Commissioner of Taxation v Bosanac

RELEVANT PRINCIPLES 5 It is well accepted that the power to order a stay should be exercised sparingly and the onus is on the applicant (taxpayer) to justify it: Snow v Deputy Federal Commissioner of Taxation (WA) (1987) 14 FCR 119 (at 139) per French J, as the Chief Justice then was. A stay may be granted in the case of extreme personal hardships: Snow (at 139). 6 As discussed in Bosanac No 1, the statutory regime confers a benefit on the Commissioner in relation to the provision of evidence on which a judgment might be based. Section 14ZU under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953) sets out how a person may make a taxation objection. Pursuant to s 14ZY TAA 1953, the Commissioner is required to decide whether to allow (wholly or in part) or disallow an objection and to serve written notice of the objection decision. Pursuant to s 14ZZ(1)(a) TAA 1953, a person who is dissatisfied with a commissioner's objection decision may seek review of the decision, either to the Administrative Appeals Tribunal (AAT) or to this Court. In either case, if the objection decision is allowed, either wholly or in part, the Commissioner will issue an amended assessment pursuant to s 170 of the Income Tax Assessment Act 1936 (Cth) and s 14ZZL TAA 1953. 7 The Commissioner objects to any stay until the end of the review process on the basis that, amongst other things, it cannot be known whether there is any basis or need to seek review of the decision, and it is not necessary to order a stay to take into account a review process that may never occur. 8 It is common ground that the positions are different in relation to Mrs Bosanac compared with Mr Bosanac. In relation to Mrs Bosanac, the objection decision has been delivered and amended assessments issued. The evidence is that, nonetheless, Mrs Bosanac filed an application for review of the decision before the AAT on 30 June 2016. 9 I am now informed by affidavit of 8 July 2016 that Mr Bosanac's solicitors have been working strenuously to achieve the deadline for filing pursuant to s 14ZZN TAA 1953 requiring the appeal to be lodged by 29 July 2016 (although this date was later corrected to 1 August 2016 by email). I have since been informed that the appeal has been lodged. 10 The argument for Mr Bosanac focusses on the possibility of bankruptcy resulting in practical inability to pursue the complex, protracted and expensive appeal. Part of my reasoning involves the fact that this is by no means a straightforward matter and those objectives are reasonably accurate.

CONSIDERATION 11 Focussing predominantly on Mr Bosanac, it is clear that his disclosed net assets fall far short of the judgment debt. There is evidence from a chartered accountant specialising in the relevant areas of income tax assessment (Mr Chris Roos), who has previously provided evidence to the Court, that he considers the amended assessments of Mr Bosanac and Mrs Bosanac contain material errors such that the total primary tax liability would be in the region of $1.65 million to $2.5 million for Mr Bosanac. By way of an annexure to an affidavit of the solicitor for the Bosanacs filed 11 August 2016, Mr Roos confirmed his professional opinion that the primary tax liability of Mr Bosanac is calculated at $2.2 million and $2.3 million. This updated evidence is on the basis of the Pt IVC appeal recently filed by Mr Bosanac and is notably consistent with Mr Roos' earlier estimate. Mr Roos also gave previous advice that the correct liability of Mrs Bosanac would be very much less than the judgment debt of $5.7 million. That advice appears to have been broadly correct as the judgment debt on the basis of the assessment by the Commissioner (which is still under appeal) has been reduced to $279,983.86. Given that it is the sworn testimony of a professional who has closely examined the financial position of both Mr and Mrs Bosanac, it is reasonable to infer on the basis of this evidence that there is also at least an arguable case that Mr Bosanac's judgment debt of $9.3 million based on the Commissioner's amended assessment and the deeming provisions under the TAA 1953 might well be reduced on appeal. 12 I accept, consistently with the view taken in Deputy Commissioner of Taxation v Denlay [2010] QCA 217 at first instance and on appeal that, in an effective functioning sense, the capacity to pursue this complex appeal if Mr Bosanac is bankrupted would be significantly impeded and result in the requisite degree of hardship. (That is quite a different matter from my observations in Bosanac No 1 (at [75]-[79]) in the absence of any stay application to the effect that the mere possibility of bankruptcy would not constitute 'incontestability' in the legal sense there discussed.) 13 In Denlay, Chesterman JA (with whom McMurdo P and Muir JA agreed) said (at [15] and [22]): 15 The third complaint is that the primary judge erred in finding that the appeals against the assessments would not proceed unless the stays were granted. The basis for the finding was the likelihood of bankruptcy. The likelihood not being established the fear that the appeals might not proceed was groundless. In any event, the appellant argued, whether or not the respondents might be deprived of the means of prosecuting their appeals was irrelevant. The "legislative scheme" pre-empts such rights. The appellant's right to recover a judgment in respect of assessed tax could not be frustrated by any solicitude for a taxpayer's right of appeal which, if protected, might diminish the appellant's rights of recovery. … 22 The relevance of "extreme personal hardship" to the exercise of the discretion is well established. In Deputy Commissioner of Taxation (NSW) v Mackey (1982) 13 ATR 547 Hutley JA expressed the opinion that the power to stay should be exercised with great caution and only in special circumstances. Nevertheless his Honour said (551): The Commissioner starts off with rights under s 201 and the taxpayer is seeking special bases to have a special discretion exercised in his favour. It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so. It is an open-ended discretion. But there are only two cases where it is clear the court should exercise that discretion. First the comparatively rare case where the Commissioner abuses his position … Second, in cases of extreme personal hardship to a taxpayer called upon to pay. The obligation to pay which has been cast upon him by law is not a hardship of itself … The passage was quoted with apparent approval by Kaye J (with whom King and Gobbo JJ agreed) in Cywinski v Deputy Commissioner of Taxation [1990] VR 193 at 197. The section referred to, s 201 of the ITA Act, was to the same effect as s 14ZZR of the TA Act, which replaced it. 14 In Deputy Commissioner of Taxation v Akers (1989) 89 ATC 4725, Nathan J helpfully distilled a number of principles from the authorities: … (1). The Court's inherent jurisdiction to grant a stay is not vitiated by the terms of sec 201, but that discretion must be exercised in a way which gives the policy directions of the "pay first, argue later," provision effect. The discretion is dependent entirely upon the facts of a given situation, and they can never be defined. The discretion is circumscribed by sec 201. The onus is upon the applicant to establish the discretion should be exercised in his favour. (2). The Court should not go into the issues in dispute, but should apprise itself of such facts as will enable it to determine the nature of the dispute. It should not speculate upon the outcome. (3). The obligation to pay tax, does not of itself impose extreme personal hardship. (4). The possibility that the taxpayer may be bankrupted is not of itself an extreme personal hardship. 15 I respectfully agree with the observation of Chesterman JA in Denlay (at [36]) that this summary of the principles is both comprehensive and accurate and is likely to provide valuable assistance in the exercise of the discretion whether or not to grant a stay in this class of case. Also relevant to the disposition of the application for stays in the present case is the statement of Chesterman JA (at [41]) that, although the policy of the TAA 1953 and Income Tax Assessment Act 1936 (Cth) (ITAA 1936) is 'pay now and argue later', the authorities make it abundantly clear that there is power, in appropriate circumstances, to stay the execution of a judgment notwithstanding the terms of provisions such as s 144ZZR TAA 1953. 16 Similarly, Chesterman JA noted (at [45]) that the mere possibility of a bankruptcy following a judgment would not amount to extreme personal hardship. Therefore, unless there was evidence to support a finding that bankruptcy was highly likely, or probable, in the absence of a stay, it could not be said that the judgments would result in the requisite degree of hardship. As in the present case, in Denlay the Deputy Commissioner of Taxation declined to offer any undertaking that he would not proceed to bankruptcy pending the hearing of appeals in the Court, and the inference that the Deputy Commissioner of Taxation would commence bankruptcy proceedings was considered more than fairly raised. 17 The protection for the Commissioner in this case is even stronger than Denlay (at [44]) and Deputy Commissioner of Taxation v Warrick (No 2) [2004] FCA 918 per French J, as the Chief Justice then was (at [104]-[107]). The Commissioner has the benefit of freezing orders in this case, and there is also before me evidence which I can accept for present purposes of expert opinion as to the prospects of some substantial success on the appeal. 18 Given that the Commissioner has declined to give any undertaking not to pursue bankruptcy proceedings, and given that it is well recognised that this is a conventional means of proceeding by the Commissioner on obtaining a judgment, it appears to be highly likely, as in Denlay, that Mr Bosanac would be exposed to bankruptcy. Mr Bosanac has not yet been heard in the relation to his amended assessments, as in the case of Warrick (although I pause to observe that Mr Bosanac himself to a significant degree and/or his agent have brought about their own misfortune in that regard by lack of cooperation with the Commissioner, when the Commissioner initially sought to recover the tax owed). It is clear that Mr Bosanac is now actively engaging and actively contesting the amended assessment through the Pt IVC objection process and has engaged a professional advisor to do so. 19 I stress that I am in absolutely no position to reach a finding as to prospects of success on the appeal, but simply observe that there is accounting evidence in support of Mr Bosanac's prospects and it is evidence which has proven to be correct in relation to Mrs Bosanac. In saying that, I am mindful of what was said in Southgate Investment Funds Limited v Deputy Commissioner of Taxation (2013) 211 FCR 274 (at [77(e)]). A further consideration is that, obviously, it will be open to the Commissioner, if a stay is granted, to approach the Court for review of any stay order, should the appeal not be diligently pursued. 20 In those circumstances I consider it is appropriate for an order granting a stay of execution of the judgment, pending the outcome of the present appeal process by Mr Bosanac. 21 In relation to the amended interlocutory application lodged at 4.28 pm the business day before the hearing which seeks discharge of the freezing orders made as against Mrs Bosanac, I accept the submission for counsel for the Commissioner that the Commissioner had not received sufficient notice of intention to deal with that issue at the hearing before me. Hopefully that is an issue which might be resolved by discussion between the parties. If it is not resolved, there is nothing to prevent Mrs Bosanac from bringing an application to the Court for discharge of the freezing order in relation to her assets. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.