments issued to Mr Hyder and the Trustee are not alternative assessments to the assessment issued to SEPL as contended for by the taxpayers. Ms Llorca then observes that “[a]s per Division 7A of the ITAA 1936, income assessed is not frankable even though it is paid out of [SEPL’s] profits”. Ms Llorca notes that the objections were disallowed in full and that the taxpayers did not take up the “50/50 payment offer” previously described in these reasons.

23. At para 41, Ms Llorca observes that the debt, as it currently stands, is substantial and poses a risk that the outstanding amount will not be paid. 

24. At paras 41 to 45, Ms Llorca discusses matters in relation to the exchanges concerning the property development projects, the role of LPHUT and related matters material to the request to defer the due date for payment. 

25. After considering those matters, Ms Llorca said this at para 46:

    Whilst it is acknowledged that the tax payable is being disputed as evidenced by the objections that have been disallowed in full and the subsequent Federal Court lodgement of the appeal against the objection decision, generally, the Commissioner expects that all debts, including disputed debts will be paid on time.  As we have informed the taxpayers previously, the legislative framework which underpins the Commissioner’s policy in the collection and recovery of disputed debt is designed to ensure that taxation debts are due and payable even though the underlying liability is being disputed by the taxpayers. 

26. At para 47, Ms Llorca notes that the Commissioner has a discretion to defer the due date for payment and then observes:

    In Mr Hyder’s and [the Trustee’s] case, the deferral of the due date was requested because the taxpayers currently do not have the capacity to pay the tax liabilities.  However, they may be in the position to pay these after 18 months when LPH realises the property developments being undertaken and it makes distributions [to the unitholder in the LPHUT, the Trustee] and subsequently to Mr Hyder. 

27. The observations at para 47 take up some of the matters the subject of the earlier correspondence all of which Ms Llorca says that she has taken into account in reaching her decision.  However, Mr Hyder and the Trustee had observed in the correspondence that the request to defer the due date for payment was a function of a number of considerations (not just the capacity to pay immediately due to the state of the property projects), including, importantly, that the assessments issued to Mr Hyder and the Trustee are alternative assessments, described by Deputy Commissioner Day as a primary assessment issued to Mr Hyder and an alternative assessment issued to the Trustee. 

28. In addition, Mr Hyder and the Trustee had consistently emphasised in the correspondence that a material consideration which ought to bear on the reasoning of the Commissioner is the notion that the prior payment by SEPL of tax of $5,354,424.21 on the distribution by the Trustee (the subject of the alternative assessment to the Trustee) was a material consideration in the analysis of the risk to which the Commissioner was exposed. 

29. At paras 48‑58, Ms Llorca examines various submissions on serious financial hardship and said this at para 58:

    Mr Hyder by his own admission, participated in [a] managed partnership arrangement which is an investment scheme where profits are said to be directed through a purported partnership between an individual(s) and an associated private company.  Most of the profits are taxed to the private company at the corporate tax rate but are accessed by one or more individuals or associated entities without them paying additional tax at their higher marginal rate.  He has participated in a contrived arrangement to minimise his tax exposure.  By this, there are inherent risks to the revenue and there is no surety that the tax will be paid even if the due and payable date is deferred for 18 months.  By his conduct, he has planned to protect his assets by purchasing the family home and registering this under his wife’s name.  He has also planned to minimise payment of tax by creating a purported partnership with [SEPL], accessing its profits and using these to further his business projects through another entity – LPH and streaming profits from these business ventures again through a trust structure – EMH IV [the Trustee of the Trust].  By his conduct and behaviour, I am of the view that there is a significant risk to the recovery of the outstanding tax. 

    [emphasis added]

30. It seems to follow that Ms Llorca’s concern is that Mr Hyder’s conduct, in conjunction with SEPL, and his role as the controlling director of the Trustee of the Trust, has resulted in arrangements which have meant that tax has been paid by SEPL at the rate of 30c in the dollar on payments and receipts characterised as the distribution, when tax ought to have been paid by Mr Hyder at the “higher marginal rate”.  It seems to follow that the payment of tax by SEPL is inherently bound up in what is thought to be, by the Commissioner, the “appropriate” rate of tax, that is, the higher marginal rate on the payments and receipts representing what is characterised by the applicants as the distribution to the presently entitled Partnership of the net income of the Trust and thus the distribution to SEPL as to 99% and Mr Hyder as to 1% of that distribution. 

31. At para 59, Ms Llorca says this:

    The distribution that Mr Hyder received from the Partnership has been assessed to him as his income under Division 7A of the ITAA 1936 [thus attracting the higher marginal rate referred by Ms Llorca at para 58 of the Statement]. It was determined that the amounts or other benefit he received from [SEPL] are a dividend for income tax purposes. This is even if he has treated these amounts as debt/loan that have been forgiven, as he stated in his sworn statement of 11 May 2018. Mr Hyder sought to avoid paying tax on these payments from the Partnership by putting [SEPL] in liquidation owing $5,577,228.08 in tax. When he was notified that he would be assessed under Division 7A, he reinstated [SEPL] and caused the outstanding tax to be paid. By structuring his affairs in this manner, the taxpayer was entitled to claim franking credits to which he would not otherwise be entitled to claim. However, because Mr Hyder had not disclosed receipt of this payment before the financial year end under Division 7A, the payments he received are unfranked. Alternatively, [SEPL] was not able to provide documentation supporting claims that the amounts were loans or issued a distribution statement showing the amount of franking credit attached to the distribution.

    [emphasis added]

32. Ms Llorca reaches the ultimate conclusion at para 62 in these terms:

    On the basis of these matters, the information that I have considered in making this decision, including the fact that the taxpayers have recently lodged an application for review of the decisions disallowing their objections in full, is outweighed in my mind by the statutory objective of Part 4‑15 to ensure tax liabilities are recovered in a timely manner and the desirability of GIC accruing from the date upon which the relevant tax‑related liabilities are already due and payable. 

    [emphasis added]

33. Thus, the full amount of the tax debt remained due and payable amounting to $32,376,959.21 as at 11 January 2021 with the general interest charge accruing at the relevant daily rate from that date. 

34. The reasoning reflected in the Statement is challenged on the grounds of failing to take into account relevant considerations, taking into account irrelevant considerations, and legal unreasonableness.  The applicants contend that the decision ought to be set aside as infected by error of law.  Those matters are addressed later in these reasons. 

35. On 9 October 2020, Mr Hyder and the Trustee had commenced these proceedings.  At that time, the applicants were seeking review of Ms Llorca’s decision of 21 July 2020 communicated to them by Deputy Commissioner Ravanello’s letter of 21 July 2020.  Ms Llorca’s decision was subsequently the subject of her Statement of Reasons dated 15 September 2020:  see [72], [74] and [75] of these reasons. 

36. On 13 April 2021, Mr Wojtasik sent a letter to the Commissioner’s solicitors (Mr Tolhurst of HWL Ebsworth) advising that leave would be sought to amend the application (in the form of a draft amended application) to include claims for relief under s 39B and an order of review of Ms Llorca’s decision of 26 February 2021.  The applicants also foreshadowed that they would be seeking an injunction to restrain the Commissioner from taking recovery action pending determination of the proceedings on the footing that the circumstances giving rise to the two alternative assessments were already the subject of an assessment to SEPL which had been paid and that the Commissioner is “not authorised, and it would be oppressive, to collect tax on the same income more than once” citing Richardson and Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 (“Moorebank”).  The applicants sought an undertaking in the terms of a document attached to the letter. 

1. It is an entirely separate and discrete matter. 

2. The second is that the question of whether the Commissioner acted oppressively in seeking to enforce recovery of the total debt in the way described in these reasons and in the correspondence, is a matter arising under laws made by the Parliament for the purposes of s 39B(1A)(c) of the Judiciary Act. 

3. Because I am satisfied that the Commissioner has acted oppressively in the Moorebank sense in seeking to recover the total tax debt under the alternative assessments in a way which is both beyond the scope of the power conferred on the repository of the power (and, in any event, error in the exercise of the power) for the purposes of s 39B(1A)(c), I am satisfied that it is a proper exercise of the discretion to make declarations to that effect under both s 21 and s 23 of the Federal Court of Australia Act 1976 (Cth).

   The ADJR proceedings

4. As mentioned earlier, the applicants challenge the decision of Ms Llorca of 26 February 2021 on the ground that the decision‑maker failed to take into account relevant considerations, took into account irrelevant considerations and the decision is otherwise legally unreasonable. 

5. Ms Llorca recites at para 32 that she is not satisfied that the circumstances of the taxpayers warrant the “use of the Commissioner’s discretion under section 255‑10, Schedule 1” of the Administration Act.  The application to defer the time at which a relevant amount is due and payable was made by Mr Hyder and the Trustee under the following provision of the Administration Act:

   255‑10(1)       The Commissioner may, having regard to the circumstances of your particular case, defer the time at which an amount of a tax‑related liability is, or would become, due and payable by you (whether or not the liability has already arisen).  If the Commissioner does so, that time is varied accordingly. 

   Note:General interest charge or any other relevant penalty, if applicable for any unpaid amount of the liability, will begin to accrue from the time as varied.  See, for example, paragraph 5‑15(a) of the [ITAA 97].

6. That section does not set out all the factors which the decision‑maker is bound to take into account.  The principles identified by Mason J in Minister for Aboriginal Affairs v Peko‑Wallsend Ltd (1986) 162 CLR 24 at 39 to 41 (“Peko‑Wallsend”) are well‑known.  It is sufficient to note that the parties agree that the relevant principles are these:  relief is only available where the decision‑maker fails to take into account a consideration which he or she is bound to take into account when making the decision; the factors which a decision‑maker is bound to consider in making a decision are determined by construing the statute conferring the discretion; if the statute expressly provides that particular considerations are to be taken into account, it is necessary for the Court to decide whether those considerations are exhaustive or merely inclusive; if the relevant factors are not expressly recited in the text of the statute, the factors must be determined by implication from the subject matter, scope and purpose of the Act; in some circumstances, a Court may set aside a decision which has failed to give adequate weight to a relevant factor of great importance or has given excessive weight to a relevant factor of no great importance although the preferred ground of setting aside a decision in those circumstances is that it is “manifestly unreasonable”:  Peko‑Wallsend at 41; Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 at [72] (“Li”), Hayne, Kiefel and Bell JJ. 

7. It will be apparent from the text of the section that the phrase “having regard to the circumstances of your particular case” confers a “wide discretion” on the decision‑maker:  Elias v Commissioner of Taxation (2002) 123 FCR 499 at [33] (“Elias”), Hely J.  Even so, the wide discretion does not mean that the decision‑maker can pick and choose the relevant material circumstances by failing to have regard to circumstances material to the taxpayer’s “case” as the section conditions the exercise of the discretion on “having regard” to the “circumstances of your particular case” [emphasis added], not just the circumstance that the tax‑related liability is due, as it is or would be due for all taxpayers who have received an assessment giving rise to debt due on the date nominated in the assessment or notice.  It is also clear that the “amount” of the tax‑related liability is expressly relevant and so too the nature of the tax‑related liability itself. 

8. As to statutory discretions, no discretion is conferred “at large”.  Every statutory discretion is constrained by the subject matter, scope and purpose of the legislation under which it is conferred (Shrimpton v The Commonwealth (1945) 69 CLR 613 at 629‑630, Dixon J; Li, French CJ at [23]) and every discretion must be exercised according to the “rules of reason”: R v Anderson:  Ex parte Ipec‑Air Pty Ltd (1965) 113 CLR 177, Kitto J at 189. In Li, every member of the Court recognised that in the case of an exercise of a discretionary power, an implied legislative intention (or presumption) arises (unless excluded as a matter of construction of the text) that the power conferred on the repository of the power will be exercised reasonably: French CJ at [29], Hayne, Kiefel and Bell JJ at [63] and Gageler J at [88].

9. As to irrelevant considerations, where a statute confers a discretion which is unconfined in its terms, the factors the decision‑maker may take into account in the exercise of the discretion are similarly unconfined except to the extent that the subject matter, scope and purpose of the statute operate to impliedly confine the factors to which the decision‑maker may have regard:  Peko‑Wallsend, Mason J at 40.

10. In the submissions, the parties have agitated and contested the scope of the proposition that a relevant consideration to be taken into account in exercising the discretion under s 255‑10(1) is whether the taxpayer has lodged an objection to the assessment or an appeal from an objection decision, and the extent to which the content of the objection or appeal is to be taken into account. The scope of the phrase “having regard to the circumstances of your particular case” as a central consideration in the exercise of the discretion suggests that the decision‑maker ought to have regard to the fact that the assessment giving rise to the “tax‑related liability” (the anchor point of the section) is contested, objected to and, if it be the fact, the subject of an appeal from an objection decision as one of the circumstances of the taxpayer’s particular case.  There is nothing in the section, however, that requires the decision‑maker to analyse and hypothesise the outcome of the Part IVC proceedings.  Also, it is clear that the “fact” (Thurecht v Deputy Commissioner of Taxation (1984) 84 ATC 4, 480, Sheppard J) sometimes called the “mere fact” (Rawson Finances Pty Ltd v Deputy Commissioner of Taxation (2011) 86 ATR 108, Foster J) that the taxpayer has objected to an assessment or filed an appeal from an objection decision, does not mean that the discretion must be exercised to defer the due date for payment. The applicants accept that this is so, but contend that the “weight of authority” suggests that the “strength of the objection” in determining whether to grant a deferral of the due date for payment, must be considered.

11. In ARM Constructions Pty Ltd v Deputy Commissioner of Taxation (1986) 17 ATR 459 at 467, Burchett J held that the Deputy Commissioner was “bound to consider the merits of [the taxpayer’s] objections”, “in the light of the purpose which the discretion under [s 255‑10(1)] serves”. However, that construction arose because it seemed to his Honour that a claim by a taxpayer who “genuinely disputes” the tax and who faced a situation where payment of the tax “would wholly or partially abolish his business” required the Deputy Commissioner to consider the merits of the objections in exercising the discretion.

12. In Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288, Brennan J, was concerned with an application for an interlocutory injunction to restrain the Commissioner from taking recovery action. The case was particularly concerned with the strength of the plaintiff taxpayer’s case of irreparable harm and where the balance of convenience lay (rather than, specifically, an extension of time case itself).

13. In ARM Constructions Pty Ltd v Deputy Commissioner of Taxation (1987) 17 FCR 19 (Jackson J), the taxpayer challenged the Commissioner’s decision to refuse an extension of time for payment of the tax debt, contending that the Commissioner’s statement that, “the lodgement of objections was not a sufficient basis for deferring the payment of tax”, was insufficient and that the Commissioner was required to consider the “strength of the objections”. His Honour held that the Commissioner had considered, on the facts, the strength of the Commissioner’s objections.

14. In Nestle Australia Ltd v Commissioner of Taxation (1987) 16 FCR 167, Wilcox J at 178 observed that “ordinarily” in considering an application under what is now s 255‑10(1), the Commissioner is not obliged to address the “likely result of any pending objection or appeal” (applying, in so holding, principles derived from his Honour’s earlier decision in Barina Corporation Ltd v Deputy Commissioner of Taxation (1985) 6 FCR 368 at 380‑382). However, his Honour identified two circumstances in which that is not so. First, his Honour observed that there may be cases where the merits are so obvious, or the determination so imminent, that “fairness” requires them to be taken into account in the exercise of the discretion, which would be “especially” so if it appears that the effect of a refusal to defer will “occasion great hardship”.  Second, his Honour observed that “it is always a relevant matter that the liability for tax is disputed”.  Since that second factor was said to be a qualification on the general proposition about what is ordinarily the case, it seems his Honour was saying that the circumstance that the tax is disputed is always a relevant matter that obliges the Commissioner to “address himself to the likely result of any pending objection or appeal”.  His Honour’s framing of the propositions is not, unfortunately, entirely clear. 

15. In Harts Fidelity Pty Ltd v Deputy Commissioner of Taxation (1999) 42 ATR 438 (“Harts Fidelity”), Kiefel J observed at [42] and [43] (of the earlier provision which is now s 255‑10(1)) that because the section does not specify the matters to be taken into account in exercising the discretion, policy considerations developed by the Commissioner could be taken into account but only if they conformed to the “statutory purposes and powers” to which the exercise of the discretion relates.  Her Honour took the view that having regard to the statutory framework concerning assessments, due dates, debts due to the Commonwealth so arising, and the circumstance that proceedings challenging the assessment do not affect the liability of the taxpayer or the Commissioner’s right to collect the tax, made the existence of “an appeal” an irrelevant matter or a circumstance illogical to considerations going to the exercise of the discretion. 

16. In Elias, Hely J at [61] took the same view as Kiefel J expressed in Harts Fidelity. 

17. The ultimate point of all of this is that the applicants contend that the decision‑maker failed to take into account, as a relevant consideration, the strength of the objections and the strength of the challenge to the objection decisions of the Commissioner concerning SEPL’s payment of $5.354m of tax on 99% of the Trust distribution assessed to it in the 2015 income year, and that the assessment was not disputed or otherwise under challenge in any Part IVC proceeding (the relevant proceeding being concerned with assessments to Mr Hyder and an alternative assessment to the Trustee), or otherwise under challenge. 

18. For my part, in the absence of any binding Full Court or High Court authority, it seems to me that the phrase “the circumstances of [the taxpayer’s] particular case”, upon which the exercise of the discretion is conditioned by the statute, necessarily imports into the considerations of the decision‑maker when exercising the discretion, the circumstance that the tax debt is the subject of an objection and, if it be the case, an appeal from an objection decision. 

19. The mere fact that an objection or appeal has been lodged or filed, plainly enough, does not mean that the discretion must be exercised in favour of deferring the due date.  The circumstance that there is a “coherent system” adopted by the legislation for rendering tax, as assessed, a due debt to the Commonwealth, a debt recoverable by the Commissioner, and assessments as valid as to the amount and particulars, does not mean that when the decision‑maker is engaged in an exercise of the discretion as to whether a debt due under an assessment is to be deferred (or not), the circumstance that there is a genuine dispute in Part IVC proceedings (or a dispute by lodging an objection if deferral be a question arising at that stage) as to the “correctness” of the assessment is not a relevant matter. 

20. It is a relevant matter because the statute conditions the exercise of the discretion having regard to the particular circumstances of the taxpayer’s case and that is one of the circumstances. 

21. Moreover, not only is the fact of an objection or an appeal from an objection decision a relevant “circumstance” in the taxpayer’s “particular case”, the fact by itself is not the only relevant circumstance.  The phrase “the circumstances of your particular case” requires the decision‑maker to observe the “fact” of the objection or appeal and consider the essential basis of the challenge to the assessment so as to determine whether the merits are “so obvious” that that circumstance should inform the exercise of the discretion.  The decision‑maker would also take into account whether the determination of the “correctness” of the assessment is “so imminent” that that circumstance should also inform the exercise of the discretion. 

22. In taking into account the relevant fact and the extent to which the content of the objection or appeal informs the two considerations just mentioned, the decision‑maker would inevitably form a view about the further fact of whether there is or are serious questions to be determined by the matters raised by the objection or the appeal. However, it is not the role of the decision‑maker in exercising the discretion under s 255‑10(1) to pre‑judge those serious questions or hypothesis about an outcome.

23. For these reasons, relevant circumstances to be taken into account by Ms Llorca (among others) on 26 February 2021 were the assessments issued to Mr Hyder, on the one hand, and the alternative assessment to the Trustee, on the other; the circumstance that the assessments were truly alternative assessments; the elements of PS LA 2006/7 and how those elements might inform the exercise of the discretion; the fact of the objections, the objection decisions, the appeal and any responsive documents; the content of the documents to the extent that they raised serious questions; and the earlier payment of tax by SEPL as one element in those circumstances.  However, forming a view about the merits of the contention concerning the extent to which the earlier payment of tax by SEPL affected or would affect the correctness of the alternative assessments was not a relevant matter informing the exercise of the discretion. 

24. The difficulty with Ms Llorca’s decision is that although she recognised that the amended assessments issued to Mr Hyder on the one hand, and the assessment to the Trustee, on the other, were alternative assessments (see para 38), engaging PS LA 2006/7 (see para 22(d)), there is no recognition that the consequence of the relevant “circumstance”, in the “particular case” of each taxpayer, was that because the Commissioner had issued alternative assessments (described as a “primary” assessment to Mr Hyder and an “alternative” assessment to the Trustee), the Commissioner necessarily had held “genuine doubt about where the final liability to tax rests” when issuing the alternative assessments (PS LA 2006/7; [2006], Statement 1), which, under PS LA 2006/7 involved acceptance of “multiple assessments being issued in which the same underlying amount is assessed”.  Nor do the reasons recognise that because the assessments are alternative assessments, the “genuine doubt” about the correctness of one or other of the assessments would fall to be resolved in the Part IVC proceedings with the result that, at best, one or other of the assessments would prove to be valid (validity being a live issue within the Part IVC proceeding) and thus, at best, the debt under one or other but not both assessments would prove to be payable. 

25. Rather, the decision‑maker engages with the exercise of the discretion under s 255‑10(1) to defer, or not to defer, the due date for payment of each of the alternative assessments on the footing that the Commissioner “expects that all debts” will be paid on time, including debts arising under assessments issued in the alternative:  see paras 33, 38, 39 and 46.  In this case, the frame of reference to the debt was couched at 11 January 2021 in an amount of $32,376,959.21 (including GIC to that date) which was said by Ms Llorca in her earlier reasons of 15 September 2020 to be continuing “to escalate with GIC accruing in the amount of $1.9M per month”. 

26. The decision‑maker simply observed at para 38 that although an alternative assessment had issued to the Trustee, that “circumstance” in the “particular case” of these two taxpayers was not considered “of itself” to be a ground to defer the time by which the liability became payable.  Yet, the Commissioner’s position, having regard to the circumstances of each taxpayer’s particular case is actually put this way at 27 July 2021:

    Consistent with PSLA 2006/7 and Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192; (1932) 2 ATD the Commissioner will not and cannot recover against both Mr Hyder and the Trustee for the EMH IV Family Trust in the 2015 income year.  Subject to the outcome of the Federal Court proceedings, the Commissioner is only seeking to recover against Mr Hyder in the 2015 and 2016 income years. 

    [bold emphasis added]

27. Thus, the fact of alternative assessments “by itself” is not to the point of the relevant consideration.  The point of the relevant consideration, in the exercise of the discretion, is the consequence of there being alternative assessments and what that might mean in the circumstances of the particular case of each taxpayer.  Importantly, para 47 fails to recognise the long period of agitation by the taxpayers that the assessments are alternative assessments and that that fundamental matter needed to be taken into account. 

28. Moreover, the decision‑maker at para 39 returned to the circumstance that the taxpayers had been requested prior to the objection decision, to pay 50% of the disputed tax debts and provide security for the balance of the debt, a request that had been refused.  That reference seems to be a reference to Deputy Commissioner Ravanello’s letter of 21 July 2020 referring to a combined tax debt (in relation to the primary tax) of $17,582,726.56, taking up Ms Cupay’s letter of 16 June 2020 setting out the primary tax on both assessments at that point in time. 

29. Since Ms Llorca was placing emphasis on the Commissioner’s expectation that the taxpayers were required to pay the total debt (then amounting to $32,376,959.21 including GIC, calculated to 11 January 2021), as a factor in the exercise of the discretion under s 255‑10(1) (see paras 33, 39 and 46), the joint observations of the High Court in Moorebank would also have been a relevant matter to consider in the circumstances of the particular case of each taxpayer because the observation of their Honours, in the context of alternative assessments, was both material and relevant to the circumstances of the taxpayers and the notion of the Commissioner’s expectation that all debts, including debts arising under alternative assessments, must be paid in full when due.  It will be recalled that in the joint judgment of the Court their Honours said this:  

    There will inevitably be cases in which it would be oppressive for the Commissioner to seek to enforce payment of the full amount due under a notice of assessment or by way of additional tax before the final resolution of a genuine dispute about the correctness of the assessment:  cf.  Deputy Federal Commissioner of Taxation v Australian Machinery and Investment Co. Pty. Ltd.; Marina Estates Pty. Ltd. v Deputy Commissioner of Taxation.  A case in which the Commissioner issues a number of assessments on an alternative basis to different taxpayers in respect of the same income provides an obvious example. 

    [bold emphasis added; citations omitted]

1. Accordingly, I am satisfied that the decision‑maker fell into error by failing to take into account relevant considerations. 

2. There are other criticisms of the decision of the decision‑maker.  I do not propose to examine those any further in these reasons.  For the reasons, indicated, I am satisfied that the decision‑maker fell into reviewable error and accordingly the decision must be set aside.  The matter is to be referred back to the decision‑maker to take into consideration the matters outlined in these reasons with a view to deciding the application according to law. 

3. Accordingly, declarations will be made in relation to the matters described earlier in these reasons and orders will be made setting aside the decision of Ms Llorca and remitting the decision to her to be decided according to law. 

4. As to the declarations, the Court proposes to make the following declarations but seeks the views of the parties as to the terms of the declarations.  The first proposed declaration is this:

   THE COURT DECLARES THAT:

   1.The conduct of the Commissioner of Taxation (the “Commissioner”) either by, or on behalf of, the Commissioner of seeking to enforce payment in the period from 25 May 2020 to 29 September 2020 of the full amount due under “primary” Notices of assessment for the 2015 and 2016 income years and Notices of liability to Shortfall Interest Charge (“SIC”) for those years issued to the first applicant, Mr Elton Matthew Hyder (“Mr Hyder”) on 22 May 2020 and 21 May 2020 respectively while, at the same time, seeking to enforce payment of the full amount of a Notice of assessment issued to the second applicant, EMHIV Pty Ltd as Trustee for the EMHIV Family Trust (the “Trustee” for the “Trust”) on 20 May 2020 issued for the 2015 income year in the “alternative” to the primary assessments issued to Mr Hyder, in circumstances where the assessments to Mr Hyder and the Trustee respectively as primary and alternative assessments are said, by the Commissioner, to have been issued consistently with and thus in conformity with a document issued by the Commissioner described as PS LA 2006/7, engaging an exercise of the power to issue alternative assessments to tax (and giving rise to consequential notices of SIC and other notices of tax‑related liabilities), expressly in respect of the “same income and the same income year”, before the final resolution of a genuine dispute about the correctness of the alternative assessments, is conduct characterised as oppressive conduct in the sense contemplated by their Honours Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 67 as quoted in reasons for judgment published in these proceedings on 22 March 2022 at [201].

5. The second proposed declaration is in these terms:

   2.The conduct of the Commissioner of Taxation (the “Commissioner”) either by, or on behalf of, the Commissioner of seeking to enforce payment in the period from 29 September 2020 to 27 July 2021 of the full amount due under “primary” Notices of assessment for the 2015 and 2016 income years, Notices of liability to Shortfall Interest Charge (“SIC”) for those years and Notices of assessment for Shortfall Penalty issued on 7 September 2020 for the 2015 and 2016 income years (which became payable on 29 September 2020), issued to Mr Hyder, while, at the same time, seeking to enforce payment of the full amount of a Notice of assessment issued to the second applicant as Trustee of the Trust for the 2015 income year in the “alternative” to the primary assessments issued to Mr Hyder and an amount due under a Notice of assessment of Shortfall Penalty issued to the Trustee on 7 September 2020 (and payable on 29 September 2020), in circumstances where the assessments to Mr Hyder and the Trustee respectively as primary and alternative assessments are said, by the Commissioner, to have been issued consistently with and thus in conformity with a document issued by the Commissioner described as PS LA 2006/7, engaging an exercise of the power to issue alternative assessments to tax (and giving rise to consequential notices of SIC and other notices of tax‑related liabilities), expressly in respect of the “same income and the same income year”, before the final resolution of a genuine dispute about the correctness of the alternative assessments, is conduct characterised as oppressive conduct in the sense contemplated by their Honours Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 67 as quoted in reasons for judgment published in these proceedings on 22 March 2022 at [201].

6. The third proposed declaration is in these terms:

   3.The conduct of the Commissioner in calling upon Mr Hyder, persons associated with Mr Hyder and entities under the control of Mr Hyder to pay the full amount of both the primary and the alternative assessments (and respective notices), before the final resolution of a genuine dispute about the correctness of the alternative assessments, is conduct characterised as oppressive conduct in the sense contemplated by their Honours Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 67 as quoted in reasons for judgment published in these proceedings on 22 March 2022 at [201].

7. The fourth proposed declaration is in these terms:

   4.For the purposes of these declarations, the phrase “seeking to enforce payment” in the relevant periods means seeking to require of the taxpayers payment in full of each of the alternative assessments or alternatively payment of 50% of each of the alternative assessments with the balance the subject of securities provided by the taxpayers and others and otherwise seeking to secure arrangements for the payment of the full amount owing under both assessments jointly. 

8. The applicants are directed to submit proposed declarations within seven days.  The respondent is directed to provide comments in relation to the proposed declarations within a further period of seven days. 

9. An order of review will be made in respect of Ms Llorca’s decision of 26 February 2021. 

10. The parties will be directed to put on submissions as to costs. 

I certify that the preceding two hundred and sixty (260) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Greenwood.

Associate:

Dated:       22 March 2022