Clarke v Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 9 April 2001, the respondent issued a tax assessment against the applicant for the 1999 tax year in the amount of $2,440,073.20. This sum included $201,300.60 as incorrect return penalty and $224,402.95 as interest. The penalty was subsequently excised from the assessment. The assessment was the consequence of the respondent's having disallowed a deduction claimed by the applicant, namely payments to a superannuation fund of which he was a beneficiary. As I understand it, the trustees of the fund have been assessed to taxation in connection with the same payments. The respondent accepts that it would be inappropriate to seek to enforce both assessments. The applicant has applied for review of his assessment in the Administrative Appeals Tribunal. The matter has not yet been heard. In any event, it is common ground that the relevant point of principle has been resolved by the decision of the Full Court in Harris v Commissioner of Taxation [2002] FCAFC 226 in a way which is unfavourable to the applicant. For the moment the assessment stands, and the applicant is indebted to the Commonwealth accordingly. 2 Pursuant to the Act the assessment became due and payable on 10 May 2001. However, pursuant to s 255-10 of Schedule 1 to the Taxation Administration Act 1953 (Cth), the respondent may defer the date upon which the amount of the assessment falls due for payment. The applicant applied for such a deferment, but it was refused. He seeks review of that decision in these proceedings. The matter has been set down for hearing on 17 March 2003. 3 The respondent has commenced proceedings against the applicant in the Supreme Court, seeking recovery of the debt. At some time on Monday, 4 November I was advised that the applicant wished to seek urgent relief in connection with any proposed enforcement of the assessment. The matter was mentioned late in the afternoon on Monday in order to determine whether or not relief ought be granted. It was impossible for me to hear the matter fully at that time, and so I directed the parties to make their submissions in writing. This was in part necessitated by the fact that I was committed in Court on Tuesday and was travelling to Melbourne on Tuesday afternoon for Full Court sittings commencing on Wednesday. I have considered the written submissions and decided that it will be better if I treat the present motion as an application for interim relief, leaving it open to the parties to seek to justify or oppose interlocutory relief at a later date should either wish to do so. I take this course because of the rushed nature of the proceedings on Monday and because I feel compelled to resolve the present claim for immediate relief as quickly as possible. 4 This matter must proceed upon the basis that the validity of the assessment has, as a matter of law, been effectively resolved, subject only to the possibility of an application for special leave to appeal to the High Court. In other words, the applicant must be treated as indebted to the Commonwealth in the relevant amount. Nonetheless the respondent has a broad discretion to defer payment, either pursuant to s 255-10 or pursuant to the general powers incidental to the administration of the Act. The claim for interim relief is put in two ways. Firstly it is submitted that there should be an interim order restraining the commencement or continuation of recovery action until finalization of the present substantive proceedings. Alternatively it is submitted that I should restrain recovery action for a period of thirty days or until the applicant and the respondent have entered into, and concluded negotiations in good faith to secure the amount of the dispute. 5 The respondent points out that the original application for deferral, in answer to which the decision under review was taken, sought only deferral until the latest of three possible dates. The latest of those dates was fourteen days after delivery of the decision of the Full Court in Harris. That judgment was published on 8 August this year. Accordingly, the latest date to which deferral was sought was fourteen days thereafter, that is 22 August. Taking the judgment in Harris at face value, the only effect of a deferral will be to defer the date upon which the assessment commences to bear interest. Given the size of the assessment, the interest will be by no means insignificant. 6 I turn to consider the question of whether the applicant has demonstrated a serious question to be tried, that is an arguable basis for challenging the decision under review. The applicant complains that the respondent treated as relevant to his discretion the fact that the exercise of the discretion in favour of the applicant would defer the accrual of interest on the assessment for the period of the waiver. The respondent's treatment of that matter as relevant to the exercise of his discretion was upheld by Hely J in Elias v Commissioner of Taxation [2002] FCA 845, to which decision counsel for the applicant properly referred me. However he submitted that the decision had been taken without regard to the earlier decision in Trustees of Post Office Staff Superannuation Scheme v Commissioner of Taxation (1999) 94 FCR 268. 7 In that case Hill J was concerned with a deduction which was only available if the taxpayer had taken a particular step by a specified time or such later time as the respondent might allow. In exercising that discretion the respondent took into account the amount of the deduction and the consequent effect which its allowance would have had upon the revenue. Hill J considered that the amount of the deduction was an irrelevant consideration because Parliament had obviously intended the benefit to be available regardless of the size of the deduction. In other words, the question was whether or not a substantive right should be lost because of a procedural irregularity. Elias was, and the present case is, not concerned withexisting substantive rights, but with the respondent's discretion to waive such rights. It would be surprising if the respondent, who is obliged to protect the revenue, were also obliged to overlook the consequences for the revenue of any such indulgence. 8 The applicant submits that there was hardship to him as a result of the existence of assessments against both the applicant and the trustees of the superannuation fund. As I have said, the respondent does not propose to enforce both assessments. As the assessment against the applicant is now beyond dispute (subject to any special leave application), it seems reasonable to enforce the assessment against him rather than that against the trustees. Counsel for the applicant suggested that the continued existence of the other assessment suggests that the respondent might still propose to enforce it. It seems to me to be quite appropriate for the respondent to keep his options open until one or other of the assessments has been paid. 9 It is submitted that the decision-maker failed to take into account the fact that the respondent had changed his policy in so far as concerns the relevant deduction. It seems that a change in approach led to the assessment in question. It may be arguable that if the applicant relied upon an earlier policy or approach which has now been abandoned, it is reasonable that he have some period of grace to re-arrange his affairs. However that can only affect the amount of interest accruing. If the decision-maker failed to give adequate weight to this matter, it will be reflected in any subsequent exercise of the discretion in the event that the application for review is successful. The motion for interim relief is designed to avoid the immediate consequences to the applicant of any attempt to enforce the assessment. It is unlikely that the liability to pay a larger, rather than a smaller amount by way of interest will have much significance in his arrangement of his affairs in the short term, particularly having regard to the amount of the actual assessment. 10 It is also argued that the respondent asked the applicant to delay prosecuting his objection against the assessment, presumably until the matter was resolved in other proceedings, perhaps in Harris. There appears to be no evidence supporting that assertion. In any event, the submission could only lead to a relatively small reduction in the applicant's overall obligation to pay interest. The applicant submits that the respondent erroneously considered that the applicant had failed to provide information as to his financial circumstances. It is submitted that this concern was based upon a misconception as to the applicant's application which was "never at any time based on financial hardship". However that seems not to be entirely true in that even now, the applicant submits, that as an aspect of the balance of convenience, his "illiquid" investments are a relevant consideration, or ought to have been a relevant consideration in the exercise of the discretion. In the circumstances I do not accept the assertion that the respondent misconceived the nature of the application. 11 It is submitted that questions of general fairness in the administration of the Act arise, it being asserted that the respondent has granted indulgences to other taxpayers. That is not an issue which I can assess at this stage. Although overall fairness may be a desirable outcome, it is difficult to see how an individual taxpayer could ever claim relief upon the basis that the respondent had treated other taxpayers more favourably than he had treated him or her. The circumstances of each case will usually be unique. 12 Although there may be some grounds for arguing that the discretion miscarried, it is unlikely to make any substantial difference in the overall obligation of the applicant to the Commonwealth. Although I am willing to assume a serious question to be tried, its marginal nature is relevant to considerations of the balance of convenience. I turn to that question. 13 It seems that in order to meet the debt, the applicant may have to re-arrange his financial affairs. That is more a consequence of the success of the respondent in Harris than of the respondent's decision pursuant to s 255-10. The applicant has offered security to the respondent for the debt. For one reason or another agreement has not been reached in this regard. It is not for me to assume that either side has been unreasonable, at least not for present purposes. It is primarily for the respondent to decide how he should perform his functions. For this reason, too, I would be unwilling to make any order which required the parties to negotiate further. As I have pointed out, the major part of the debt is the assessment, not the interest attributable to any period during which the applicant ought arguably to have had the benefit of a deferment. I do not overlook the fact that the amount of interest is quite substantial. However the applicant seeks to defer payment of all amounts owing. It is difficult to see how that can be done, given that in these proceedings the substantive relief relates only to an application for deferment to a date which is now past. In my view the balance of convenience does not favour interim relief. However, as I have said, I will leave it open to the applicant to make a further application should he be minded to do so. The motion is adjourned to a date to be fixed. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.