Nair and Commissioner of Taxation

[2008] AATA 990

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 990

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/1139

Small Taxation Claims Tribunal		)
Re		Mani Nair

Applicant

And Commissioner of Taxation

Respondent

DECISION

Tribunal Senior Member M D Allen

Date20 October 2008

PlaceSydney

Decision For the reasons given orally at the conclusion of the hearing in the matter, the Decision under Review is AFFIRMED.

.............................................

M D Allen
  Senior Member  

CATCHWORDS

TAXATION: Application for relief – Although assessments disputed judgment has been entered in the NSW District Court – That assessments disputed irrelevant – No utility in granting relief to Applicant – Application refused.

LEGISLATION

Taxation Administration Act 1953; Item 340-5 (3)

CASES

Commissioner of Taxation v A Taxpayer (2006) 91 ALD 335

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41

…

REASONS FOR DECISION

20 October 2008 Senior Member M D Allen

1. At the conclusion of the hearing in the above matter the terms of the decision intended to be made and the reasons therefore were stated orally. After service upon the Applicant and the Respondent of a copy of the decision that was in fact made, the Applicant, pursuant to subsection 43(2A) of the Administrative Appeals Tribunal Act 1975, requested the Tribunal to furnish to them a statement in writing of the reasons of the Tribunal for its decision

2.      The oral reasons for decision have been transcribed by Auscript, the Commonwealth Reporting Service. Whereas those oral reasons may reflect the inelegance of an extempore decision, they are in fact the reason for the said decision.

3.      The said transcript is annexed hereunto and furnished to the Respondent and to the Applicant as it is the reason for the Tribunal’s decision.

EXTRACT OF TRANSCRIPT OF PROCEEDINGS

By application made 4 April 2007, the Applicant sought to review the decision by the Respondent, Commissioner of Taxation, refusing relief pursuant to item 340-5(3) in schedule 1 to the Taxation Administration Act 1953.  That item reads inter alia that:

“The Commission –

and hence this tribunal –

has a discretion to release an individual from tax liability, if the individual would suffer serious hardship if required to satisfy the liability.”

The term “serious hardship” was considered by Stone J in Commissioner of Taxation v A Taxpayer (2006) 91 ALD 335. In particular I would point out that at page 348, paragraph 66, her Honour points out that that particular case was brought by the Commissioner as a test case:

Suffice it to say at page 338 her Honour said:

The term “serious hardship” is not defined in the Act.  In Powell v Evreniades (1989) 21 FCR 252, Hill J considered the term as used in section 265 of the Income Tax Assessment Act 1936. His Honour, who was concerned with serious hardship to a taxpayer’s dependants upon the death of the taxpayer, observed:

“There is no definition in section 265 of what is meant by “serious hardship” nor would one expect there to be.  Each of the words in the phrase is an ordinary English word having a well understood meaning.  The context in which the words appear makes it clear that the Relief Board is to consider whether the exaction of the full amount of tax would involve the dependants of a deceased taxpayer in financial difficulty which in all the circumstances can be said to be serious.  The financial difficulty will be such that the dependants will be in significant need warranting action by the Relief Board to relieve their condition”.

Her Honour continued:

Hill J accepted that there was a distinction between extreme and serious hardship noting that what will constitute either will depend on the circumstances.  His Honour also said it was inappropriate to attempt to state tests of what would constitute ‘serious hardship’ in the abstract and commented:

“Clearly there would be severe financial hardship if the dependants of a deceased person were left destitute without any means of support.  That is not to say that in any particular case something less than that will not constitute serious hardship”.

In this matter the applicant has also disputed some of the debts which have given rise to the assessments, as has recently been pointed out by the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Limited [2008] HCA 41, it is not a sufficient answer to any debt recovery action brought by the Commissioner to suggest that the tax debts are themselves in dispute. The court pointed out that the disputation of a tax debt cannot provide a defence to any action commenced by the Commissioner to recover the debt. In any event, in these proceedings, the Applicant, to my mind, must state the effect of the exhibits to exhibit R1, which is the affidavit of Ms Ackland. In particular I would refer to paragraph 14 of Ms Ackland’s affidavit, which sets out not only the debts under the heading of Income Tax, but also debts relating to GST and other penalties for failure to lodge returns and the general interest charge.

It must be kept in mind that there are, in the current matter, debts in the sum of some $22,113, which are ineligible to be relieved under item 340-5 of the Administration Act.  The facts are within a relatively small compass in that the Applicant, at best, can be said to have been a serial non‑lodger of his taxation returns.  Likewise, he has failed on numerous occasions to meet his tax liabilities.  His history is replete with failures to make returns and then failure to comply with arrangements made with the Commissioner of Taxation.  I particularly refer to exhibit R1 where the history of his many defaults are set out with particularity.  As a result of his various defaults the Respondent has, in the New South Wales District Court, a judgment debt against the applicant in the sum of $60,291.51.

In seeking relief from that debt, the applicant has referred to his health.  Now, I accept that the Applicant’s ill‑health may well have led to an inability to carry out his profession as a solicitor to the full extent of which he might have been capable.  However, when one looks at the returns which are included as exhibits to exhibit R1, it seems to me that in reality at no time was his practice as a solicitor really viable.  On the brief look I did take, it would seem that the maximum he earned in any one year was some $45,000.  Of recent times his earnings have been considerably less.  In seeking the exercise of discretion, the Applicant – as I said – pointed to his ill health.  He stated that his dermatitis would become worse if relief was not granted. 

There was no medical evidence adduced, whatsoever, to support that contention.  Likewise, there was no medical evidence, in particularly of psychiatric nature, to support his contention that work was, in fact, good for his health.  He then pointed to the effect the bankruptcy would have upon him and I readily conceded that if the Commissioner were to proceed to bankruptcy, it would mean the end of his practice.  Certainly, he would be unable to maintain a trust account.  One must, therefore, look at what other sources of income are available to the applicant.  Currently, he is in receipt of an age pension, pursuant to the Social Security Act 1991, and I note that an age pension is inalienable.  He does have a practising certificate. 

Cross‑examined about his various debts he said that:

It would be an onerous burden to pay even the GST debt. 

Previously in‑chief, he had said that:

So far as the judgment debt is concerned he had no capacity to pay. 

Questioned about his receipts from his practice, he stated that in the year 2008 and in 2007, if I understand him correctly, there had been a net loss from the practice and there was no taxable income.  I do note that from the 2007 tax return, which is in evidence, that he did make a total income of $2143.  His outgoings, it is said in cross‑examination, was $1200 per week.  Apart from what income he might get from his practice, he receives from Centrelink the sum of $550 per fortnight, which on my maths would leave him with a debt of some $700 per fortnight.  Other debts are set out in the affidavit of the Applicant, which became exhibit A1.  He states there that he owes some $8000 to the Commonwealth Bank of Australia, which he is paying at the rate of $50 per month.

He owes $9000 to the Bank of Queensland.  He has stopped making payments for that debt and he says for more than a year they have not demanded payment.  There is no evidence before me as to the actual status of that debt with the Bank of Queensland.  Macquarie Bell Pty Limited has a judgment debt in the local court against the applicant in the sum of $3786.  There are some $242,000 which is owed to the National Bank of Australia, and a copy of a bank statement was tendered and became exhibit A4.  That shows that that sum had been written‑off by the bank.  As to the status of a debt which is written‑off, I would refer to the Secretary Department of Social Security v Hodson, 37 FCR 42 where, admittedly in the nature of Social Security debts, the Federal Court stated that:

To say that a debt has been written‑off does not mean it cannot be the subject of a recovery action at a later time. 

It may well be a bookkeeping exercise but if the applicant were to be served with a bankruptcy petition, that is not to say that the National Australia Bank would not seek to prove in the bankruptcy.  He owes two legal booksellers amounts of some $2900.  He also has a debt to a friend in the sum of $7000 which he says he is paying by either fortnightly instalments of $100 or monthly instalments of $200.  He further goes on to say he has the usual EnergyAustralia and telephone bills.  They are paid when due and if not, an extension is sought and kindly granted and payment made in due course.  I find myself taking considerable notice of that particular statement, as it would seem to indicate that the Applicant does have some difficulty in meeting his normal outgoings.

He further states, he has, in effect, no assets except for some furniture, clothing, books and personal items which he would assess at about $5000 value.  All in all, it would seem that the applicant is to say the very least, in a parlous financial situation.  As I have stated earlier, if he were to be made bankrupt, his practice would in effect cease.  However, in many ways, one might say it would be to the applicant’s ultimate advantage to be declared bankrupt.  Of course, whether the Commissioner would move to bankruptcy is a moot point, in as much as there appears to be no assets against which he could realise.  The decision of the Federal Court in Commissioner of Taxation v Milne was referred to by the applicant, being a case where relief was granted.

All I will say about that case is it, together with the case of Re A Taxpayer supra, turned on their own particular facts.  It was indeed raised by the Applicant as to the utility of granting any relief in this matter and as far as I can see it, there would be no utility whatsoever.  Having regard to any real hardship to the Applicant, it seems to me that there would be no hardship to him if relief were not granted.  In the exercise of my discretion in this matter, I also take into account the Applicant’s various failures to make returns and then to adhere to arrangements which he has made with the respondent.  All in all, I see no justification at all to grant relief in this case and the decision under review is affirmed. 

MATTER ADJOURNED at 3.12 pm INDEFINITELY

I certify that this and the preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member M D Allen

Signed:         .....................................................................................
  Associate

Date/s of Hearing  20 October 2008
Date of Decision  20 October 2008  
Solicitor for the Applicant          Applicant on own behalf
Counsel for the Respondent     Mr. J. Smith
Solicitor for the Respondent     Australian Government Solicitor