Charara v Commissioner of Taxation

A New Tax System (Goods and Services Tax) Act 1999 LEGISLATION CITED : Taxation Administration Act (1953) Taxation (Interest On Overpayments and Early Payments) Act 1983

PARTIES : Plaintiff: Jamal Charara Defendant: Commissioner of Taxation

COUNSEL : Plaintiff: Jamal Charara (In person) Defendant: S.A.Sirtes

SOLICITORS : Plaintiff: Jamal Charara (In person) Defendant: Bronwyn McNeil, Clayton Utz Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

(1039/09) JAMAL CHARARA v COMMISSIONER OF TAXATION JUDGMENT 1 HIS HONOUR: The plaintiff is the assignee pursuant to an assignment made on 9 July 2007 ("the Assignment") under which Media Press Computer Supplies Pty Ltd ("MP") assigned to Mr Charara all of its rights and entitlements in respect of any debts or other claims that MP had against the defendant, the Commissioner for Taxation ("the Commissioner"). The validity and effectiveness of the Assignment is in dispute, as is Mr Charara's standing to make the various claims the subject of these proceedings. 2 By his Summons filed on 7 January 2009 Mr Charara seeks various declarations and orders for the payment to him (in his capacity as MP's assignee) of various amounts in respect of which he claims that MP has been underpaid, together with interest thereon. 3 The Commissioner disputes Mr Charara's entitlement to the amounts in question. 4 Mr Charara's claims can be conveniently divided as relating to two periods. The first period relates to claims made in respect of ten Business Activity Statements ("BAS") lodged by MP pursuant to the requirements of the A New Tax System (Goods and Services Tax) Act 1999 for the ten quarters from the quarter commencing on 1 July 2000 to the quarter commencing on 1 April 2002, both inclusive. As originally pleaded, the second period related to BAS's lodged by MP in respect of five other quarters, being the quarter commencing on 1 April 2003 and the four consecutive quarters from the quarter commencing on 1 April 2005 and ending with the quarter commencing on 1 January 2006, again both inclusive. However, Mr Charara has abandoned his claim in relation to the last-mentioned four consecutive quarters, thus limiting his claim for the second period to the BAS lodged by MP for the one quarter from 1 April 2003 to 30 June 2003. 5 I propose to deal with those two periods separately. The first period: 1 July 2000 to 31 December 2002 6 In respect of each of these ten quarters MP filed a BAS. In respect of eight of those quarters, MP claimed to be entitled to receive a refund. The Commissioner accepted those claims on a prima facie basis and credited the amounts claimed to MP's Running Balance Account ("RBA"). He then transferred those amounts by electronic funds transfers to MP's bank account. 7 The amounts refunded included, in respect of one of those eight BAS claims, a Delayed Refund Interest ("DRI") component which was payable pursuant to sections 12AA and 12AF of the Taxation (Interest On Overpayments and Early Payments) Act 1983 ("the IOP Act") which, so far as it is presently relevant, provide as follows: "12AA Entitlement to Interest for RBA Surpluses after Notification of BAS Amount

If: (a) the Commissioner has allocated a BAS amount to an RBA of an entity; and (b) section 12AB does not apply (that section is about remission of penalties); and (c) under subsection 8AAZLF(1) of the Taxation Administration Act 1953, the Commissioner is required to refund to the entity the whole or part of an RBA surplus for that RBA; and (d) the refund takes place after the RBA interest day; then interest is payable by the Commissioner to the entity on the amount refunded.

RBA interest day for an RBA surplus means the 14 th day after the latest of the following days:

(a) either: (i) if section 12AA applies -the day on which the surplus arises; or

(ii) if section 12AB or 12AC applies-the day on which the relevant request is made;

(b) if, by the day applicable under paragraph (a), the person has not given the Commissioner a notification that is required for the refund under section 8AAZLG of the Taxation Administration Act 1953 and that is accurate so far as it relates to the refund- the day on which that notification is given to the Commissioner;

(c) unless the Commissioner has given a direction under subsection 8AAZLH(3) of the Taxation Administration Act 1953-the day on which the person nominates a financial institution account for the purposes of that section.

RBA surplus has the same meaning as in section 8AAZA." 8 Section 8AAZLG of the Taxation Administration Act, 1953 ("the TA Act") provides as follows: "8AAZLG Retaining refunds until information or notification given (1) The Commissioner may retain an amount that he or she otherwise would have to refund to an entity under section 8AAZLF, if the entity has not given the Commissioner a notification:

(a) that affects or may affect the amount that the Commissioner refunds to the entity; and

(b) that the entity is required to give the Commissioner under any of the BAS provisions (as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 ).

(2) The Commissioner may retain the amount until the entity has given the Commissioner that notification or the Commissioner makes an assessment of the amount, whichever happens first." 9 Sections 12AB and 12AC of the IOP Act, and section 8AAZLH(3) of the TA Act do not appear to be relevant to the issues raised in this case. 10 The quarter referred to in paragraph [7] above was the quarter commencing on 1 April 2001, and ending on 30 June 2001. The BAS in question for the said period was lodged on 3 July 2001 claiming a refund of $4,216.00. The refund was only paid on 3 August 2001. Accordingly, as a consequence of the operation of the provisions of the abovementioned sections 12AA and 12AF of the IOP Act, interest in the form of DRI became payable in respect of the period after the 14th day from the lodgment of the BAS until the date when the refund was made, that is to say from 18 July 2001 to 3 August 2001, inclusive. The amount in question was the sum of $10.16, and there is no dispute either about the correctness of that amount, the manner of its calculation or about the fact that it was paid. 11 The DRI was calculated at the rate of 4.89% per annum, being the then prevailing 90-day Bank Accepted Bill rate, as provided by section 12AE of the IOP Act and section 8AAD of the TA Act. 12 The only two quarters in respect of which no refund was made by the Commissioner to MP were the quarters ending 30 September 2002 and 31 December 2002. As to the quarter ending 30 September 2002, MP's BAS showed an amount of $75.00 as being payable by MP to the Commissioner, which amount MP duly paid. 13 The other quarter in respect of which no refund was made by the Commissioner to MP, despite the fact that MP claimed to be entitled to a refund in the sum of $2,832.00, was the quarter ending 31 December 2002. The reason for the Commissioner not making the refund claimed was that by then, the Commissioner was undertaking an audit of MP's affairs and was soon to form the view that in the absence of supporting materials, all of MP's claims for credit should be rejected. The Commissioner credited the amount claimed to MP's RBA, but did not transfer it to MP's bank account. 14 On the basis of a brief audit, the Commissioner formed the view that the information contained in the ten BAS's in question had not been substantiated, and proceeded to issue Notices of Assessment of Net Amount in respect of each of those quarters. He did so in two tranches. On 20 March 2003 the Commissioner issued Notices of Assessment of Net Amount in respect of the four of those quarters and on 21 May 2003 he issued similar Notices of Assessment of Net Amount in respect of the remaining six quarters. In addition, on 14 March 2005 the Commissioner issued a Notice of Assessment of Penalty. The total tax shortfall notified in the Notices of Assessment of Net Amount came to $166,696.00, and a penalty amount of $125,022.00 was assessed by the Notice of Assessment of Penalty. 15 MP filed objections to each of the Notices of Assessment of Net Amount on 15 December 2004, and on 18 March 2005, it also filed an objection to the Notice of Assessment of Penalty. 16 There then followed an investigation by the Commissioner, which investigation included a review of the supporting documentation produced by MP. Negotiations took place between the Commissioner and Mr Charara on behalf of MP, which negotiations ultimately resulted on 10 April 2006 in a Deed of Settlement being executed between MP and the Commissioner ("the Deed"). 17 Before turning to the terms of the Deed, I should note that upon service of the various Notices of Assessment of Net Amount, the Commissioner debited MP's RBA with the amounts that he had decided to disallow, which in each case was the whole of the refund that had been claimed by MP and had been refunded to it. Similarly, he debited MP's RBA with an amount representing the penalty that the Notice of Assessment of Penalty specified. As a consequence, MP's RBA with the Commissioner was thrown substantially into debit. As a consequence, the Commissioner also levied a General Interest Charge ("GIC") on the RBA's debit balance as provided for by section 8AAB of the TA Act, and similarly debited such GIC to MP's RBA. 18 However, what must be stressed is that although the Commissioner debited the abovementioned amounts to MP's RBA, the refunds which had previously been made to MP were not repaid to the Commissioner. Rather, the proceeds of those refunds and the ability to use them at all times remained with MP. It was only the balance of MP's RBA that was affected by the Commissioner debiting the amounts in question. 19 Returning to the terms of the Deed, it recited the issue of the various Notices of Assessment and the fact that MP disputed the same, and noted that the parties wished to settle their dispute on the terms set out in the Deed. 20 Clause 2 of the Deed provided as follows: "2. Obligations of the Commissioner

2.1 will remit all penalties and the General Interest Charge in relation to the assessments referred to in recital A and recital B which has accrued up until the date of execution of this deed.

2.2 will amend the Business Activity Statements for the periods 1 July 2000 to 31 December 2002 to reflect the following [there are then set out the various amendments to each of the ten BAS's in question] and will issue to the taxpayer Notices of Assessment of Net Amount for the periods of 1 July 2000 to 31 December 2002 to reflect those amounts.

2.3 will not issue any further assessments or amended assessments to the taxpayer arising out of the transactions which are the subject of the Deed.

2.4 in respect of any credits arising as a result of the issuance of the amended notices of assessment, the amount(s) will be credited to the taxpayers Running Balance Account and if the resultant balance is an overall credit, the said amount will be remitted to the taxpayer within 28 days." 21 Clause 3 of the Deed provided as follows:

3.1 will accept the amounts referred to in clause 2.2 in full and final satisfaction of the claims subject to the objections of 15 December 2004 and 18 March 2005.

3.2 will not object to the amended assessments resulting from the actions of the Commissioner as outlined in clause 2.2, if the amended assessments are raised on the terms set out in this deed

3.3 will not seek any review of the issues agreed as part of the settlement under the Administrative Decisions (Judicial Review) Act or administrative law generally; this does not include review by the Ombudsman

3.4 will not seek disclosure under the Freedom of Information Act documents held by the Commissioner in relation to the issues agreed as part of the settlement;

3.5 assures the Commissioner that it has made a full and true disclosure of all known relevant facts in the settlement discussions.

3.6 waives any present or future claims for costs, interest, financial loss and or non financial damages in relation to dealings associated and in connection with this Deed. " 22 Pursuant to the Deed, between 17 May 2006 and 22 May 2006, all penalties and the General Interest Charge on MP's RBA were remitted, and MP's RBA was credited with the amounts so remitted. Further, the relevant BAS's were amended, and Notice of Assessments of Net Amounts were issued in accordance with the detailed provisions of Clause 2.2 of the Deed. This resulted in further credit adjustments to MP's RBA. Once the penalties and general interest charges had been remitted and the GST credits had been credited, MP's RBA went back into credit. 23 Thereafter, on 31 May 2006, the Commissioner transferred to MP's bank account the credit balance of its RBA, namely the sum of $14,860.57. In addition, as the refund had not been paid within the 28 day period in accordance with the provisions of clause 2.4 of the Deed, interest in the sum of $52.53 was also paid to MP by way of DRI in respect of the period from 9 May 2006 (being the day following the 28th day after the date of the Deed) and 31 May 2006 (the date of payment) at the then appropriate rate of 5.61 percent per annum. Again there is no dispute concerning this payment. 24 Mr Charara puts MP's claim (and therefore his claim) in respect of this first period in two alternative ways. Primarily, he claims interest on the amounts by which MP's RBA was credited pursuant to Clause 2.2 of the Deed, namely the sum of $184,629.00.

25 Alternatively, Mr Charara claims interest on the sum of $14,860.57, being the resultant credit balance on MP's RBA, which was the amount that was transferred to MP's bank account on 31 May 2006. In each case, Mr Charara claims interest on a compound basis at the rate of 10 percent per annum from 31 December 2002 until the date of payment. 26 I should say immediately that Mr Charara did not point to any legislative provision or other authority to support his claim that interest should be calculated at the rate of 10 percent per annum or that it should be calculated on a compound basis. Nor am I aware of any such legislative provision or other authority, or of any other basis upon which I would allow interest at that rate, or on that basis.

A false issue 27 Both in his Summons, particularly at paragraph 1(a), and in the evidence filed on his behalf, Mr Charara appeared to rely extensively on an assurance he claimed had been given to him by an officer of the Commissioner, namely a Mr Davies, in relation to the interest with which MP's RBA would be credited, and which would ultimately be paid to it. He made this quite clear both in his pre-trial submissions and in his opening. Indeed the only evidence that was adduced from his only other witness, Ms Rona Hamieh, served to corroborate Mr Charara's evidence to the effect that such an assurance had been given. In turn, Mr Davies swore an affidavit effectively disputing giving any such assurance. As a consequence, most of both Mr Charara's cross-examination and that of Ms Hamieh focused on the issue of whether or not such an assurance had been given. 28 It was only after those cross-examinations that Mr Charara accepted, and indeed submitted, that it would make no difference to his case whether or not such assurance had been given and that such assurance did not advance his case in any way. 29 That concession clearly came as a surprise given the emphasis Mr Charara had placed on that alleged assurance. Whether any, and if so what, consequences the lateness of this concession may have in relation to costs may need to be debated before me, but for the purposes of this judgment, it has become unnecessary for me to determine, and I do not determine, whether or not the alleged assurance was given by Mr Davies. Given the clear concession made by Mr Charara, I do not consider that issue to be relevant to the issues which I have to determine.

Mr Charara's submissions 30 In support of his submissions, Mr Charara relies on sections 9(1) and 10(1) of the IOP Act. Section 9(1) of the IOP Act provides as follows: "Entitlement to Interest

(a) an amount of relevant tax is paid by a person to the Commissioner (in this subsection referred to as the "amount paid " ; and (b) as a result of a decision to which this Act applies, the whole or a part of the amount paid is overpaid by the person and is refunded to the person or applied against any liability of the person to the Commonwealth,

interest calculated in accordance with subsections (2) and (3) and sections 10 and 10A is payable by the Commissioner to the person in respect of:

(c) in a case where the whole of the amount paid is so refunded or applied - the amount paid; or

(d) in a case where a part of the amount paid is so refunded or applied - the part of the amount paid so refunded or applied." 31 Section 10(1) of the IOP Act deals with the manner in which interest payable to a person by virtue of section 9 is to be calculated. 32 The term "decision to which this Act applies" as it appears in section 9(1)(b) is defined in section 3 of the IOP Act to mean, so far as is relevant, "a decision of the Commissioner upon an objection". 33 Mr Charara submits that the Notice of Assessments of Net Amount dated 22 May 2006 for the tax periods from 1 July 2000 to 31 December 2002, (or in the alternative the Deed itself) constitutes a "decision of the Commissioner upon an objection". He submits that the said Notice of Assessments of Net Amount was issued (or alternatively the Deed itself was executed) as a consequence of the various objections having been lodged on behalf of MP, and accordingly represents the Commissioner's decision upon those objections. He submits that as tax had been paid by MP to the Commissioner and, as a result of such decision, the whole or at least a part of the amount paid was found to have been overpaid by MP and was refunded to MP. As a consequence, he submits, interest is payable in respect of the amount so refunded in accordance with the formula set out in section 10(1) of the IOP Act. Mr Charara submits that in the present case, the said amount of $184,629.00 (or alternatively the amount of $14, 860.57) represented a refund to MP (or alternatively an application against its liability to the Commissioner) and consequently interest on that amount (or in the alternative on the amount of $14,860.57) must be paid. Discussion 34 In my opinion, Mr Charara's submission is misconceived. Its fundamental assumptions are that tax had been paid by MP to the Commissioner, that as a result of a decision of the Commissioner on MP's objections, the amount paid has been overpaid, and that this overpayment resulted in a refund being due in respect of such overpayment. However, in the present case, no tax had been "paid" by MP. The amounts that it had claimed by way of a refund in its original BAS's were in fact paid to it. All that happened as a result of the various Notices of Assessment of Net Amount was that debit entries were made to MP's RBA. The same is true in respect of the Notice of Assessment of Penalty. 35 It seems to me that section 9(1) of the IOP Act was intended to apply in circumstances where a taxpayer paid amounts in respect of which he had been assessed, but where, following an objection, the Commissioner amended his original assessment by reducing the amount originally assessed. In those circumstances, the section provides for the compulsory payment of interest by the Commissioner on the amount refunded, such amount representing the "overpayment". 36 That is not what happened in the present case. Here there were no payments made by MP. The debit entries to the RBA were made pursuant to the various Notices of Assessment of Net Amount, and pursuant to the Notice of Assessment on Penalty, and finally pursuant to the General Interest Charge that was levied on the debit balances of the RBA. Under the terms of the Deed, that General Interest Charge was remitted, together with all penalties that had been imposed. Likewise, the GST credits were credited to the RBA. As Counsel for the Commissioner pointed out, as there were no "payments" by MP, there could be no "overpayments". Section 9(1) simply cannot apply. 37 There is certainly nothing in the Deed that would require the Commissioner to pay to MP interest on the amount that was to be credited to the RBA, and which brought it back to a credit balance. Having regard to the fact that the General Interest Charge was to be remitted, it would be surprising in the extreme if the parties to the Deed had intended to require the Commissioner to pay interest on the adjustment when no interest would be charged on the debit balance prior to such adjustment. 38 As Counsel for the Commissioner also pointed out, prior to the execution of the Deed on 10 April 2006, MP's RBA was not in credit. It was at all relevant times in debit and it only went into credit after, and as a consequence of, the execution of the Deed. Until that happened, no interest would have been payable to MP by the Commissioner in respect of the net debit balance of the RBA. 39 Further, and in any event, under the provisions of clause 3.6 of the Deed, MP waived any present or future claims that it might have had inter alia for interest in relation to dealings associated and in connection with the Deed. That clause in my opinion clearly prevents MP from claiming any interest in respect of any deemed credit balance of the RBA in respect of the period prior to the execution of the Deed. It might also be noted that clause 2.4 itself requires the Commissioner to pay to MP the amount of the credit balance of its RBA. It says nothing about paying any interest on it. 40 The Commissioner has paid to MP the amount of the credit balance which resulted from the adjustments provided for by the Deed, together with a small amount by way of DRI in relation to the short period by which such payment lagged behind the date by which the amount was required to be paid under the provisions of clause 2.4 of the Deed. Nothing further is payable. 41 Accordingly I do not consider that Mr Charara's claim in respect of the first period has been established, either in respect of his primary case or his alternative case.

The second period: 1 April 2003 to 30 June 2003 42 As I have noted above, Mr Charara now claims interest only in respect of the one quarter during this second period, namely the quarter commencing 1 April 2003 and ending on 30 June 2003. It is common ground that the Deed has no application to this quarter. 43 In relation to this quarter (which Mr Charara accepts he erroneously described in his written submissions as the quarter commencing on 1 July 2003 and ending 30 September 2003) an amount of $9,280.00 was claimed by way of a refund, and such refund was paid on 18 July 2006. Mr Charara claims interest on that amount in respect of the period from 28 July 2003 (the date on which he claims the refund in question became due) until the date of its payment on 18 July 2006, also at the rate of 10 percent per annum on a compound basis. 44 I am satisfied on the evidence before me that what happened was that the original BAS for the period 1 April 2003 to 30 June 2003, which was lodged by MP on 29 July 2003, showed a nil balance, that is to say no refund was shown as being due. A revised BAS for this period was lodged by MP on 18 May 2006 but that BAS also showed a nil balance. It was only when a further revised BAS for that period was lodged by MP on 28 June 2006 that a refund of $9,280.00 was claimed. It is common ground that the refund was paid on 18 July 2006 and I am satisfied that a DRI of $8.95 was also paid. The amount of the DRI was calculated by the Commissioner in the manner described earlier, and on the basis that the further revised BAS having been lodged on 28 June 2006, the refund was due 14 days thereafter, namely on 12 July 2006. As it was not paid on that day, DRI was payable for the six day period between 13 July 2006 and 18 July 2006 at the then applicable rate of 5.8 percent per annum. 45 Mr Charara noted that in circumstances where a taxpayer fails to make a payment which he is obliged to make to the Commissioner, he is charged interest on that amount as from the date on which the payment originally was due. By the same token, Mr Charara claims, where there has been an overpayment which, if claimed, would have been repayable at the time it was made, by parity of reasoning, interest should be payable on that amount by the Commissioner as from the point of time when the payment was made. Mr Charara submits that unless there is an express provision to the contrary, the same principles should apply in both cases. 46 While the submission has an attractive naivety about it, I do not have to consider it from first principles in light of the provisions of sections 12AA and 12AF of the IOP Act, which I have already set out above. 47 As has already been noted, section 12AA requires the Commissioner to pay interest inter alia on GST refunded where the refund takes place after the "RBA interest day". The term "RBA interest day" is defined by section 12AF to mean the 14th day after the latest of three alternative days. The first of those three days, appearing in subsection (a), is the day on which "the surplus arises". In the present case that would presumably be 29 July 2003. However, under subsection (b), if by the day applicable under subsection (a) (that is to say by 29 July 2003) the person has not given the Commissioner a notification that is required for the refund under section 8AAZLG of the TA Act (which provision I have set out in paragraph [8] above) then the refund is due on the day on which such notification is given to the Commissioner. Subsection (c) has no application in the present case. 48 In the present case, such notification was first given upon the lodgment of the further revised BAS on 28 June 2006. Accordingly, interest was only payable in respect of the period commencing after the 14th day after such notification, and ending on the day when payment was made. Interest for that period was in fact paid. 49 For those reasons, I do not consider that MP (and hence Mr Charara) is entitled to any further amounts by way of interest, and Mr Charara's claim in respect of the second period also fails. Conclusions 50 It follows that Mr Charara has not established that there were any debts or other moneys owing to MP by the Commissioner as at the date of the Assignment, nor did MP have the benefit of any chose in action against the Commissioner as at that date. As a consequence, the Assignment (even if it is otherwise found to be valid and effective, an issue which I do not need to determine) did not confer any rights on Mr Charara, who bases his claim against the Commissioner exclusively on such rights as were assigned to him by MP. 51 Accordingly, Mr Charara's claim fails and I order the Summons to be dismissed. Costs 52 The issue of costs has not been canvassed before me. I direct each party to provide to my Associate and to the other party any written submissions he wishes to make dealing with the issue of costs within 7 days from today, and any submissions in reply within 7 days thereafter. I propose to then determine the issue of costs on the papers.

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