Print National Australia Pty Ltd v Chief Commissioner of State Revenue

[2012] NSWSC 297

Supreme Court

New South Wales

Medium Neutral Citation:

Print National Australia Pty Ltd v Chief Commissioner of State Revenue [2012] NSWSC 297

Hearing dates:

16 March 2012

Decision date:

16 March 2012

Jurisdiction:

Equity Division - Duty List

Before:

White J

Decision:

1. Order that the summons be dismissed.

2. Order that the plaintiffs pay the defendant's costs.

Catchwords:

PROCEDURE - civil - interlocutory issues - application for injunction - injunction necessary for the administration of justice in New South Wales -demonstration of substantial hardship not sufficient basis for restraint of actions - right to recovery of tax owing expressly conferred - restraint would not further administration of justice - Supreme Court Act 1970 (NSW) s 23

PROCEDURE - civil - interlocutory issues - application for stay of recovery proceedings - application that Chief Commissioner of State Revenue be restrained for taking further steps to recover sums assessed in way of payroll tax - alternative application for restraint until after determination of objections lodged - claimed extreme personal hardship suffered if recovery or winding up proceedings initiated - no evidence given as to whether attempts have been made to meet assessments by borrowing on security of assets

TAXATION AND REVENUE - assessment for payroll tax - objections and review - alleged incorrect grouping of companies for purpose of calculation of payroll tax - challenge as to the imposition of penalties - taxpayers right to object to assessment and review adverse determination to such objections -- tax can be recovered as if no objection or review pending - amounts assessed due and owing

Legislation Cited:

Payroll Tax Act 2007
Taxation Administration Act 1996
Payroll Tax Act 1971
Supreme Court Act 1970
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)

Cases Cited:

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473
Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32; (2008) 237 CLR 146
Deputy Commissioner of Taxation (WA) v Australian Machinery and Investment Company Pty Ltd (1945) 3 AITR 236
CSR Limited v Cigna Insurance Australia Limited [1997] HCA 33; (1997) 189 CLR 345
Snow v the Deputy Commissioner of Taxation (WA) (1987) 14 FCR 119
Deputy Commissioner of Taxation v Mackey (1982) 45 ALR 284; (1982) 13 ATR 457
Deputy Commissioner of Taxation v TDE Nominees Pty Ltd (No. 2) [2011] NSWSC 1528
Deputy Federal Commissioner of Taxation v Gergis (1991) 91 ATC 4510; (1991) 22 ATR 1
Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857

Category:

Principal judgment

Parties:

Print National Australia Pty Ltd (Plaintiff)
Chief Commissioner of State Revenue (Defendant)

Representation:

J Needham SC (Plaintiff)
S Kaur-Bains (Defendant)
Crown Solicitor (Defendant)

File Number(s):

2012/76332

Judgment

1. HIS HONOUR: This is an application by eight companies for an order that pending finalisation of any objection to a review of assessments made by the defendant for payroll tax, the defendant be restrained from taking any steps to recover the sums assessed by him by way of payroll tax, those sums having been assessed for the period 1 July 2003 to 20 June 2010.

1. In the course of submissions, counsel for the plaintiffs sought, as an alternative, an order that the defendant be restrained from taking any steps to recover the sums the subject of the assessments until two weeks after the determination by the defendant of the last of the objections to be lodged in respect of the assessments.

1. The assessments were provided to the plaintiff companies under cover of a letter dated 21 February 2012 from the Office of State Revenue.

1. The assessments have been issued in respect of 12 companies. The total amount assessed to be owing for payroll tax, interest and penalty tax is $4,290,514.20.

1. The assessments stated that the due date for payment was 9 March 2012 in case of some, and 12 March 2012 in respect of the balance.

1. One of the issues that will be raised by the plaintiffs is that not all of the companies the subject of the assessments should be grouped for the purpose of the calculation of payroll tax. The effect of the grouping adopted by the defendant is that only a single wages threshold of $600,000 has been applied to the calculation of payroll tax.

1. In his letter of 21 February 2012 the delegate of the Chief Commissioner of State Revenue stated that with the exception of two companies, evidence obtained during an investigation indicated that a Mr David James was the sole director and shareholder of the subject companies, and that as a result those companies were grouped for payroll tax purposes.

1. Mr James has deposed that the grounds upon which the assessments will be challenged include that:

1. the Office of State Revenue includes two companies in the group in which he has no interest;

2. the Chief Commissioner did not consider issues arising out of s 79 of the Payroll Tax Act 2007 dealing with the exclusion of persons or companies from groups;

3. there are four separate and distinct businesses carried on through various companies;

4. his family trust companies are included in the group despite the fact that they do not pay wages; and

5. there are errors in the calculation of the wages paid by each entity.

1. Mr James also deposed that imposition of penalties would be challenged.

1. The plaintiffs have 60 days after service of the notices of assessment in which to lodge objections against the assessments. That time is still running. It can be readily inferred, as counsel for the plaintiff says, that the preparation of the objections is a substantial task. If, as the plaintiffs apprehend is likely, the Chief Commissioner disallows the objections in whole or in part, then the plaintiffs have the right to review the decision of the Chief Commissioner that was the subject of the objection, either in the Administrative Decisions Tribunal or in the Supreme Court (Taxation Administration Act 1996, ss 96 and 97). There would also be a right of review if no determination of the objections is made within 90 days.

1. It is not suggested that any such objection, which is yet to be formulated, would be frivolous.

1. Notwithstanding the taxpayer's right to object to the assessments and to review an adverse determination of such objections, the plaintiffs are presently liable to pay the amounts of the assessments. The assessments have been made in respect of tax payable under the Payroll Tax Act 1971 and Payroll Tax Act 2007.

1. Under s 17 of the Payroll Tax Act 1971 an employer was liable to pay payroll tax within the time in which he or she was required to lodge the wages in respect of which the payroll tax was payable. Under s 17 of the Payroll Tax Act 2007 the employer by whom taxable wages are payable is liable to pay payroll tax on the wages.

1. The payroll tax payable under both the 1971 Act and the 2007 Act are taxes to which the Taxation Administration Act applies (see Taxation Administration Act, s 4 and Payroll Tax Act 2007, cl 3 of Sch 3). Pursuant to s 8 of the Taxation Administration Act the Chief Commissioner can make an assessment of the tax liability of a taxpayer. The validity of an assessment is not affected because a provision of the taxation law has not been complied with (s 16). Importantly for present purposes, s 119 of the Taxation Administration Act provides:

"119 Evidence of assessment

Production of a notice of assessment, or of a document signed by the Chief Commissioner purporting to be a copy of a notice of assessment, is:

(a) conclusive evidence of the due making of the assessment, and

(b) conclusive evidence that the amount and all particulars of the assessment are correct, except in objection or review proceedings when it is prima facie evidence only."

1. Pursuant to ss 94 and 103 of the Taxation Administration Act the fact that an objection is pending, or that an application for review of an adverse determination of an objection is pending, does not in the meantime affect the assessment to which the objection or the application for review relates. Those sections provide that tax maybe recovered as if no objection or review were pending.

1. The effect of these sections is that even if the plaintiffs' arguments are correct and the assessments are wrong and should be set aside on review, nonetheless the amounts assessed are currently due and owing.

1. By reason of s 119 it is not open to the plaintiffs in these proceedings to challenge the correctness of the assessments. They are conclusive. (See Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 at [51], [54], [55] and [56].

1. The status of the notices as an "assessment" within s 119 is not challenged. That is to say, it is properly not contended that there is any evidence that the assessments were issued through conscious maladministration (Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32; (2008) 237 CLR 146 at [25]).

1. The plaintiffs say that the assessments were wrong and that their objections are substantial. For the purposes of the present application, whether the assessments were wrong or not, they are taken to be correct. But I can assume there are objections of substance to be taken to the assessments.

1. The plaintiffs say that they will suffer extreme personal hardship if the defendant were to institute recovery proceedings or winding up proceedings, and that by analogy to the principles by which it is recognised that a court has a power to stay such recovery proceedings, an injunction against the institution of proceedings should be given.

1. The first question is to identify what is the jurisdiction sought to be invoked. This is not an application for a stay of a proceeding.

1. There is jurisdiction to grant a stay of a recovery proceeding, although if such an application is made the policy of the Taxation Administration Act evidenced by ss 94, 103 and 119, is a matter to which great weight must be attached (Deputy Commissioner of Taxation (WA) v Australian Machinery and Investment Company Pty Ltd (1945) 3 AITR 236 at 241). But this is not such an application.

1. The Court has inherent power to regulate its own processes. It has also power to restrain the institution of proceedings if such proceedings would be an abuse of process. Applications to restrain the presentation of a winding-up petition which is intended to be used as an instrument of blackmail is an example.

1. Counsel for the plaintiffs invokes s 23 of the Supreme Court Act 1970. She submits that an injunction is necessary for the administration of justice in New South Wales. I accept that an injunction can be given to restrain the institution of proceedings if to do so is necessary for the administration of justice.

1. The Court would also have inherent power to make orders in restraint of unconscionable conduct or the unconscientious exercise of legal rights, and could restrain the bringing of legal proceedings if they involved such unconscionable conduct or the unconscientious exercise of a legal right (CSR Limited v Cigna Insurance Australia Limited [1997] HCA 33; (1997) 189 CLR 345 at 392).

1. The plaintiffs did not submit that the present case could fall within these latter categories. That is to say, properly it is not submitted that if the defendant were to institute recovery proceedings that would involve unconscionable conduct or the unconscientious exercise of a legal right. Counsel submitted that the injunction should go because it would preserve the basis for future proceedings, namely, the likely proceedings for review of an adverse determination by the defendant of the proposed objections.

1. I accept that if it were demonstrated that the mere institution of recovery proceedings would preclude the exercise of the taxpayer's right to seek a review of an adverse determination of objections, then there would be jurisdiction to restrain the institution of such recovery proceedings. It would be necessary to take account of the fact that whilst the Taxation Administration Act confers such a right of review, it also provides for the rights of the Chief Commissioner to recover tax as if no objection or no review were pending.

1. I do not accept that the same principles as apply to an application for a stay of a recovery proceeding apply to the present application for an injunction to prevent the institution of such proceedings, because the jurisdiction sought to be invoked in each case is different. Nonetheless, the policy considerations to which great weight must be attached on a stay application apply with at least equal force to the present application. I do not accept that the mere demonstration of substantial hardship to the plaintiffs would be itself a sufficient basis for restraining the defendant from exercising the rights expressly conferred on him by the Taxation Administration Act. The evidence of hardship does not go so far as to show that future review proceedings would be thwarted if recovery proceedings were instituted and pursued by the defendant.

1. The director of the plaintiffs, Mr James, refers to eight companies that have been audited by the Office of State Revenue. He deposes that they do not have liquid assets to pay the assessment notices. That evidence is not challenged. He produces a copy of the balance sheet and profit and loss statements for three of the companies that are said to be the companies that trade. The balance sheets are expressed to be as at December 2011. They also show that the companies' cash assets are quite insufficient to meet the assessments. On the other hand, the balance sheets of those companies show combined net assets of approximately $33 million, albeit that some $10 million is described in the case of one company as "intangibles", and that company's assets also include $2 million as debt owed by other related companies, about the current recoverability of which there is no evidence.

1. Mr James gives no evidence as to whether any attempts have been made to borrow on the security of the company's assets, or of the ability of the plaintiffs to raise funds with which to pay the assessments. He says that none of the companies has "liquid funds or liquid assets" available to meet the assessments. He also says that collection action by the Office of State Revenue would see more current banking facilities withdrawn by the lenders and that companies maybe placed into liquidation.

1. There is no corroborative evidence that the bringing of "Collection action" by the Office of State Revenue would see "All current banking facilities withdrawn by the lenders". In support of that statement Mr James refers to a banking facility with Rabobank Limited, which facility has been cross-collateralised and guaranteed by various of the companies and is also personally guaranteed by Mr James. Events of default under that facility include execution of a judgment against assets of a mortgagor borrower or guarantor, or application being made in relation to any mortgage or borrower or guarantor for winding-up, or an event occurring, or a circumstance arising which, in the opinion of the lender, is likely to materially adversely affect the ability of the mortgagor or any other person liable to pay secured money or to comply with the mortgagor's obligations under the agreement. It is possible that if recovery proceedings were instituted that that might be treated by the lender as an event of default, but the evidence does not show the likelihood of such an occurrence.

1. In any event, the evidence is insufficient to show that there would not be means other than by the use of liquid funds or liquid assets currently available to the companies with which to meet the debts imposed by the notices of assessment. The evidence falls far short of showing that review proceedings would be thwarted. Even if the plaintiffs were wound up, that would not in itself preclude a liquidator from pursuing such proceedings.

1. In my view, to restrain the defendant from instituting proceedings as a result of the issue of the notices of assessment would not further the administration of justice.

1. As I have alluded to earlier in these reasons, the justice to be administered in the State includes the right of the defendant to institute proceedings for recovery of tax notwithstanding the pendency of objections or reviews.

1. If, contrary to my view, the principles that have been applied in relation to applications for stay of recovery proceedings should be applied to the present application, nonetheless I would not be satisfied on the present evidence that by analogy with those principles an injunction should be given.

1. Those principles have been discussed in many cases. (See in particular Snow v the Deputy Commissioner of Taxation (WA) (1987) 14 FCR 119 at 135 and following; Deputy Commissioner of Taxation v Mackey (1982) 45 ALR 284; (1982) 13 ATR 457; and Deputy Commissioner of Taxation v TDE Nominees Pty Ltd (No. 2) [2011] NSWSC 1528 at [18]-[32].) Courts have consistently given effect to the policy evidenced in ss 94, 103 of 119 of the Taxation Administration Act and similar provisions in the Income Tax Assessment Act 1997 (Cth) and the Taxation Administration Act 1953 (Cth). They recognise Parliament's intention that the revenue be placed in a special position of advantage and should, in general, be free to pursue recovery proceedings notwithstanding the unfairness and hardship that that might entail.

1. The only case to which counsel could refer in which a stay has been successfully sought is Deputy Federal Commissioner of Taxation v Gergis (1991) 91 ATC 4510; (1991) 22 ATR 1, which was a very different case, where the taxpayer was a mother with the care of four children whose home would have been at risk if execution of the judgment obtained against the taxpayer were not stayed, where she was ignorant of the activities of her husband that resulted in the assessment against her, and where there was the outstanding application for review of the assessment.

1. Ms Needham SC for the plaintiffs, in the course of her thorough submissions, referred to the observations of Moffatt P in Deputy Commissioner of Taxation v Mackey at 288 where his Honour noted that in that case there was no prejudice to the taxpayer "of an extraordinary type such as that his business is in danger if he has to meet the tax". She submitted that by contrast the evidence in this case is that there is such danger and that it followed that this case is one of extreme hardship or of an extraordinary type which would justify a stay of recovery proceedings, and by analogy would justify restraining the defendant from commencing such proceedings.

1. However, for the reasons I have given, the plaintiffs have not established their inability by borrowing on security of what appear to be substantial assets to meet the assessments.

1. Parliament has vested a large discretion in the Chief Commissioner as to how he or she should go about collecting tax where the assessment is subject to objection. In Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 Mason ACJ said that he had been informed that the pursuit of recovery action whilst assessments were challenged was a somewhat unusual course.

1. In the present case it was clear from the submissions of Ms Kaur-Bains for the defendant that the Chief Commissioner does intend to pursue the recovery of the amounts assessed, notwithstanding the anticipated objections. But, as she observed, that would not necessarily involve the commencement of recovery proceedings against the corporate taxpayers or winding-up proceedings against them. Arrangements might be sought to be made for the payment of the debts by instalments and the Chief Commissioner could be expected in any event to proceed against Mr James, as the director of the corporation, pursuant to s 47B of the Taxation Administration Act. I was told that a payment arrangement has been made between the defendant and one of the plaintiffs.

1. Having regard to all of these matters, even if the principles relating to stays of proceedings were fully applicable to the present application, I would not be persuaded that an injunction should lie.

1. For these reasons I order that the summons be dismissed. I order that the plaintiffs pay the defendant's costs.

Decision last updated: 05 April 2012