Bilborough v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT 1 The applicant seeks review of the decision of the respondent, conveyed in a letter to him dated 21 August 2006, rejecting the applicant's offer of a 'debt compromise'. The letter was written in the background of a judgment having been obtained by the respondent, in the course of recovery of the debt payable by the applicant following an assessment of his income tax, and the commencement of bankruptcy proceedings. The application is brought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the AD(JR) Act') and s 39B of the Judiciary Act 1903 (Cth). 2 On 18 October 1999 a notice of assessment issued to the applicant with respect to the year ending 30 June 1997. Tax payable on his income was assessed at $578 713.37, of which $196 869.21 was for penalty for understatement and interest. The understatement apparently related to a deduction claimed in connexion with an investment in a film called the 'Progenitor'. In March 2002 the Australian Taxation Office ('the ATO') wrote to investors in the film offering a 'settlement opportunity'. Concessions were offered because of special circumstances relating to the limits to investor's knowledge about the scheme and its taxation implications. It extended to the remission of penalties and interest and an interest free payment period. The offer was expressed to be open until 29 May 2002. It was necessary for the documents, which were enclosed with the letter, to be signed and returned if the offer was to be taken up by persons eligible to do so. 3 The applicant did not take up the settlement in the way, or within the time, required. On 27 August 2004 his accountants wrote to the ATO enclosing the documents signed by him. In December 2004 proceedings were commenced by the respondent against the applicant for the recovery of the full amount of tax due, together with interest. On 30 May 2005 the applicant made an offer to compromise the debt and subsequently sought an extension of time to defend the proceedings, in order to undertake negotiations. The applicant's request was refused by the ATO in a letter dated 29 September 2005. He was then advised that a request for remission of general interest charges would be addressed in a separate letter. He was referred to the ATO's Receivables Policy, Chapter 10, in relation to his request to pay instalments and outstanding information was requested of him. In correspondence between October 2005 and April 2006 he disputed that he had not provided all the information sought, and that he did not comply with the requirements of the Policy, and he offered to pay an increased sum in settlement. On 24 April 2006 summary judgment was given by the Supreme Court of Queensland in favour of the respondent in the sum of $1 111 863.44. A bankruptcy notice issued on 12 May 2006. The applicant's application to have the notice set aside was dismissed by the Federal Magistrates Court on 10 October 2006. In that process that Court had ordered that personal service upon the applicant be dispensed with. 4 On 27 July 2006 the ATO wrote, in response to lengthy letters written by the applicant on 20 June 2006 and 7 July 2007, clarifying the position between it and the applicant: that no arrangement or compromise was in place and that a process for consideration of any proposal would not commence until the applicant's outstanding returns were filed. On 28 July 2006 the applicant advised the ATO that this had been attended to. The applicant put another offer in early August, which was refused in part because he had not yet provided all of the information required. On 14 August 2006 the applicant spoke to an officer of the ATO and provided further information and details concerning his settlement proposal by facsimile transmission. On 21 August 2006 the applicant was advised that the ATO did 'not propose to canvass matters that have been dealt with in earlier communications' but advised that, in making its response, the ATO's Receivables Policy, Chapter 27, had been addressed. The following reasons were given for the rejection of the applicant's compromise offer: '1. No detailed statement of assets and liabilities has been provided. This Office is aware of forty separate companies that you hold shares in. While it is understood that you may dispute that position, that information was secured from ASIC records. 2. No detailed statement of income and expenditure for the last 12 months for yourself and your family members has been provided. 3. No information has been provided by way of evidence to support your claim of inability to make payment of your tax debt in full. In particular, no details have been provided as to interests on land or other moveable assets disposed of in the last 3 years. This Office is aware of your having sold a property on the Gold Coast during that period, as a consequence of which litigation ensued. No evidence has been provided as to the proper value of that property, nor of the manner of disposition and use of the sale proceeds of that property. 4. No information has been provided about property and income over which you hold a power of appointment or disposal, nor about entities you control. 5. No evidence has been supplied to indicate the amount of your total net assets. The Office is aware that you hold an interest in registered marine vessels, and while you make allowance for significant vehicle expenses in your budget you have not advised this Office about your owning a motor vehicle. 6. You have advised that you have met your obligations to the State of Queensland under the judgment secured by the Department of Fair Trading in 2005. However, the minimal material you earlier forwarded in that regard did not state the amount of the payment made to satisfy the judgment, nor did you disclose how that payment was funded. That payment was made at a time when you were advising this Office that you had no income and no assets. 7. You have failed to demonstrate that the compromise offered does not prejudice any other creditors. You have not advised us of any other creditors you may have. 8. Taken in the round, this Office is of the view that the proposal to pay less than a third of the present tax debt over a period of three years, with no up front payment, is unrealistic and cannot be accepted. Your present arrangement with CUBE can be cancelled at short notice, and there is no guarantee that your services will be retained for such an extended period. Further, while describing the bonuses as 'agreed' you then state that the terms of the agreement are 'fluid and changing.' This Office can secure no comfort from such an arrangement. 9. Further, having regard to your past attitude towards meeting your taxation obligations, this Office is not minded to enter into a compromise arrangement. The present judgment debt arose out of a tax audit. You defended the tax recovery proceedings on doubtful grounds, obliged the Commissioner to secure summary judgment and then, after the application had been served on you and judgment had been secured, alleged that service of the application had not taken place. When contacted to secure your assistance in arranging service of a Bankruptcy Notice, while at the same time seeking the cooperation of this Office in agreeing to your belated settlement terms, you chose to obstruct service of that Notice, necessitating this Office securing an Order for Substituted Service. After repeated promises that your outstanding returns would be lodged within 14 days, those returns have only been lodged very recently. 10. Finally, it is the view of this Office that your conduct in relation to your tax obligations over recent years categorises you as a high risk tax payer. The conduct of such persons excludes them from compromise agreements.' 5 Section 8 of the Income Tax Assessment Act 1936 (Cth) ('the ITAA') provides that the Commissioner of Taxation shall have the general administration of the Act. Section 3A of the Taxation Administration Act 1953 (Cth) ('the TAA') is in the same terms. Section 208 of the ITAA and s 255-5 of the TAA provide that income tax due and payable is a debt due to the Commonwealth and payable to the Commissioner, in the manner and at the place prescribed. The Commissioner may defer or grant an extension of time for the payment of tax and permit it to be paid by instalments: s 206 ITAA; ss 255-10, 255-15 TAA. Any tax unpaid may be sued for and recovered by the Commissioner or a Deputy Commissioner suing in his or her official name: ss 209 ITAA; 255-5 TAA. 6 The purpose of the ATO Receivables Policy document is said to be 'to outline the administrative policy of the Tax Office relating to payment and lodgement obligations of taxpayers and the payment of refunds and interest'. It is said to be a practice statement, issued with the authority of the Commissioner, and is to be read in conjunction with Law Administration Practice Statement PS LA 1998/1. Law Administrative Practice Statements are said to provide direction and assistance to staff on the approaches to be taken in performing duties involving the application of the laws administered by the Commissioner. The general administration series of such statements are said to derive their authority from the Commissioner's general power to administer taxation laws. It is not suggested that any of these statements applied to the decision are in question. 7 The Receivables Policy is required to be followed by ATO staff, unless it is considered to be incorrect or to create unintended consequences. It is said to contain the administrative policy of the ATO 'relating to the obligations imposed on taxpayers by the various taxation laws in respect of the: lodgement of returns and other documents; and payment of liabilities, as well as guidelines for the remission of penalties and interest charges arising from a breach of those obligations'. It is explained that, in providing policies relating to the Commissioner's various discretions, there is no intention to restrict the Deputy Commissioner and authorised officers in the exercise of those discretions. The policy is to provide guidance as to the manner in which the discretions might generally be exercised and arises to promote consistency and fairness in decision-making. 8 The focus of this case is upon Chapter 27 of the ATO's Receivables Policy. It is entitled 'Compromise of Taxation Debts' and is said to deal with the Commissioner's ability to resolve undisputed taxation debts by compromise. It is said that the Commissioner has the power to compromise an undisputed tax debt 'in terms of' given certain provisions of the ITAA, the TAA and other statutory provisions, which are there listed. The introduction refers to the Commissioner's range of 'collection options' where a debt is not paid by the due date. They include allowing the debt to be paid by instalments, where genuine difficulty was faced by the debtor, the commencement of recovery action and, in appropriate cases, compromising the debt. The Policy then provides information as to the circumstances where the respondent will not compromise a debt and cases where the respondent may do so. It is not necessary to refer in more detail to the document at this point. 9 The applicant's application for review is brought on three grounds: 1. The making of the decision was an improper exercise of power as the decision maker exercised his discretionary power in accordance with the ATO's Receivables Policy Chapter 27 without proper regard to the merits of the applicant's case. 2. That there was no evidence or other material to justify the decision maker to conclude that the applicant's conduct in relation to his taxation obligations categorized him as a 'high risk tax payer' and such conduct excluded him from compromise agreements. 3. The making of the decision was an improper exercise of power as the decision maker took into account irrelevant considerations. 10 In relation to the application under the AD(JR) Act, a threshold question arises. Section 5(1) of that Act provides that application may be made by a person who is aggrieved by 'a decision to which this Act applies' for an order of review in respect of the decision on one or more of the grounds there set out. A 'decision to which this Act applies' is defined by s 3 to mean 'a decision of an administrative character made … under an enactment, whether in the exercise of a discretion or not.' An 'enactment' is defined to include an Act and an instrument made under an Act. The respondent has given a Notice of Objection to Competency. It is contended that the Court has no jurisdiction because the decision is not one of an administrative character made under an enactment. It is also said that the application seeks review of conduct which is not capable of judicial review and orders which exceed the Court's powers under s 16(2) of the AD(JR) Act. The latter contentions may be put to one side for present purposes. The question which must first be addressed is whether the decision is one to which the AD(JR) Act applies. In that regard the critical aspect of the definition would appear to be whether the refusal of the applicant's offer to compromise was a decision made under the ITAA or the TAA. 11 Section 209, or that section in combination with ss 8 and 208 of the ITAA, has been regarded as implicitly authorising the Commissioner to do what is reasonably necessary to recover income tax which is due and payable: Hutchins v Commissioner of Taxation (1996) 65 FCR 269 at 273, 276 and 279. Lockhart J (at 276) considered that the power to recover tax in courts of competent jurisdiction necessarily extended to all matters incidental to suing for the tax, including decisions to compromise proceedings and recovering tax by extra-curial means. 12 At issue in Hutchins 65 FCR 269 was the Commissioner's decision to vote against the acceptance of a composition of the appellant's debts at a meeting of creditors. The Full Court had no difficulty in accepting that the Commissioner was authorised under the ITAA to take this action. Their Honours did not consider that this meant that the decision not to vote was reviewable under the AD(JR) Act. In the view of Black CJ (at 273), ss 8 and 208, whilst authorising the decision, did not 'make provision' for it in the sense referred to in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321. His Honour went on to say that the decision was not given statutory effect by the sections relied upon. Lockhart J (at 277) held that, critically, there was nothing final, operative or determinative about the decision (Bond 170 CLR at 337). It neither conferred nor denied any benefit to the appellant or anyone else and was but a 'step taken by the respondent in the course of the execution of his duties to recover the tax owing by the appellant'. 13 In Griffith University v Tang (2005) 221 CLR 99 a committee of the Council of the University decided that the respondent should be excluded from the Ph D candidature programme. The University was established under a statute and the Council by a provision of that statute as the governing body of the University, with a power to delegate its powers, save those to make university statutes or rules. The question was whether that decision was reviewable under the Judicial Review Act 1991 (Qld). Section 4 of that Act imported the definition of a 'decision' from the AD(JR) Act: 'a decision of an administrative character made under an enactment.' In the course of their reasons the majority (Gummow, Heydon and Callinan JJ) focussed upon the provisions of the AD(JR) Act. 14 The majority observed that the additional words in the definition 'whether in the exercise of a discretion or not …' emphasise that a decision may be made in exercise of a power, rather than an obligation, and that it was therefore proper to speak of a decision required or authorised by an enactment (at [49] and [78]). This requirement or authority may be seen by necessary implication. However, whilst a condition for the operation of the definition, the requirement was not itself sufficient. The decision must be of an administrative character and one made under an enactment. 15 There can be little doubt, in the present case, that the decision to reject the offer of compromise was of an administrative kind. The question which the majority considered was posed by the definition of a decision in s 3 at this point is pertinent (at [79]): 'What is it, in the course of administration, that flows from or arises out of the decision taken so as to give that significance which has merited the legislative conferral of a right of judicial review upon those aggrieved?' 16 And the answer given by their Honours was as follows (at [80]): 'The answer in general terms is the affecting of legal rights and obligations. Do legal rights or duties owe in an immediate sense their existence to the decision, or depend upon the presence of the decision for their enforcement? [cf R v Commonwealth Court of Conciliation and Arbitration; Ex Parte Barrett (1945) 70 CLR 141 at 154]. To adopt what was said by Lehane J in Lewins [Australian National University v Lewins (1996) 68 FCR 87 at 103], does the decision in question derive from the enactment the capacity to affect legal rights and obligations? Are legal rights and obligations affected not under the general law but by virtue of the Statute? [General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 169].' 17 Their Honours went on to point out (at [81] and following), that if the decision derives its capacity to bind from contract, or other private law source, then it is not 'made under' the enactment in question. In Lewins 68 FCR 87, Lehane J had held that a statutory power to employ staff and a general power to contract enabled the university to enter into contractual relations with employees, but that general power did not allow it, unilaterally, to affect the rights of employees. The decision not to promote was not one made under a statute. Any such power was more likely an incident of the contractual relationship arising under the general law. 18 The majority in Tang 221 CLR at [89] concluded that the determination of whether a decision is 'made … under an enactment' involves two criteria, both of which must be met: the 'decision must be expressly or impliedly required or authorised by the enactment' and 'the decision must itself confer, alter or otherwise affect legal rights or obligations, and in that sense the decision must derive from the enactment'. 19 In a case such as this, the general power given by the ITAA and TAA, to recover unpaid taxes, carries with it a power to compromise the debt sued for, or which could be sued for or otherwise recovered. The exercise of this power might be subject to, or conditioned by, a duty of good faith, but no such issue arises in the present case. Although the grounds for review refer to an 'improper' exercise of power they do not impute a wrong motive. The applicant's complaint is concerned with the respondent's consideration of the facts pertaining to the applicant's case. Importantly, the power is one to enter into a consensual arrangement with a taxpayer, one which may bind the Commissioner. The exercise of it may bring an agreement into effect, but any rights or obligations arising from it owe their existence to the recognition which the general law would give. A decision, to accept a compromise, does not unilaterally confer any such right, as the second criterion in Tang 221 CLR 99 requires. The decision does not derive its potential capacity to bind from statute, but from the general law. The explanation of Lehane J in Lewin 68 FCR 87 is apposite here. 20 The circumstance I have just referred to is one where the general power to compromise is exercised in favour of a person who is liable to pay tax. It has regard to the creation of a right or obligation and its source. In the present case the respondent's decision prevented this occurrence. To satisfy the criteria in Tang 221 CLR 99, the refusal to accept the applicant's offer of compromise must have affected some right or obligation. However, unless and until the respondent accepted the applicant's offer there was no right. The applicant had no pre-existing right and the respondent no obligation to perform. The respondent's decision did not deny the applicant a benefit to which he was otherwise entitled. 21 In the course of submissions there was a suggestion that Chapter 27 of the Receivables Policy itself created an expectation as to the consideration the applicant's offer would receive. The applicant's grounds for review do not however suggest that his complaint was a denial of some aspect of procedural fairness, which the terms of the Policy had led him to believe would be afforded him. His case is that no proper consideration was given to some aspects of his background and too much weight given to others. This is problematic in judicial review proceedings, but it is not relevant for present purposes. Assuming that the applicant had some expectation of fair treatment, the majority in Tang 221 CLR at [92] confirm that this cannot create any substantive right under the general law. It could not therefore be said that the respondent's decision affected a pre-existing right. 22 On the above analysis, whilst a decision to compromise, or not to compromise, a taxation debt sought to be recovered was permitted by the general powers of the ITAA and the TAA it was not made under them, in the sense explained in Tang 221 CLR 99. It has not itself an effect which may be sourced in a statute. The applicant's answer at this point was to rely upon the Receivables Policy itself as an 'instrument' under which the decision was made. The AD(JR) Act refers to a decision under an enactment, which includes an 'instrument', a word which is undefined. A 'legislative instrument', one which has a legislative character, is defined by s 5 of the Legislative Instruments Act 2003 (Cth) to be one which determines or alters the law rather than applying the law in a particular case and has the direct or indirect effect of affecting a privilege or interest, imposing or varying an obligation, or creating or varying a right. The applicant however points out that there is statutory recognition that not all instruments created are of this character, referring to the Acts Interpretation Act 1901 (Cth), s 15AE. So much may be accepted. 23 In Tang 221 CLR 99 the appellant did not rely upon a 'statutory instrument' before the High Court. The term was defined by the Acts Interpretation Act 1954 (Qld) as one made under an Act or a power conferred by an Act and of a type listed. The types include regulations, ordinances and, more generally 'instruments of a public nature' with the further description 'by which the entity making the instrument unilaterally affects a right or liability of another entity'. Their Honours in the majority observed that, on one view, a decision made under a statutory instrument might be considered to have been made 'under' the statute which conferred the power to make the instrument. 24 The Receivables Policy might generally be described as a document intended to provide advice to taxpayers and guidance to officers of the ATO who have decision-making powers in the areas with which is concerned. The document is concerned with a number of aspects of the Commissioner's powers, including powers arising directly under the ITAA, the TAA and other legislation. These reasons are limited in their consideration to Chapter 27. Nothing appearing elsewhere in the Policy suggests that this Chapter has a function beyond that which I have outlined. It is a practical tool, one authorised by the Commissioner under the Commission's general powers to administer and collect revenue, no doubt in order to achieve some consistencies in practice and to overcome the creation of expectations in some taxpayers. Nothing in the Chapter suggests an intention that a decision made in the course of it is to assume some special status. No decision could of course be made outside the powers to compromise given to the Commissioner. The Chapter is simply intended to regulate practices in connexion with those powers. 25 The applicant did not point to any source, other than the Commissioner's general powers of administration and recovery, which might invest this part of the Policy with some other effect. The applicant distinguishes it from a legislative or statutory instrument, which would appear to deny it the necessary force and effect. It is not explained how a decision made by reference to the Policy has the effects spoken of in Tang 221 CLR 99. It has been authoritively determined that, to qualify as an instrument for the purposes of the AD(JR) Act, a document must be of such a kind that it has the capacity to affect legal rights and obligations: Chittick v Ackland (1984) 53 ALR 143 at 153. That view is consistent with the criteria for a decision stated in Tang 221 CLR 99. 26 The applicant further submitted that, if the whole of the decision conveyed in the letter of 21 August 2006 was held not to be reviewable under the AD(JR) Act, then at least part of it might be. It was submitted that the offer of compromise 'effectively' requested the respondent to remit some of the additional interest and penalty charges imposed for late payment. The letter contained a decision rejecting that request. 27 The implication in the submission is that there are specific statutory powers with respect to the remission of some charges. For present purposes it may be accepted that that is the case and that such a decision might be of a different character, and have different consequences, from the decision under consideration. An earlier letter from the ATO suggests that the topic of the remission of general interest charges would be dealt with separately. It is not apparent from the material whether it was. The application before the Court concerns only the decision conveyed in the letter of 21 August 2006 in relation to the proposed compromise. Any discrete decision, concerning part of the subject matter of that proposal, is not the decision in respect of which review is sought. 28 The applicant's alternative basis for a remedy against the respondent, with respect to the decision, was s 39B of the Judiciary Act. Subsection (1) of that section alone appears to be of possible relevance. It provides that the jurisdiction of this Court extends to any matter in which a writ of mandamus, prohibition or injunction is sought against an officer of the Commonwealth. The applicant may be taken to seek mandamus or an injunction requiring the respondent to make a fresh decision in accordance with law. Mandamus would not issue except to command the fulfilment of some duty of a public nature which remains unperformed: R v War Pensions Entitlement Appeal Tribunal; Ex parte Bott (1933) 50 CLR 228 at 242. An order by way of mandatory injunction would be viewed in the same light. The applicant is unable to point to some such duty imposed by the ITAA and the TAA with respect to offers of compromise. In so far as Chapter 27 of the Receivables Policy might have required consideration to be given to the case which the applicant put on the offer, that procedural right has been afforded. No further right accrues to the applicant which can be the subject of an order, for the reasons earlier referred to. 29 The decision of the respondent is not reviewable under the AD(JR) Act and there is no basis for an order under s 39B(1) of the Judiciary Act. The application will be dismissed with costs. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.