SYRF and Commissioner of Taxation (Taxation)

SYRF and Commissioner of Taxation (Taxation) [2021] AATA 1845 (6 May 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2019/1394
Re:SYRF
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:The Hon. Matthew Groom, Senior Member
Date:6 May 2021
Place:Melbourne

The decision under review is affirmed.
..............................[sgd]..........................................
The Hon. Matthew Groom, Senior Member
Catchwords
TAXATION – application for review of an objection decision – whether commissioner can grant release of certain tax liabilities – whether application would suffer serious hardship if required to pay tax debt – consideration of reasonableness of applicant’s spending and taxation compliance history – decision under review affirmed
Legislation
Taxation Administration Act 1953 (Cth)
Cases
Powell v Evreniades (1989) 21 FCR 252
Spicer and Commissioner of Taxation [2004] AATA 960
Van Grieken v Veilands (1991) 21 ATR 1639
Secondary Materials
Practice Statement Law Administration 2011/17
REASONS FOR DECISION
The Hon. Matthew Groom, Senior Member
6 May 2021
INTRODUCTION

The applicant seeks a review of the respondent’s objection decision dated 6 February 2019. In that decision, the respondent had disallowed the applicant’s objection to an earlier decision to refuse to release the applicant from certain taxation liabilities.
The relevant taxation liabilities arose primarily as a consequence of the applicant having received a lump sum payment and then failing to withhold appropriate levels of tax in the applicant’s other income streams over the course of a number of years.
The applicant suffered an injury at work and had been receiving WorkCover compensation payments as a result of her injury. In December 2011, the Medical Panel of Victoria determined that the applicant’s injury had resulted in a permanent impairment. Her employer, the Department of Human Services Victoria, terminated her employment with effect from 1 October 2011.
In June 2012 the applicant made an application with her superannuation fund for a permanent disability benefit. This application was approved by the superannuation fund on 15 January 2013 and backdated from 1 October 2011. This resulted in a lump sum payment spanning the 2011-2012 and 2012-2013 financial years. The receipt of the lump sum payment resulted in a discrepancy in the applicant’s tax contributions. This was because the applicant now had two income streams which required the second income stream to be taxed at a higher rate. The applicant only became aware of the discrepancy in the 2015 financial year. The applicant endeavoured to make contact with her former employer to correct the discrepancy, however, there was some further delay before the discrepancy was corrected.
The applicant’s tax debt is also made up of other tax penalties and charges which were incurred as a consequence of delays in lodging her tax returns over a number of years and also as a result of a general interest charge which accrued on her unpaid tax liabilities and penalties.
The amount of the applicant’s tax debt has fluctuated as a consequence of a number of amended assessments and some payments that she has made, as well as some remissions of tax penalties and of general interest charges.
As at 18 December 2019, the applicant’s outstanding tax debt totalled $17,870.65 although it continues to accrue further interest (the “tax debt”).
The applicant does not seek to dispute the existence or amount of the tax debt. Rather, the applicant is seeking a release from the tax debt due to “serious hardship”. The applicant claims that her financial circumstances are extremely difficult and that a requirement to repay the tax debt would leave her and her family in extremely dire financial circumstances.
The applicant has made two applications to have her tax debt released. The applicant first applied for release of her tax debt on 10 April 2018. That application was refused by the respondent on 22 May 2018. The applicant then made a further application for release of her tax debt on 20 June 2018, which was again refused by the respondent on 25 September 2018.
On 23 October 2018, the applicant lodged an objection against the respondent’s rejection of her application for release of her tax debt. The applicant provided a number of arguments in support of her objection including:
(a)the applicant was not able to repay her tax debt claiming that after payment of all reasonable living expenses she and her husband were only left with $164.62 per month from which to make payments;
(b)the applicant has a long and consistent record of meeting her taxation obligations and that in over 30 years of earning income she has never previously incurred a tax debt of any kind or otherwise failed to meet her tax obligations; and
(c)her late lodgement of tax returns were a consequence of her confusion in relation to the tax discrepancy that had emerged as well as her difficult personal circumstances including her health issues well as some issues she had with her former tax agent.
Further, the applicant’s claims that a requirement to repay her tax debt would cause her serious financial hardship and that given the circumstances giving rise to her financial position, that hardship is likely to be ongoing. The applicant also claims that it would be appropriate to exercise the discretion available to relieve her of her tax debt because the discrepancy in tax withheld was inadvertent, and when the applicant became aware of the discrepancy she made reasonable efforts to have the issue corrected.
On 6 February 2019, the respondent rejected the objection in full. While accepting that the applicant would experience serious hardship the respondent was not satisfied that the applicant’s circumstances justify the exercise of the available discretion to release the applicant’s tax debt. The respondent noted a number of factors considered relevant in reaching its determination, including that:
(a)the applicant has lodged late tax returns on seven occasions in eight years;
(b)the applicant made an unreasonable purchase of a new vehicle while she had an outstanding tax debt;
(c)any hardship the applicant is likely to suffer as a consequence of payment of the tax debt is considered to be short term; and
(d)the applicant had not appropriately planned for her future tax obligations.
On 12 March 2019, the applicant lodged an application for a review of the objection decision with the Administrative Appeals Tribunal, which is the matter presently before this Tribunal.
RELEVANT LAW AND ISSUE
Section 340-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (“TAA”) provides the respondent with a discretionary power to release a taxpayer, in whole or in part, from certain taxation liabilities, if the respondent is satisfied that the applicant would suffer serious hardship if required to satisfy the liability. The taxation liabilities captured by the section include income tax on certain penalties and interest charges associated with a tax debt.
There is well-established authority for applying a two-step process in giving consideration to the exercise of the discretion which requires first determining:
(a)whether the settlement of the taxation liability would result in “serious hardship”; and
(b)if so, whether, in all the circumstances, the respondent should exercise the discretion to release the liability.[1]
[1] See Powell v Evreniades (1989) 21 FCR 252, 264.
There is no definition of “serious hardship” within the Act itself however, its meaning has been considered many times through decisions of the Tribunal and the Federal Court. It is now well established that the term should be given its ordinary meaning.[2]
[2] Ibid, 258, Van Grieken v Veilands (1991) 21 ATR 1639, Spicer and Commissioner of Taxation [2004] AATA 960.
The respondent has also developed guidelines which set out tests for determining whether or not to exercise the discretion. The guidelines are contained in Practice Statement Law Administration 2011/17 (the “Practice Statement”). The relevant tests include the income/outgoing test and the asset/liabilities test for determining whether or not serious hardship would result. In addition, the Practice Statement acknowledges that the respondent is not bound to grant a release even where a taxpayer can demonstrate serious hardship.
The Practice Statement includes a number of examples of circumstances which may be relevant to a decision to refuse to release a tax debt where serious hardship is made out. For example where:
(a)a taxpayer appears to have unreasonably acquired assets ahead of meeting their tax liabilities;
(b)the taxpayer appears to have disposed of funds or assets without giving consideration to their tax liability;
(c)serious hardship is likely only to be short term;
(d)a taxpayer has a poor compliance history;
(e)a taxpayer is unable to show that they have planned for future debts; and
(f)a taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.
The above factors are not intended to be an exhaustive list of relevant factors but rather examples of the types of considerations it would be appropriate for the decision-maker to have regard to in the exercise of their discretion.
The respondent has conceded that the applicant’s tax debt is a tax liability to which the discretion relates, and that the applicant has applied for release using the appropriate form. The respondent also concedes that the applicant is likely to experience “serious hardship” for the purpose of the discretion. The Tribunal is satisfied that these concessions are appropriate.
In relation to the applicant’s financial circumstances, the Tribunal is satisfied on the basis of the evidence before it that if the applicant is required to repay the tax debt she would face extremely difficult financial circumstances which, in the view of the Tribunal, would amount to serious hardship. The Tribunal accepts the applicant’s evidence that her current financial position has been contributed to significantly by difficult personal circumstances including her physical and mental health issues which have resulted in an incapacity to work; her husband’s back and knee injury and associated pain as well as a continuing decline in demand for his labouring and carpentry skills, which collectively have resulted in a significant reduction in her husband’s business income; the health concerns of other members of the applicant’s family and the increasing cost of living. The Tribunal accepts that these circumstances are not likely to abate, even in the longer term, and that therefore, the applicant’s serious hardship is likely to be ongoing.
More specifically, the Tribunal accepts that:
(a)The applicant’s income/expenditure surplus is insufficient to be able to service the tax debt in a timely manner. In her application for relief, the applicant set out her total after tax monthly household income which totalled $6,947.97 and her household expenses which totalled $6,783.35. This leaves a total excess of $164.82 per month. The applicant has provided detailed explanations for her expenses, supported by a significant volume of documentation. The applicant also provided further explanation for her expenses directly to the Tribunal at the hearing. While there were a number of not insignificant medical expenses included in the statement of monthly expenditure, the Tribunal accepts the applicant’s evidence that the medical expenses are reasonable in the context of the complex medical needs of the family. Having considered all of the evidence before it, the Tribunal is satisfied that the applicant’s stated day-to-day household expenses are reasonable. In addition, the applicant told the Tribunal in her direct evidence that the family’s net income/expenditure amount has declined further since the application for relief was submitted as a consequence of a further deterioration in her husband’s business income. Again, the Tribunal accepts the applicant’s evidence in this respect.
(b)The applicant’s net asset position indicates no capacity to service the tax debt within a reasonable time. The applicant’s application for relief included a statement of net assets over liabilities. The principal asset is the family home which, as at the date of application for relief was valued at approximately $553,000 with a mortgage of approximately $188,561.15. Based on the evidence before it, including the direct evidence of the applicant, the Tribunal accepts that there is no capacity for the applicant to borrow further against the family’s assets to increase the applicant’s capacity to either repay or service the tax debt in a timely manner.
Therefore, the issue to be determined by the Tribunal is whether, in all the circumstances of the applicant’s case, the correct or preferable decision is for the residual discretion to be exercised to release the applicant’s tax debt.
In accordance with section 14ZZK of the TAA the applicant has the burden of proving that the objection decision should not have been made or should have been made differently.
CONTENTIONS AND CONSIDERATION
The respondent contends that in all the circumstances of the applicant’s case it would be an inappropriate exercise of the discretion to release the applicant from all or part of her tax debt. There are a number of specific claims the respondent seeks to rely on in this respect. Those claims include that:
(a)the applicant engaged in multiple examples of unreasonable discretionary spending and disposals of funds;
(a)the applicant’s failure to meet payment arrangements entered into with the ATO;
(b)the applicant’s failure to properly plan her personal and family finances in order to be in a position to meet her tax liabilities. The respondent claims that in this sense, the applicant has contributed to her own financial hardship;
(c)the applicant’s poor tax compliance record; and
(d)previous reductions of the applicant’s tax debt, which the respondent contends involved due consideration of the applicant’s broader personal circumstances including difficulty she had in collating information necessary to meet her tax compliance obligations, her physical and mental health issues and issues she experienced with her former tax agent. The respondent contends that it would be inappropriate to provide further relief in respect of the same circumstances.
The respondent contends that, having regard to all of the applicant’s circumstances, there is no justification for treating the applicant preferentially to other taxpayers by granting relief in respect of her tax debt.
The applicant refutes each of the respondent’s contentions and in turn contends that, in the exercise of its discretion, the respondent has not properly considered all of her personal circumstances.
More specifically the applicant’s contentions include that:
(a)all of her expenditure has been reasonable in the circumstances and consistent with what a reasonable person would do in similar circumstances. In this respect, the applicant’s contends that each of the examples of expenditure the respondent claims were unreasonable, were entered into prior to her having an understanding of the full extent of her tax liability and at a point in time when there was no way of reasonably foreseeing the full extent of her liability;
(b)she has not failed to properly plan her personal and family finances in order to be able to meet her tax liabilities nor has she contributed in any way to her own difficult financial position;
(c)she did not actually agree with the ATO to make lump sum payments of her tax debt as contended by the respondent and she did not abandon otherwise agreed payment plans, but rather was unable to meet the plans due to her difficult financial circumstances which could not reasonably have been foreseen;
(d)the applicant has a good tax compliance record having regard to all of her circumstances. The applicant contends she had a perfect tax compliance record for 30 years prior to her tax liability being incurred and the lapses in compliance that occurred after incurring the tax liability were the result of difficult personal circumstances which impeded her efforts to meet her tax compliance obligations. The applicant contends that since 2015 she has continued to meet her tax compliance obligations and has not incurred any further tax liabilities. The applicant contends that her initial incurring of a tax debt was inadvertent and that she has otherwise made her best efforts to meet her tax compliance obligations despite her difficult personal circumstances and continues to do so;
(e)despite having received some relief from the tax liabilities previously, as a consequence of personal circumstances those personal circumstances continue to be relevant in the exercise of discretion for further relief currently before the Tribunal; and
(f)in exercising its discretion to not grant relief in respect of the whole of her tax debt previously, the respondent failed to take account of the fact that the serious hardship the applicant will face if required to repay her tax debt will not be short lived but rather, will be ongoing. Further, the applicant contends that the respondent also failed to take account of the impact of all of her difficult personal circumstances in a cumulative sense.
The applicant contends that having due regard to all the circumstances of her case, the correct or preferable decision is to exercise the discretion to relieve her of her tax debt.
Claims regarding unreasonable expenditure
New vehicle purchase
The respondent contends that the applicant unreasonably acquired a new vehicle ahead of meeting her tax liabilities. The respondent contends that this is an example of the applicant undertaking expenditure without due regard to her obligation to repay her tax debt.
In her evidence to the Tribunal, the applicant conceded that she had acquired a new Nissan Qashqai for a purchase price of approximately $37,500 in August 2015. At that time the applicant’s tax debt was approximately $9,692. In July 2015, around one month prior to the purchase of the vehicle, the applicant had agreed to a payment plan with the respondent to repay her tax debt by way of instalments. The applicant was subsequently unable to meet the repayment plan and, as a consequence, approximately three months after the purchase of the vehicle, in November 2015, the applicant entered into a second payment plan for the repayment of her tax debt. The second payment plan involved repayments by instalment which were approximately half of that agreed to in the first payment plan.
The applicant told the Tribunal that the purchase of the new vehicle was reasonable in all the circumstances. In particular, the applicant claimed that the family had not acquired a new car for a long period of time and claimed that the size and quality of the vehicle was necessary for the needs of her growing family. The applicant told the Tribunal that she has two teenage sons and requires the use the vehicle to transport her sons to and from various sporting and other social activities. The applicant also claimed that the purchase of a new vehicle, in preference to a second-hand vehicle, was a prudent decision designed to avoid higher ongoing maintenance costs and also to give her a sense of security in relation to the reliability of the vehicle. The applicant also told the Tribunal that the decision was made in the context of her circumstances at the time and that, at that time, she could not have foreseen the change in her future financial circumstances, in particular the subsequent increase in her tax liability as well as the further decline in her husband’s income.

While the Tribunal accepts that the applicant had a genuine need for the acquisition of a vehicle, it is not satisfied that the acquisition of the particular vehicle the applicant acquired was reasonable in all of the circumstances, given that it was clearly possible for the applicant to have acquired a second-hand vehicle at a substantially lower price and potentially have been in a position to repay her tax debt in full. The Tribunal accepts that the acquisition of a new vehicle may have reduced ongoing maintenance costs to some degree and have provided the applicant with a greater sense of security, however, it does not accept that these considerations make her decision to acquire a new vehicle reasonable in all of her circumstances at that time.
Further, the Tribunal rejects the applicant’s contention that to purchase a brand-new car for approximately $37,500, while owing a tax debt of approximately $9,692, is what a reasonable person would do if in similar circumstances to hers. The Tribunal is satisfied that the applicant could have purchased a satisfactory vehicle for her family’s needs at that time and have potentially paid her tax debt, as it existed at that time, off in full. The Tribunal accepts that the applicant did not know, at that time, that her tax debt would be subsequently increased nor that her husband would suffer back and knee issues which would substantially curtail his future income. However, this does not alter the Tribunal’s conclusion about the reasonableness of the applicant’s purchase decision, in the circumstances as they existed at the time. The Tribunal accepts the respondent’s contention that it was incumbent on the applicant to pay very careful regard to her need to meet her tax debt obligations when making the decision to acquire the vehicle, and the Tribunal is satisfied that she did not do so.
Overseas travel
The respondent also contends that the applicant’s overseas travel expenditure is a further example of unreasonable expenditure and of the applicant failing to have due regard to her obligation to repay her tax debt.
The applicant conceded that she had travelled overseas to Greece between 26 November 2015 and 23 January 2016 together with her husband and two sons. According to the applicant, the flights were purchased in March 2015 at a total cost of $5,982.48. As at 30 April 2015, the applicant’s total tax debt was approximately $8,842.22. As described above, the applicant agreed to a second payment plan in November 2015. That plan required repayments of $500 a month, which was half the rate that had been agreed to as part of the first payment plan. The reduced rate was as a consequence of the applicant advising the respondent that she was unable to meet the repayments agreed to as part of the first payment plan.
The applicant told the Tribunal that the overseas trip was an emergency as a consequence of her sister-in-law, who was ill and disabled, requiring support because of her need to travel long distances and sometimes stay overnight in the hospital in the management of her health condition. The applicant told the Tribunal that her sister-in-law needed the support, noting that the applicant’s husband was her sister-in-law’s main carer. While the applicant conceded that she had another sister-in-law who lived in Greece, the applicant told the Tribunal that the other sister-in-law was unable to properly care for her sister due to her ageing years. The applicant told the Tribunal that there was no one else in Greece who could assist. The applicant told the Tribunal that the family had also been motivated to take the trip to Greece as a consequence of thinking that it might be the last time the family saw her due to her age and health conditions. The applicant also stated that at the time she purchased the flights to Greece her tax accountant had begun preparing amended tax returns and that based on his advice at that time she had expected that the tax debt would be reduced substantially if not in full.
The respondent contends that the applicant’s decision to take her entire family on an extended international trip at a time when she had an outstanding tax liability demonstrates a willingness, on the part of the applicant, to put personal discretionary spending ahead of her obligation to the Australian community to pay her tax liabilities.
The Tribunal accepts that there were personal circumstances that motivated the applicant to travel to Greece with her husband and children. It accepts that the applicant’s sister-in-law was in poor health and that the family felt an obligation to assist her and may have been concerned that it would be the last time the family could spend time with her. However, the Tribunal does not accept that the applicant’s expenditure in arranging the trip was in response to an “emergency” as described by the applicant. Nor does the Tribunal accept that the expenditure was reasonable in all of the circumstances. The Tribunal notes that the applicant had purchased the fares for the trip in March 2015 but did not in fact travel to Greece until November 2015. The Tribunal is satisfied that there were reasonable options available to the applicant to provide some level of assistance to her sister-in-law other than the entire family travelling to Greece for an extended period. The Tribunal also accepts the respondent’s contention that the applicant’s incurring of expenditure in this respect was undertaken without due regard to the need for the applicant to meet her tax liabilities at that time. The Tribunal also rejects the applicant’s contention that spending money in this manner is what a reasonable person would do if in similar circumstances to hers. While the Tribunal accepts that a reasonable person in similar circumstances may have felt a personal obligation to travel to Greece to spend time with and care for her sister-in-law, the Tribunal is satisfied that such a person would also have had very careful regard to the need to meet what was a not insignificant outstanding tax obligation that existed at that time. The Tribunal also does not accept that the applicant’s incurring of expenditure on flights was reasonable as a consequence of advice she had received that caused her to believe that her tax debt would be reduced significantly if not in full. In the Tribunal’s view, a person acting reasonably would be mindful of the possibility of her amended tax return not being accepted by the ATO or not delivering an outcome consistent with the advice she had received. The Tribunal is satisfied that the applicant did not have due regard to her need to meet her outstanding tax obligation at the time she incurred the expenditure on overseas travel.
Transfers of funds
The respondent has identified a number of financial transactions which it also relies on as examples of unreasonable expenditure entered into by the applicant without appropriate regard to her need to repay her tax debt.
On 24 November 2015, just prior to leaving for her trip to Greece, the applicant exchanged $14,323.69 from Australian dollars to euros. At the time of the transaction the applicant’s total tax debt owing was approximately $6,692.22.
In addition, the respondent has identified what it claims are a number of other international electronic transfers of funds including:
(a)on 21 February 2017, the applicant transferred $15,000 to a Greek bank account; and
(b)on 22 February 2017, the applicant transferred $15,000 to a Greek bank account.
The respondent notes that the first of the $15,000 transactions which occurred on 21 February 2017 was the same day that respondent had notified the applicant of her failure to comply with her third payment plan.
In her evidence, the applicant told the Tribunal that the two $15,000 transfers on 21 and 22 February 2017 are in respect of the same funds, that is, there was only a single $15,000 amount which was recorded as having been transferred on two separate occasions and not a total of $30,000, as the respondent has suggested. Having considered the materials before it the Tribunal accepts the applicant’s evidence in this respect.
In her evidence to the Tribunal, the applicant stated that the money exchanged in November 2015 was for a combination of purposes. The applicant told the Tribunal that her mother had previously given her $10,000 and that she was providing those funds for the purpose of facilitating the purchase of windows and doors in the ancestral home in Greece. The applicant told the Tribunal that it simply coincided with the travel. The applicant told the Tribunal that she had converted the funds into cash because the supplier for the windows and doors had indicated that he wanted to be paid in cash. The applicant noted that Greece was going through significant financial turmoil at that time and many transactions were undertaken in cash. The applicant told the Tribunal that the balance of the funds were for day-to-day living expenses during the trip and noted that those funds were in substitution for funds that would have been expended in day-to-day living expenses for the family in Australia in the event they had not travelled to Greece. The Tribunal accepts the applicant’s evidence in this respect.
The applicant denies the contention by the respondent put in cross-examination that the funds were the applicant’s own personal savings that had been accumulated for discretionary expenditure. The applicant stated that she believed a better description for the funds was “cashflow” that had become available and that the funds were needed to repay her mother and meet day-to-day living expenses of the family. The applicant told the Tribunal that she believed the expenditure was reasonable and that she had undertaken the expenditure with the intent of continuing to repay her tax debt.
Regardless of how the funds might be described, the funds nonetheless amounted to a significant lump sum which, at the least, involved the payment of a significant amount to the applicant’s mother in preference to her outstanding tax obligations. Again, in this respect, the Tribunal does not accept that the expenditure was reasonable in all of the circumstances.
The applicant also submitted that at the time she incurred expenses associated with her trip, including the airfares and fund transfers, she was unaware of the full extent of her future tax liabilities. She told the Tribunal that she had lodged an amended tax return but that a notice of amended assessment had not yet been issued. The respondent contends that the applicant ought to have been aware of the potential for her to incur additional tax liabilities associated with her amended tax return at the time she incurred the expenses. The respondent contends that this was particularly so, given that the applicant’s amended tax return declared additional income which was likely to result in an additional tax liability.
The Tribunal accepts the respondent’s contention in this respect. While the applicant may not have been able to anticipate the precise outcome of her tax assessment, she was at the very least on notice regarding the uncertainty of that outcome. Again, to have incurred the expenditure that she did at that time and in those circumstances, is not, in the Tribunal’s view, reasonable expenditure.
In relation to the subsequent funds transfer in February 2017, the applicant gave evidence to the Tribunal that only $5,000 of the amount was the applicant’s own personal money and that the funds were transferred to assist a family of six, who were close relatives living in a remote village in Greece whose house had recently burned down.
The respondent contends that even if only $5,000 of the applicant’s own personal money was transferred to assist the applicant’s relatives in Greece this is nonetheless another example of the applicant putting personal discretionary spending ahead of her obligation to meet tax liabilities in Australia. The Tribunal accepts the respondent’s contention in this respect. Again, while the Tribunal accepts that the applicant’s relatives circumstances were difficult and that the applicant may have felt a personal obligation help, it was incumbent on her to have careful regard to her need to meet her tax obligations when considering this expenditure. On the evidence before it, the Tribunal is not satisfied that the applicant did so. Again, the Tribunal also rejects the applicant’s contention that a reasonable person in the position of the applicant and owing the tax debt, would have made such a payment at that time.
In reaching these conclusions the Tribunal acknowledges that the applicant was not aware at the time of undertaking the expenditure that her tax liability would be subsequently increased nor that her husband would subsequently suffer health issues with his knees and back and a decline in demand for his work which would significantly further reduce his income. However, this does not alter the Tribunal’s conclusions regarding the reasonableness of the applicant undertaking the expenditure at the time. Again, the Tribunal accepts the respondent’s contention that the applicant was on notice at the time of undertaking the expenditure, of at least the possibility of her tax liability being increased given that she had lodged an amended tax return that included additional income. In addition, while the applicant could not have reasonably foreseen the decline in her husband’s health or decline in demand for his work and the impact that would have on their income, in the Tribunal’s view it is reasonable to expect that the applicant would adopt a more careful approach to her expenditure, in order to provide greater contingency for unanticipated adverse events that may impact her capacity to repay the tax debt in the future. This is particularly so given the periodic nature of the applicant’s husband’s income. In this sense, the Tribunal accepts the respondent’s contention that the applicant’s financial decision making during this period has contributed, to some degree, to the serious financial hardship she now faces as a consequence of her need to meet the tax debt.
In her written submissions the applicant also contends that any conclusions the Tribunal might reach regarding the reasonableness of the applicant’s expenditure should be viewed in the context of her ongoing mental health issues including chronic depression and anxiety which has affected her decision making to some degree. The Tribunal accepts that the applicant was suffering significant mental health issues during this period. The Tribunal accepts, on the basis of a report from her consultant psychiatrist that as a consequence of the applicant’s mental health conditions she has experienced poor concentration, avoidance and disorganisation. However, the Tribunal is not satisfied that there is sufficient independent medical evidence before it to support a conclusion that the applicant’s decision-making capacity during this period was so impacted that it should negate the applicant’s responsibility for her financial decision-making. In the Tribunal’s view, the applicant’s contention in this respect is also inconsistent with her broader contention that her spending decisions during this period were reasonable and consistent with what a reasonable person would do in similar circumstances.
Failure to meet payment plans
As referred to earlier in these reasons, based on the evidence before it, the Tribunal is satisfied that the applicant entered into a number of payment plans with the ATO for the repayment of her tax debt and then failed to make payments in accordance with those plans.
The applicant contends that the purported agreements with the ATO to repay her tax debt in lump sum form in August 2014 and February 2015 were not actual agreements for the repayment of the debt, but rather were arrangements put in place in order to defer the immediate repayment of the debt in circumstances where an amended tax return which could have materially impacted the amount owing had not yet been processed. This contention is certainly inconsistent with the documentary evidence which clearly supports that agreements for the lump sum payment amounts were entered into between the applicant and the ATO. However, in any case, even if the applicant’s position on these purported lump sum payments is accepted, the Tribunal is satisfied based on the evidence before it that the applicant entered into other payment plans with the ATO in July 2015, November 2015 and then again in September 2016 for the repayment of her tax debt by way of instalments and failed to comply with those payment plans.
The applicant contends that her failure to meet the payment plans was not a consequence of bad faith on her part nor a consequence of unreasonable expenditure impeding her capacity to pay or a failure to properly plan her personal family finances in order to be in a position to pay, but rather due to difficult financial circumstances that were not reasonably foreseeable. According to the applicant’s contention, those circumstances included the further worsening of her husband’s health, including a significant back and knee injury and associated pain which impacted his capacity to work and earn income for the family and a decline in demand for her husband’s work which further reduced his income. In addition, the applicant contends that she was impeded in her capacity to be able to meet the regular repayment plan by virtue of the periodic nature of income flowing from her husband’s business which made the receipt of income unpredictable. Further, the applicant contends that the expenditure relating to the purchase of a new vehicle, international travel and funds transfers was not the reason she was unable to meet her repayment plans.
Having considered the evidence before it, the Tribunal is satisfied that the applicant’s contentions in this respect must be rejected. First, the Tribunal is satisfied that the applicant entered into payment plans with the ATO which set out clear obligations for the repayment of the tax debt by way of instalments and that the applicant failed to meet the payment schedule set out in those respective plans. This was the case even after the payment plans were adjusted to allow for a reduced monthly repayment amount from $1,000 per month to $500 per month.
Second, the Tribunal does not accept the applicant’s contention that the failure to meet the repayments was not impacted in any way by the applicant’s expenditure relating to the purchase of a new vehicle, the family’s international trip or fund transfers that the Tribunal is satisfied were unreasonable as set out above. While it may be true that some examples of the applicant’s failure to meet specific repayments occurred at times separated to some degree from that expenditure there is no question in the mind of the Tribunal that the expenditure was unreasonable in all the circumstances and that it has to some degree contributed to the inability of the applicant to be able to make repayments in accordance with the payment plans she had agreed to.
In addition, the Tribunal does not accept that the failure of the applicant to be able to meet repayments in accordance with the payment plans is explained away by virtue of the decline in her husband’s income or the periodic nature of his income. The Tribunal accepts that the applicant’s husband has suffered significant adverse health issues and experienced a decline in demand for his work, which have impacted his income and that his income is of the periodic nature. Nonetheless, the Tribunal accepts the respondent’s contention that the applicant ought to have adopted a more cautious approach in the management of her personal and financial affairs having regard to the existence of her tax debt, the periodic nature of her husband’s income and the potential for there to be adverse events which might impact that income in the future.
While the applicant may not have been able to foresee the full extent of the decline in her husband’s income, in the Tribunal’s view, given the extent of the applicant’s tax debt at the time, a reasonable person in the applicant’s circumstances would have ensured a level of contingency to allow for unanticipated adverse events to a greater extent than the applicant did. In this sense the Tribunal accepts the respondent’s contention that the applicant failed to appropriately plan her personal and financial affairs to ensure that she was in a position to be able to meet her future tax liabilities. While the Tribunal accepts that at the time the applicant first failed to meet her payment plan obligations she was not in a position to know what ultimately became the full extent of her tax liability, the applicant was on notice regarding the uncertainty of the outcome of the first of her amended tax returns and again, for that reason also, the Tribunal is satisfied a reasonable person would have adopted a more cautious approach.
Poor tax compliance

The respondent also contends that it would be inappropriate to exercise the discretion to release the applicant of her tax debt because of what the respondent claims is the applicant’s poor tax compliance record. The respondent contends that the applicant’s failure to lodge tax returns on time for 7 of the 8 years preceding her second relief application is evidence of poor compliance. In addition, the respondent refers to the applicant’s failure to meet payment plans that had been agreed to for the repayment of her tax debt and also the fact that the applicant had incurred significant expenditure in relation to her overseas travel at around the same time she had ceased meeting her payment plans.
In relation to her tax compliance record, the applicant told the Tribunal that her failure to lodge tax returns on time on a number of occasions and also her failure to maintain payment plans needed to be considered in context. The applicant told the Tribunal that prior to her receipt of the disability lump sum she had maintained a positive tax compliance record for more than 30 years. The applicant told the Tribunal that the initial accumulation of the tax liability following receipt of her lump sum payment had been inadvertent and that when she had become aware of the issue, she had sought to rectify it in a timely manner. The applicant told the Tribunal that she had been impeded in meeting her tax compliance obligations due to a number of factors outside her control, including difficulties in collating documents, issues she had with a former tax agent and also due to her ongoing mental health issues which affected her concentration and organisation and also caused avoidance behaviours. The applicant told the Tribunal that she entered into each of the payment plans in good faith and has endeavoured to meet those payment plans but on a number of occasions had been unable to because of what she claimed were unforeseen circumstances. The applicant also told the Tribunal that she has not increased her tax liability since 2015 and has continued to meet her income tax obligations since that time.
Having had careful regard to the evidence before it the Tribunal is satisfied that the applicant’s contentions with respect to her tax compliance record cannot be fully accepted. The Tribunal accepts that the applicant had a positive compliance record prior to the incurring of her tax debt and has continued to meet her PAYG tax obligations. However, the Tribunal is satisfied on the evidence that since initially incurring her tax debt the applicant has failed to meet other personal tax obligations, including on a number of occasions the requirement to ensure tax returns are lodged on time and also her failure to meet repayment plans that she had agreed to. The Tribunal is satisfied that the applicant’s tax returns were lodged late in each year from 2011 through to 2018. The Tribunal accepts that in respect of a number of those years the applicant sought relief from the penalty imposed on the basis of personal circumstances including her mental health issues, difficulties she had in collating relevant material, the need to make corrections to her PAYG summaries and also due to failures by her tax agent to lodge documents through his ATO portal. Further, the Tribunal accepts that in respect of the tax returns due on 31 October 2013, 2 November 2015 and 31 October 2018, the applicant was successful in having penalties for late lodgement remitted due to her personal circumstances.
However, no penalties were remitted in respect of late lodgements for the 2011/12, 2012/13, 2014/15, 2016/17, 2017/18 income years. While the Tribunal accepts that the applicant has continued to experience difficult personal circumstances, including ongoing mental health issues and stress through these years, it does not accept that her personal circumstances fully excuse the applicant’s failure to meet her tax compliance obligations in each of the years for which no penalties were remitted. In addition, as the Tribunal has already concluded, the applicant has failed to meet commitments for the repayment of the debt as set out in the various payment plans the applicant entered into. Again, the Tribunal does not accept that the applicant’s difficult personal circumstances are an excuse for her failure to meet those payment plans.
The Tribunal is satisfied that the applicant’s failure to meet her tax obligations in this manner weighs to some degree against the exercise of the discretion to grant relief in respect of her tax debt. However, having regard to the applicant’s positive tax compliance record prior to the incurring of her tax debt, the fact that the incurring of the initial tax liability was inadvertent and the ongoing impact of her difficult personal circumstances, the Tribunal has not given this consideration significant weight in its overall assessment of the matter.
Prior tax relief
The respondent also contends that the applicant has already received tax relief in recognition of her difficult personal circumstances and that in all of the circumstances of the applicant’s case it would be an inappropriate exercise of the discretion to do so again. The applicant contends that the earlier relief provided by the respondent was in respect of penalties associated with late lodgements and that the matter presently before the Tribunal relates to her underlying tax debt and that her personal circumstances are relevant in that context to the exercise of the discretion to grant relief notwithstanding the earlier relief granted in respect of late lodgement penalties. The Tribunal accepts the applicant’s contention in this respect.
Ongoing hardship
The applicant contends that in considering the exercise of its discretion the Tribunal should have regard to the strong likelihood that the decline of her husband’s income is not likely to recover and that, in those circumstances, if the applicant is required to repay the tax debt she is likely to face serious financial hardship over the long term. As already stated, the Tribunal accepts that if required to repay the tax debt the applicant will face serious financial hardship. The Tribunal acknowledges that the applicant is not able to work and currently receives a superannuation disability pension with a compensation top up that is not permanent. The Tribunal also accepts that the decline in her husband’s income due to health issues and a fall in demand for his work is not likely to recover and that the applicant is therefore likely to continue to face serious financial hardship over the long term. The Tribunal has had careful regard to this factor in its overall assessment of this matter.
CONCLUSION
Having considered all of the evidence before it and having regard to each of the conclusions reached above, the Tribunal is satisfied that in all of the circumstances of the applicant’s case it would not be appropriate to exercise the discretion to relieve her tax debt either in part or in full. The Tribunal accepts that the repayment of the tax debt is likely to cause the applicant serious hardship, and further that the hardship is likely to be ongoing. The Tribunal also accepts that the applicant currently faces, and is likely to continue to face, further difficult personal circumstances, including her own health issues as well as those of her family. In assessing the applicant’s circumstances, the Tribunal has considered the circumstances both individually and also in a cumulative sense. However, notwithstanding these considerations, the Tribunal is satisfied that the choices the applicant has made, having regard to her discretionary expenditure, weigh very significantly against the exercise of the discretion in her favour. More specifically, the Tribunal is satisfied that the applicant has engaged in multiple examples of expenditure which were not reasonable having regard to her tax debt at the time, and that in undertaking that expenditure she has demonstrated a willingness on her part to incur expenditure without due regard to meeting her tax debt obligations.
In addition, for the reasons set out, the Tribunal is satisfied that in undertaking expenditure of that kind, the applicant has contributed to her own difficult financial circumstances to some degree. The Tribunal is satisfied that in those circumstances there is no reasonable justification for treating the applicant differently to other taxpayers who are required to meet their tax debts.
For these reasons, the Tribunal does not consider it appropriate to grant further relief in respect of the applicant’s tax debt.
Accordingly, the Tribunal is not satisfied that the applicant has met her burden of satisfying the Tribunal that the decision under review should not have been made or should have been made differently.
DECISION
The decision under review is affirmed.

I certify that the preceding 72 (seventy-two) paragraphs are a true copy of the reasons for the decision herein of The Hon. Matthew Groom, Senior Member

............................[sgd]............................................
Associate
Dated: 6 May 2021

Date(s) of hearing: 27 April 2020

Applicant: By telephone

Counsel for the Respondent: L. Mills

[2021] AATA 1845

6 May 2021

Key Legal Topics

Areas of Law

Tax Law

Administrative Law

Legal Concepts

Judicial Review

Procedural Fairness

Remedies

Standing

Statutory Construction

Date(s) of hearing:	27 April 2020
Applicant:	By telephone
Counsel for the Respondent:	L. Mills