O'Reilly and Commissioner of Taxation

[2009] AATA 235

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 235

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/4967

TAXATION APPEALS DIVISION		)
Re		KEVIN O'REILLY

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Dr K S Levy RFD, Senior Member

Date8 April 2009

PlaceBrisbane

Decision The Tribunal affirms the decisions under review.  

...............[Sgd]...............................

Senior Member

CATCHWORDS

TAXATION – Higher Education Loan Program debt – Student Financial Supplement Scheme debt – Application to amend notice of assessment of debts – Meaning of “serious hardship” – No serious hardship to Applicant – Meaning of “special reasons” – No special reasons to delay repayment – Commissioner’s decision not to amend assessment correct – Decision under review affirmed

Higher Education Support Act 2003 (Cth), s 154-50(3)

Social Security Act 1991 (Cth), s 1061ZZFK

Taxation Administration Act 1953 (Cth), s 14ZZK(b)

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

Commissioner of Taxation v Ryan (2000) 201 CLR 109

Jess v Scott & Ors (1986) 12 FCR 187

Powell v Evreniades & Ors (1989) 17 ALD 420

Re Bak and Commissioner of Taxation [2008] AATA 630

Re Beadle and Director-General Social Security (1984) 6 ALD 1

Re Compton and Commissioner of Taxation (1999) 42 ATR 1043

Re Deverell and Commissioner of Taxation [2007] AATA 1312

Re Ivovic and Director General Social Services [1981] AATA 57

REASONS FOR DECISION

8 April 2009 Dr K S Levy RFD, Senior Member           

BACKGROUND

1.      The Applicant, Dr Kevin O’Reilly, lodged an income tax return for the financial year ending 30 June 2007.  The notice of assessment for that year was issued on 29 November 2007 and included a Higher Education Loan Program (HELP) debt of $6,196 and a Student Financial Supplement Scheme (SFSS) debt of $2,633 and stated taxable income to be $66,473.

2.      On 26 May 2008, Dr O’Reilly applied for deferral of his HELP and SFSS debt repayments.  The Commissioner of Taxation, the Respondent, decided to refuse the application on 5 August 2008 and confirmed that decision on 29 September 2008.

3.      The Applicant now seeks further review by the Administrative Appeals Tribunal.

EVIDENCE

4.      The Tribunal was provided with documentary evidence relevant to this matter.  The Applicant’s statement dated 7 January 2009 has also been taken into account as has his oral evidence.

5.      In the Applicant’s statement dated 7 January 2009, his fortnightly income is declared to be $642 as follows:

Disability support pension  $546.00
Rent Assistance  $  96.00

Total  $642.00

6.      The Applicant declared his fortnightly expenditure to be $642.00, made up as follows:

Rent  $290.00
Food and household supplies                  $210.00
Electricity/gas  $  60.00
Communication  $  30.00
Medical  $  20.00
Transport  $  28.00
Miscellaneous  $    4.00

Total  $642.00

7.      The Applicant is 51 years of age. He worked in the community welfare sector for the first 10 years of his working life, during which time he married and had two children.  He then returned to University as a post-graduate student and did some teaching.  He also had part-time work and a Commonwealth Government scholarship to enable him to study and support his family.  Approximately 10 years ago, he embarked upon a career in the international development sector and was employed by AusAid in Canberra until some health problems developed.  He then worked mainly overseas. 

8.      The Applicant told the Tribunal that, in addition to his HELP and SFSS debts, he had debts of more than $11,000 to a bank and also to family and friends.

9.      The Applicant clearly has had some health problems.  He had a good career until 1998 when he was hospitalised because of blood clots in his leg.  This condition was aggravated by his sedentary occupation.  He then left his Commonwealth Government position and worked for the United Nations Children’s Fund.  He served in Indonesia for 18 months and then had to return to Australia.  He returned to Indonesia in mid-2003 and worked for a couple of months but health problems again affected his work.  He was able to work, although with some difficulty, and stayed until after the Boxing Day Tsunami in 2004.  He returned to Australia again in February 2005 and accepted another position with the Commonwealth Government in late 2006.  In that role, he returned to Jakarta.  He advised this was a demanding position, requiring him to work 12 hours per day.  His health forced him to resign in August 2007.

10.     The Applicant informed the Tribunal that his income for the 2007 financial year was quite high and not representative of his income for the previous decade.  He said he had not been able to work for approximately five of the previous 10 years and only sought Centrelink support for approximately one-third of that time.

11.     The Applicant has remarried and continues to support his two children from his first marriage.  He now has a wife in Indonesia and has built a house there, although he provided evidence that the house must be in his wife’s name and that she has no other income.  He returned to Indonesia last year for a period of time and then returned to Australia in March/April 2008.  He returned again to Indonesia for the period August to October 2008.  His wife has come to Australia on a number of occasions but is not an Australian citizen.  Dr O’Reilly’s employment status is an influencing factor in that regard.

12.     The Applicant stated that approximately eight months after leaving the Australian Public Service in 2007, he was in debt and had no income.  He tried to support his wife in Indonesia and then returned to Darwin.  He received disability support pension, had a large HELP debt and stated he was homeless and suffered from depression.

13.     The Applicant now receives a pension and endeavours to support his wife in Indonesia.  He stated that he recently used the Commonwealth Government’s $1,400 economic stimulus package payment to pay for accommodation in South Australia while undertaking a Graduate Diploma in Education.  He is undertaking this qualification with a view to teaching in high school and believes this may be a useful occupation for him which will not aggravate his condition.  He noted, however, that there are some additional expenses for the current year associated with completing the diploma, particularly the need to do a First Aid course, pay for a police check and additional course expenses of approximately $500.  He may have to pay up to $2,000 for a five week practicum in a country area.

14.     The Applicant submitted that the 2007 financial year gives the wrong impression of his income and that looking at the previous decade, when he only worked 50% of the time, would be more appropriate.  He submitted he needs the cash amount of the HELP and SFSS debt repayments to get back on his feet and that otherwise he will experience hardship as he has not lived in Australia for some time.  He has no warm weather clothing and needs that money for those expenses and heating.  He also submitted that he would not be able to afford to complete his graduate diploma course and would then need to rely on pension payments for the future.

15.     The Respondent submitted that the Applicant may be entitled to payments in addition to the disability support pension: for example, an education entry payment of $208 and an advanced payment of disability support pension of $500.  It was also suggested that he was entitled to a pensioner concession card, which would provide significant reductions in pharmaceutical costs and a reduction of up to 50% for the cost of transport.  In cross-examination, the Applicant indicated he was not aware that he may be entitled to these payments.  Other allowances were also mentioned but there was doubt as to whether the Applicant is already receiving some of them or whether he is eligible, for example, in relation to mobility allowance.  Dr O’Reilly stated that he already had a pensioner concession card.  The Respondent also submitted that in December 2008, the disability support pension had entitled the Applicant to a one-off bonus payment of $1,400 as part of the Commonwealth Government’s economic stimulus package.  The Respondent drew attention to the fact that the Applicant owns property overseas and has been able to afford overseas travel on a number of occasions over the past couple of years.

CONSIDERATION

16.     This application for review requires a determination of Dr O’Reilly’s circumstances and whether, in particular, a deferral of his HELP and SFSS debts are  justified on the basis of either “serious hardship” or other “special reasons”: see, respectively, the Higher Education Support Act 2003 s 154-50(3) and the Social Security Act 1991 s 1061ZZFK.

17. Section 14ZZK(b) of the Taxation Administration Act1953 provides that the Applicant has the burden of proving that the decision of the Commissioner should not have been made or should have been made differently.

18.     I note the Respondent has informed the Tribunal that the debt amounts were withheld from a refund amount resulting from the assessment of his 2007 tax return. Therefore, the debt amounts have effectively been paid: simply put, they are not required to be paid off.  If a deferral is granted, this would amount to a return of these debt monies and the applicant would then be liable to repay the debt amounts again in the future.

Is there “serious hardship”?

19.     The Respondent’s advocate referred me to Re Deverell and Commissioner of Taxation [2007] AATA 1312 in relation to the criteria for the “serious hardship” requirement. That decision looked to Powell v Evreniades & Ors (1989) 17 ALD 420 at 422, where Hill J said that in considering the application of this term, there is a continuum of hardship ranging from “slight” to “severe” and that this needs to be determined by taking account of the circumstances in each case.

20.     I was also referred to the judgment of Stone J in Commissioner of Taxation v A Taxpayer (2006) 91 ALD 335 at 338 where Her Honour stated that a distinction should be made between “extreme hardship” and “serious hardship”. There, Her Honour referred to the reasoning in Powell v Evreniades (1989) 17 ALD 420 at 422 where it was stated that “[c]learly there would be severe financial hardship if the dependents 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”. Other consideration may be the extent of a person’s financial affairs and whether or not the position appears “hopeless”. In that regard, one might look to whether there is scope for a person to reorganise their affairs, consolidate debt and adjust lifestyle so that their obligations can be met without being in a position of “serious hardship”: Re Bak and Commissioner of Taxation [2008] AATA 630 per SM McCabe.

21.     In considering “serious hardship” in a pragmatic way, I have had regard to Chapter 24 (see paragraphs 20 to 36) of the Australian Taxation Office Receivables Policy: “Release from payment of some taxation liabilities”.  “Serious hardship” is similarly dealt with in Taxation Ruling No IT 2440: “Income Tax: Individuals: Release from payment of tax on grounds of serious hardship: Guidelines for determining the existence of serious hardship”.  It points out that the term “serious hardship” is not defined at law and that the Commissioner should apply a number of tests in ascertaining whether it exists.  According to paragraph 22 of Chapter 24 of the Australian Taxation Office Receivables Policy:

“… serious hardship would be seen to exist where payment of a tax liability would result in the person being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements.  On the other hand, elements of hardship may be regarded as marginal or minor – rather than serious – if the consequences of payment of tax are seen, for example, as limitation of social activities or entertainment, or loss of access to goods or services of a more luxurious nature or standard”. 

22.     The Commissioner looks at a person’s capacity to pay a tax liability using an income/outgoing test and also considers an assets and liability test.  The above mentioned policy and ruling require the Commissioner to make a decision reasonably and responsibly: in other words, balancing the taxpayer’s circumstances with the obligation to pay legitimate taxation.  The latter point has a long line of legal authority.  As the High Court said in the Commissioner of Taxation v Ryan (2000) 201 CLR 109 at 124 per Gleeson CJ, Gummow and Hayne JJ: “This may well cause hardship, or at least inconvenience … [b]ut hardship or inconvenience is seldom, if ever, sufficient reason for not complying with a statutory obligation”.

23.     I have considered the Applicant’s circumstances and note that he has had some health problems which diminished his earning capacity for over 10 years. However, he has had the capacity to work from time to time on a full-time or part-time basis.  He is currently endeavouring to improve his circumstances for the future, at least financially, by retraining.  He receives a disability support pension and has an accumulated debt to the Commonwealth and private debts.  No evidence was provided about the cause of the private debt but, undoubtedly, some of it at least would be due to his living circumstances at a time when he was unwell and unemployed.  I also note that the debts which are the subject of this application have already been repaid. Therefore, the Applicant appears to be living on a disability support pension and studying without the need to bear repayments of the Commonwealth debt from his present available resources.  Equally, there was no suggestion of any extravagancies in his current station in life.  There is also evidence that the Applicant may be entitled to another economic stimulus package payment and other allowances from the Commonwealth Government on the basis of his present circumstances.  The Applicant was not aware of some of those potential entitlements and therefore had not made application for any of them up to the present time.

24.     On the evidence presented I am not satisfied that, either presently or with the prospect of additional government assistance which may be available, the Applicant is destitute or experiencing hardship to the extent shown by the authorities to be “serious hardship”.  There is no evidence that he will be left without reasonable acquisitions of food and clothing, medical supplies, accommodation or education for his children or other basic requirements.  I am satisfied that, if I disallow his application, Dr O’Reilly will not suffer unduly burdensome consequences depriving him of the necessities of life.  In the circumstances, I find that he has not established “serious hardship” under the legislation.

Are there “special reasons”?

25.     This term is intended to differentiate a set of personal circumstances from the normal or usual case: Jess v Scott & Ors (1986) 12 FCR 187 at 195.

26.     The term “special reasons” has been seen as similar in meaning to the term “special circumstances” used in social security legislation: Re Compton and Commissioner of Taxation (1999) 42 ATR 1043. Cases which demonstrate “special circumstances” must show something which is “unusual, uncommon or exceptional”: Re Beadle and Director-General Social Security (1984) 6 ALD 1 at 4. It is also expected that such cases would need to demonstrate that the enforcement of a debt would be “unjust, unreasonable or otherwise inappropriate”: Re Ivovic and Director General Social Services [1981] AATA 57 at [45]. As indicated in my consideration of “serious hardship” above, although the Applicant does not have surplus funds there is the possibility of additional financial assistance being received from the Commonwealth Government.

27.     To prove “special reasons”, the Applicant’s position must be different from the ordinary run of cases but does not have to be unique.  Here, the evidence clearly shows that the Applicant is not destitute.  On completion of his graduate diploma course, his potential earning capacity will be much greater.  He should therefore be given the opportunity to complete that study, become independent and cease being reliant upon the disability support pension.  Because he has repaid the HELP and SSFS debts and his present income covers his expenditure, the Applicant cannot be said to be in circumstances more difficult than anyone else in the community on a disability support pension.  He has a concession card and some other allowances additional to his pension.  He may be paid another economic stimulus package payment by the Commonwealth Government and perhaps other allowances as well. I acknowledge that he may incur study related expenses prior to the completion of his graduate diploma, but the repayment of the HELP and SFSS debts by Dr O’Reilly is required by law and no “special reasons” exist which might justify deferment.  I am satisfied that the legislative provisions were applied by the Commissioner of Taxation appropriately, reasonably and responsibly.

28.     I therefore find the Applicant has not established any “special reasons” for deferment of payment.

DECISION

29.     The decision under review is affirmed.

I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Dr K S Levy RFD, Senior Member

Signed: ..............[Sgd]...............................................................

Mátyás Kochárdy, Research Associate

Date of Hearing  9 March 2009

Date of Decision  8 April 2009
The Applicant was self-represented          
Solicitor for the Respondent     Mr Steven Dhillon, Australian Taxation Office