Shaw and Commissioner of Taxation (Taxation)

Shaw and Commissioner of Taxation (Taxation) [2022] AATA 343 (1 March 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number:2020/2716
Re:Jason Shaw
APPLICANT

Commissioner of TaxationAnd
RESPONDENT

DECISION
Tribunal:Senior Member Dr M Evans-Bonner
Date:1 March 2022
Place:Perth

The Reviewable Decision, being the Objection Decision dated 19 March 2020, is set aside and substituted with the decision that Mr Shaw is granted a partial release of his eligible taxation debt, with the amount released being the General Interest Charges that have accrued as at the date of this decision.
..............[Sgd]..........................................................
Senior Member Dr M Evans-Bonner
CATCHWORDS
TAXATION – application for release from taxation liability – all of the Applicant’s unpaid taxation liabilities eligible for release – Taxation Administration Act 1953 (Cth) – sch 1 s 340-5 – meaning of phrase “serious hardship” – income/outgoing test – assets/liabilities test – other relevant factors – whether to exercise discretion to grant release from taxation liabilities – Reviewable Decision set aside and substituted with the decision that Mr Shaw is granted a partial release of his eligible taxation debt, with the amount released being the General Interest Charges that have accrued as at the date of this decision
LEGISLATION
Taxation Administration Act 1953 (Cth) sch 1 div 340, sch 1 s 340-1, sch 1 s 340-5, sch 1 s 340-5(3), sch 1 s 340-5(3) item 1
Income Tax Assessment Act 1936 (Cth) as repealed by Taxation Laws Amendment Act (No. 6) 2003 (Cth) s 265
CASES
Commissioner of Taxation v Milne (2006) 153 FCR 52
Corlette v Mackenzie (1996) 62 FCR 597
Lau and Commissioner of Taxation [2016] AATA 46
Re Filsell and Commissioner of Taxation [2004] AATA 1012
Schweitzer and Commissioner of Taxation [2019] AATA 1100
Van Grieken v Veilands & Ors (1991) 21 ATR 1639
SECONDARY MATERIALS
Australian Taxation Office, Debt relief, waiver and write off
(PS LA 2011/17,

15 October 2020) cls 8, 9, 10, 11, 12
REASONS FOR DECISION
Senior Member Dr M Evans-Bonner
1 March 2022
BACKGROUND

Mr Shaw is seeking to be released from his eligible taxation liabilities which totalled $180,832.52 as at the day before the hearing of this application. This sum is comprised of $126,480.77 of outstanding Pay As You Go Instalments (PAYGI) and General Interest Charges (GIC) of $54,351.75. The current GIC rate is 7.04 per cent and will continue to compound on outstanding liabilities.
The Commissioner has refused to release Mr Shaw from these taxation liabilities; however, Mr Shaw argues that he would suffer serious hardship if he is required to pay them.
Mr Shaw is a carpenter by trade who was running his own building maintenance business. Following a relationship breakdown, Mr Shaw developed a drug addiction, and recommenced a previous gambling addiction. He was not managing his affairs including failing to open his mail and to pay his debts. Mr Shaw said that he was not of “sound mind” during this period when his debts accumulated. He ended up accumulating debts, being pursued by debt collectors and neglecting his taxation obligations. In 2017 a bailiff seized his car. He also fell behind in his mortgage repayments, resulting in the bank giving him the opportunity to sell his house himself.
Mr Shaw’s evidence at the hearing was that he had not seen a psychiatrist since 2011, although there is evidence of engagement with his general practitioner in 2019 stating that his mental health conditions and drug abuse were controlled as of “recent times”. Mr Shaw stated at the hearing that he had tried to make lifestyle changes to address his mental health issues himself. Mr Shaw’s evidence was that he ceased using drugs two years ago, and that he has not gambled for approximately eight to ten months. His evidence was that his drug use contributed to his gambling and that because of his gambling he “lost everything”. Mr Shaw also sought assistance and counselling from a financial counsellor in 2017 and 2018.
This is not the first time Mr Shaw has applied for a release. In 2010, Mr Shaw suffered psychiatric issues and was hospitalised. He also had a gambling addiction at that time. He applied for a release from his eligible taxation liabilities of $59,037.60 in December 2013, which the Commissioner granted in October 2014.
Mr Shaw’s mother, Mrs Shaw, assisted him to apply for release on both occasions. She acted as a concerned mother, trying her best to help her son by taking control of his money, repaying his debts, and frequently communicating with the Australian Taxation Office (ATO) on her son’s behalf.
Mrs Shaw also assisted her son with these Tribunal proceedings, including preparing written submissions, filing evidence, and liaising with the Commissioner’s representative on her son’s behalf.
The Reviewable Decision that Mr Shaw is seeking to appeal is a decision of the Deputy Commissioner of the Respondent dated 19 March 2020. The Reviewable Decision disallowed Mr Shaw’s objection dated 20 January 2020 to an earlier decision of the Deputy Commissioner of the Respondent of 2 December 2019 not to grant Mr Shaw a release from his eligible taxation debt.
Thus, the central issue I must determine is whether Mr Shaw should be released from all or part of his eligible taxation debt under s 340-5(3) of sch 1 of the Taxation Administration Act 1953 (Cth) (TAA). This requires me to assess whether satisfying the liability would cause Mr Shaw serious hardship.
RELEASE FROM TAXATION LIABILITIES
Division 340 of sch 1 to the TAA is titled, “Commissioner’s power in cases of hardship”. Section 340-1 outlines “What this Division is about” and states:
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.
Section 340-5 of sch 1 of the TAA provides, in part, that:
(1) You may apply to the Commissioner to release you, in whole or in part, from a liability of yours if section 340-10 applies to the liability.
…
(3) 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.
The above-mentioned table specifies that the condition that needs to be satisfied for an individual is whether “you [the Applicant] would suffer serious hardship if you were required to satisfy the liability”.
TWO-STAGE APPROACH
The determination of whether an applicant should be released from their eligible taxation liability ordinarily involves a two-stage approach. I must first consider whether the applicant would suffer serious hardship if they were required to satisfy their taxation liability (see item 1 of the table under s 340-5(3) of the TAA).
If the answer to that question is “yes”, I will need to consider whether the discretion to release the applicant from that liability should be exercised. It is a matter of discretion for me, the Tribunal, to exercise, and not a matter of right for an applicant (see Wilcox J in Corlette v Mackenzie (1996) 62 FCR 597, 598 [5] in the context of s 265 of the Income Tax Assessment Act 1936 (Cth) (ITAA36), which was the precursor to s 340-5 of sch 1 of the TAA).
This two-stage approach was described by Deputy President McDermott in Lau and Commissioner of Taxation [2016] AATA 46 at paragraph [65]:
The Tribunal in Re Filsell and Commissioner of Taxation provided that a two stage approach should be applied determining whether the discretion to release should be exercised:
“In the Tribunal’s opinion, the language of the legislation requires a two stage approach. First, the decision-maker must decide whether the settlement of the liability will result in serious hardship. If that decision is favourable to the applicant, the discretion offered by sub-section
340-5(3) then falls for consideration. In reaching the decision to release in whole or part, the question to be addressed is whether, in all circumstances, it is just and proper to provide the requested relief. Matters pertaining to the incidence and consequence of the tax and the effect of its exaction upon the affairs of the person will bear upon the issue of whether the relief is just and proper...”
(Footnotes omitted.)
The above approach from Re Filsell and Commissioner of Taxation [2004] AATA 1012 was cited and applied by the Federal Court in Commissioner of Taxation v Milne (2006)

153 FCR 52.
SERIOUS HARDSHIP
“Serious hardship” is not defined in div 340 of sch 1 of the TAA. Nor does the division set out any guiding factors or principles that may be relevant in assessing serious hardship. The ATO has, however, issued the Practice Statement Law Administration 2011/17: Debt relief, waiver and non-pursuit (PSLA) to assist decision-makers, which defines “serious hardship” in cl 8, as follows:
‘Serious hardship’ is given its ordinary meaning.
We consider serious hardship to exist where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation, or education.
We have tests to apply in helping you decide whether serious hardship exists. The object of the tests is to determine whether the consequences of paying the tax would be so burdensome that the person would be deprived of what are considered necessities according to normal community standards.
These tests are:
·the income/outgoing test
·the asset/liabilities test
·other relevant factors.
The definition of “serious hardship” has also been discussed in Court and Tribunal decisions. These were usefully summarised by Deputy President Forgie in Schweitzer and Commissioner of Taxation [2019] AATA 1100 at paragraph [101] as follows:
The expression “serious hardship” has been considered both in this context and in others. The principles that can be drawn from them include:
(1) Provisions in s 265(1) of ITAA36 “... assume the existence of the tax liability and provide for relief on special grounds beyond those considered in the process of assessment.”: Van Grieken v Veilands per Gummow J.
(2) 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.”: Powell v Evreniades per Hill J.
(3) “... Clearly, there is a distinction between, on the one hand hardship which is serious, and on the other hand, hardship which may be said to be extreme although it is obvious enough that what will constitute either will depend upon the circumstances of a given case.
... Clearly there would be severe financial hardship if the dependants of a deceased person were left destitute without any means of support. That is not to say that in any particular case something less than that will not constitute serious hardship.”: Powell v Evreniades per Hill J.
(a) “... In Evreniades, Hill J gave such an example when he recognised that there would be ‘severe financial hardship’ if persons were left ‘destitute without any means of support’. The Taxation Ruling gives a similar example when it says that there would be serious hardship if a taxpayer were left ‘without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements’. I do not see any inconsistency in these examples. Effect must be given to the qualification of ‘reasonable’ in the Taxation Ruling and, consistently with the reasoning of Hill J, these examples do not exclude the possibility that something less than destitution will constitute serious hardship. Whether this is so depends on the particular circumstances of each case.”: Commissioner of Taxation v A Taxpayer per Stone J.
(4) “... ‘serious hardship’ is itself the test that has to be applied to an applicant’s circumstances to decide if that applicant is eligible for relief from a tax debt. There is no other test, although there may be issues about which factors, in the particular circumstances, are or are not relevant to this determination. It is because the assessment is based so squarely on the individual circumstances that Hill J in Evreniades [Powell v Evreniades] thought it was inappropriate to try and identify, in the abstract, the circumstances that would give rise to serious hardship.”: Commissioner of Taxation v A Taxpayer per Stone J.
(5) The task lies in “... assessing the ... [taxpayer’s] individual circumstances by reference to normal community standards”: Commissioner of Taxation v A Taxpayer per Stone J.
(a) What amounts to “reasonable acquisitions” of relevant necessities is assessed by reference to what is “... not excessive or unreasonable in all the circumstances...”: Commissioner of Taxation v A Taxpayer per Stone J.
(b) 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...”: Powell v Evreniades per Hill J.
(c) The expression “normal community standards” is not a term used in item 1 of s 340-5(3) or in Division 340 generally. The principles that can be drawn from cases that have considered the expression in other areas of the law suggest that community standards relate to a variety of matters and cannot be the subject of evidence. The decision-maker, be it a jury, a magistrate or an administrative decision-maker is expected to draw on its own collective knowledge of such things.
(d) “... 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. ...”: Radio 2UE Sydney Pty Ltd v Chesterton per French CJ, Gummow, Kiefel and Bell JJ.
(e) “In Reader’s Digest [Reader’s Digest Services Pty Ltd v Lamb] 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...” Radio 2UE Sydney Pty Ltd v Chesterton per French CJ, Gummow, Kiefel and Bell JJ
(6) In assessing serious hardship, an individual’s potential bankruptcy may be relevant in assessing his or her capacity to work and so to generate income: Corlette and Another v Mackenzie and Others per Wilcox, Einfeld, Foster and Einfeld JJ.
(a) An example is found in Commissioner of Taxation v A Taxpayer in which Stone J decided that the Tribunal’s decision that serious hardship was very likely to follow should the individual be made bankrupt was a reasonable decision. 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.
(Footnotes omitted.)
WOULD THE APPLICANT SUFFER SERIOUS HARDSHIP IF HE IS REQUIRED TO PAY HIS TAXATION DEBT?
As noted above, the PSLA identifies three tests that assist in determining the merits of a serious hardship application. These are the income/outgoing test, the assets/liabilities test, and other relevant factors.
Income/outgoing test
The income/outgoing test is defined in cl 9 of the PSLA which states:
The purpose of the income/outgoing test is to assess a taxpayer's capacity to meet their tax liability from their current income. We take into account household income and expenditure along with the taxpayer’s ability to provide the necessities for family members or others for whom they have responsibility. In addition, the following are relevant considerations:
·the taxpayer's capacity to pay in a reasonable timeframe on the basis of their income and outgoings
·scope for the taxpayer to increase their income
·whether all expenditure could be considered reasonable and consideration of any discretionary components, and
·whether the taxpayer has made attempts to defer or reschedule other financial commitments.
For the last three years, Mr Shaw has been employed by a company rather than running his own business. This is because he has realised his limitations in managing his own business affairs and now his employer withholds his tax from his salary by way of PAYGI.
At the hearing Mr Shaw confirmed that he earns approximately $100,000 per year from his employment. This sum consists of $2761 per fortnight, plus an additional call out fee of $250 per fortnight, which totals approximately $3,011 per fortnight. He also receives a family tax benefit of $43.82 per fortnight. An email from Mrs Shaw received after the hearing, dated 25 October 2021, states that Mr Shaw was on workers’ compensation at that time after having a hernia operation in late September 2021 and would likely be off work until mid-November 2021. During that time, he was not receiving any overtime.
The financial relations of a taxpayer with other members of the household are relevant to consider (Van Grieken v Veilands & Ors (1991) 21 ATR 1639 at 1646). Mr Shaw’s two daughters live with him. He has an adult daughter who is undertaking a traineeship and earns $1725 per fortnight. In his evidence Mr Shaw confirmed that she makes minimal contributions to household expenses by buying groceries for when she cooks once a week. She does not pay board, although Mr Shaw conceded that she should probably do so.
Mr Shaw’s youngest daughter, who is still a minor, is in her final year of high school and works in a part time job four days a week, earning $140 per fortnight. She does not contribute to household expenses. However, I do not regard her income as relevant, because it is minimal.
After expenses, which Mr Shaw confirmed were approximately $1914 per fortnight, he has approximately $1097 per fortnight in surplus funds. However, at the hearing, Mr Shaw stated that he only had approximately $4,000 in surplus funds in his bank account. He was asked why he did not have more money in the bank, with a surplus of over $1000 per fortnight. Mr Shaw explained that he did not live a “flash lifestyle”, but that there were additional costs associated with everyday living, including buying clothes, “other things throughout life” and items for the house that need replacing such as furniture, bedding and air-conditioning. Some of Mr Shaw’s spending appears to be of a discretionary nature, including paying for entertainment costs, driving lessons for his youngest daughter and insurance and registration on her car.
I appreciate that there are costs associated with everyday living that can diminish a person’s surplus income. Nevertheless, $1000 is a significant surplus. Such a surplus suggests that Mr Shaw can meet his reasonable living costs including necessities such as food, clothing, medical supplies, and accommodation, with some surplus being left over to service his taxation debts.

However, prior to the handing down of this decision and reasons, I asked the Respondent to confirm how long it would take Mr Shaw to repay the outstanding taxation liabilities he had accrued as of 21 February 2022 (including GIC and other charges that would continue to accrue), if he repaid $1,000 per fortnight or, by way of comparison, $500 per fortnight (which would take into account the additional costs associated with everyday living described in paragraphs [25] and [26] above). The Respondent confirmed that, based on the current GIC rate of 7.04 per cent, if he repaid $1,000 per fortnight, the debt would be repaid in full in approximately nine years and four months. The Respondent also confirmed that if Mr Shaw repaid $500 per fortnight, the debt would be repaid in approximately 16 years. Both timeframes are lengthy, and I do not consider them to be reasonable.
Although Mr Shaw has some monthly surplus to pay towards his taxation liability, he cannot repay his taxation liabilities within a reasonable timeframe. Thus, overall, I find that the income/expenditure test is satisfied. Consequently, this test weighs in Mr Shaw’s favour.
Assets/liabilities test
The assets/liabilities test is defined in cl 10 of the PSLA which states:
The purpose of the asset/liabilities test is to assess a taxpayer's equity in, or access to, assets which may be indicative of their capacity to pay. Consideration is given to any property owned wholly or jointly by the taxpayer and their partner, privately or within a business structure.
There are several types of assets which are regarded as normal and reasonable possessions. These would not be expected to be surrendered in order to pay a tax debt, provided they are of a reasonable nature and include:
·ownership of, or interest in, a residential property which is the taxpayer's home
·a motor vehicle
·furniture and household goods
·tools of trade
·cash on hand or bank balances sufficient to meet immediate day-to-day living expenses, and
·funds put aside by aged persons to cover funeral expenses.
All other significant assets need to be scrutinised to determine capacity to pay (either by sale or used as security for a loan). These assets include other real estate, multiple or luxury motor vehicles or boats, life insurance or annuity entitlements, shares and other investments, and collections for trading, investment or hobby purposes.
Mr Shaw sold his residential home in March 2018 for $650,500 after the bank gave him the opportunity to sell it. He is currently renting. After paying out the mortgage, the equity in the home was $234,729.13 of which $180,000 was paid into Mrs Shaw’s bank account. The remaining $54,729.13 was paid into Mr Shaw’s bank account.
However, these funds have now diminished. At the time of the hearing Mr Shaw had approximately $4000 in his bank account.
All that remains of the $180,000 is the sum of $14,000 which Mrs Shaw is holding on Mr Shaw’s behalf in her bank account. Mrs Shaw gave evidence that this money was security for Mr Shaw in case he lost his job or had to move to a new house. She expressed concern about his future and the sustainability of his current employment.
I note that cl 10 of the PSLA provides that a taxpayer should not be required to surrender their ownership of, or interest in, a residential property that is the taxpayer’s home, to pay a taxation debt. As these funds (the $14,000 plus the $4,000) are what remains from the sale of Mr Shaw’s residential home, it is understandable that he should retain these funds in case he experiences housing or employment insecurity, and he should not be disadvantaged for not applying them towards the payment of his taxation liabilities.
Mr Shaw has no other assets except for a car valued at approximately $4500 which he purchased in 2021 and shares with his youngest daughter. Although he has a work vehicle he can use during the week, it is not unreasonable for him to own a modest vehicle for non-work use. It would, however, be unreasonable to expect him to sell his only vehicle to repay his taxation liabilities, especially in circumstances where he has minimal to no assets. I note that another car was purchased for his eldest daughter in 2019 (for approximately $4500) from the $180,000 held by Mrs Shaw. However, it was purchased in Mrs Shaw’s name, and therefore not included in his list of assets.
After considering the above factors, I am of the view that the income/expenditure test is satisfied because Mr Shaw has minimal to no assets which could be utilised to pay his taxation liabilities. Consequently, this test weighs in Mr Shaw’s favour.
Other relevant factors
Clause 11 of the PSLA sets out other relevant factors which may be considered in deciding whether to exercise the discretion to grant an applicant release from taxation liabilities. The opening sentence refers to the discretionary nature of the decision:
We are not bound to grant release even if a taxpayer can demonstrate serious hardship may be caused by payment of their liability. However we are obliged to act reasonably and not arbitrarily.
Examples of situations in which we may decide against granting release, even though implications of serious hardship may be drawn are where:
·a taxpayer appears to have unreasonably acquired assets ahead of meeting their tax liabilities
·a taxpayer appears to have disposed of funds or assets without giving consideration to their tax liability
·release would not alleviate hardship, such as where the person has other liabilities or creditors
·a taxpayer has paid other debts (either business or private), in preference to their tax debt
·the taxpayer, without good reason, has not pursued debts owed to them
·serious hardship is likely only to be short term
·the taxpayer has a poor compliance history
·the taxpayer is unable to show that they have planned for future debts
·the taxpayer has structured their affairs to place themselves in a position of hardship (for example, placing all assets in trusts or related entities over which they have control)
·the taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.
(Footnotes omitted.)
Mr Shaw satisfies several of the examples in cl 11 above which weigh against granting release.
Mr Shaw has a poor history of compliance. As I noted above, he was previously released from taxation liabilities in October 2014. Additionally, he began to accrue the taxation liabilities that are the subject of this application immediately after this previous release.
In the 2014 financial year Mr Shaw changed the operation of his business from one he was operating under an ABN, to one operated under a trust which effectively doubled his reporting obligations. This meant that he had to lodge activity statements for the trust, but also personal activity statements for himself. These additional reporting requirements proved to be too much for Mr Shaw and contributed to his taxation liabilities accruing. It is curious that Mr Shaw did have accountants acting for him, and I note payments to them in 2018, 2019 and 2020 from the $180,000 held in his mother’s bank account.
However, to Mr Shaw’s credit, in March 2017 Mrs Shaw asked the ATO to undertake a business viability assessment of her son’s business because she wanted the ATO to stop her son from trading. Despite following up with the ATO, Mrs Shaw’s request was not actioned by them.
Mrs Shaw paid various debts from the $180,000 surplus from the sale of Mr Shaw’s house. She recorded how she disbursed this money in a handwritten ledger. These payments included payments towards a child support debt, car registration and insurance, and orthodontist costs for both of Mr Shaw’s daughters. Additionally, the following payments were made:
(a)Mrs Shaw paid Mr Shaw’s GST debt for approximately $64,000 because she knew it had been collected from other people and could not be released. She also hoped it could be used as a compromise with the ATO.
(b)Mrs Shaw paid herself $30,000 by way of repayment of a loan she made to Mr Shaw to assist him after his home was sold. This consisted of approximately $9,500 his parents loaned him for bond and rent, which Mr Shaw agreed to pay back when his house was sold. Mr Shaw’s parents also paid $15,000 to a debt collection company (which was initially for approximately $21,000 but was negotiated down to $15,000 by a financial counsellor) on his behalf. They also paid $5,500 in dishonoured direct debits so that Mr Shaw’s private health cover would not be cancelled. Mrs Shaw explained in her evidence that it was agreed with Mr Shaw that he would repay these monies from the proceeds of the sale of his house. Understandably, she explained that she and her husband were on pensions and could not afford to be giving money away.
(c)Mrs Shaw paid contractors who had done work for Mr Shaw and whom he owed money to. From Mrs Shaw’s handwritten notes, this appears to be approximately $15,475. Mrs Shaw thought it important to pay these contractors saying, “[t]hey’ve got families, they’ve got businesses to run”.
(d)Mrs Shaw gave $8,000 to her son’s ex-partner. She explained:
There was $8000 that went to a girl – one of his partners that he’d broken up with just before he started gambling again. She desperately needed money. She had two children. She was on a supporting mother’s pension, and she had to find another house to live in. So, I paid $8000 to her out of that $180,000. She was desperate for money.
(e)As I noted above, in 2019, a car was purchased for his eldest daughter for $4,500, which was taken out of this $180,000 and is in Mrs Shaw’s name. In 2021, Mr Shaw also purchased a car for his youngest daughter for $4500 from his own funds (which is in his name). It is reasonable for Mr Shaw to own one car for non-work use, but not for two cars to have been acquired ahead of the payment of his tax liabilities.
I found Mrs Shaw to be an honest witness. Further, I accept her handwritten ledger in which she recorded how she disbursed the $180,000 as being accurate. Mrs Shaw has tried her best to help her son, and she has been honest and diligent in how she applied the funds. I do not accept that she, or Mr Shaw, were not serious about honouring his taxation liabilities. I accept that Mrs Shaw tried to use good judgment in paying the debts she thought were most urgent, including from a moral perspective. However, unfortunately, as is reflected in cl 11 of the PSLA, the ATO expects that tax liabilities will be paid first ahead of other creditors.
Overall, Mr Shaw has a poor compliance history and structured his business (to operate under a trust) in a manner that contributed to his being in a position of hardship. His mother, on his behalf, has also paid debts in preference to his taxation liabilities, albeit with good intentions. However, I also accept that Mrs Shaw sought assistance from the ATO as far back as March 2017, and that her request was overlooked. On balance, this test is not satisfied and weighs against Mr Shaw.
WEIGHING THE TESTS
I have found that:
(a)The income/outgoings test is satisfied because although Mr Shaw has some surplus funds that could be applied towards paying his taxation liabilities, he cannot repay them in a reasonable time. Therefore, this test weighs in favour of discretion being exercised to grant a release.
(b)Mr Shaw has minimal to no assets. This indicates a lack of capacity to pay his taxation liabilities. He therefore satisfies the assets/liabilities test. This means that this test also weighs in favour of discretion being exercised to grant a release.
(c)The other relevant factors test, for the reasons set out above, weighs against discretion being exercised to grant a release.
Overall, after weighing these tests, I am satisfied that Mr Shaw would suffer serious hardship if he was required to satisfy the whole of his eligible taxation debt.
SHOULD THE TRIBUNAL RELEASE THE APPLICANT IN WHOLE OR PART FROM HIS ELIGIBLE TAXATION LIABILITIES?
As I have mentioned above, two of the tests weigh in favour of Mr Shaw being granted a release based on serious hardship, and one of the tests weighs against him being granted a release. Overall, I found that the tests indicated that Mr Shaw may face serious hardship if he is required to repay his taxation liabilities in full.
Although a taxpayer may suffer serious hardship if required to pay their debt in full, a partial release may be sufficient to avoid serious hardship. Clause 12 of the PSLA provides:
The outcome of the tests outlined in this Practice statement will usually enable a decision to be made as to whether serious hardship exists and the extent, if at all, to which release should be granted. You may decide not to grant a release, to grant a partial release or to grant a full release. Release from the full amount of the liability would not generally be appropriate where partial release is sufficient to avoid serious hardship.
…
Notably, Mr Shaw has surplus funds he could apply toward the repayment of his eligible taxation liabilities. Although they are insufficient to repay the Commissioner in a reasonable timeframe, a surplus of $1000, or even $500, is not insignificant. I therefore find that a partial release of the amount of the GIC component of his eligible taxation liabilities that has accrued as at the date of this decision, would be sufficient to avoid serious hardship and would allow Mr Shaw to repay the debt within a more reasonable time. A partial release is also a compromise which balances the factors in the other relevant factors test that weigh against discretion being exercised to grant a release.
CONCLUSION
This decision effectively means that Mr Shaw must, like any other taxpayer who struggles with the payment of their taxes, pay the full amount of the PAYGI tax (that is, $126,480.77) that he has been assessed as being liable for. Releasing him from the GIC component that has accrued as at the date of this decision will help minimise serious hardship to Mr Shaw.
DECISION
The Reviewable Decision, being the Objection Decision dated 19 March 2020, is set aside and substituted with the decision that Mr Shaw is granted a partial release of his eligible taxation debt, with the amount released being the General Interest Charges that have accrued as at the date of this decision.

I certify that the preceding 50 (fifty) paragraphs are a true copy of the reasons for the decision herein of Senior Member D M Evans-Bonner

.............[Sgd]...........................................................
Associate
Dated: 1 March 2022

Date of hearing:

Date final submissions received:

21 September 2021

25 October 2021

Applicant: Self-represented, with assistance from his mother

Respondent: Ms K McClurkin, Australian Taxation Office

[2022] AATA 343

1 March 2022

Key Legal Topics

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Tax Law

Administrative Law

Statutory Interpretation

Legal Concepts

Judicial Review

Jurisdiction

Procedural Fairness

Statutory Construction

Remedies