Re Rasmussen and Commissioner of Taxation

[2013] AATA 746

CATCHWORDS – TAXATION – taxation liability – release – whether payment of tax liability would cause serious hardship – factors relevant to exercise of discretion – decision affirmed.

CATCHWORDS – PRACTICE AND PROCEDURE – policy – whether consistent with relevant legislation.

CATCHWORDS – PRACTICE AND PROCEDURE – burden of proof – consequential modification of Tribunal’s duties on review.

CATCHWORDS – WORDS AND PHRASES – “serious hardship”.

DECISION AND REASONS FOR DECISION [2013] AATA 746

ADMINISTRATIVE APPEALS TRIBUNAL      )          
  )          2012/4154
SMALL TAXATION CLAIMS TIRBUNAL        )          

ReHENNING RASMUSSEN

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal:  Deputy President S A Forgie
Date:  17 October 2013
Place:  Melbourne

Decision:The Tribunal decides to affirm the decision of a delegate of the respondent dated 23 July 2012 which itself affirmed a decision dated 7 March 2012 to refuse to release the applicant from his tax liability.

_(sgd) S A Forgie_

Deputy President

Buckley v Wathen [1973] VicRp 51; [1973] VR 511
Commissioner of Taxation v A Taxpayer [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 91 ALD 335; 2006 ATC 4393
Commissioner of Taxation v Milne [2006] FCA 1005; (2006) 153 FCR 52; 63 ATR 538; 2006 ATC 4503
Corlette v Mackenzie [1995] FCA 1512; (1995) 62 FCR 584; 39 ALD 10; 95 ATC 4578; 31 ATR 265
Corlette v Mackenzie (1996) 62 FCR 597; 42 ALD 193; 96 ATC 4502; 32 ATR 667
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60; 46 FLR 409
Hornsby v Military Superannuation and Benefits Board of Trustees (No 1) (2003) 126 FCR 484
McDonald v Director-General of Social Services (1984) 6 ALD 6
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24; 66 ALR 299
Minister for Immigration and Citizenship v SZIAI [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123
Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225
Powell v Evreniades [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415
R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45; 27 ALR 321
R v Trebilco; Ex parte FS Falkiner & Sons Pty Ltd (1936) 56 CLR 20
Radio 2UE Sydney Pty Ltd v Chesterton [2009] HCA 16; (2009) 238 CLR 460; 254 ALR 606
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Retail Employees Superannuation Pty Ltd v Crocker [2001] FCA 1330; (2001) 48 ATR 359
Shi v Migration Agents’ Registration Authority [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Van Grieken v Veiland (1991) 21 ATR 1639
Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492

Administrative Appeals Tribunal Act 1975, ss 33, 37, 39, 40
Income Tax Assessment Act 1936, ss 166, 265
Income Tax Assessment Act 1997, ss 4-1, 5-5, 5-15
Land Tax Assessment Act, s 66
Migration Act 1958, s 414
Taxation Administration Act 1953, ss 14ZQ, 14ZZK, 250-10, 255-5, 340-1, 340-5, 340-10, 340-15

Practice Statement Law Administration (PS LA 2011/17)

REASONS FOR DECISION

Mr Rasmussen has applied for review of an objection decision made by the Commissioner of Taxation (Commissioner) on 23 July 2012. The Commissioner’s decision disallowed Mr Rasmussen’s objection to the Commissioner’s earlier decision, dated 8 March 2011, refusing to release him from his tax liability under s 340-5(3) of the Taxation Administration Act 1953 (TAA).  At the time of the hearing, the tax liability was made up of $13,073.33 (for the years of income ending on 30 June 2010 and 2011), income tax instalments amounting to $15,084.00 for the quarters ending 30 September 2010, 2011 and 2012 and $1,138.39 for general interest charges (GIC) as at 22 May 2013.  By the time of the hearing, they had increased to $30,518.90.

1. Mr Rasmussen has, until recent times, earned an income from four separate sources.  He is married with two teenage children.  For many years, his wife has been suffering from illness and he is increasingly required to care for her as well as the children.  Until recently, he has been able to maintain the mortgage payments on the former family home, which he and his wife own and which is now rented to others, and those on a taxi licence he and his wife bought some years ago and have leased to another.  Mr and Mrs Rasmussen continue to receive rental and lease payments but one of the consequences of caring for his wife, is that he has more limited time for his income producing activities.  That, combined with a lack of work available in another of his income producing activities, has meant a significant reduction in his income.  Mr Rasmussen is no longer able to meet the school fees for his children and is in straightened circumstances. 

1. I am satisfied that Mr Rasmussen is facing serious hardship in the immediate future in the sense of his being without means to purchase food, clothing and medical supplies for his wife and children or to continue to provide accommodation, education for his children and other basic requirements that are reasonable by reference to general community standards.  Even if he and his wife were to sell the former family home and the taxi licence, he is likely to continue to face serious hardship but it is not serious hardship that arises from his being required to satisfy his tax liability.  It is serious hardship that arises because his liabilities, of which his tax liability is but one, exceed his assets and the outgoings required to service those liabilities exceed his income.  It is not serious hardship that Mr Rasmussen would suffer because he is required to satisfy his tax liability.[1] That means that Mr Ramussen does not meet the criterion in Item 1 of s 340-5(3) of the TAA. As he does not meet that criterion, I do not have power to release him from whole or part of his tax liability. Even if I had decided that he did meet that criterion, I would not have exercised the discretion to release him from either whole or part of his tax liability.[2]  

   [1] My consideration of Mr Rasmussen’s particular circumstances follows at [60]-[83].

   [2] My reasons follow at [84]-[100].

1. It follows that I have affirmed the Commissioner’s decision refusing to release Mr Rasmussen’s tax liability and will now set out my reasons for arriving at that decision.

LEGISLATIVE BACKGROUND

1. Section 4-1 of the Income Tax Assessment Act 1997 (ITAA97) provides that:

   “Income tax is payable by each individual and company, and by some other entities.”

The provisions regulating the income on which tax is payable and the persons by whom it is payable are lengthy.  What is clear from them is that assessment of a person’s liability to pay income tax does not depend upon the person’s identity or particular circumstances.  It depends upon a range of criteria that are objectively based.  The Commissioner is required to make an assessment of the amount of a person’s taxable income and of the tax payable on that amount.[3]  Once an assessment has been made, the income tax that has been assessed becomes due and payable.[4]  It is a debt to the Commonwealth and payable to the Commissioner.[5]

[3] ITAA36; s 166

[4] ITAA97; s 5-5(2)

[5] Taxation Administration Act 1953; s 255-5(1)

1. Collection of tax-related liabilities, of which income tax is one,[6] becomes a matter for Part 4.15 of Schedule 1 of the Taxation Administration Act 1953 (TAA).  It sets out various ways in which taxes of various sorts are collected and paid.  They extend to the Commissioner’s having power to sue in his official name in a court to recover any amount that remains unpaid after it is due and payable.[7]  Before matters reach that point, the Commissioner may take steps to alleviate the person from the immediate burden of payment by deferring the time at which an amount of tax-related liability is, or would become, payable[8] or permitting payment by instalments under an arrangement made between the person and the Commissioner.[9]  Before agreeing to defer the time or to permit payment by instalments, the Commissioner will “have regard to the circumstances of … [the taxpayer’s] particular case”. 

   [6] TAA; s 250-10(2), Item 37

   [7] TAA; S 250-5(2)

   [8] TAA; s 255-10. General interest charges and any penalties on unpaid amounts accrue from the deferred date: ITAA97; s 5-15.

   [9] ITAA97; s 255-15(1). The arrangement does not vary the time at which the amount is due and payable: ITAA97; s 255-15(2). General interest charges and any penalties on unpaid amounts accrue from the deferred date: ITAA97; s 5-15.

1. Part 4-50 of Schedule 1 to the TAA is entitled “Release from Particular Liabilities”. The Commissioner’s powers in this Part are divided into two. One category relates to the Commissioner’s powers relating to proceeds of crime proceedings. Those powers are found in Division 342 of Part 4-50. They have no relevance in this case at all. The other category relates to the Commissioner’s powers in cases of hardship. They are found in Division 340. They are relevant in this case.

1. Section 340-1 sets out what Division 340 is about:

   “The Commissioner may release you from a particular liability that you have incurred if you are an individual, or a trustee of the estate of a deceased person, and satisfying the liability would cause serious hardship.”

Those liabilities coming within the description of a “particular liability” are set out in s 340-10 and include tax under s 4-1 of ITAA97[10] as well as associated tax and amounts that may be payable such as additional tax, administrative penalties, General Interest Charge (GIC) and interest.[11]

[10] TAA; Schedule 1, s 340-10(2), Item 6(c)

[11] TAA; Schedule 1, s 340-10(2), Items 1, 2, 3, 3A, 4 and 5

1. Section 340-5(1) provides that a person may apply to the Commissioner to release him or her, in whole or in part, from his or her liability. On receiving an application in the approved form,[12] under s 340-5(3) of the TAA:

   [12] TAA; Schedule 1, s 340-5(2)

   “The Commissioner may release you, in whole or in part, from the liability if you are an entity specified in the column headed ‘Entity’ of the following table and the condition specified in the column headed ‘Condition’ of the table is satisfied.

Entity and condition
Item	Entity	Condition
1	an individual	you would suffer serious hardship if you were required to satisfy the liability
2	a trustee of the estate of a deceased individual	the dependants of the deceased individual would suffer serious hardship if you were required to satisfy the liability

If the Commissioner decides to release an individual or trustee from a liability, or part of it, he may take whatever action is necessary to give effect to the decision.  That may include his altering or amending an assessment that he has issued.[13]

[13] TAA; Schedule 1, s 340-15

POLICY

1. The Commissioner has issued a Practice Statement, PS LA 2011/17 (the Policy), on the subject of debt relief.  He states in his introduction that:

   “… It must be followed by tax officers unless doing so creates unintended consequences or where it is considered incorrect. …”

If tax officers consider that it has unintended consequences or consider it incorrect, they are directed to refer it to an appropriate authority within the Commissioner’s office. 

1. The Commissioner’s approach is entirely in keeping with the law regulating the regard that administrative decision-makers must have for policy developed at a Ministerial, Agency Head or other very senior level.  The importance of developing and following a policy was explained by Brennan J in Re Drake and Minister for Immigration and Ethnic Affairs (No 2):[14]

   “          There are powerful considerations in favour of a Minister adopting a guiding policy.  It can serve to focus attention on the purpose which the exercise of the discretion is calculated to achieve, and thereby to assist the Minister and others to see more clearly, in each case, the desirability of exercising the power in one way or another.  Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with the fairness and continuity of the administrative process.”[15]

   [14] (1979) 2 ALD 634

   [15] (1979) 2 ALD 634 at 640

1. It is clear that the policy must be consistent with the law for the acts of the executive cannot vary what Parliament has enacted unless it has provided that may be the case:

   “… It must allow the Minister to take into account the relevant circumstances, it must not require him to take into account irrelevant circumstances, and it must not serve a purpose foreign to the purpose for which the discretionary power was created.  A policy that contravenes these criteria would be inconsistent with the statute …  Also, it would be inconsistent … if the Minister’s policy sought to preclude consideration of the relevant arguments running counter to an adopted policy which might reasonably be advanced in particular cases.  … A Minister’s policy … must leave him free to consider the unique circumstances of each case, and no part of a lawful policy can determine in advance the decision which the Minister will make in the circumstances of a given case.

   That is not to deny the lawfulness of adopting an appropriate policy which guides but does not control the making of decisions, a policy which is informative of the standards and values which the Minister usually applies.  There is a distinction between an unlawful policy which creates a fetter purporting to limit the range of discretion conferred by a statute, and a lawful policy which leaves the range of discretion intact while guiding the exercise of the power. …”[16]

   [16] Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 at 640-641 per Brennan J. His view is consistent with the views expressed in Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60; 46 FLR 409 at 590; 70; 420-421 per Bowen CJ and Deane J and at 602; 80; 438-439 per Smithers J.

1. It is implicit in this passage that, on review, the Tribunal cannot apply the Commissioner’s policy until it is satisfied that it is consistent with the law and with the judicial authorities interpreting that policy.  Therefore, I will come back to the Commissioner’s policy after I have done that.

CONSIDERATION

Nature of the power conferred on the Commissioner: mandatory or discretionary?

1. The first issue that arises concerns the nature of the power conferred upon the Commissioner if the relevant Condition is found to be satisfied. Section 340-5(3) provides that the Commissioner “may” release the person.  Is that a power that he must exercise if the relevant Condition is satisfied or is it a power that may be exercised if the Commissioner thinks it appropriate to do so having regard to all relevant issues, including satisfaction of the Condition.  The word “may” is a word that may carry either one of those meanings.  The meaning that it does carry is determined by the context.

1. This issue has been considered in earlier cases when the power given by s 340-5 of the TAA was given by s 265 of ITAA36. That section gave the power to release a person from a tax liability to the Relief Board (Board) of which the Commissioner was one of its members. Although worded differently, the power given to that Board was similar to that given to the Commissioner in s 340-5(3). For present purposes, what appears in Items 1 and 2 of s 340-5(3) correlates with what appeared in ss 265(1)(a) and (b).

1. In Powell v Evreniades[17] (Powell), Hill J noted that, if the word “may” were read in a mandatory sense, the Board would be bound to remit the tax in whole or in part if it were to conclude that there were serious hardship:

   “… One difficulty with such an interpretation however, would be that it leaves open the question of what the Board is in fact bound to do, given that under the section it has a choice to remit the tax in whole or in part.  Therefore the word ‘may’ presumably encompasses that choice which lies in the discretion of the Commissioner.”[18]

   [17] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415

   [18] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [32]; 261; 126; 480; 4,423

1. His Honour concluded that this was the correct interpretation and it was an interpretation supported by the judgments of the High Court in R v Trebilco; Ex parte FS Falkiner & Sons Pty Ltd[19] (Trebilco).  That case concerned a similar power given to the Board under s 66(1) of the Land Tax Assessment Act 1910 (LTA) as it was then enacted.  Certain conditions had to be satisfied before s 66(1) conferred power on the Board.  They were different from those specified in s 265(1)(a) and (b) but, if one or other of them was satisfied, s 66(1) provided that “… the Board may release such taxpayer wholly or in part from his liability for land tax or for land tax in respect of any particular land the returns from which have been so impaired …”. 

   [19] (1936) 56 CLR 20; Latham CJ, Starke, Dixon, Evatt and McTiernan JJ

1. Dixon J, with whom Evatt and McTiernan JJ agreed, said:

   “… But if a taxpayer does satisfy one of the conditions precedent so laid down, he does not obtain a right to relief.  In my opinion, he obtains only a title to the consideration by the board of the general circumstances of his case and to a determination whether it is just and proper that he should receive any, and so what, relief. … The provision confers an authority on an administrative board consisting of officers concerned with fiscal administration.  It is not a power to effectuate rights elsewhere given to or otherwise existing in the subject.  The authority is to absolve the subject from a liability to taxation imposed upon all alike whose property is of the taxable description.  The degree of relief is left to the board in express terms.  A power given by the word ‘may’ in such a provision must, I think, be understood as discretionary.  It confers a discretion to release, or not to release, the taxpayer according to the board’s opinion of the justice of the case. …”.[20]

   [20] (1936) 56 CLR 22 at 31-32

1. The principles in Trebilco were adopted by Beazley in Corlette v Mackenzie[21] (Corlette) in considering s 265(1) of ITAA36 just as they had been by Hill J in Powell.  Her Honour rejected a submission that a distinction should be drawn between s 66(1) of the LTA and s 265 on the basis that the exercise of power conferred by s 66(1) was predicated upon a finding that one of three distinct factual circumstances existed and that conferred by s 265 is predicated upon a single factual circumstance.  Justice Beazley concluded:

   “… A finding of whether serious hardship would be entailed involves an evaluation of all material placed before the Board and the exercise of judgment in the fact finding process, no different to that called for by s 66(1)(a) in particular, and s 66 in general.  In my opinion, Hill J was correct in considering that the decision in Trebilco should be applied to the construction of s 265. … I, for one, do not consider that there is anything in the nature or scope of the statute, nor in the language of s 265, which displaces its primary permissive operation.”[22]

   [21] [1995] FCA 1512; (1995) 62 FCR 584; 95 ATC 4578; 31 ATR 265; 39 ALD 10

   [22] [1995] FCA 1512; (1995) 62 FCR 584; 95 ATC 4578; 31 ATR 265; 39 ALD 10 at [33]; 593; 4,585; 272; 18

1. On appeal, the Full Court of the Federal Court endorsed the reasons and conclusions reached by Beazley J.[23]  In doing so, Wilcox J gave an example of a situation in which a reading of s 265(1) that required the Board to exercise its power to give relief upon being satisfied of the relevant condition would lead to an “odd” result:

   “          The circumstances stipulated by s 265 of the Income Tax Assessment Act are extremely broad.  It is sufficient, for example, for a taxpayer to establish that he or she has suffered a loss or is in such circumstances that the exaction of the full amount of the tax will entail serious hardship.  On some occasions, of course, the loss or the circumstances may be for reasons that were outside the control of the taxpayer, but that will not necessarily be so.  It would be extremely odd if a taxpayer who was the author of his or her own misfortunes, through imprudent or extravagant expenditure, was entitled, as a matter of right, to a release of unpaid income tax. …”[24]

   [23] Corlette v Mackenzie (1996) 62 FCR 597; 42 ALD 193; 96 ATC 4502; 32 ATR 667; Wilcox, Einfeld and Foster JJ

   [24] (1996) 62 FCR 597; 42 ALD 193; 96 ATC 4502; 32 ATR 667 at 598; 194; 4,503; 668

1. Although the power originally given to the Board by s 265(1) of ITAA36 is now given to the Commissioner by s 340-5(3) of the TAA, there is no reason to reach a different conclusion regarding its discretionary nature. The power continues to be given to an officer concerned with fiscal administration. As is the case under s 265 of ITAA36 or s 66(1) of the LTA, it is not a power that affects any existing rights or that creates rights. All that its exercise can affect is the extent of what would otherwise be the individual’s duty to pay the tax liability.

1. The power continues to be framed in terms of what the Commissioner “may” do.  The tax liability for which relief is sought continues to be a tax liability imposed upon all whose income is, to use the words of Dixon J in Trebilco, “of the taxable description”.  The relief that is sought continues to take the form of, either wholly or in part, absolving an individual from that tax liability.  Each of those conditions requires satisfaction that certain individuals would suffer serious hardship if either the individual or the trustee of the estate of a deceased individual, as the case may be, “were required to satisfy the liability” (emphasis added). That must be read as a reference to the whole liability and is consistent with the previous formulation in s 265(1). So too is the distinction between the circumstance that gives rise to the power and the requirement that is implicit in s 340-5(3) that the Commissioner must then decide whether to release the individual “in whole or in part, from the liability”.

1. I am aware of two Federal Court authorities that have considered the construction of s 340-5(3) of the TAA: Commissioner of Taxation v A Taxpayer[25] (CTAT) and Commissioner of Taxation v Milne[26] (Milne).  Only the former, decided by Stone J, raised the issue of the discretion.  Reference was made to passages from the cases of Corlette v Mackenzie and Powell, to which I have referred, but only to apply their principles directly to the exercise of the discretion under s 340-5. Justice Stone seems to have assumed that the changes made between s 265(1) of ITAA36 and s 340-5 of the TAA make no difference[27] and I respectfully agree with her.  I return below to the boundaries within which that discretion is exercised.

   [25] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 91 ALD 335; 2006 ATC 4393; Stone J

   [26] [2006] FCA 1005; (2006) 153 FCR 52; 63 ATR 538; 2006 ATC 4503; Conti J

   [27] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 91 ALD 335; 2006 ATC 4,393 at [58]-[66]; 347-348; 462-463; 4,403-4,404

Individual seeking release carries burden of proof

1. A person in Mr Ramussen’s position who has applied for review of a reviewable decision and who wants the Commissioner to change a decision he has made, has the “burden of proving” that he should do so. This is the effect of s 14ZZK(b)(iii) of the TAA, which provides:

   “On an application for review of a reviewable objection decision:

   (a)…

   (b)the applicant has the burden of proving that:

   (i)-(ii)…

   (iii)in any other case – the taxation decision concerned should not have been made or should have been made differently.”

A.       What is a burden of proof?

1. The notion of a “burden of proof” comes from the courts where, in broad terms, it is used in two senses.  One is described as an “evidential burden” and is not relevant in this context.  The other is a legal or persuasive burden.  Reference to a legal burden is a reference to the “… obligation of a party to meet the requirement of a rule of law that a fact in issue is to be proved (or disproved) either by a preponderance of the evidence or beyond reasonable doubt, as the case may be. …”.[28]  The reference to the “appropriate degree of conviction” is a reference to the standard of proof.  In civil cases in courts, it is a standard that requires the Judge to be satisfied on the balance of probabilities of an issue or issues in a civil matter and beyond reasonable doubt in a criminal matter.  When the expression “burden of proof” is used in its second sense, it is a reference to the “evidential burden”.  That is the burden of producing sufficient evidence to raise a particular issue so that, in a criminal trial, the Judge will leave the issue to the jury to decide or, in a civil case, will require the Judge to come to a decision whether the legal burden has been satisfied.

   [28] Cross on Evidence, Ninth Australian Edition, JD Heydon, LexisNexis Butterworths, Chatswood NSW, 2013 at [7010]; 265

1. Civil matters in the courts concern disputes between parties.  Those parties come in a variety of forms be they individuals or corporate or public bodies.  What they have in common is that they are in dispute and asking a court to decide their respective rights and duties and powers and liabilities in the particular matter.  The process in the court will always be to decide issues of fact on the evidence led by the parties.  The issues it must decide are determined by the factual matters in dispute between them and are decided according to the law relevant to the matters in dispute.  A party required to satisfy a burden of proof may rely not only on the evidence it has led but may also rely on evidence led by the other party.

B.       General differences between proceedings in a court and in the Tribunal

1. On its face, a proceeding in the Tribunal generally appears little different from that in a civil proceeding in a court.[29]  Unless the particular enactment under which the decision for review has been made provides differently, the Tribunal will identify the factual issues it must decide and then determine them according to the civil standard of proof.[30]  It will then make a decision based on those facts.  Already, though, there is a difference.  The issues that the Tribunal must decide are not determined by the matters in dispute between the parties.  In their joint judgment in Minister for Immigration and Multicultural Affairs v Yusuf[31] (Yusuf), McHugh, Gummow and Hayne JJ made this point saying:

   “The considerations that are, or are not, relevant to the tribunal’s task are to be identified primarily, perhaps even entirely, by reference to the Act rather than the particular facts of the case that the tribunal is called on to consider.”[32]

   [29] There are exceptions for some enactments provide that an administrative decision-maker has a different task.  The task of the Superannuation Complaints Tribunal (SCT), for example, is not to arrive at the correct or preferable decision.  In Retail Employees Superannuation Pty Ltd v Crocker [2001] FCA 1330; (2001) 48 ATR 359 at [31]; 367, Allsop J described the SCT’s task: “The Tribunal’s task is not to engage in ascertaining generally the rights of the parties, nor is it to engage in some form of judicial review of the decision of the trustee or insurer.  Rather it is to form a view, from the perspective of the trustee or insurer, as to whether the decision of either was (recognising the overriding framework given by the governing rules and policy terms, respectively) unfair or unreasonable.”  For that purpose, Mansfield J said in Hornsby v Military Superannuation and Benefits Board of Trustees(No 1) (2003) 126 FCR 484 at 492: “… the Tribunal may have to make its own findings of fact for the purpose of determining whether, in its opinion, the decision under review in its operation was fair and reasonable in the circumstances. But it is necessary to make such findings of fact only for that purpose. It does not decide afresh all findings of fact of the primary decision-maker as if that decision had not been made. It does not, in that sense, simply stand in the shoes of the primary decision-maker.”

   [30] In the Policy, at [48], the Commissioner has given an indication of the evidentiary material that will satisfy him of the value of assets: “As a general proposition, the ATO would also seek to reach conclusions as to whether assets have been valued realistically, and liabilities are accurately recorded.  Where doubts arise in relation to these aspects, the ATO may seek clarification of the bases of the basis of valuation, or of other information.  However, certified valuations from professional valuers will not normally be required.” His indication is consistent with the burden of proof imposed on the individual seeking release from a liability by s 14ZZK of the TAA.

   [31] [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225

   [32] [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225 at [73]; 347-348, 19, 242

1. Once the Tribunal has found the relevant facts, it may be that there is only one decision that can be correctly made given the provisions in the relevant enactment.  There may, however, be more than one and even a range of decisions that could be correctly made.  The Tribunal will then need to choose which one is the preferable decision.[33]  That requires an exercise of discretion but it is not a discretion without boundaries.  The boundaries are found within the relevant enactment.  If they are not expressly stated, they must be identified by reference to the subject matter of the enactment under which the decision is made as well as from its object and underlying policy.[34] 

   [33] Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409; 24 ALR 577; 2 ALD 60 at 419; 589; 69-70 per Bowen CJ and Deane J

   [34] Alexandra Private GeriatricHospital Pty Ltd v Blewett (1984) 2 FCR 368; 56 ALR 265 at 375; 272 per Woodward J and see also Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24; 66 ALR 299; Gibbs CJ, Mason, Brennan, Deane and Dawson JJ at 39-40; 308-309 per Mason J with whom Gibbs CJ and Dawson J agreed

1. Consistency of approach and outcome is vital in both a court and the Tribunal.  Resolution of a matter in the Tribunal can be seen as an individual decision affecting the parties to the proceeding.  There is a difference in that one of those parties will always be a public officer or agency (or licensed by an agency in the case of some compensation matters).  Of itself, that difference is not significant but what is significant is that the decision will always be a decision that creates rights or powers and imposes duties or liabilities and the like.  Unlike the courts, it will not be a decision that ascertains and determines rights and liabilities and powers and liabilities that have already existed.  In creating them, the administrative decision-maker is doing so by reference to provisions of the relevant enactment.  That enactment implements a policy regimen that applies not only to the person seeking a right, benefit or entitlement under it in a particular proceeding but to all persons who seek to do the same.  A consistent approach in all instances is essential if the policy underpinning the particular enactment is to be implemented successfully.  As Kirby J recognised in Minister for Immigration and Multicultural Affairs v Yusuf:[35]

   “… Cases such as this not only dispose of the rights of particular parties.  They lay down the standard for thousands of others which may never get to the Tribunal or a court.”[36]

   [35] [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225

   [36] [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225 at [157]; 373; 39; 263

1. The need for consistent outcomes goes hand in hand with the approach to reach the correct or preferable decision.  Like the courts, the Tribunal has been given tools to obtain information and to require persons to give evidence.[37]  It is not bound by the rules of evidence[38] but will act only on relevant and probative evidence while giving the parties a reasonable opportunity to make submissions about the evidence and present a case.[39]  Unlike the courts, it is required, from time to time, to use the tools that it has been given on its own initiative and cannot simply sit back and rely solely on the evidentiary material produced by the parties.  Again, this goes hand in hand with the need to reach the correct or preferable decision and the need for policy regimes expressed in enactments to be implemented consistently.  An example of a situation in which such an obligation may arise is found in Minister for Immigration and Citizenship v SZIAI[40] (SZIAI).  The Refugee Review Tribunal (RRT) is under a duty to review a decision if a valid application is made to it and the Minister has not issued a conclusive certificate.[41]  Under the Migration Act 1958, the RRT has powers to obtain information in much the same way as the Tribunal does.  The majority in SZIAI canvassed a number of previous authorities and came to the general conclusion that:

   “… The duty imposed upon the tribunal by the Migration Act is a duty to review. It may be that a failure to make an obvious inquiry about a critical fact, the existence of which is easily ascertained, could in some circumstances, supply a sufficient link to the outcome to constitute a failure to review. If so, such a failure could give rise to jurisdictional error by constructive failure to exercise jurisdiction. …”[42]

   [37] Administrative Appeals Tribunal Act 1975 (AAT Act); s 40

   [38] AAT Act; s 33(1)(c)

   [39] AAT Act; s 39(1)

   [40] [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123; French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ

   [41] Migration Act, s 414

   [42] [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123 at [25]; 436; 21; 1129 per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ and at [52]; 441-442; 27; 1133 per Heydon J to like effect on the facts.

1. An essential point of difference between a civil case in a court and a merits review proceeding in the Tribunal is that, unless Parliament provides to the contrary, no burden of proof rests with any party.  This is illustrated in the case of McDonald v Director-General of Social Services[43] in which Woodward J set out what an administrative decision-maker should do if unable to decide a factual issue relevant to the decision.  The decision under review was a decision cancelling Mrs McDonald’s invalid pension.  Justice Woodward said:

   “If the AAT finds itself in a state of uncertainty after considering all the available material, unable to decide a question of fact either way on the balance of probabilities, it will be necessary for it to analyse carefully the decision it is reviewing.  If, for example, it is a decision whether or not to cancel a pension in the light of changed circumstances, then it has failed to achieve the statutory requirement of reaching a state of mind that the pension should be cancelled.  If, on the other hand, it is a decision, to be made in the light of fresh evidence, whether or not the pension should ever have been granted in the first place, then it has failed to be satisfied that the person ever was permanently incapacitated for work. …”[44]

   [43] (1984) 6 ALD 6; Woodward, Northrop and Jenkinson JJ

   [44] (1984) 6 ALD 6 at 11

1. This passage might suggest that Woodward J was suggesting that an evidential burden of proof applied in the Tribunal as a general rule.  He was anxious to dispel that notion when he said of the approach he had taken:      

   “… I would prefer not to refer to the concept of onus of proof in arriving at this result.  It is rather a question of a proper interpretation of the Social Security Act 1947.”[45] 

   [45] (1984) 6 ALD 6 at 12

1. A little earlier in his judgment, Woodward J had said:

   “          It is true that facts may be peculiarly within the knowledge of a party to an issue, and a failure by that party to produce evidence as to those facts may lead to an unfavourable inference being drawn – but it is not helpful to categorize this common sense approach to evidence as an example of an evidential onus of proof. The same may be said of a case where a good deal of evidence pointing in one direction is before the Tribunal, and any intelligent observer could see that unless contrary material comes to light that is the way the decision is likely to go. Putting such cases to one side there can be no evidential onus of proof in proceedings before the AAT unless the relevant legislation provides for it, and in the present case the Social Security Act 1947 does not.”[46]

In the context of taxation law, Latham CJ pointed out in Trautwein v Federal Commissioner of Taxation [47] that “… the facts in relation to his income are facts peculiarly within the knowledge of the taxpayer.”[48]  The same can be said to be true of a taxpayer’s expenditure and, unless they are yet to be quantified as a result of a civil suit or the like, a taxpayer’s debts.

[46] (1984) 6 ALD 6 at 11

[47] (1936) 56 CLR 63; Latham CJ, Starke, Dixon and Evatt JJ

[48] (1936) 56 CLR 63 at 87

D.       The consequences of imposing a burden of proof

1. Section 14ZZK of the TAA has clearly provided for a burden of proof. It is not merely an evidential burden of proof but a legal one. The question then becomes, what does this mean in the context of merits review of administrative decision-making? In this case, the particular burden that is imposed is a “burden of proving that: … the taxation decision … should not have been made or should have been made differently.” 

1. The “taxation decision” is, in this case, the Commissioner’s decision under s 340-5(3) of the TAA and against which Mr Rasmussen has objected.[49] That is a decision that requires a decision-maker to make findings of fact on a range of factual issues that are pertinent in deciding whether an individual would suffer serious hardship if required to satisfy the liability. Those findings of fact must be made on the balance of probabilities. Having made those findings of fact, those facts must be set against the matrix of s 340-5(3) as interpreted by the courts or as its related predecessors have been interpreted. If that leads to a decision that the individual would suffer serious hardship if required to satisfy the liability, the decision-maker must decide whether to release all or part of that liability. That requires the decision-maker to make findings of fact on a range of issues pertinent to whether or not to exercise the discretion before setting those findings of fact against the matrix of considerations drawn from the legislation. Again, those findings of fact are made on the balance of probabilities.

   [49] TAA; s 14ZQ

1. The individual who carries the burden of proof in relation to this decision must produce to the Tribunal evidence on which it can be satisfied, on the balance of probabilities, of the findings of fact that are relevant, first, to the ultimate finding that a person would suffer serious hardship if required to satisfy the liability and, if so, then to the exercise of the discretion.  The individual can satisfy that burden by producing evidentiary material and calling witnesses.  There is nothing to prevent the individual from relying on evidentiary material or the testimony of witnesses called by the Commissioner as he or she would be able to do in a civil proceeding in the courts but the opportunity will often not present itself.  In many cases, the only evidentiary material is that which the individual has presented to it in earlier discussions or negotiations he or she has had with the Commissioner.  This is a situation in which the facts relating to an individual’s income, expenditure, assets and debts will usually be peculiarly within the possession and knowledge of the individual and not of the Commissioner. 

1. Generally, the Commissioner will have reached his decision only on the material put forward by the individual and having regard to community standards drawn from his own knowledge.  If he should have regard to other material, fairness will have dictated that he tell the individual of it and give him or her an opportunity to comment upon it.[50]  Apart from his decision and reasons, material produced by the individual will be the only material that the Commissioner produces in response to his obligation under s 37 of the AAT Act.[51]  

   [50] Powell [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [53]-[56]; 267-268; 131-132; 485-486; 4,427-4,428

   [51] As modified by s 14ZZF of the TAA, s 37(1) of the AAT Act requires the Commissioner to lodge with the Tribunal a statement of reasons for the decision and copies of the notice of the taxation decision concerned, the taxation objection concerned, notice of the objection decision and every other document that is in the Commissioner’s possession or under his control and is considered by him to be necessary to the review of the objection decision concerned.

1. If the individual does not produce enough evidence to satisfy the Tribunal that findings of fact and the ultimate issues should be decided in its favour, the outcome will be that the Commissioner’s decision will remain in place.  That outcome is no different from what would happen in those cases where no legal burden of proof is imposed on the person seeking review of an administrative decision. 

1. So what is the point of imposing a burden of proof?  Looking at practical issues, there is only one point.  That point is the removal of any obligation on the Tribunal of the sort identified in SZIAI to make an obvious inquiry about a critical fact, when that inquiry could easily be made. Section 14ZZK clearly places the responsibility for that entirely in the hands of the individual and removes it from the Commissioner and so, on review, from this Tribunal. Nothing else changes, though. The Tribunal’s task on review continues to be to reach the correct or preferable decision. The rules of procedural fairness continue to apply if the Commissioner should choose to obtain further information.

Serious hardship

1. Although I look at what is meant by the expression “serious hardship” in this section of my reasons, I must keep in mind that s 340-5(3) requires me to do more than decide whether Mr Rasmussen is in serious hardship or would be having regard to his circumstances. The issue that I must come back to and decide is whether he would suffer serious hardship “… if he were required to satisfy the liability”. The need to focus on this becomes clear from the authorities which have considered the criteria that must be met under s 340-5(3) and the discretion that must be exercised.

A.What is meant by an individual’s suffering “serious hardship”?

A.1     General principles

1. No definition of the expression “serious hardship” is to be found in the TAA or in the taxation law generally. Division 340 does not give any guidance as to the matters to which thought should be given in determining whether the person would suffer serious hardship. Any guidance that is to be found must be found in the provision itself and in its place in the administration of the taxation laws relating to income tax and related liabilities as well as in the authorities that have considered s 340-5(3) or its predecessor, s 265(1), or similar provisions.

1. Starting with the words of s 340-5(3) itself, the first thing to notice is that relief is only extended on this ground to individuals and not to other entities such as corporations. That is clear from Item 1 of s 340-5(3) but it is equally true of Item 2 for only individuals can be “dependants of the deceased individual”.  The second was identified by Gummow J in Van Grieken v Veiland when he said that:

   “… Those provisions … assume the existence of the tax liability and provide for relief on special grounds beyond those considered in the process of assessment.”[52]

   [52] [1991] FCA 167; (1991) 21 ATR 1639; 91 ATC 4,423 at [12]; 1644; 4,428

1. That takes me to the expression itself: “serious hardship”.  It was considered by Hill J in Powell when the relevant power was given to the Board under s 265(1) of ITAA36. Mrs Powell had applied for judicial review of the Board’s decision. She was the trustee of the estate of her late husband, Dr Powell. The Board had decided that the dependants of the late Dr Powell were not “… in such circumstances, that the exaction of the full amount of tax will entail serious hardship …”[53] and so did not release Mrs Powell, as trustee of the estate, from her liability to pay the tax.  

   [53] ITAA36; s 265(1)(b)

1. Justice Hill began by explaining that the expression “serious hardship” is an ordinary English expression but one influenced by its context:

   “… 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.”[54]

   [54] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [19]; 258; 122; 472-473; 4,420

1. His Honour was reluctant to state any tests of what would, or would not, constitute “serious hardship”.  He did not expand upon his reluctance but it was left to Stone J in CTAT to explain that it is inappropriate to try to state any tests because “… the assessment is based so squarely on the individual circumstances …”.[55]  Justice Hill did distinguish between hardship that is “serious” and hardship that might be described as “extreme”.[56]  That distinction underpinned his general proposition that:

   “… Clearly there would be serious 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.”[57]

   [55] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450, 91 ALD 335, 2006 ATC 4393 at [16]; 339; 454; 339; 4,396

   [56] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [20]; 259; 123; 478; 4,420-4,421

   [57] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [21]; 259; 123; 478; 4,421 and cited with approval by Gummow J in Van Grieken v Veilands (1991) 91 ATC 4,423; 21 ATR 1639 at 4,428; 1644

1. This was a point taken up by Stone J in CTAT when she adopted the language of Hill J in Powell in recognising the “… possibility that something less than destitution will constitute serious hardship.  Whether this is so depends on the particular circumstances of the case.”[58]  A person described by Hill J as a person who would be left destitute without any means of support would be the same as a person left, Stone J said, “without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements.”[59]  The question becomes whether the individual “… or dependants would be deprived of necessities.”[60]  It is answered “… with regard to the whole of the taxpayer’s circumstances”[61] and by “… assessing the … [taxpayer’s] individual circumstances by reference to normal community standards”.[62]  What amounts to “reasonable acquisitions” of relevant necessities is assessed by reference to what is “… not excessive or unreasonable in all the circumstances. …”.[63]  Those matters can be assessed by the decision-maker “… from its own knowledge and experience, determine what were and what were not reasonable living costs …”.[64]

   [58] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 2006 ATC 4393 at [17]; 339; 454; 4,396

   [59] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 2006 ATC 4393 at [17]; 339; 454; 4,396

   [60] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 2006 ATC 4393 at [56]; 347; 462; 4,403

   [61] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 2006 ATC 4393 at [19]; 339; 454; 4,396

   [62] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 2006 ATC 4393 at [55]; 347; 461; 4,402-4,403

   [63] [2006] FCA 888; (2006) 91 ALD 335; 63 ATR 450; 91 ALD 335, 2006 ATC 4393 at [19]; 339; 454-455; 4,396 (emphasis in original)

   [64] Powell [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [43]; 264; 129; 483

A.2     What are normal community standards?

1. These authorities do not address the way in which the Commissioner or this Tribunal determines what are taken to be “normal community standards”. It is not an expression used in s 340-5, of course, but it is an expression used commonly in other jurisdictions such as defamation and obscenity. The Full Court of the Supreme Court of Victoria was concerned with the latter when it decided Buckley v Wathen.[65]  In his judgment, Smith ACJ, with whom Little and Nelson JJ agreed said:

   “…[I]t is for the courts to determine for themselves, under this class of legislation, what things are acceptable according to community standards; and no expert evidence is admissible on that question: see Wavish v Associated Newspapers Ltd, [1959] VicRp 10; [1959] VR 57; Kyte-Powell v William Heinemann Ltd, [1960] VR 425; R v Neville (1960) 83 WN (Pt 1) (NSW) 501; sub nom. Neville v Lewis, [1965] NSWR 1571; Abbey v Wallace (unreported, per Newton, J, 10 March 1967) McKenna v Lyall (unreported per Gillard, J 29 November 1967); Crowe v Graham [1968] HCA 6; (1968) 121 CLR 375, per Windeyer, J, at pp. 395-6; [1968] HCA 6; [1968] ALR 524, at pp. 537-8, and cf. R v Anderson, [1972] 1 QB 304, at p. 313; [1971] 3 All ER 1152; R v Stamford, [1972] 2 WLR 1055; [1972] 2 All ER 427.”[66]

   [65] [1973] VicRp 51; [1973] VR 511; Smith ACJ; Little and Nelson JJ

   [66] [1973] VicRp 51; [1973] VR 511 at 515

1. This is consistent with the approach taken by the High Court in a later defamation case of Radio 2UE Sydney Pty Ltd v Chesterton.[67]  An action for defamation had been heard at first instance by a judge and jury.  The issue on appeal was whether the judge had misdirected the jury by not reiterating that certain claims were to be assessed by reference to the perspective of the ordinary right-thinking members of the community.  The majority of the High Court decided:

   “… There can be no doubt that the jury would have understood, from the general directions given by her Honour, that they were to assess any injury to the plaintiff’s reputation resulting from the imputations and they were to undertake that assessment from the point of view of ordinary reasonable decent members of the community.  … In that regard they had been told that the question was whether ordinary reasonable members of the community would think less of the plaintiff. …”[68]

In answering that question, the jury was required to assume that the hypothetical ordinary reasonable member of the community “… applied whatever community standards as were appropriate and relevant to the imputations” that were at the heart of the action for defamation.

[67] [2009] HCA 16; (2009) 238 CLR 460; 254 ALR 606; French CJ, Gummow, Heydon, Kiefel and Bell JJ

[68] [2009] HCA 16; (2009) 238 CLR 460; 254 ALR 606 at [59]; 483; 621 per French CJ, Gummow, Kiefel and Bell JJ

1. Earlier in the judgment, the majority had said that “… In such cases the ordinary reasonable person may be expected to draw upon such community standards as may be relevant, in order to answer the question whether there has been an injury to reputation. …”.[69]  They recognised that, in an action for defamation, the focus will be on moral or ethical standards but that there are other standards in the community.  They also noted:

   “          In Reader’s Digest Brennan J emphasised that any standard to be applied must be one common to society, rather than one which reflects an attitude of a section of it… Questions have been raised concerning the notion of there being one general community standard with respect to all topics; … and so to whether standards applied by the courts in some cases are in reality those of the general community. … And it has been suggested that sectional attitudes may be valid, when regard is had to the cultural diversity of countries such as in Australia. … Such an approach would require further consideration of the meaning of ‘community’.”[70]

   [69] [2009] HCA 16; (2009) 238 CLR 460; 254 ALR 606 at [46]; 480; 618

   [70] [2009] HCA 16; (2009) 238 CLR 460; 254 ALR 606 at [49]; 480-481; 619

1. The majority did not explore this further and I do not need to do so either.  What is important about the passages is the assumption that community standards relate to a variety of matters and that they are not the subject of evidence.  The jury was expected to draw on its collective knowledge of such things as was the Magistrate at first instance in Buckley v Wathen.  The same is expected of the Commissioner and this Tribunal on review.

B.At what time is “serious hardship” assessed?

1. Whether a person would suffer serious hardship “… is an issue which clearly enough arises to be looked at at the time of the application. …”, Hill J said in Powell.[71]  He was not required to consider whether the Tribunal, on review, may have regard to matters that have occurred since the application was made.  He did, however, look at the Relief Board’s power when he remitted the matter to it for reconsideration of the application for release saying:

   “… [I]t would seem not inappropriate for the Board to investigate whether in the period, now more than 12 months since the original decision, there has been any change in the applicant’s financial affairs and whether the income to which the Board refers … is clearly such that it will continue.”[72]

   [71] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [48]; 266; 130; 484; 4,426

   [72] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [58]; 268; 133; 487; 4,428

1. Although decided long before the High Court decided Shi v Migration Agents’ Registration Authority[73] (Shi), his Honour’s approach is consistent with that taken by the High Court in that case.  As Kirby J expressed the general principle in his judgment in Shi, while the terms of a particular enactment may lead to a different conclusion:

   “          When making a decision, administrative decision-makers are generally obliged to have regard to the best and most current information available.  This rule of practice is no more than a feature of good public administration. When, therefore, the Tribunal elects to make ‘a decision in substitution for the decision so set aside’, as the Act permits, it would be surprising in the extreme if the substituted decision did not have to conform to such a standard.”[74]

   [73] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147; Kirby, Hayne, Heydon, Crennan and Kiefel JJ

   [74] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at [41]; 299-300; 400; 356; 477; 1156

1. Section 340-5(3) of the TAA is not an enactment that leads me to take a different conclusion. The question whether an individual “would suffer hardship if … required to satisfy the liability” (emphasis added) is a question very much framed in the moment of when it is being answered. It is not framed in terms of whether an individual would have suffered hardship if required to satisfy the liability at some time in the past or will do so if required to do so in the future. The liability changes as time goes by due to such matters as the GIC and interest charges. An individual’s circumstances change as time goes by. Those changes may be for the worse but, on occasion, they may be for the better. Section 340-5(3) does not ask the decision-maker to forecast the future or to divine what would have happened in the past.[75]

   [75] I will return to this aspect at [84]-[93] below when considering the exercise of the general discretion that arises when an individual would suffer the requisite serious hardship.

C.The relevance of possible bankruptcy

1. This is an issue that raised itself for consideration by the Full Court in Corlette v Mackenzie.  Mr Corlette’s application had stated that he was a chartered accountant and bankruptcy might jeopardise his ability to work.  Wilcox J, with whom Foster J agreed, examined the submission in the context of the overall decision.  I will return to his judgment.  Justice Einfeld addressed the submission in the context of serious hardship concluding that Mr Corlette was not working as a chartered accountant.  Even if he were, there was no evidence that bankruptcy would prevent him from working in that capacity even if it prevented him from owning his own practice.[76]  That suggests that one relevance of an individual’s potential bankruptcy in deciding whether an individual would be facing serious hardship is dependent on its effect on his or her capacity to work and generate income. 

   [76] (1996) 62 FCR 597 at 600

1. Another was addressed by Stone J in CTAT when she found that a decision by the Tribunal that serious hardship was very likely to follow should the individual be made bankrupt was reasonable.  It was reasonable even though the applicant’s income was substantial when reference was made to community standards.  His circumstances, though, were not usual when assessed by those same standards for he faced complications arising from his wife’s illness if his income were jeopardised by his being made bankrupt.  Those complications centred on his wife’s illness and the costs associated with her illness, domestic support and educating his children.  The costs themselves are assessed by reference to what would be regarded as reasonable according to community standards.

D.       The Commissioner’s Practice Statement: PS LA 2011/17

1. In the Policy, the Commissioner has addressed the concept of serious hardship in terms that I find are consistent with s 340-5(3), the TAA and the more general taxation law of which it is a part. What the Commissioner has gone on to do is to set out a three step approach to determine whether a person is suffering serious hardship. It is an approach that provides a very practical structure within which to gather together the information required to ascertain whether a person would suffer serious hardship if required to satisfy the liability.

1. In broad terms, the first of the Commissioner’s steps relates to identifying those for whom the individual has responsibility and, taking into account the income and assets of those other persons, working out the degree of the individual’s responsibility for them.[77]  The second relates to working out the individual’s income and outgoings and the third to his or her assets and liabilities.  A full copy of the Policy is available online[78] and I will outline the main points only of its second and third steps.

   [77] Policy at [39]-[40]

   [78]

1. The second of the Commissioner’s steps is:

   “42.     … concerned with quantifying the person’s capacity to meet the tax liability from their current income.  The tests in sequence are:

   (i)What is the person’s capacity to pay, as measured by the income and outgoings stated in the application or supporting documents, that is, what net income remains after deducting total outgoings from total income?

   (ii)Does the ATO accept that the income and outgoings stated are accurate and that the outgoings are necessary, or there is scope to increase the net income available or to reduce outgoings to meet the tax debt without serious detriment to living standards?

   (iii)If there is a margin by which available income exceeds reasonable outgoings, is it sufficient to allow the liability to be met within an acceptable time frame?

   43.In relation to the second test in subparagraph 42(ii) of this practice statement, the appearance of claims that a person incurs above-average expenditure on food, clothing or services, a high level of private travel or entertainment expenses, or payments for leisure goods such as caravans, boats and higher-priced motor vehicles would usually lead the ATO to a conclusion that capacity to pay exists.  Within this test, the ATO also seeks to determine whether there are optional expenditures which could be reduced or deferred to improve capacity to pay the tax debt.”

1. The third step sets out a number of tests:

   “45.     The tests within this segment are concerned primarily with determining whether the person’s equity in assets is indicative of capacity to pay the tax debt.  As a secondary consideration, the ATO may also need to address whether the acquisition of assets has unreasonably been put ahead of meeting the tax liabilities.

   46.There are several types of assets which the ATO would generally regard as normal and reasonable possessions, and which would not be expected to be surrendered or sold to meet revenue debts.  Subject to the proviso that values are modest rather than extravagant, those assets include:

   ·ownership of, or equity in, a residential property which is the person’s home

   ·a motor vehicle

   ·furniture and household goods

   ·tools of trade, and

   ·cash on hand or bank balance sufficient to meet outgoings for necessities or other reasonable expenditures, for example, funds put aside by aged persons to cover funeral expenses.

   47.Other assets such as caravans (except where a caravan serves as the person’s residence), holiday homes, luxury motor vehicles, boats, substantial life assurance or annuity entitlements, shares and other investments will generally be regarded by the ATO as indicating capacity to pay, through earlier disposal or use as security for borrowings, without involving serious hardship.

   48.As a general proposition, the ATO would also seek to reach conclusions as to whether assets have been valued realistically, and liabilities are accurately recorded.  Where doubts arise in relation to these aspects, the ATO may seek clarification of the basis of the valuation, or of other information.  However, certified valuations from professional valuers will not normally be required.”

E.Would Mr Rasmussen suffer serious hardship if required to satisfy the liability?

E.1      Income

1. On the basis of his evidence and the material in his application for release, I find that, before the middle of 2008, Mr Rasmussen was in receipt of a Carer’s Pension to care for his wife who is ill and continues to be ill.  In the middle of 2008, he had an opportunity to work as a trainer in his professional field.  From that time until February this year, Mr Rasmussen taught a monthly four day training course in the use of a software tool for assessing energy ratings assigned to new buildings.  He taught the course at a tertiary institution but has not taught it since February 2013 as Federal funding is no longer available for it and the State has yet to decide whether it will fund it.

1. On 18 July 2011, Mr Rasmussen established a corporation of which he is the sole director and shareholder.  Through that corporation, Mr Rasmussen performs work auditing that of other consultants in the energy efficiency industry.  The work is performed for a professional building association.  He is also a member of a committee that operates under the auspices of a regulatory Victorian agency.  At the time he lodged his application for release, the corporation was paying him a fortnightly salary of $2,900.00.[79]  Mr Rasmussen continues to do so but finds it increasingly difficult to perform the work as he must care for his wife, who continues to be largely incapacitated by illness, and his children.  In the fortnight before the hearing, he was only able to find time to perform fewer than 20 billable hours.  His hourly rate is approximately $100.00 per hour.  The reduced hours are reflected in the salary the corporation has paid Mr Rasmussen since 2011. 

   [79] T documents; T5 at 42

1. Mr and Mrs Rasmussen jointly own a taxi licence in regional Victoria from which they receive rental of $420.00 per week.  They also jointly own a house in that area.  It was formerly the family home but they have rented it to others so that they could be closer to Mr Rasmussen’s teaching and committee work.  They receive rental payments of $480.00 per fortnight for it after the deduction of management fees and expenses such as rates and ongoing costs.

1. Mr Rasmussen receives a Carer’s Allowance of $115.40 per fortnight for the care of his wife.  As he is in receipt of a Carer Allowance, he would also receive an annual Carer Supplement of $600.00 or so.  Both payments are not taxable.  Mrs Rasmussen also receives payment of Family Tax Benefits in the amount of approximately $272.00 per fortnight.

1. At the moment, the total income of Mr and Mrs Rasmussen is in the order of $1,300.00 per fortnight if he is unable to work.  In the fortnight before the hearing, he earned approximately $2,000.00.  If that continues to be the pattern, that would mean that the family has a total income in the order of $3,300.00 per fortnight.  Mr Rasmussen has approached Centrelink regarding any entitlement he and his family may have for income support.  In view of the difficulty of valuing the taxi licence, Mr Rasmussen said, it has been referred to the complex assessments team within Centrelink.

E.2      Assets and liabilities

1. The value of Mr Rasmussen’s assets was the subject of some discussion at the hearing for there is no direct evidence on the subject.  Had I been minded to make another decision from the one I have, I might have asked for further information of some sort regarding values because he does carry a burden of proof.  As it is, I accept his evidence without qualification. 

1. Mr and Mrs Rasmussen jointly own a taxi licence in regional Victoria.  They purchased it in April 2006 from Mrs Rasmussen’s father for the sum of $200,000.00.  At the time of the sale, the taxi licence had been leased to a third party who had an option to extend it for a further two year term.  The sale was subject to that lease from which they receive $420 each week.  Mr and Mrs Rasmussen paid half the purchase price on or about 30 April 2006.  They obtained a loan from the Bendigo Bank in order to pay that amount.  A sum of approximately $63,000.00 remains owing on that loan and the taxi licence is security for the loan.  Payments in the order of $982.00 are payable to the Bendigo Bank each month on that loan.  At the date of the hearing, Mr and Mrs Rasmussen were in arrears.

1. It was agreed with Mr Rasmussen’s father that the balance would be paid on 30 April 2016 but that interest would be paid on that amount at a rate that was 1.5% higher than the Cash Rate Target (CRT) set from time to time by the Reserve Bank of Australia.  Interest was payable monthly in arrears.  Mr and Mrs Rasmussen could repay the capital amount in multiples of $1,000.00 at any time during the term of the loan but have not made any payments.  On 24 October 2011, Mrs Rasmussen’s father lent them an additional $48,000.00 repayable on the same terms.  That amount will become repayable with the original sum of $100,000.00 on 30 April 2016.  Mr and Mrs Rasmussen were paying $284.60 per fortnight in June 2012.[80]  That should be a little less with the reduction of the CRT but are now in arrears.

   [80] T documents; T 11 at 75  The figure of $709.00 per month is shown as the amount of the repayments on the interest only loan owed to Mrs Rasmussen’s father. That figure does not sit well with an interest only loan on $148.000.00 at an amount of 1.5% above the CRT whereas the figure of $284.60 does and also accords with Mr Rasmussen’s own evidence at 75 of the T documents.

1. When he and his wife purchased the taxi licence, Mr Rasmussen said, they had been unaware that there was a considerable amount of unrest in the local taxi industry revolving around the network service providers.  While that unrest was continuing, no one wanted to buy a taxi licence.  Despite that, Mr Rasmussen did put it on the market in late 2010 in an attempt to sell it but there has been no interest in it.  At that time, he advertised it in the local paper and circulated notices to others engaged in the taxi industry by giving notice through the two service providers.  He has approached the current lessee directly but, again, the lessee has not shown any interest.  In more recent times, the Australian Competition and Consumer Commission has handed down its report and the value of a taxi licence is an unknown quantity.  The last sale of a taxi licence in the area, occurred before that report was handed down for the sum of $220,000.

1. In 2008, Mr and Mrs Rasmussen purchased their home in regional Victoria for $170,000.00 from Mrs Rasmussen’s mother.  It is mortgaged and there is currently approximately $158,000.00 owing on that mortgage.  The mortgage payments are approximately $455.00 per fortnight.

1. Since August 2012, they have rented a house closer to Melbourne for $742.00 per fortnight.  Initially, the children attended a State school but the little one was severely bullied.  As a result, Mr Rasmussen transferred them to a private school where the fees for both children are a combined amount of $2,200.00 each term.  They have not been paid.  He has been told that, if he cannot pay them by the end of the year, his children will not be able to continue attending that school.

1. Mrs Rasmussen owns a Mazda 121 that was first registered in 1996 and has now done 270,000 kilometres.  She needs it to pick up the children from school, Mr Rasmussen said, if he cannot do so but her illness means that she is not always fit to drive.  He uses a motor vehicle that is either leased or subject to a loan on which the payments are $255.00 per fortnight.  Mr Rasmussen valued the Mazda 121 at $200.00.  He thought that a figure of between $1,200.00 and $2,600.00 shown in the Red Book, to which Ms Vanproctor referred, might possibly be achievable on a private sale but not from a car dealer.  In view of his no longer teaching, Mr Rasmussen said that he needed to think about whether the family needed to run two cars.

1. Mr Rasmussen has acquired computer equipment for his business purposes on a lease basis.  The total cost is approximately $4,000.00 to $5,000.00 and is repayable at the rate of $300.00 per month.

1. In addition to the liabilities I have set out, Mr Rasmussen has ongoing expenses related to the costs associated with living.  He has provided details from time to time.  In his application for reduction, Mr Rasmussen had set out expenses totalling $2,314.00 each fortnight.  That figure included $588.00 for rent, which is less than the amount of $742.00 he is now paying.  The payments of $128.00 for vehicle loan repayments/leasing charges, and school fees and educational expenses of $194.00 per fortnight are consistent with those that I have already set out above.  The expenses that are not included in that figure are the mortgage and loan repayments relating to the taxi licence, the house and the computer.  On a fortnightly basis, the repayment due to the Bendigo Bank for the taxi licence is approximately $490.00, those to Mrs Rasmussen’s father are $284.60 and those to the Bendigo Bank for the mortgage on the house are $455.00.  Taking the expenses that he identified in his application for release[81] and the repayments that he must make on his loans, Mr Rasmussen’s total expenses on a fortnightly basis are in the order of $3,578.60 each fortnight.  That is a figure that pays no regard to any amount that is payable to the Commissioner.

   [81] T documents; T5 at 43

E.3Would Mr Rasmussen suffer serious hardship if not released from the tax liability? 

1. On the figures that I have set out, Mr Rasmussen would appear to be some $243.00 short each fortnight if he were to continue his same rate of expenditure.  There are items in his list of expenditure that might be thought to be higher than might be expected in the average household.  I refer, for example, to the telephone and internet expenses of what had, by the time of the hearing reduced from $150.00 to $108.00 per fortnight, when there would seem to be room to explore whether there are cheaper plans available that might cater for the family’s needs.  Amounts spent on take away food in the sum of approximately $53.00 each fortnight might be thought to be rather high but, in this instance when Mr Rasmussen is under pressure caring for his sick wife and having difficulty in finding time in doing that while trying to work to maintain his family, it would be churlish to question those expenses too closely.

1. Mr Rasmussen said at the hearing that he had reduced the expenses shown in his application for release quite considerably but there was still a shortfall.  He has fallen behind in his mortgage and loan repayments and the school fees are unpaid.  His gas and electricity bills are overdue.  He is in this position even though he has not made an instalment payment to the Commissioner since December 2011.  It is not necessary for me to take the extra step to decide whether he is now in a position where he cannot provide the basic necessities for his family.  Even if he cannot, provide those necessities, his inability does not turn on his being required to satisfy the tax liability.  It turns on the general shortfall of his income when assessed against his outgoings having no regard to his tax liability.  

1. Ms Vanproctor asked Mr Rasmussen about the possibility of his borrowing against any equity in the house he and his wife own.  She pointed to a printout from the Bendigo Bank’s website stating that the maximum amount that it would lend as a Residential Variable Home Loan was 95% of the value of the property.  She pointed to a document prepared by the Victorian Valuer-General and entitled “A Guide to Property Values” to suggest that the value of the house had increased by 8% in the last five years.  I have reservations about relying on that document in this case.  What it shows are the median prices in each of the years from 2002 to 2012.  It does show an 8% increase in that median price between 2008 and 2012 or, on the preliminary figures for 2013, possibly even a 13% growth rate in that median price.  What it does not show are the features that determine where a particular house sits in relation to that median price and the factors that affect whether a general price increase applies equally to it as to others in the area.  Those factors include not only a particular house’s features but its particular location within the area.

1. Even if I accept that the value of Mr and Mrs Rasmussen’s house has now increased in value by an amount in the order of 8% since they purchased it in 2008, its value would now be approximately $184,000.00.  That figure is based on an assumption that the price of $170,000.00 that they paid for it reflected the market price at the time.  Assuming that the Bendigo Bank were prepared to lend a further amount, the total loan would be no more than $174,800.00.  That is an additional $16,800.00 on top of what they already owe.  It is not enough to pay Mr Rasmussen’s tax liability.  If he were to pay it to the Commissioner in partial satisfaction of his tax liability but were still unable to meet his liabilities and were to become bankrupt either at his own instigation or at that of either the Bendigo Bank or his father in law, it is possible that his trustee in bankruptcy would regard it as a preferential payment and recover it to be distributed equitably among his creditors.

1. Before any of those possibilities arise, the possibility of the Bendigo Bank’s lending Mr Rasmussen any further moneys has to be assessed realistically.  The printout from the bank’s website states that, if the loan amount exceeds 80% of the value of the property, then Lender’s Mortgage Insurance is required.  That becomes an extra cost that Mr Rasmussen has to fund each month together with higher mortgage payments to reflect the increased mortgage.  On his evidence, he cannot service the mortgage he has and it is difficult to see how the Bendigo Bank would reach a conclusion that he could service an increased mortgage in the future.  Therefore, finding funds through this means is not, in my view, a realistic option.

1. I have also considered the outcome if Mr and Mrs Rasmussen were able to sell their two assets.  Assuming that the house is now be worth something in the order of $184,000.00, after deducting the amount of $158,000.00 secured by the mortgage over the property, they would be left with equity in the order of $26,000.00.  They would not receive that amount on a sale of the property, of course, because agent’s fees would be deducted from the selling price and allowance would have to be made for the payment of any Capital Gains Tax as it has been used as an investment property for part of the time they have owned it.  I will assume for the moment, though, that they receive the full amount.  If they were able to sell the taxi licence for, say, $220,000.00, which was the price achieved on the last sale, he would net $9,000.00 if he were not in arrears on the interest only payments at the time. 

1. The outcome of selling the assets would be that they would net Mr Rasmussen something less than $35,000.00 when costs and arrears are taken into account.  That would be enough to cover the tax liability and the ongoing liabilities associated with the ownership of the two assets would be at an end.  That would reduce the family’s fortnightly outgoings quite extensively but also decrease their income because they would no longer receive the rental and lease payments.  The difference would be between outgoings totalling some $1,230.00 against income totalling $900.00.  That would improve their situation by some $300.00 each fortnight and cover the $240.00 or so by which their expenses exceed their income at the moment.  Some of that sum would then be available to repay the tax liability in instalments.

1. This is, though, a hypothetical situation because I accept the evidence of Mr and Mrs Rasmussen that they have tried to sell the taxi licence and that there are no potential purchasers currently in the market.  What the hypothetical situation illustrates is that the family’s financial difficulties do not arise from being required to satisfy the tax liability.  That tax liability is an additional burden but their difficulties arise in the first instance because they are required to meet their liabilities other than their tax liability. 

1. It follows that I am not satisfied that Mr Rasmussen would suffer serious hardship if he were required to satisfy the tax liability. He does not meet the criteria in Item 1 of s 340-5(3) of the TAA. That is an end of the matter, but I will consider the discretion lest I be incorrect in that conclusion.

E.3      Tax liabilities incurred by the corporation

1. Since its incorporation, Mr Rasmussen’s corporation has not paid any PAYG withholdings to the Commissioner on salary paid to him. That is despite its having lodged its first Business Activity Statement during the September 2011 quarter. At the date of the hearing, the corporation owed the Commissioner $45,490.38. Mr Rasmussen said that he had used the money earmarked for the Commissioner for a family visit to his sister in Denmark in 2009 for one last time before she died from cancer. This tax liability is not a liability that may be released under s 340-5(3) for the Commissioner’s powers are limited to the tax liability of individuals or the trustee of an estate of a deceased individual.

The discretion

A.       The limits of the discretion

1. The scope of any discretion given to a decision-maker under an enactment and the boundaries within which it must be exercised depend on the:

   “… construction of the statute conferring the discretion.  If the statute expressly states the considerations to be taken into account, it will often be necessary … to decide whether those enumerated factors are exhaustive or merely inclusive.  If the relevant factors – and in this context I use this expression to refer to the factors which the decision-maker is bound to consider – are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act. … [W]here a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard … By analogy, … the court will not find that the decision-maker is bound to take a particular matter into account unless the implication that he is bound to do so is to be found in the subject-matter, scope and purpose of the Act.”[82]  

   [82] Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24; 66 ALR 299 at 39-40; 309 per Mason J with whom Dawson J agreed. See also R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45; 27 ALR 321 at 49; 325 per Stephen, Mason, Murphy, Aickin and Wilson JJ citing with approval Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505

1. Section 340-5(3) does not expressly state any considerations to which the Commissioner must have regard in exercising the discretion but there are considerations implicit in the provision and in the legislation. One set of considerations lies in the nature of the taxation laws imposing income tax. I have already mentioned this above but, in summary, they impose income tax on members of the community by reference to a range of objectively based criteria. At the heart of those criteria lies the fact that the member of the community has earned income and has done so in an amount that attracts the payment of income tax. It is not imposed by reference to his or her personal circumstances or identity.

1. As well as imposing tax liability, the taxation laws provide for the recovery of that liability. Division 255 of the TAA is concerned with collection and recovery. Of particular relevance in the context of the release of a tax liability is the Commissioner’s power to defer the time of payment and the power to permit payment by instalments. They are provided for under ss 255-10 and 255-15 respectively. Release of a tax liability that relates to income tax amounts to the Commissioner’s relinquishing the right to claim the amount that is released.

1. By permitting the Commissioner to alleviate the liability either totally or in part, Parliament has allowed regard to be had to personal circumstances as well as to other relevant criteria.  There is little guidance in the authorities as to the considerations that are relevant in exercising the discretion.  There is a little, though.  One arises from this passage from the judgment of Wilcox J in Corlette v Mackenzie:

   “… If the basis of a request for release is to avoid a bankruptcy, there is really not much point in granting the application if the person is likely to be made bankrupt at the instance of another creditor.  The only effect of the release would be to preclude the Australian Taxation Office from proving in the bankruptcy and taking whatever dividend might be available. …”[83]

   [83] Corlette v Mackenzie (1996) 62 FCR 597 at 600 per Wilcox J

1. Another consideration arises from the behaviour of the taxpayer.  In assessing serious hardship, consideration is not given to how the person came to be in the particular financial situation when the application for release of debt is made.  The taxpayer may have spent money wisely, imprudently or even extravagantly but, at that stage, it is a matter of “… little, if any significance, for the money, having been spent, is unavailable to be used again to alleviate the financial hardship. …”[84]  Where it does become relevant is on the exercise of the discretion.  That is where Wilcox J saw its relevance in Corlette v Mackenzie in the passage I have set out at [85] above. In his view, “It would be extremely odd if a taxpayer who was the author of his or her own misfortunes, through imprudent or extravagant expenditure, was entitled, as a matter of right, to a release of unpaid income tax.”[85] 

   [84] Powell [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [42]; 264; 128-129; 483; 4,425

   [85] (1996) 62 FCR 597 at 598

1. At the same time, Wilcox J acknowledged that loss or circumstances outside the control of the taxpayer might be relevant.  In Milne, Mr Milne’s circumstances had to some extent been brought about by the fraud of his former business partner when they were practising in partnership as legal practitioners, his own deteriorating health that caused him to suffer both severe illnesses and physical disabilities.  Justice Conti considered that these were among the circumstances to which the Commissioner was required to have regard.[86]

   [86] [2006] FCA 1005; (2006) 153 FCR 52; 63 ATR 538, 2006 ATC 4503 at 76

1. One factor that is not relevant is how the tax liability came to be incurred.  This was a matter considered by Hill J in Powell in looking at s 265(1)(b) of ITAA36, which now equates with Item 2 of s 340-5(3) of the TAA. It focuses on serious hardship to the dependants of a deceased individual. In his Honour’s view, the only relevance of a tax liability’s being incurred because the taxpayer was found to have been a party to a tax avoidance scheme is “… that it explains how it came about that income tax was payable, but the fact that the income tax was payable will be present in every case where an application for relief under s 265 is made.”[87] 

[87] [1989] FCA 114; (1989) 21 FCR 252; 87 ALR 117; 20 ATR 472; 89 ATC 4,415 at [51]; 267; 131; 485; 4,427

B.       The Commissioner’s Practice Statement: PS LA 2011/17

1. In deciding whether to exercise the discretion whether to release the liability, the Commissioner has said:

   “51.     … it is clear that the ATO is obliged to act reasonably and responsibly, and should not act arbitrarily or capriciously.  Examples of situations in which the ATO may decide against granting release, even though implications of serious hardship may be drawn, are:

   ·where it appears that the person has, questionably or otherwise, disposed of funds or assets without making proper provision to meet tax liabilities

   ·where the granting of release would not result in reduction of hardship, such as where the person has other liabilities or creditors to such an extent that release from the tax debt will not relieve hardship

   ·where the person has used available funds to discharge debts due to other private creditors in preference to debts due to the ATO

   ·where the person has used available funds to discharge debts due to other business creditors where those payments are not considered reasonably necessary to maintain the viability of the business and could be considered as unfair preference payments to the detriment of the ATO

   ·where the person, for less than adequate reasons, has failed to pursue debts due to them, or to seek possible contributions from insurers, or persons with joint responsibilities for debts

   ·where serious hardship is associated with a single event or short term outcome, such as might be less encountered in the more speculative or seasonal business undertakings, the effects of which can be expected to abate within a short term

   ·where the person has a poor compliance history, and

   ·where the person is unable to demonstrate that they have made provision for future debts.”

1. In addition to these criteria there are two others to be found in the Policy:

   “… Release from the full amount of the liability would not generally be appropriate where partial release is sufficient to avert hardship. ...”[88]

“… [T]he ATO generally takes a two to three year payment span as an individual yardstick.  Capacity to pay at a limited rate which would not see the debt cleared in two to three years would be a factor indicating that granting of a partial release may be appropriate.”[89]

[88] Policy at [52]

[89] Policy at [44]

1. The criteria that the Commissioner has developed are consistent with s 340-5(3), the TAA and the taxation law generally. It leaves the decision-maker with flexibility to make a decision that can take account of the individual’s particular circumstances.

C.Mr Rasmussen’s circumstances

1. As I said earlier, I do not consider that Mr Rasmussen meets the circumstances in Item 1 of s 340-5(3) of the TAA but I will consider whether I would have exercised the discretion under that provision had he done so.

1. In his objection, Mr Rasmussen wrote:

   “The existing tax debts have built up over a period of time due to the pressure of caring for my wife whilst trying to maintain a consultancy business.  The business allows the flexibility to be able to work from home when necessary and produces a greater income than a part time job.  Changing ‘jobs’ would be detrimental to my wife’s health and well being.  And it would be difficult to find a job that would have a sufficient rate of income.

   Selling either of the assets would not help us nor would it assist the ATO.  We have simply been put in a peculiar situation in regard to this and have already exhausted the equity we have in them.

   If we could just get on top of our tax obligations we would be in a much better position to make our finances more sustainable. …

   My request is to be released of tax liabilities up to the end of this year and it should be possible for us to meet our future obligations.  Both to the ATO and elsewhere.

   … Through careful planning I will be able to facilitate the extra hours required to bring our budgeted cash position back to breakeven, however the only way in which I can generate sufficient cash flow to cover my existing tax debts is to place … [my wife] into care which will allow me to resume full time work.  The cost of this will far out way [sic] the financial benefit achieved and cause significant emotional strain on my family.  This option is NOT at all viable and would be a significant cost to the Australian Government as well.

   I am aware that the tax obligation is of highest priority and I should have paid it as we went along.  Lesson learned by having the stress of this over me the past 3 to 4 years as well as the stress of the decrease of my wife’s health. …”[90]

   [90] T documents; T8 at 57-58

1. In considering the criterion of serious hardship, I looked at Mr Rasmussen’s income and expenditure and the options available to him.  Those options were assessed on his current level of work of approximately 10 hours per week.  Certainly, he may be able to increase that workload but, accepting the practical and emotional difficulties that Mrs Rasmussen’s illness causes the family and Mr Rasmussen’s own evidence that he has had difficulty in maintaining the workload, I find that his ability to work billable hours will be determined by the family’s needs at this time.  While Mrs Rasmussen’s illness is not of the family’s choosing and is a matter outside its control, it is an illness that has been ongoing for many years.  On the basis of Mr Rasmussen’s evidence, I find that Mrs Rasmussen had some good years between approximately 2000 and 2006 but has since deteriorated.  Mr Rasmussen began teaching and established his consultancy business after 2006.  That means that his wife’s illness was not something that was not known to him as something that he had to allow for in his professional life.

1. Mr Rasmussen acknowledged that he chose to take the family to visit his dying sister in Denmark in 2009 at a time when he had an outstanding tax liability.  It might seem harsh to describe this as a choice that he made to prefer his family above meeting his tax liability.  Taken in isolation, his need to visit his sister is entirely understandable.  His going to visit her would have been entirely understandable even in straitened financial circumstances.  His decision to take his whole family at a time when he was not able to meet his tax liability represents a clear choice to place his family above his obligation to the Australian community to pay his tax liability.  His choice is a matter for him entirely but it is a matter that does not favour the exercise of a discretion releasing him from paying a tax liability he chose to put to one side in making his personal decisions.

1. Mr Rasmussen has made other choices that have led him, until very recently, to maintain the payments on the family’s two assets but not to maintain any payments towards the reduction of the tax liability since December 2011.  When faced with choices of that sort, it may well be easy for a taxpayer to characterise an obligation to pay a tax liability in terms of an obligation to pay the Commissioner or the Australian Taxation Office (ATO).  Focusing on those whose task it is to administer the taxation legislation and to collect tax, is to take the focus away from the fact that it is collected under those laws for, ultimately, the benefit of the Australian community of which the taxpayer is a member.  Within that community, an individual taxpayer may husband his or her own income and assets but, as a member of it, he or she must make a contribution to the infrastructure that is provided for the benefit of all.  It is provided whether or not an individual taxpayer needs to call on it all the time, some of the time or not at all.  Hospitals and roads are obvious examples but so too are income maintenance payments.  When seen in this light, when choosing to maintain payments on privately acquired assets but not to maintain any payments to meet a tax liability, a taxpayer is saying that the community should support him or her for his or her share of the costs of meeting the infrastructure and services that are met out of taxpayers’ meeting their tax liabilities.

1. If I were to exercise the discretion to waive the tax liability, my analysis of Mr Rasmussen’s financial situation leads me to conclude that he is vulnerable to being declared bankrupt.  His vulnerability may not come from his mortgagee for it has rights to foreclose on the mortgage but may come from unpaid utility bills.  It may be that he chooses to take steps to bankruptcy himself.  If it does come about, release of the tax liability would mean that no part of the amount released could be recovered in the bankruptcy.

1. All of these matters lead me to conclude that, had Mr Rasmussen satisfied the criterion under Item 1 of s 340-5(3) of the TAA, I would not have exercised the discretion to release him from the tax liability. For those reasons, I affirm the objection decision of a delegate of the Commissioner dated 23 July 2012.

I certify that the one hundred preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,

Signed:            ....(sgd).....................................................

Leah Berardi               Associate

Date of Hearing  23 September 2013

Date of Decision  17 October 2013

Self-represented applicant  Mr H Rasmussen

Counsel for the respondent                  Ms C Vanproctor

Solicitor for the respondent                  Ms A O’Brien

ATO Legal Services Branch