Re Neerim Investments

Case •

[2024] VSC 313

•

13 June 2024

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2023 03515

IN THE MATTER of NEERIM INVESTMENTS (VIC) PTY LTD (ACN 602 961 884)

BETWEEN:

NEERIM INVESTMENTS (VIC) PTY LTD (ACN 602 961 884) Plaintiff
v 
DEPUTY COMMISSIONER OF TAXATION Defendant

S ECI 2023 03516

IN THE MATTER of SUKKAR HOLDINGS PTY LTD (ACN 601 916 965)

BETWEEN:

SUKKAR HOLDINGS PTY LTD (ACN 601 916 965) Plaintiff
- and -
DEPUTY COMMISSIONER OF TAXATION Defendant

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JUDGE:

Barrett AsJ

WHERE HELD:

Melbourne

DATE OF HEARING:

5 March 2024

DATE OF JUDGMENT:

13 June 2024

CASE MAY BE CITED AS:

Re Neerim Investments; Re Sukkar Holdings

MEDIUM NEUTRAL CITATION:

[2024] VSC 313

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CORPORATIONS – Corporations Act 2001 (Cth) – Pt 5.4 – Insolvency – Statutory demands – ss 459G and 459J of the Act – Plaintiffs involved in property development venture with other parties pursuant to written agreement – Written agreement includes clause appointing an accountant who registered the venture as a partnership for tax purposes – Annual GST returns lodged for FY2015 to FY2019 with the ATO on basis the venture is a partnership – plaintiffs’ personal tax returns lodged for same periods on basis the venture is a partnership – ATO issued statutory demands alleging debts based on self-assessments by GST returns – ATO relying on prima facie evidence and deeming provisions in Tax Administration Act 1953 (Cth) (‘TAA’) ss 8AAZG, 8AAZI, 8AAZJ and ss 155-5 and 155-15 of Schedule 1 of the TAA – plaintiffs submit the provisions do not apply because accountants were not authorised to treat the venture as a partnership and should have treated it as a trust and therefore the documents lodged do not constitute self-assessments – Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 considered. Held: plaintiffs failed to establish a genuine dispute on the facts. Held: the principles in Broadbeach apply equally to s 459J of the Act and for the same reasons the applications are dismissed.

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APPEARANCES:

 Counsel Solicitors
For the Plaintiff Mr N Marlow-Weir Madgwicks Lawyers
For the Defendant Mr M A J McKillop K&L Gates

S ECI 2023 03516

APPEARANCES:

 Counsel Solicitors
For the Plaintiff Mr N Marlow-Weir Madgwicks Lawyers
For the Defendant Mr M A J McKillop K&L Gates

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 2

Consideration of the general principles under s 459G of the Act.......................................... 14

Consideration of the general principles under s 459J of the Act............................................ 17

HIS HONOUR:

Introduction

  1. Two proceedings are listed before me each of which raises the same issues on substantially the same factual background.  The first is Neerim Investments (Vic) Pty Ltd (ACN 602 961 884) (S ECI 2023 03515) (‘Neerim’) the second is Sukkar Holdings Pty Ltd (Vic) (ACN 601 916 965) (S ECI 2023 03516) (‘Sukkar’).  An order has been made that they be heard together having regard to the common factual background. These reasons relate to both proceedings.

  1. In each proceeding the plaintiff company has filed an originating motion seeking to set aside statutory demands served on them by the Deputy Commissioner of Taxation (‘DCT’).

  1. The sole issue in the proceedings is whether the ‘conclusive evidence’ and ‘prima facie evidence’ provisions in the Taxation Administration Act1953 (Cth) (‘TAA’) apply thereby precluding the plaintiffs from arguing that there is a genuine dispute debt for the purposes of s 459G of the Corporations Act 2001 (Cth) (‘Act’), or that the statutory demands should be set aside for some other reason pursuant to s 459J of the Act.

  1. In Neerim,

(a)   the plaintiff relies on affidavits of Mr Joseph Paul Hachem (‘Mr Hachem’) sworn 7 August 2023, 5 October 2023 and 8 December 2023, and affidavits of Mr Anthony Henry May (‘Mr May’) affirmed 6 October 2023 and 12 December 2023 and written submissions filed 21 December 2023.

(b)  the defendant relies on affidavits of Mr Nathan Pala (‘Mr Pala’) affirmed 8 November 2023 and 14 February 2024 and written submissions filed 14 February 2024.

  1. In Sukkar,

(a)   the plaintiff relies on affidavits of Mr Joseph Sukkar (‘Mr Sukkar’) sworn 7 August 2023, 5 October 2023, 11 December 2023 and affidavits of Mr May sworn 6 October 2023 and 12 December 2023 and written submissions filed 21 December 2023.

(b)  The defendant relies on affidavits of Mr Pala affirmed 8 November 2023 and 14 February 2024 and written submissions filed 14 February 2024.

Background

  1. In about 2014, Mr Hachem was approached by a business associate to invest in a property development at 143-147 Neerim Road, Glen Huntly, Victoria.  He decided to participate and contacted his cousin, Mr Sukkar, who also decided to participate.

  1. Neerim was incorporated on 20 November 2014 for the purposes of Mr Hachem’s participation in the development. Mr Hachem has been the sole director, secretary and shareholder for Neerim since its registration[1].  It purports to act as trustee for the Neerim Investments Trust (‘NIT’), but has no current ABN or tax file number and is not registered for GST. The trust filed tax returns for the years ending 30 June 2015 to 2019.

    [1]ASIC Historical Company Extract dated 17 October 2023; Affidavit of Nathan Pala sworn 8 November 2023, 7.

  1. Sukkar was incorporated on 19 September 2014 for the purposes of Mr Sukkar’s participation in the development. Mr Sukkar and Ms Lina Sukkar (‘Ms Sukkar’) have acted as its directors since its registration.  It purports to act as trustee for the J & L Sukkar Family Trust (‘JLFT’).  It has an ABN (48 466 865 783) but does not have a tax file number and is not registered for GST.  The trust filed tax returns for the years ending 30 June 2015 to 2019.

  1. In late 2014, Neerim (as trustee for the NIT)  and Sukkar (as trustee for the JLSFT) and four other parties entered into an agreement titled ‘joint venture agreement 143-147 Neerim Road, Glen Huntly Joint Venture.’  I will refer to the written agreement as ‘the Written Agreement’ and the development under this agreement as ‘the Venture’ but note that the legal structure is in dispute and I do not intend to convey any concluded view as to that structure: whether a joint venture or partnership or trust or otherwise.

  1. Neerim invested $2,000,000 being 50% interest in the Venture. Sukkar invested $500,000 being a 12.5% interest in the Venture.  The other parties who invested were: Buyers Dream Pty Ltd (ACN 167 210 531) (‘Buyers Dream’), Michael Moses as Trustee for the Meritcorp Trust (‘Moses’), GK Financial Planning Pty Ltd (ACN 059 140 662) as Trustee for the Yasmin Provident Fund (‘GK Financial’) and George Kalil as Trustee for the Kalil Discretionary Trust (‘Kalil’).

  1. The written agreement was prepared by lawyers.  Recital A provides that “[t]he Joint Venturers wish to associate themselves together in a joint venture for the Project.’  The Project is defined as ‘the acquisition and development of [143-147 Neerim Road, Glen Huntly in Victoria] and subsequent sale of apartments.’  The language of the agreement throughout is in terms that it is a joint venture with 145 Neerim Road Pty Ltd (ACN 601 602 288) acting as custodian trustee.  Clause 10.1 provides that ‘The Joint Venturers are not partners.  The Joint Venturers are independent contracting parties.’  The participants, apparently including Buyers Dream, each invested different amounts in the project.[2]

    [2]Mr Hachem’s evidence is that the proportions were: Buyers Dream – 12.5%; Moses – 12.5%; Sukkar – 12.5%; GK Financial – 6.25%; Kalil – 6.25%, see the affidavit of Joseph Paul Hachem sworn 5 October 2023, 3 [16]; affidavit of Anthony Henry May affirmed 12 December 2023, exhibit AHM 2, 9

  1. The Written Agreement makes provision for the establishment of a Board, and in that regard clause 13.1 provides that ‘Decisions relating to the business and affairs of the Joint Venture must be made at meetings of the Board.’ Clause 13.8 of the Agreement provides:

The Board will decide from time to time who are to be the bankers, accountants and lawyers of the Joint Venture. However initially, Eli Lebovits of Green & Sternfeld Pty Ltd [GS] will be the accountants for the Joint Venture. 

  1. It appears from the quarterly statements and tax returns that were subsequently lodged that after June 2018 Green & Sternfeld Pty Ltd (‘GS’) was replaced by TaxBright Accountants Pty Ltd (a registered tax agent) (‘TaxBright’).  Neerim and Sukkar submit that various steps were taken by GS that were not ‘authorised’ by them but neither Neerim nor Sukkar contended that GS and TaxBright were not the accountants for the Venture.

  1. A number of steps were taken by GS that are relevant:

(a)   on 15 July 2015, GS applied for an ABN for all the participants as a partnership. The partnership was recorded as including each of: Neerim, Sukkar, Buyers Dream, GK Financial, Moses and Kalil. It was given the short name ‘143-147 Neerim Road Joint Venture’ (‘the 143-147 Neerim Road Joint Venture’). In October 2014, the ‘partnership’ was issued an ABN, (70 403 227 729) (‘the partnership ABN’). Subsequent assessments filed by the Venture’s accountants were filed under the partnership ABN;

(b)  on 21 October 2015, a tax file number (‘TFN’) was issued to the 143-147 Neerim Road Joint Venture.  By letter dated 21 October 2014, the DCT wrote to the 143-147 Neerim Road Joint Venture, care of GS, giving notification of its TFN;

(c)   on 16 November 2015, the DCT wrote to the 143-147 Neerim Road Joint Venture, again care of GS, giving notification of its GST registration which was to take effect from 1 October 2014, and also gave notification that quarterly GST returns were required;

(d)  GS lodged quarterly Activity Statements for the 143-147 Neerim Road Joint Venture for the periods ending 31 December 2014 to 30 June 2019; and

(e)   GS lodged tax returns for the 143-147 Neerim Road Joint Venture for the financial years ending (‘FY’) 30 June 2015, through to 30 June 2018.

  1. After it took over as accountant, TaxBright lodged quarterly Activity Statements and tax returns for the 143-147 Neerim Road Joint Venture under its partnership ABN for the FY 2019 to FY 2022.

  1. In the financial years ending 30 June 2015, through to 30 June 2019, Neerim filed its own tax returns which were prepared by its own accountants Phlorides Gallo & Associates.  It is apparent from the tax returns filed by Neerim that Neerim‘s own accountants relied on information provided by GS and TaxBright.  In particular, between FY 2015 and FY 2018 Neerim claims in its tax returns, as ‘distributions from partnerships,’ a proportionate share of the GST credits incurred by the Venture and reflected in the Venture’s tax returns.  In 2019, Neerim self-assessed a significant profit under the description ‘distributions from partnerships’.  The details are as follows:

(a)   for the FY 2015  (period 1/07/2014 – 30/06/2015), the Venture by its tax agent GS lodged a tax return under the partnership ABN for the 143-147 Neerim Joint Venture which included expenses of $4,048 for ‘non-primary production’ with a net overall loss of $3,316.  The statement of distribution in the tax return relevantly allocates $1,658 of that loss to Neerim and $414 to Sukkar.  In Neerim’s own tax return for the FY 2015, prepared by its own accountants, Neerim claims the $1,658 expense as ‘distribution from partnerships ’ as reflected in the Ventures lodged tax return;

(b)  for the FY 2016 (period 1/07/2015 – 30/06/2016), the Venture by its tax agent GS lodged a tax return under the partnership ABN for the 143-147 Neerim Joint Venture which included expenses of $20,268 for ‘non-primary production’ with a net overall loss of $18,441.  The statement of distribution in the tax return relevantly allocates $9,221 of that loss to Neerim and $2,305 to Sukkar.  In Neerim’s own tax return for the FY 2016, prepared by its own accountants, Neerim claims the $9,221 expense as ‘distribution from partnerships’ as reflected in the Ventures’ lodged tax return;

(c)   for the FY 2017 (period 1/07/2016 – 30/06/2017), the Venture by its tax agent GS lodged a tax return under the partnership ABN for the 143-147 Neerim Joint Venture which included expenses of $97,087 for ‘non-primary production’ with a net overall loss of $96,729.  The statement of distribution in the tax return relevantly allocates $48,365 of that loss to Neerim and $12,091 to Sukkar. In Neerim’s own tax return for the FY 2017, prepared by its own accountants, Neerim claims the $48,365 expense as ‘distribution from partnerships’ as reflected in the Ventures lodged tax return;

(d)  for the FY 2018 (period 1/07/2017 – 30/06/2018),  the Venture by its tax agent GS lodged a tax return under the partnership ABN for the 143-147 Neerim Joint Venture which included an expense of $463,078 for ‘non-primary production’ with a net overall loss of $462,716.  The statement of distribution in the tax return relevantly allocates $231,358 of that loss to Neerim and $57,840 to Sukkar. In Neerim’s own tax return for the FY 2018, prepared by its own accountants, Neerim claims the $231,358 expense as ‘distribution from partnerships’ as reflected in the Ventures lodged tax return; and

(e)   as for the FY 2019 (period 1/07/2018 – 30/06/2019), the tax return for the Venture is not in evidence. In Neerim’s tax return for the FY 2019, Neerim self-assesses a profit of $1,225,984 as ‘distribution from partnerships.’  It was this assessment from this year that ultimately resulted in the debt in the statutory demands.

  1. Mr Sukkar has not produced any tax returns but says that his accountant, Tony Printis, prepared Sukkar’s tax returns for the FY 2016 to FY 2020 ‘based on income tax returns lodged by [Buyers Dream] for the respective period,’ and further says he ‘relied on my accountant to prepare income tax returns correctly.’  Neither Mr Hachem nor Mr Sukkar have said that their accountants were not armed with sufficient instructions or authority to lodge returns on their behalf, and there is no evidence from their accountants as to how the tax treatments came about. Mr Hachem and Mr Sukkar’s  submission is that they personally ‘understood’, ‘considered’, ‘expected’, and ‘believed’ that the Venture would be structured as a trust, and that structuring it as a partnership was ‘incorrect.’

  1. In about 2017, the members of the Venture changed. By identical letters dated 26 April 2017 and 15 May 2017, GS wrote to the ATO notifying it that GK Financial had been transferred to Kalil. The letter included the following:

We are the accountants for the partnership …

We have been instructed by the existing partners of the partnerships to apply … for the continued use of the partnership’s TFN and for the partnership to be considered to be a reconstituted continuing entity ….

The remaining partners continue to trade and there has been no break in the continuity of the enterprise, or change to the nature of the business …

We note the following:

1.Both the continuing partners and the outgoing partner agree to the continuity and reconstitution of the partnership

…

4.        The partnership is a general law partnership …

  1. Mr Hachem and Mr Sukkar both say that they had not seen these letters before reading the affidavit of Mr Pala, and that they were ‘not aware … the Commissioner received’ these letters, and that GS did not provide a copy of the letters to them, or seek Neerim’s authorisation, before issuing them. As discussed below, Neerim and Sukkar now maintain that the Venture was in fact a trust, and should have been established and recognised as such for tax purposes.

  1. On 7 August 2019, a debit in excess of $1 million was allocated to the Integrated Client Account 2 running balance account (‘RBA’) maintained by the Commissioner of Taxation in respect of GST tax liabilities of the Venture.  Further GST debits, credits and payments of the Venture were allocated to the RBA. The RBA also included an amount for general interest (‘GIC’) which was allocated pursuant to s 8AAZF of the TAA. Neerim and Sukkar do not contend that the calculations were incorrect based on the information provided to the Australian Taxation Office (‘ATO’), but rather say that information provided to the ATO, insofar as it dealt with the Venture as a partnership, was incorrect and provided without authorisation by Neerim or Sukkar.

  1. On 14 August 2019, the ATO sent a letter to the Venture claiming an outstanding tax debt of $1,044,559.15.  Because the Venture was registered for tax purposes as a partnership, each of its members were jointly and severally liable for the partnership tax liability.

  1. Between 28 August 2019 and 12 September 2019, the ATO had discussions with the Venture’s tax agent (Roman Mirkus) regarding a repayment plan.  An arrangement was reached to pay five monthly payments of $10,000, four monthly payments of $50,000 then $100,000 monthly payments until the debt was paid in full.  Some payments were made but the terms were breached by non-payments and the ATO proceeded to recovery.

  1. There is evidence from Neerim and Sukkar that they did not know of numerous matters, including registration of the partnership ABN, or the allocation of a TFN or registration for GST, or of correspondence and communications between the Venture’s accountants and the ATO, including agreements to enter a repayment plan.  Whether or not Mr Hachem and Mr Sukkar personally knew of these matters, it does appear from their tax returns that their accountants, whom they authorised to look after their affairs, treated the arrangement with other Venturers as one of partnership.

  1. Part IVC of the TAA contains a regime pursuant to which taxpayers are able to challenge assessments.[3]  On 26 May 2023, Mr Tom May (‘Mr May’), Head of Tax at Madgwicks Lawyers, lodged an objection to the assessment on behalf of the 143-147 Neerim Road Joint Venture pursuant to Part IVC.  The title of the objection is ‘ABN: 70 403 227 729’ which is the partnership ABN, and the period is ‘1 July – 30 September 2018, 1 October – 31 December 2018.’  The Notice of objection then states:

TAKE NOTICE that Buyers Dream Pty Ltd and GK Financial Planning Pty Ltd and G Kalil and M Moses … (hereinafter called ‘the Taxpayer’) … HEREBY OBJECTS against the purported assessments in relation to the periods set out above … AND CLAIMS they are unauthorised by the [Taxation Administration] Act …

[3]See Taxation Administration Act 1953 (Cth) (‘TAA’), s 155-90 of schedule 1.

  1. Thereafter the objection sets out numerous grounds as to why it is said the assessments, which include penalties, are not authorised under the TAA . Those grounds include:

(a) ‘The taxpayer was not conducting an enterprise within the meaning of the GST Act and made no taxable supply…’;

(b)  ‘There was no understatement of GST by the Taxpayer on sales and no overstatement … of input tax credits’;

(c)   ‘Every step taken by the Taxpayer (or any other person) was an ordinary commercial dealing …;

(d)  and in response to the penalty imposed, that ‘the Taxpayer acted prudently and without engaging in any of the matters referred to in this paragraph by seeking professional advice regarding the application of GST law, at the time of making the sales.’

  1. Neither Mr Neerim nor Mr Sukkar are named personally as objectors, but I note that the objection is made in relation to the ABN registered for a partnership of which Neerim and Sukkar are members, and in relation to assessments that purportedly impose obligations on Neerim and Sukkar as members of that partnership.  The DCT submits that the absence of reference to Neerim and Sukkar is irrelevant as the objection is made by the partnership of which they are members in any case, so it is made on their behalf.

  1. The DCT issued a statutory demand on 6 July 2023 to Neerim claiming a debt of $1,380,982.33.  The description of the debt is

Running Balance Account deficit debt as due at 6 July 2023 in respect of amounts due under the BAS provisions as defined in subsection 995-1(1) of the Income TAX Assessment Act 1997 (“the ITAA 1997”) [BAS provisions include, generally: the goods and services tax provisions, the PAYG withholding provisions, the PAYG instalment provisions, the fringe benefits tax instalment provisions and the deferred company instalment provisions] and the general interest charge payable under section 8AAZF of the Taxation Administration Act 1953 (“the TAA 1953”) and Part IIA of the TAA 1953, calculated up to and including 5/7/2023, being a debt due and payable by the company pursuant to section 8AAZH of the TAA 1953.

  1. The DCT issued a statutory demand in substantially the same terms to Sukkar save that the debt claimed is $1,385,525.54 and the date is 17 July 2023.

  1. At the time the statutory demands were issued, the RBA deficit debt for Neerim was $1,380,982.33 and for Sukkar was $1,385,525.54. The DCT submits that those amounts represent the partnership RBA deficit amounts for which each of the partners is liable. The amounts of the debts are based on assessments that have been made (including deemed assessments as a result of self-assessment provisions) as certified pursuant to ss 8AAZI and 8AAZJ of the TAA. The relevant sections provide as follows:

Section 8AAZG

RBA Statement

The  Commissioner may at any time prepare a statement for an RBA, containing such particulars as the Commissioner determined.

Section 8AAZI

RBA statement to be evidence

(1)The production of an RBA statement:

(a)       is prima facie evidence that the RBA was duly kept; and

(b) is prima facie evidence that the amounts and particulars in the statement are correct.

(2)       In this section:

“RBA statement” includes a document that purports to be a copy of an RBA statement and is signed by the Commissioner or a delegate of the Commissioner or by a Second Commissioner or Deputy Commissioner.

Section 8AAZJ

Evidentiary certificate about RBA transactions etc.

(1) In proceedings for recovery of an RBA deficit debt, a Commissioner’s certificate stating any of the following matters in respect of a specific RBA is prima facie evidence of those matters:

(a) that no tax debts (other than general interest charge on the RBA deficit debt) were allocated to the RBA after the balance date shown on a specified RBA statement for the RBA;

(b)that general interest charge is payable on the RBA deficit debt, as specified in the certificate;

(c) that payments and credits were allocated to the RBA, as specified in the certificate;

(d)that a specified amount was the RBA deficit debt on the date of the certificate.

(2)       In this section:

“Commissioner’s certificate” means a certificate signed by the commissioner or a delegate of the Commissioner, or by a Second Commissioner or Deputy Commissioner.

Section 155-5 of Schedule 1 of the TAA

Commissioner may make assessment

(1)The Commissioner may at any time make an assessment of an *assessable amount (including an assessment that the amount is nil).

Section 155-15 of Schedule 1 of the TAA

Self-assessment

(1)The Commissioner is treated as having made an assessment under section 155-5 of an *assessable amount mentioned in an item of the following table, if the document mentioned in the item is given to the recipient mentioned in the item:

Self-assessed amounts
Item Column 1 Column 2 Column 3
Assessable amount Recipient Document
1 your *net amount for a *tax period the Commissioner your *GST return for the tax period

…

  1. Neerim and Sukkar submit that the reporting that occurred does not constitute ‘self-reporting’ for the purposes of the deeming provisions because the tax agents who submitted them did not have authority to register the Venture as a partnership.  Neerim and Sukkar submit that the Venture should have been dealt with as a trust.

  1. The plaintiffs did not contend that the assessments were incorrect in the sense of being incorrectly calculated, or by erroneous application of any provision, or be reasons of maladministration. Rather, the plaintiffs’ submission is that the deeming provisions upon which the debt in the statutory demand depends to establish the debt only apply where the taxpayer has lodged a document that can constitute a self-assessment under the tax legislation. The plaintiffs submit that in this case, the tax agent who registered the partnership ABN, TFN, and for GST, and who subsequently filed quarterly statements on the basis the Venture was a partnership, was not authorised to do so. The submission continues that the lack of authority has the consequence that the self-assessments lodged for the Venture (together as a partnership) do not come within the definition of “‘your’ GST return” for the purposes of s 155-15 of Schedule 1 of the TAA (item 1), and so did not form a foundation upon which the DCT could be deemed to have made any assessment. Neerim and Sukkar submit that on that basis, the question of whether there is a genuine dispute must be considered having regard to ordinary principles excluding any reliance on deeming provisions.

  1. Neerim and Sukkar seek to rely on the fact that further self-assessments have been lodged on the basis that the Venture is a trust.  Mr May deposes that in January 2024, ‘the Trustee caused activity statements to be lodged on behalf of the Trust for the various quarters between 1 April 2020 to 31 December 2023.’  I note that these activity statements identify the ‘Trustee’ with the ABN 23 790 281 753, which is the ABN that was allocated to the Venture as a partnership. Each of the statements records no money owed to or by the ATO. Mr May gives further evidence that:

A further activity statement was lodged on behalf of the Trust for the combined periods from 1 October 2014 to 31 March 2020 (March Activity Statement). The amount owing to the ATO (as per item 1A [$1,247,971] of the March Activity Statement) reflects the transactions of the Trust for the period 1 October 2014 to 31 March 2020. The amount owed by the ATO  (as per item 1B [$1,045,631] of the March Activity Statement) reflects the GST refunds to be paid out in consequence of the lodgement of the March Activity Statement.

  1. The March Activity Statement records total sales of $16,869,391, and a net amount owing to the ATO of $202,340.  It was submitted that the effect of this self-assessment is that the Venture is subject to a liability in respect of those self-assessments that overlaps with the assessments the subject of the statutory demands, although clearly there is a significant difference between the amount sought on the basis that the Venture is a partnership (in excess of $1.3 million) and the amount Neerim and Sukkar say would be owing under self-assessments as a trust ($202,340).  The effect of lodging such returns prior to the determination of the Part IVC objection is unclear. In any case, it was not contended that the recent lodging of the trust based assessments required any particular finding in relation to the statutory demands.

  1. The DCT submits that the question of lack of authority, upon which Neerim and Sukkar now heavily rely, was not raised expressly or by necessary implication in the affidavit filed within 21 days, and therefore they ought not be permitted to rely on that argument to establish a genuine dispute.[4]  Neerim and Sukkar submit that the argument of authority was raised by necessary implication.  I note that there is recent authority indicating that the requirement of a ‘necessary implication’ goes too far and that a ‘reasonably available inference’ is sufficient.[5]  

    [4]Relying on the well-known case of Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.

    [5]Ziegler atf Doris Gayst Testamentary Trust v Centric Group Pty Ltd [2020] NSWCA 85, [47]-[49] (Gleeson JA with Meagher and McCallum JJA agreeing) (‘Ziegler’); see also Farid Assaf SC, Assaf’s Winding Up In Insolvency (Lexis Nexis, 3rd ed, 2021) [6.60] and cases cited at fn 323. 

  1. The 21 day affidavits filed by Hachem and Sukkar in support each state:

(a)   the Venture agreement ‘was in reality a trust document’;

(b)  the ‘liabilities of the trust were to be properly incurred by the Trustee for the participants …’;

(c)   ‘the demand was therefore incorrectly issued to the plaintiff in respect of the running balance account deficit … that was owed by the Trustee …;

(d)  ‘as determined by clause 10.1 of the Trust Document, at no time has the plaintiff been in partnership with the various other participants ….’

  1. In my opinion the affidavits set out material facts that support the applications based on a lack of authority.  Mr Hachem and Mr Sukkar’s affidavits raise the point that on its proper construction the Written Agreement established a trust, rather than a partnership, particularly having regard to the terms  of clause 10.1.  The argument that any steps taken to establish a partnership inconsistently with the terms of the Written Agreement were not authorised may be reasonably inferred from that position.  While neither Mr Hachem or Mr Sukkar expressly stated that the consequence of incorrectly registering the Venture as a partnership was that the assessments lodged do not constitute self-assessments for the purposes of the deeming provisions, Neerim and Sukkar are not required to set out the legal basis of their arguments in their affidavits.[6]  

    [6]Zeigler (n 5), [49] (Gleeson JA, with Meagher and McCallum JJA agreeing).

Consideration of the general principles under s 459G of the Act

  1. The DCT relies further on the cases of Deputy Commission of Taxation v Broadbeach Properties Pty Ltd[7] (‘Broadbeach’) and Anglo American Investments Pty Ltd and Others v Deputy Commissioner of Taxation[8] which followed the decision of the High Court in Commissioner of Taxation v Futuris Corporation Limited[9].  Those cases make it clear that where an assessment to which the deeming provisions apply is in evidence in debt recovery proceedings, the taxpayer may not challenge the assessment other than by application within the Part IVC regime.[10]  The issuing of a statutory demand and applications to set aside a statutory demand is ‘debt recovery’ for these purposes.[11] In this regard, the deeming provisions and the policy underlying them leave the parties with limited ability to challenge assessments in debt recovery proceedings where an assessment has been admitted into evidence.  The policy underlying that approach is directed towards protection of the revenue.[12] It has been described as a ‘pay first, argue later’ regime.[13]

    [7](2008) 237 CLR 473 (‘Broadbeach’).

    [8](2017) 347 ALR 134 (‘Anglo American Investments’).

    [9](2008) 237 CLR 146.

    [10]Broadbeach (n 7) 495-6 [55]-[58] (Gummow ACJ, Heydon, Crennan and Kiefel JJ); Anglo American Investments (n 8) [44].

    [11]Broadbeach (n 7) 495-6, [55]-[58] (Gummow ACJ, Heydon, Crennan and Kiefel JJ).

    [12]Broadbeach (n 7) 496, [58] (Gummow ACJ, Heydon, Crennan and Kiefel JJ).

    [13]Deputy Federal Commissioner of Taxation v Akers (1989) 89 ATC 4725.

  1. Neerim and Sukkar seek to distinguish Broadbeach (and subsequent cases that have followed it) on the basis that in that case, the taxpayer argued that the Part IVC challenge constituted a ‘genuine dispute’ for the purposes of s 459G of the Act but in this case, Neerim and Sukkar do not argue that the Part IVC challenge constitutes the genuine dispute. Rather, they submit that the assessments that were lodged by GS and Taxbright, purportedly on Neerim and Sukkar’s behalf as part of the partnership, were not Neerim and Sukkar’s ‘assessments’ for the purposes of the deeming provisions as they had not been made by Neerim and Sukkar with their authority.

  1. I do not consider that Broadbeach is distinguishable as submitted.  The documents upon which the assessments were based, and constituting the assessments, were lodged by GS. GS was given authority by the terms of the Written Agreement to act as the accountant for the Venture.  That agreement was signed by each of Neerim and Sukkar, and it appears that each of their own accountants relied on information provided by GS to lodge their own returns for several years to their benefit. If there are issues as to how GS acted vis-a-vis the ATO when clothed with that authority, then those are issues to be resolved as between Neerim and Sukkar on the one hand and GS on the other. If GS has acted inconsistently with instructions or beyond its authority, and Neerim and Sukkar wish to alter the structure of the Venture as established by documents lodged, then Neerim and Sukkar may take such steps as they consider necessary to restructure the Venture and/or seek an amendment of any assessment. If that cannot be done, or can only be done at a loss to Neerim and Sukkar, then they may take such action against GS and their own accountants as they consider appropriate. But an internal dispute of that nature is not sufficient to undermine the deeming effect of the lodgement of documents in these circumstances.  The assessments as lodged, right or wrong, constitute self-assessments by Neerim and Sukkar for the purposes of the deeming provisions.

  1. Further, a finding that a taxpayer could avoid the effect of the deeming provisions in the manner proposed by alleging a lack of authority on the part of an accountant, has the potential to significantly undermine the policy of protecting the revenue that the deeming provisions are designed to protect.  That is a reason why the Court should be cautious in recognising any avenue, beyond the Part IVC regime, to challenge an assessment.

  1. If I am wrong, and Broadbeach is distinguishable so that the question as to whether there is a genuine dispute must be considered on ordinary principles[14] then, having regard to the burden that rests with Neerim and Sukkar, I would still refuse to set aside the statutory demands for the following reasons.

    [14]There was no dispute as to the principles which are well known. The DCT relies on Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787; Mintoo Property Developers Pty Ltd v MultiBoard Australia Pty  Ltd [2012] VSC 61.

  1. First, there is no evidence, beyond bare assertions by Mr Hachem and Mr Sukkar, that GS acted inconsistently with any instructions that the Venture was to be set up as a trust.  Their evidence is that they ‘understood’, ‘considered’, ‘expected’, and ‘believed’ that the Venture would be structured as a trust.  Neerim and Sukkar’s subjective intention or belief is irrelevant to the question of how the Venture was to be structured.[15] If there were limits on the authority granted to the Venture’s accountants, and if that authority was exceeded, then that is a matter between Neerim and Sukkar on the one hand, and the accountants on the other.  I do not consider that it is arguable that any such internal issues between the venturers and their accountant means that the documents lodged[16] with the ATO were not documents of the Venture, and therefore each member of the Venture as partners in accordance with the registration, for the purposes of assessing tax liability.  Neerim and Sukkar retain their rights to challenge the assessments under Part IVC and may seek to amend assessments if they wish.

    [15]Commissioner of State Revenue  v Snowy Hyrdo Limited (2012) 43 VR 109, 130 [83] citing Twinsectra Ltd v Yardley [2002] 2 AC 164, 185 [71] (Lord Millett). See also Byrnes v Kendle (2011) 243 CLR 253, 275 [59] (Gummow and Hayne JJ); 290 [114]–[115] (Heydon and Crennan JJ).

    [16]ABN registration as a partnership and GST returns.

  1. Secondly, there is no evidence from GS or Taxbright as to why the Venture was not set up as a trust, or was set up as a partnership, and whether that was in error, or done for some very good or considered reason.  It might be expected that GS at least would be called on to say something about that central issue, particularly where Neerim and Sukkar’s evidence is limited to their beliefs and understandings as to what was to occur, and the genuineness of any dispute is relevant.

  1. Thirdly, there is no evidence from Neerim or Sukkar’s own accountants as to any advice they gave as to the Venture, or why they prepared and filed tax returns claiming deductions for their share of partnership GST credits.[17]  Again, it might be expected that the accountants involved would be called on to say something about that issue to assist in the determination of the genuineness of the suggested dispute.

    [17]Although I note that post-contractual conduct has limited relevance to interpreting a contract entered into: Ambridge Investments Pty Ltd (in liq)  v Baker & Ors [2010] VSC 59, 199-201 (Vickery J). See in particular summary of principles by Heydon JA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 163-65; Baker v Ambridge Investments Pty Ltd (recs apptd) (in liq) [2011] VSCA 334, [194] (Robson AJA).

  1. Fourthly, there are strong indications that the trust argument is being relied on in response to pressure being brought to bear by the statutory demand, rather than as a genuine dispute.[18] That is not to say that Neerim and Sukkar do not now wish the Venture to be structured, or restructured, as a trust. But to the extent that is their position, it appears to have been brought about as a result of the tax liability assessed on the registered partnership, and the statutory demands issued.

    [18]Creata (Aust) Pty Ltd v Faull (2017) 125 ACSR 212, 224 [47] (Barrett AJA, with Gleeson and White JJA agreeing).

  1. For those reasons Neerim and Sukkar have failed to establish that there is a genuine dispute as to the amounts claimed in the statutory demands.  

Consideration of the general principles under s 459J of the Act

  1. Neerim and Sukkar also submit that the statutory demands should be set aside for some other reason pursuant to s 459J of the Act (on the basis that the conclusive evidence provisions do not apply). That reason is stated as being that the DCT seeks to recover the amount claimed on the basis of a ‘misapprehension’ that the ABN application and activity statements were lodged with Neerim and Sukkar’s approval.

  1. For reasons stated above I reject that argument.  The principles in Broadbeach apply to s 459J of the Act just as they do to s 459H of the Act.[19] And even if the circumstances in this case were distinguishable from Broadbeach,  I would not set aside the statutory demands for some other reason on the basis sought having regard to the matters discussed above in paragraphs 40 to 44.

    [19]See Re PHPR Convenience Pty Ltd  [2023] VSC 417, [39] (Hetyey AsJ).

  1. For those reasons Neerim and Sukkar’s applications must be dismissed. I will ask the parties to provide draft orders within 14 days giving effect to these reasons, including in relation to costs.

SCHEDULE OF PARTIES

S ECI 2023 03515
BETWEEN:
NEERIM INVESTMENTS (VIC) PTY LTD
(ACN 602 961 884) 		Plaintiff
- v -
DEPUTY COMMISSIONER OF TAXATION  Defendant
- and -
SUKKAR HOLDINGS PTY LTD (ACN 601 916 965) S ECI 2023 03516
Plaintiff 
- v- 
DEPUTY COMMISSIONER OF TAXATION Defendant

Cases Citing This Decision

0