Stephen Huckle and Commissioner of Taxation
[2014] AATA 362
[2014] AATA 362
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/6125
Re
Stephen Huckle
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms A F Cunningham (Senior Member)
Date 6 June 2014 Place Perth Decision under review is affirmed.
....(Sgd) A F Cunningham.................................
Ms A F Cunningham (Senior Member)
CATCHWORDS
TAXATION – taxation liability – application for release – whether payment of tax liability would cause serious financial hardship – substantial income and investment properties – no serious hardship found – decision under review affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 s37
Tax Administration Act 1953 ss14ZZ, 14ZZK, 340-10(2), 340-5, 340-5(3) and
Division 340 part 4-50
CASES
Cinerari and Commissioner of Taxation [2006] AATA 171
Commissioner of Taxation v Milne [2006] FCA1005
Commissioner of Taxation v a Taxpayer [2006] FCA 888
Corlette v MacKenzie (1995) 62 FCR 584
Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) ALD 634
Powell v Evreniaves & Ors (1989) 21 FCR 252
Rasmussen v Commissioner of Taxation [2013] AATA 746
R v Trebilco; ex parte F.S. Falkiner and Sons Ltd (1936) 56 CLR20Saw v Commissioner of Taxation AAT SS2004/11 and 2004/12
REASONS FOR DECISION
Ms A F Cunningham (Senior Member)
6 June 2014
The applicant, Stephen Huckle seeks the review of a decision of the respondent Commissioner to disallow an objection, which was made against the Commissioner’s decision to deny Mr Huckle’s application for release from his tax liabilities. Mr Huckle‘s taxation debt balance is $81,387.23 as at 21 February 14 and includes amounts for balance income tax payable, penalties and interest charges.
The hearing was conducted by way of video link to the Perth Registry in Western Australia. Mr Huckle appeared on his own behalf and gave oral evidence. The respondent was represented by Mr Hill. The T documents were tendered pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. The applicant also tendered a number of documents which were received into evidence.
Mr Huckle contends that his income tax debts have arisen as a result of his unauthorised early access of superannuation benefits in order to support his gambling addiction. Mr Huckle seeks release from his tax liability either in whole or in part on the basis that he would suffer serious hardship if he was required to pay the outstanding balance.
It is contended by the respondent that Mr Huckle has not discharged his onus of establishing that he would suffer serious hardship if he was required to satisfy his tax liabilities. Further, if the Tribunal is satisfied that the applicant would suffer serious hardship it is contended that the circumstances do not justify the exercise of a discretion to release him in whole or in part from his taxation debt.
LEGISLATION
Mr Huckle’s application for review is made pursuant to section 14ZZ of the Tax Administration Act 1953 (TA Act). The provisions of section 14ZZK state that the applicant has the burden of proving in this case, that the taxation decision should not have been made or should have been made differently. As Deputy President Forgie stated in Rasmussen and Commissioner of Taxation [2013] AATA 746 at paragraph 36:
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 a relevant, first, to the ultimate finding that a person would suffer serious hardship if required to satisfy the liability and, if so, then the exercise of the discretion. The individual can satisfy that burden by producing evidentiary material and calling witnesses…” And further at paragraph 39 when referring to enquiries of critical fact, “… section 14 ZZ K 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…
Mr Huckle’s application for release from his tax liability is made pursuant to Division 340 part 4-50 of the TA Act.
Section 340-10(2) lists the liabilities that can be subject to a release application and includes the liabilities that are the subject of Mr Huckle’s application being for income tax, penalties, general interest charge and shortfall interest charge.
Section 340-5 provides that release from tax liabilities involves a two-step process. Firstly, a determination that the applicant would suffer a serious hardship if he was required to satisfy the tax liability and secondly, whether in the circumstances, a discretion should be exercised to grant the release sought. (Refer to R v Trebilco; ex parteF.S. Falkiner and Sons Ltd (1936) 56 CLR 20; Commissioner of Taxation v Milne [2006] FCA 1005 at paragraph 17).
SERIOUS HARDSHIP
Section 340-5(3) requires a determination that Mr Huckle will suffer serious hardship if he was required to satisfy his tax liability which necessarily involves consideration of his particular circumstances. No definition of the expression “serious hardship” is to be found in the TA Act. The Tribunal was referred to a number of authorities that have considered this phrase.
Several of these authorities were considered by Deputy President Forgie in Rasmussen (supra). In Powell v Evreniaves & Ors (1989) 21 FCR 252, Hill J considered that the expression “serious hardship” is an ordinary English expression but one influenced by its context. He distinguished between hardship that is serious and hardship that might be described as extreme and stated at page 259…
… 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.
In Commissioner of Taxation v a Taxpayer [2006] FCA 888 Stone J recognised at paragraph 17 the “… possibility that something less than destitution will constitute serious hardship. Whether this is so depends on the particular circumstances of the case.” In referring to Hill J’s description of a person who would be left destitute without any means of support, Stone J said this would be the same as a person “…without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements.” In Corlette v MacKenzie (1995) 62 FCR 584 Einfeld J accepted that hardship was to be treated as an inability to provide for the necessities of life if relief is not granted.
The Commissioner has issued guidelines to provide Australian Taxation Office staff with guidance in dealing with release applications. In referring to the decision of Brennan J in re Drake v Minister for Immigration and Ethnic Affairs (No2) (1979) 2 ALD 634 at 640, Beasley J observed in Corlette v MacKenzie (supra) that it is a well-established principle of administrative law that a policy may guide a statutory discretion provided the policy is consistent with the statute.
The relevant document is the Australian Taxation Office Receivables Policy which at paragraphs 24.6.17 and 24.6.18 provides as follows:
…24.6.17 The term ‘serious hardship’ is not defined at law and must be given its ordinary meaning. The commissioner determines whether serious hardship exists by applying several tests which are designed to ascertain whether payment of the tax would produce unduly burdensome consequences for the person such that they would be deprived of necessities according to normal community standards.
24.6.18 Thus, serious hardship would be seen to exist where payment of a tax liability would result in the person being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements. On the other hand, elements of hardship may be regarded as marginal or minor – rather than serious – if the consequences of payment of tax are seen, for example, as limitation of social activities or entertainment, or loss of access to goods or services of a more luxurious nature or standard.
Paragraph 24.6.21 provides the tests by which the Commissioner should evaluate the merits of individual cases and was summarised by Member Fice in Cinerari and Commissioner of Taxation [2006] AATA 171 as follows:
Paragraph 24.6.21 provides the steps by which the Commissioner should evaluate the merits of individual cases; those being:
Income/Outgoings Tests
Assets/Liabilities Tests
Other factors
The relevant factors when applying the three tests are set out in detail in paragraphs 24.6.22 to 24.6.31. They can be summarised as follows:
Income/Outgoings Tests
(a) what is the person's capacity to pay measured by income and outgoings stated in the application or supporting documents;
(b) the accuracy of the income/outgoings stated by the applicant;
(c) by what margin does available income exceed reasonable outgoings; is that sufficient to allow liability to be met and the debt cleared within two or three years; and
(d) other optional expenditures which could be reduced or deferred;
Assets/Liabilities Tests
(a) whether a person's equity in assets is indicative of capacity to pay the tax debt;
(b) whether acquisition of assets has unreasonably been put ahead of meeting tax liabilities;
(c) are the assets normal and reasonable possessions, which would not be expected to be surrendered or sold to meet revenue debts;
(d) whether assets have been valued realistically and liabilities accurately recorded; and
(e) whether a person's asset possession indicates untapped borrowing capacity.
Other Factors
(a) whether the Commissioner should exercise a discretion to grant a release if serious hardship is established;
(b) has the person disposed of funds or assets without making proper provision to meet tax liabilities;
(c) will the granting of release result in reduction of hardship;
(d) has the person used available funds to discharge debts due to other private creditors in preference to debts due to the Commissioner;
(e) has the person used available funds to discharge debts due to other business creditors where those payments are not considered reasonable to maintain the viability of the business and could be considered as an unfair preference payment to the detriment of the Commissioner; and
(f) whether the person is able to demonstrate they have made provision for future debts.
The ATO Receivables Policy has been applied by the Tribunal in a number of cases, including Re Ferguson and Commissioner of Taxation [2004] AATA 779, Re Filsell and Commissioner of Taxation [2004] AATA 1012, Re Spicer and Commissioner of Taxation [2004] AATA 960, Re Perrott and Commissioner of Taxation [2004] AATA 1372, and Re Lipthay and Commissioner of Taxation [2005] AATA 224).
BACKGROUND FACTS
There was little dispute about the following facts that gave rise to Mr Huckle’s application for release of liability as set out in the respondent’s Statement of Facts Issues and Contentions.
Mr Huckle was a trustee of the Stephen Huckle Superannuation Fund (the Superannuation Fund) and during the income year ended 30 June 2011, illegally accessed his superannuation benefits by withdrawing amounts totalling $180,600 from the Superannuation Fund.
On 24 October 2011, Mr Huckle lodged his tax return for the year ended 30 June 2011 disclosing: employment income of $144,210; employment termination payment (taxable component) of $11,073; dividends of $341; and a net rental loss of $21,605. The tax return did not disclose the early access to superannuation benefits.
On 1 November 2011, the respondent issued a Notice of Assessment of income tax for the year ended 30 June 2011 notifying a taxable income of $164,710 and a credit payable of $3272.76.
On 24 May 2012, Mr Huckle engaged Sovereign Partners Pty Ltd to provide administrative and taxation services in respect of the Superannuation Fund.
During the income year ended 30 June 2012, Mr Huckle illegally accessed his superannuation benefits by withdrawing amounts totalling $12,280 from the Superannuation Fund.
On 8 July 2012, Mr Huckle lodged his tax return for the year ended 30 June 2012 disclosing: employment income $177,100; dividends of $439; and a net rental loss of $26,430. The tax return did not disclose the early access to superannuation benefits.
On 17 July 2012, a Notice of Assessment of income tax for the year ended 30 June 2012 notified a taxable income of $134,527 and a credit payable of $21,352.84.
By letter dated 23 August 2012, Sovereign Partners wrote to the respondent and disclosed that Mr Huckle had illegally accessed his benefits in the Superannuation Fund and that Mr Huckle had a gambling addiction which was being treated.
By letter dated 17 December 2012, the respondent wrote to Mr Huckle notifying the respondent’s intention to audit and amend Mr Huckle’s income tax returns for the years ending 30 June 2011 and 30 June 2012 to include the superannuation benefits (audit). Mr Huckle was advised, by letter dated 21 December 2012, that the audit had been completed.
On 7 February 2013, a Notice of Amended Assessment of income tax for the year ended 30 June 2012 was issued notifying a taxable income of $146,807 and an income tax shortfall of $4,850.60.
On 4 February 2012, a Notice of Amended Assessment of income tax for the year ended 30 June 2011 was issued notifying a taxable income of $345,310; income tax shortfall of $81,869.96; and a shortfall interest charge of $6,471.66.
The respondent imposed penalties at the base rate of 25% of the tax shortfall for the following reasons: that Mr Huckle had withdrawn and spent all of the money from the Superannuation Fund of which he was both trustee and a member and had not declared the monies as income; that as a trustee of the Superannuation Fund, Mr Huckle should have been aware of his responsibilities, including not allowing withdrawal of superannuation benefits without a condition of release being met; and despite using a tax agent to lodge his returns, there was no evidence that Mr Huckle had advised his agent of his illegal early access to the funds. However due to his voluntary disclosure, the base penalty rate was reduced by 80%.
On 7 February 2013, the respondent issued Mr Huckle with a Notice of Assessment of shortfall penalty in respect of the year ended 30 June 2011 in the amount of $4,093.45 with a due date for payment of 5 March 2013.
On 7 February 13, the respondent issued Mr Huckle with a Notice of Assessment of shortfall penalty in respect of the year ended 30 June 2012 in the amount of $242.50 with a due date for payment of 28 February 2013.
On or about 2 February 2013, Mr Huckle lodged an application for release from his tax liability which was refused by letter dated 17 July 2013. Mr Huckle subsequently sought a review of that decision which was disallowed by letter dated 4 October 2013. On 26 November 2013, Mr Huckle applied to the AAT to have the Objection Decision reviewed.
On 31 January 2014, Mr Huckle lodged his tax return for the year ended 30 June 2013 disclosing: employment income of $177,100; dividends of $44; and a net rental loss of $17,933.
On 10 February 2014, the respondent issued a Notice of Assessment of income tax for the year ended 30 June 2013 notifying a taxable income of $157,968 and a credit payable to the applicant of $24,184.32.
On 27 March 2013, Mr Huckle paid the sum of $1000 towards his personal taxation repayments and the sum of $187.36 was received pursuant to a garnishee notice on 29 May 2013. On 10 February 2014, the credit of $24,184.32 resulting from the Notice of Assessment of income tax for the year ended 30 June 2013 was offset against Mr Huckle’s liabilities.
Would Mr Huckle suffer serious hardship if required to satisfy the liability?
Mr Huckle is 48 years of age and is employed as a Senior Metallurgist with Brockman Resources Ltd having worked with this company for a number of years prior to his promotion. He is single and has no dependents.
In Mr Huckle’s application for release (T15 dated 2 April 2013) he discloses a fortnightly salary of $8,238, rental income of $800, a combined taxable income of $9,038 and income after tax of $6,222. His fortnightly household expenditure is detailed as follows:
Household Expenditure Fortnightly Amount ($) Rent $300 Food and household supplies $250 Household repairs/maintenance $140 Electricity/gas $160 Telephone (including mobile phones) $100 Internet $85 Water/council rates $105 Vehicle registration and insurance $78 Vehicle repairs/maintenance/petrol $282 Vehicle loan repayments or leasing charges $644 Household insurance $79 Health insurance $79 Medical, dental and pharmacy $77 Loan repayments, credit card repayments (total) $2,948 Entertainment $250 Donation to Oxfam $18 Accounting fees $200 Training fees for race horse $46 Total $5,793
Mr Huckle states that he lives in rented accommodation at Platinum Way Forrestfield Western Australia and privately rents out his property at Passiflora Drive Forrestfield. Mr Huckle said that his reason for purchasing the Passiflora Drive property was to ensure that part of his fortnightly income was diverted towards payment of a mortgage thus leaving him with less disposable income for gambling. Mr Huckle maintained that this was also the reasoning behind his purchase of a Holden Club Sport 2011 motor vehicle in 2012. The car was purchased for $72,000 on 11 January 2012. In the release application Mr Huckle estimates the vehicle’s current market value at $50,000 and states that the amount owed is $67,000. Other assets held by Mr Huckle are FMG shares with a market value of $4,377, total savings of $188 and an interest in a racehorse worth approximately $400.
Mr Huckle’s liabilities are listed in the release application as follows:
Institution Liability Balance Owing Unknown Car loan $ 67,003 Bankwest Credit card $ 22,204 Westpac Credit card $ 29,484 Bendigo Bank Credit card $ 1,752 HSBC Credit card $ 6,408 Bankwest Home loan $445,550 Bankwest Personal loan $ 22,587 Bankwest Personal loan $ 19,900 Westpac Personal loan $ 14,533 Bendigo Bank Personal loan $ 18,757 Paul Huckle Personal loan $ 1,875 Westpac Personal loan $ 16,147 Total Liabilities $666,200
An expense not listed in his release application are the training fees of $100 per month for the racehorse which Mr Huckle advised are generally covered by the horse’s winnings during the racing season.`
The sole and only explanation offered by Mr Huckle for his current debt situation is his gambling addiction. He said that gambling has been a problem for him for the whole of his adult life which he claimed has effectively “ruled my life “. He said that he had been declared bankrupt in 2003 which in some ways worked positively in that he did not have access to spare funds. Mr Huckle said that he was banned from the Perth casino some 4-5 years ago. Mr Huckle explained that he had kept his creditors at bay by further borrowings and juggling his payments.
Whilst recognising that he had a significant gambling problem, Mr Huckle said that he initially believed that he could deal with it on his own. It was not until he consulted Gavin King at Sovereign Partners, who suggested that he seek help, that he decided to consult Centacare. Mr Huckle submitted a letter from Centacare which listed regular counselling attendances dating from 27 June 2012 until 17 December 2013. Mr Huckle said that he has abstained from gambling for the last eight months and believes that within five years he will have discharged the majority of his debts.
Mr Huckle resented the respondent’s contention that he had preferenced other creditors rather than repaying his taxation liability. He explained how he had approached the ATO with a repayment plan of $1000 per month which was not accepted. He contended that he had submitted his income tax returns on a timely basis but failed to disclose the unauthorised access to his superannuation fund because he was fearful of the consequences. He received a credit with respect to his 2013 return in the sum of $24,000 which he used to discharge some of his debts. Mr Huckle said that he expected further refunds over the next few years which he would use to reduce his tax liability. Mr Huckle submitted that consideration should be given to the release of his debt either in full or in part on account of him having initiated and participated in the release application process.
Mr Huckle maintained that there would not be sufficient equity remaining from the sale of any of his assets and nor would he be able to raise finance towards a reduction of his tax liability. He argued that if the Commissioner directed a sale of his investment property he would immediately adopt the property as his primary residence to frustrate a sale.
It was submitted by Mr Hill that on the evidence presented, Mr Huckle‘s financial difficulties appear to be temporary. Mr Hill contended that Mr Huckle had not discharged his onus of proving serious hardship. He had not tendered any documentation in support of his debt situation nor provided any medical reports to substantiate his gambling addiction apart from counselling sessions with Centacare. There was no evidence that Mr Huckle was undergoing medical treatment or had sought medical advice for his addiction.
Mr Hill submitted that despite his level of debt, Mr Huckle had decided to purchase an investment property in November 2010 and more recently, an expensive motor vehicle which was wholly subject to finance. It was contended that Mr Huckle had not satisfactory explained why he could not sell his assets and reduce some of his liabilities. For instance he could sell his motor vehicle and reduce his liability and purchase a more modest vehicle. Similarly there was no explanation as to why he continued to maintain his racehorse despite his contention that the expenses were not significant.
Mr Hill claimed that Mr Huckle is in the fortunate position of being able to earn a high income and has made choices that have led to his current position. It was submitted that if the Tribunal nevertheless found that he suffered serious hardship, the discretion should not be exercised in these circumstances for the following reasons: Mr Huckle had preferred other creditors to his tax liability and had made only a very small contribution in reduction of his tax debt; despite his position as a former employee of the ATO, he had prepared tax returns for others when he was not authorised to do so; he had been non-compliant with the tax legislation by failing to lodge returns for his superannuation fund in a timely manner; he had made unauthorised access to his superannuation fund.
CONSIDERATION AND FINDINGS
The “serious hardship” referred to in section 340-5 must result as a consequence of an individual being required to satisfy their tax liability. In other words if the relief sought was to be granted and the individual still suffered serious hardship because of their other financial commitments, the discretion sought should not be exercised.
In his release application Mr Huckle lists his total asset value at around $579,500 with total liabilities of $666,200 which does not include his tax liability of $81,387.23. His total after-tax income appears to exceed his listed household expenditure by the fortnightly amount of $429. These expenses in my view however, include discretionary spending that could be reduced for instance, entertainment of $250 per fortnight, other expenses of $264 per fortnight and most notably vehicle expenses including repairs and loan repayments of $926 per fortnight. Although a sale of the motor vehicle would not totally discharge Mr Huckle’s loan, it is likely to significantly reduce his overall fortnightly repayments. Further, on the figures provided, a sale of his investment property would result in equity almost sufficient to reduce his total tax liability. Mr Huckle’s advice that any proposed sale would force him to take up residence in the property was a clear indication that he did not acknowledge his legal responsibility to settle his tax liability. In this context Deputy President Forgie’s comments in paragraph 98 of Rasmussen are of relevance:
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 of 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 need 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.
Mr Huckle acknowledged that he was fortunate to earn a high income at present but suggested that employment in the mining industry is not secure. There was no indication however that he was at risk of losing his employment and he has been employed by the same company for many years.
Mr Huckle‘s intentions to control and resist his gambling addiction and over time resolve his debt situation are admirable. I am not satisfied however, that requiring him to satisfy his tax liability would of itself result in Mr Huckle suffering serious hardship as that term has been interpreted by the courts and other tribunals. I do not believe that requiring Mr Huckle to meet this liability would result in him being unable to afford the basic necessities of life such as food, accommodation, clothing, and medical supplies. Mr Huckle accepted that some of his discretionary expenditure could be reduced for instance his fortnightly entertainment allowance. Requiring payment of his tax liabilities may result in a temporary reduction in Mr Huckle’s standard of living. However whilst perhaps not palatable to him, Mr Huckle also has the option of immediately satisfying his debt by the sale of his investment property. In addition, as the property is negatively geared, its sale would result in Mr Huckle having additional available income to pay his tax liabilities. As the Tribunal recognised in Saw v Commissioner of Taxation AAT SS2004/11 and 2004/12, decision delivered 27 September 2004, an applicant’s desire to preserve assets for the future does not constitute a sufficient reason not to pay creditors including taxation obligations.
Mr Huckle referred to other creditors that he had not listed and who he had been able to “keep at bay”. He provided no other details and I am consequently not able to take the circumstances into account.
Mr Huckle’s explanation for having preferenced the repayments of the other debts listed in his liabilities to his taxation liability was that he had received letters of demand and was required to meet minimum fortnightly or monthly repayments. This was Mr Huckle’s choice in the circumstances. I accept that the liabilities are largely related to his gambling addiction and it is most unfortunate that Mr Huckle did not decide to seek help and treatment at a much earlier stage when he recognises that gambling has taken control of much of his adult life.
Even if I was satisfied that requiring Mr Huckle to satisfy his tax liability would result in serious hardship, for the reasons submitted on behalf of the respondent and identified above, I do not consider that it would be appropriate to exercise the discretion sought.
For all of the above reasons I determine that the decision under review should be affirmed and the application for review dismissed.
I certify that the preceding 52 (fifty-two) paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member)
...(Sgd) T Freeman...........................
Associate
Dated 6 June 2014
Date(s) of hearing 14 April 2014 Applicant In person Representative for the Respondent Ms M Spurge
ATO Review and Dispute Resolution Group
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