Walsh and Commissioner of Taxation (Taxation)
[2018] AATA 235
•19 February 2018
Walsh and Commissioner of Taxation (Taxation) [2018] AATA 235 (19 February 2018)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2017/1007
Re:Robert Walsh
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President I R Molloy
Date:19 February 2018
Place:Brisbane
The Departure Prohibition Order issued on 20 April 2015 under s 14S(1) of the Taxation Administration Act 1953 (Cth) in respect of the applicant Robert John Walsh is revoked.
...........................[SGD].............................................
Deputy President I R Molloy
CATCHWORDS
TAXATION AND BANKRUPTCY – tax liabilities – departure prohibition order – revocation – effect of bankruptcy – legality of order - purpose of the order – personal circumstances
LEGISLATION
Taxation Administration Act 1953 (Cth)
Bankruptcy Act 1966 (Cth)
CASES
Dalco v Federal Commissioner of Taxation (1987) 19 ATR 443
Edelsten v Commissioner of Taxation (1992) 36 FCR 236
Poletti v Commissioner of Taxation (1994) 52 FCR 154
Skase v Commissioner of Taxation [1991] FCA 904; (1991) 32 FCR 206
Talacko v Bennett [2017] HCA 15
REASONS FOR DECISION
Deputy President I R Molloy
19 February 2018
This is an application by Robert John Walsh (“the applicant”) to review a decision of the Commissioner of Taxation (“the respondent”) not to revoke a departure prohibition order (“DPO”)[1] issued on 20 April 2015[2].
[1] Exhibit 8, T3.
[2] No issue was raised concerning the application to the Tribunal (Exhibit 8, T1) apparently pre- dating the respondent’s “formal decision” (Exhibit 8, T89).
The application to the respondent for revocation was pursuant to s 14T of the Taxation Administration Act 1953 (Cth) (“the TAA”). For the reasons given below I have concluded that the DPO should be revoked.
EVIDENCE
The evidence includes the documents lodged by the respondent with its statement pursuant to s 37(1)(a) of the Administrative Appeals Tribunal Act 1975 (“T-documents”)[3] and Supplementary T-documents[4].
[3] Exhibit 8.
[4] Exhibit 9.
Additionally there are statements lodged on behalf of the applicant. They are his statement and two supplementary statements[5] a statement of his wife Ashley Lauren Walsh[6], and a statement of David Lewis Clout[7], one of two trustees of the applicant’s bankrupt estate appointed on 4 January 2017.
[5] Exhibits 2, 3 & 4.
[6] Exhibit 5.
[7] Exhibit 6.
No witnesses were called to give oral evidence, and there was no cross-examination of the applicant or any of the other persons who provided statements.
BACKGROUND
The background to this application is largely uncontroversial and the following description of events is taken substantially from the respondent’s statement of facts, issues and contentions.[8]
[8] Exhibit 7.
In 2005 allegations relating to the applicant, in his capacity as a director and majority shareholder of a company Krome Studios Pty Ltd (“KS-AU”), surfaced from a former director of KS-AU. The allegations led to the Australian Tax Office (“ATO”) conducting an audit of the applicant’s tax affairs. The audit identified various entities that had transferred money to a company registered in the Republic of Vanuatu, named Creative Game Services Limited (“Creative”).
The Deputy Commissioner of Taxation issued to the applicant amended assessments[9] and notices of assessment of administrative penalty[10] for the years ended 30 June 2003, 2004, 2005, 2007 and 2008 based on the following:
(a)“a sham arrangement existed between KSI-US and Creative and moneys transferred to Creative were assessable income to the applicant; and
(b)amounts credited to the loan account of the applicant held by KS-AU were deemed dividends and assessable to him.”[11]
[9] Exhibit 8, T7 – T11.
[10] Exhibit 8, T12 – T16.
[11] Exhibit 7, para 5.
Part IVC of the TAA sets out the taxation objections, reviews and appeals processes. On 30 November 2010 the applicant notified the ATO of his objections, and the ATO notified the applicant of its objection decision on 10 August 2012.[12] The applicant lodged an application for review of this decision with the Tribunal on 9 October 2012, and the Tribunal was subsequently notified that he intended to withdraw his application for review.[13] The Tribunal confirmed the dismissal of his application on 3 July 2014.[14]
[12] Exhibit 8, T17.
[13] Exhibit 8, T20 – T21.
[14] Exhibit 8, T22.
The Deputy Commissioner of Taxation, as a delegate of the respondent, initiated action in the Supreme Court of Queensland to recover the unpaid amounts specified in the amended assessments[15] and notices of assessment of administrative penalty[16] for the years ended 30 June 2003, 2004, 2005, 2007 and 2008.[17] The Deputy Commissioner of Taxation obtained judgment in default against the applicant on 31 May 2016.[18]
[15] Exhibit 8, T7 – T11.
[16] Exhibit 8, T12 – T16.
[17] Exhibit 8, T23.
[18] Exhibit 8, T29.
The respondent made the DPO, as I have said, on 20 April 2015. The reasons for the DPO included that the applicant had a tax liability of $1,692,445.73 (including accrued interest), that he had not made an arrangement with the ATO to pay this liability, and there was a risk to revenue for various reasons.[19]
[19] Exhibit 8, T3.
Prior to the making of the DPO, the applicant travelled frequently to and from Australia. He most recently entered Australia on 9 April 2015.
On 2 December 2015 the applicant, through his then solicitors, applied to revoke the DPO pursuant to s 14T of the TAA.[20] During 2016 information including documents was sought by the respondent.[21] Some information was provided by the applicant, including through his current solicitors, but not to the satisfaction of the respondent.
[20]Exhibit 8, T65.
[21]Exhibit 8, T66.
On 4 January 2017, pursuant to a debtor’s petition, David Clout and Patricia Talty were appointed trustees of the applicant’s bankrupt estate. The trustees have issued a report to creditors dated 10 February 2017.[22]
[22] Exhibit 8, T74.
Effective from 2 October 2017 the original trustees have been replaced by Joanne Emily Dunn and Kelly-Anne Lavina Trenfield.[23]
[23] Exhibit 9, page 447.
LEGISLATION
Part IVA of the TAA is entitled “Departure from Australia of Certain Tax Debtors”. Sub-section 14S(1) provides relevantly:
Departure Prohibition Orders
(1) Where:
(a)a person is subject to a tax liability; and
(b)the Commissioner believes on reasonable grounds that it is desirable to do so for the purpose of ensuring that the person does not depart from Australia for a foreign country without:
(i)wholly discharging the tax liability; or
(ii)making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged;
the Commissioner may, by order in accordance with the prescribed form, prohibit the departure of the person from Australia for a foreign country.
In Dalco v Federal Commissioner of Taxation[24] Young J said of s 14S:
The Commissioner is to believe on reasonable grounds that it is desirable to stop a person leaving Australia because it is necessary to collect the tax that is owed to the government and that that discharging of the tax liability will be affected by the person going overseas.
[24] (1987) 19 ATR 443, 447-448. See also Edelsten v Federal Commissioner of Taxation [1989] FCA 4; (1989) 85 ALR 226, 230, and Skase v Commissioner of Taxation [1991] FCA 904; (1991) 32 FCR 206, 209 and 210-211.
In Poletti v Commissioner of Taxation[25] the Full Court of the Federal Court said:
The requirement that reasonable ground must exist to support the Commissioner’s belief is a safeguard to the taxpayer that departure prohibition orders will not be made against him or her in unreasonable circumstances. The making of such an order is a severe intrusion into a person’s liberty, privacy and freedom of movement. On the other hand, the protection of the revenue is of great importance to Australia. These two interests must be balanced….
[25] (1994) 52 FCR 154, 159-160.
Referring to the above cases, Jessup J n Troughton v Deputy Commissioner of Taxation[26] said:
Thus it is not to be taken as a given that, in every case, the departure of the person from Australia will make it unlikely, or at least less likely, that the tax liability will be discharged, or that the ability of the Commissioner to recover the tax will be impaired. These are things which must be considered by the Commissioner in every case. The purpose of s 14S, and accordingly a central purpose of Part IVA, is not the prevention of persons (owing tax) from leaving Australia simpliciter: it is the prevention of such persons from leaving Australia where, in the Commissioner’s belief reasonably arrived at, the recovery of tax would or might thereby be impaired.
[26] ; (2008) 166 FCR 9, at [22].
Section 14T of the TAA deals with revocation of a DPO and provides relevantly:
(1) Where a departure prohibition order is in force in respect of a person and:
(a)the tax liabilities to which the person is subject have been wholly discharged and the Commissioner is satisfied that it is likely that the tax liabilities to which the person may become subject in respect of, or arising out of, matters that have occurred will be:
(i) wholly discharged; or
(ii) completely irrecoverable; or
(b) the Commissioner is satisfied that the tax liabilities to which the person is subject are completely irrecoverable;
the Commissioner shall, on application being made to the Commissioner by the person to do so or on the Commissioner's own motion, revoke the departure prohibition order.
(2) Where a departure prohibition order is in force in respect of a person, the Commissioner may, in the Commissioner's discretion and on application being made to the Commissioner to do so or on the Commissioner's own motion, revoke or vary the departure prohibition order.
In Edelsten v Commissioner of Taxation[27] Northrop J in the Federal Court said:
Subsection 14T(1) of the Taxation Administration Act contains two separate and distinct sources of power requiring the Commissioner to revoke a departure prohibition order. Subsection 14T(2) confers an unfettered discretion upon the Commissioner. Subsection 14T(1) imposes a duty on the Commissioner, but that duty is imposed only if one or more of a number of conditions precedent are satisfied. The use of the word "shall" supports the imposition of a duty. This is to be contrasted with the word "may" where used in subs 14T(2).
In this case the applicant relies on sub-section 14T(2) of the TAA and advances three grounds.
[27] (1992) 36 FCR 236, 240.
Maintenance of DPO unlawful
First, the applicant contends that the DPO is no longer lawful. He relies on s 58(3) of the Bankruptcy Act 1966 (Cth) which provides:
(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt;…
In Talacko v Bennett[28] the High Court said:
[28] [2017] HCA 15, [35].
"An essential feature of any modern system of bankruptcy law is that provision is made for the appropriation of the assets of the debtor and their equitable distribution amongst his creditors". The Bankruptcy Act implements such a system. The Bankruptcy Act includes provisions "to stop individual action by creditors for the purpose of obtaining payment of the debts due to them when the aim of the law is to secure administration of the debtor's assets in the interest of the creditors generally". Such provisions are necessary "to prevent one creditor obtaining an undue advantage over the others, and to prevent the scheme of the [Bankruptcy Act] from being defeated". Section 58(3) is one of those provisions.
(References omitted.)
As the applicant acknowledges, his tax liabilities are debts provable in the bankruptcy.[29] If, for example, continuation of the DPO led to discovery of other assets of the applicant, then those assets would augment the bankrupt estate. It has not been shown how, in this or in any other circumstance, the respondent would derive an undue advantage over other creditors through continuation of the DPO or how the scheme of the Bankruptcy Act 1966 (Cth) would be defeated as referred to by the High Court in Talacko.
[29] Exhibit 1, paragraph 26.
In Edelsten v Federal Commissioner of Taxation[30], referred to by the respondent, the Federal Court rejected the notion that no bankrupt who was at the time of bankruptcy in debt to the Taxation Commissioner could ever be the subject of a DPO.
[30] (1989) 85 ALR 226, 235-6.
I am not satisfied that the DPO is rendered unlawful by virtue of the applicant’s subsequent bankruptcy.
Continuation of the DPO does not serve the purpose
The central purpose of Part IVA of the TTA is the prevention of persons with a tax liability from leaving Australia where, in the Commissioner’s belief reasonably arrived at, the recovery of tax would or might thereby be impaired.[31]
[31] Troughton v Deputy Commissioner of Taxation (2008) 166 FCR 9, at [22].
The DPO has been in place for over two and a half years. It is not apparent how, in that time, its existence has served the purpose of the legislation. The applicant’s unchallenged evidence is that the DPO has not resulted in any contribution to the revenue, and that he has no assets to pay the tax debts.[32]
[32] Exhibit 2, paragraph 77(d).
Neither the former nor current trustees of the bankrupt estate have given any evidence to indicate how the applicant’s continued presence in the country would serve their purposes, which broadly coincide with the Commissioner’s. It is not apparent how maintenance of the DPO would serve the legislative purpose.
The applicant also points out that if the DPO is set aside, the trustees will still control possession of his passport and his ability to depart Australia.[33]
[33] Exhibit 6, paragraphs 6 and 9; Bankruptcy Act 1966 (Cth), s 77(1).
In all the circumstances the applicant submits the DPO does not operate in any significant way to improve the respondent’s likelihood of recovering its tax liability.
For the respondent, it is pointed out that the basis of the applicant’s tax liabilities, arising under the amended assessments and penalty assessments issued, were cross-border transactions occurring between the applicant and entities under his control in Australia, the USA, and Vanuatu.
It is also pointed out that there is evidence that since the making of the DPO, the applicant has had control of money from overseas including an ability to bring money on-shore. The applicant for his part, denies as factually incorrect, any suggestion that he has access to significant amounts of money which could be used to pay tax debts.[34]
[34] Exhibit 2, paragraph 42.
It is also pointed out that there is evidence the applicant has controlled three entities which have gone into liquidation with unpaid tax-related liabilities.
It is submitted that the new trustees need time to investigate. It is submitted that the trustees have not undertaken any investigations into the applicant’s off-shore assets.[35] The report from the former trustees, it is said, does not identify all entities which the respondent knows are associated with the applicant.
[35] Exhibit 6, paragraph 8(b).
It is submitted that the applicant’s presence in Australia is required to assist the trustees especially in relation to off-shore funds located in the USA, Vanuatu or Singapore.
There is no evidence, however, from either of the present (or past) trustees to support these submissions, and no real explanation as to the assistance which might be obtained from the applicant’s continued presence in the country.
In all the circumstances, taking account of all the submissions, I am not satisfied that the the departure of the applicant from Australia will make it less likely that his tax liability will be discharged in either in whole or in part, or that the ability of the Commissioner to recover the tax will be impaired. Accordingly, I am not satisfied that the purpose of the legislation will be met by continuation of the DPO.
For these reasons I would be prepared to revoke the DPO.
Freedom of movement
The applicant refers to Poletti v Commissioner of Taxation[36] in which the Full Court of the Federal Court said that the “severe intrusion” of a DPO upon the individual’s “liberty, privacy and freedom of movement” must be balanced against the protection of the revenue.
[36] (1994) 52 FCR 154, 160.
The applicant submits that this provides another ground, his third ground, for revoking the DPO. He refers to his own particular circumstances and those of his family.
The applicant’s principal place of residence was in the USA with his American wife and their young daughter.[37] The applicant’s wife speaks of the destructive impact the DPO has had on the family’s emotional and financial well-being.[38]
[37] Exhibit 1, paragraph 6.
[38] Exhibit 5.
Having read the evidence of the applicant and his wife, I agree with the submission on behalf of the applicant that the DPO has operated as a particularly severe intrusion on his freedom of movement.
The respondent submits, however, that the factors raised by the applicant concerning the personal hardship on him and his wife do not justify the revocation of the DPO.
The respondent also submits: “Arguably such considerations raised by the Applicant are more relevant to an application of a departure authorisation certificate under s 14U of the TAA.”[39] Reference is made to the decision of Jessup J in Troughton v Deputy Commissioner of Taxation.[40]
[39] Exhibit 7, paragraph 33.
[40] (2008) 166 FCR 9, 21.
I can see why this submission of the respondent is qualified. Troughton was a case of judicial review in which, amongst other grounds, the applicant contended that the decision-maker failed to take into account that the applicant’s wife was overseas and gravely ill. The court said the decision-maker would have been justified in declining to consider that matter under s 14T(2), upon the ground that humanitarian considerations of that kind were more appropriately addressed on an application for a departure authorisation certificate.[41] The court then went on to find that if Mrs Troughton’s illness were a relevant consideration, so that the decision-maker was obliged to take into account, that he did so.[42]
[41] Ibid, at [32].
[42] Ibid.
I think that the court’s comments in Troughton were directed to the facts and circumstances of that case and were not made with the intention of laying down any principle of general application. The discretion granted under s 14T(2) of the TAA to revoke a DPO is expressed in wide terms. It seems unlikely that in the exercise of that discretion the legislature intended that the decision-maker should in all circumstances ignore the impact the continuation of a DPO was having on an applicant and his family.
So far as it is necessary to balance the interests of the applicant and the protection of the revenue, to my mind the applicant’s family circumstances would weigh heavily in his favour and against continuation of the DPO.
CONCLUSION
The Departure Prohibition Order issued on 20 April 2015 under s 14S(1) of the Taxation Administration Act 1953 (Cth) in respect of the applicant Robert John Walsh is revoked.
I certify that the preceding 50 (fifty) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy
..................................[SGD]......................................
Associate
Dated: 19 February 2018
Date of hearing: 7 November 2017 Counsel for the Applicant: Mr Matt Black Solicitors for the Applicant: Tomson Geer Lawyers Counsel for the Respondent: Ms Laura Allen
Solicitors for the Respondent: Australian Taxation Office Legal Services Branch
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