TAXATION - taxation liability - release from liability - whether payment of tax liability would cause serious hardship - consideration of factors relevant to exercise of discretion - consideration of circumstances that led to the taxation liability - decision under review affirmed

Taxation Administration Act 1953 (Cth)

Corlette v Mackenzie [1996] FCA 1482; (1996) 62 FCR 597

Federal Commissioner of Taxation v Milne [2006] FCA 1005

Federal Commissioner of Taxation v a Taxpayer [2006] FCA 888

Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85; (1980) 44 FLR 41

Powell v Evreniades [1989] FCA 114; (1989) 21 FCR 252

Rasmussen v Federal Commissioner of Taxation [2013] AATA 746

Spicer and Commissioner of Taxation [2004] AATA 960

Van Grieken v Veilands [1991] FCA 167; (1991) 21 ATR 1639

Watson v Commissioner of Tax [2014] AATA 823

1. The applicant seeks review of the respondent's objection decision dated 5 April 2019. In that decision the respondent had disallowed the applicant's objection to an earlier decision of the respondent made on 24 July 2018 to refuse to release the applicant from a tax liability that had accrued.

2. The applicant's tax liability relates to a shortfall in income tax payable in respect of his 2012/2013 and 2013/2014 tax assessments.

3. The applicant was employed as CEO of a former listed public company, NewSat Ltd ("NewSat"). NewSat operated a business as a satellite communications provider. In addition to being CEO the applicant was a founding shareholder in NewSat.

4. As at the date of the respondent's objection decision, namely 24 July 2018, the applicant's total outstanding tax liability was calculated as being $1,191,455.40 which comprised outstanding income tax of $940,108.98 and a general interest charge of $251,346.42.

5. As at the date of the hearing the applicant's tax liability including additional accrued interest charges was calculated as being $1,423,238.64 comprising outstanding income tax of $940,108.98 and a general interest charge of $483,129.66.

6. The applicant did not object to each of the income tax assessments giving rise to the tax liability. Rather, the applicant has sought release from his tax liability on the grounds of serious hardship.

7. The applicant applied for release from his tax liability on 22 May 2018.

8. On 24 July 2018, the respondent made a decision to refuse to grant the applicant release from his obligation to pay his tax liability.

9. On 7 August 2018, the applicant lodged an objection to the respondent's refusal decision.

10. On 5 April 2019, the respondent made the decision to disallow the applicant's objection in full.

11. On 3 June 2019, the applicant sought review of the respondent's objection decision which is the matter presently before this Tribunal.

12. Section 340-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) ("TAA") provides the respondent with a discretionary power to release a taxpayer, in whole or in part, from certain tax liabilities, if the respondent is satisfied that the applicant would suffer serious hardship if required to satisfy the liability.

13. There is well-established authority for applying a two-step process in giving consideration to the exercise of the discretion which requires first determining:

(a) whether the settlement of the tax liability would result in "serious hardship"; and

(b) if so, whether, in all the circumstances, the respondent should exercise the discretion to release the liability.[1]

14. There is no definition of "serious hardship" within the TAA itself however, its meaning has been considered many times through decisions of the Tribunal and the Federal Court. It is now well established that the term should be given its ordinary meaning.[2]

15. The respondent has also developed guidelines which set out tests for determining whether or not to exercise the discretion. The guidelines are contained in Practice Statement Law Administration 2011/17 (the "Practice Statement"). The relevant tests include the income/outgoing test and the asset/liabilities test for determining whether or not serious hardship would result. In addition, the Practice Statement acknowledges that the respondent is not bound to grant a release even where a taxpayer can demonstrate serious hardship.

16. The Practice Statement includes a number of examples of circumstances which may be relevant to a decision to refuse to release a tax debt where serious hardship is made out. For example, where:

(a) a taxpayer appears to have unreasonably acquired assets ahead of meeting their tax liability;

(b) the taxpayer appears to have disposed of funds or assets without giving consideration to their tax liability;

(c) serious hardship is likely only to be short term;

(e) a taxpayer is unable to show that they have planned for future debts; and

(f) a taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.

17. The above factors are not intended to be an exhaustive list of relevant factors but rather examples of the types of considerations it would be appropriate for the decision-maker to have regard to in the exercise of their discretion.

18. Tax liabilities are eligible to be considered for release through the exercise of the discretionary power under the serious hardship provisions if they are tax liabilities to which section 340-10 of the TAA applies. The Tribunal is satisfied that the applicant's tax liability is a tax liability to which section 340-10 applies. The Tribunal is also satisfied that the applicant has applied for release from his tax liability on the basis of serious hardship using the appropriate form.

19. Accordingly, the issues to be determined by the Tribunal are whether:

(a) a requirement for the applicant to pay the tax liability would result in the applicant suffering serious hardship; and if so then whether,

(b) in all the circumstances of the applicant's case the residual discretion should be exercised to release the applicant of his tax liability either in part or in full.

20. In accordance with section 14ZZK of the TAA the applicant has the burden of proving that the objection decision should not have been made or should have been made differently.[3]

21. In his application for release of his tax liabilities dated 22 May 2018 the applicant described the basis for his application as follows:

Why didn't you pay your tax by the due date?

Because the Company I worked for was liquidated and the monies owing to me were not paid.

What actions have been taken to try and pay off your debt?

I was left destitute by the failure of the company and the aftermath saw me without savings, income or prospects.

If we release you from this debt, how do you plan to pay future tax bills?

As I have since 1974 via PAYG save for the one year when the company failure blotted my perfect record for remittance.

22. In his written submissions, together with his oral submissions at the hearing, the applicant put a number of further contentions in support of his claim for a release of his tax liability. Those contentions can be summarised as follows:

(a) The applicant contends that he has no present capacity to pay the tax liability and that any requirement for him to do so will cause him serious hardship.

(b) The applicant contends that his present financial circumstances are very difficult and that given his advancing age and the ongoing impact of the reputational damage he has suffered as a consequence of the circumstances surrounding the collapse of his business interests he has no practical capacity to earn sufficient income to be able to pay his tax liability. The applicant also contends that his ability to work in the future will be constrained to some degree by the ongoing impact of COVID which is likely to limit his ability to work overseas for some time. He contends however, that in the event that his tax liability is released, he will be able to secure sufficient work to meet his day to day expenses and therefore not present as a future liability to Australian taxpayers.

(c) Despite the reputational damage he has suffered as a consequence of the significant media attention his circumstances have attracted the applicant believes he is respected in many countries around the world and with a small number of Australian organisations and individuals and on that basis that he will be able to continue to secure a limited amount of ongoing consulting work.

(d) The applicant told the Tribunal that he feels an ongoing obligation to continue to work to be able to provide for himself together with his wife, who suffers serious health issues and is herself limited in her capacity to earn, and also to assist in the care of his grandchild who suffers from cerebral palsy and epilepsy. He believes that, in the absence of his tax liability, he will be able to make a further positive contribution to the community both as a taxpayer and also more broadly.

(e) The applicant contends that if he is required to pay his tax liability he will be forced into bankruptcy which will further limit his future work prospects and deny him the capacity to continue in his current occupation as a business consultant due to further reputational damage he would suffer and also due to constraints he may be subject to in relation to international travel.

(f) The applicant contends that the circumstances leading to the incurring of his tax liability and his subsequent financial collapse were due to the actions of NewSat in not withholding and redeeming the appropriate PAYG amounts or paying him his bonus entitlements. However, the applicant acknowledges that he failed to pay appropriate attention to the details of his tax affairs during what he described as being a "tumultuous" period.

(g) The applicant contends that other factors relevant to the exercise of the discretion to release him from his tax liability should weigh in his favour.

(h) The applicant contends that over the entirety of his career he has made a significant and positive contribution to the community through his payment of tax and more broadly through his business activities.

(i) The applicant contends that, with the exception of the circumstances leading to his present tax liability, his compliance history is a very positive one. The applicant contends that he has continuously paid PAYG tax since 1974 and all of his tax returns are now up-to-date.

(j) In addition, the applicant puts the following contentions in favour of his application for release:

(i) He has no further assets to liquidate to repay the tax liability and has no "unsatisfied creditors to handle".

(ii) He has not acquired assets ahead of meeting his tax liability or disposed of funds or other assets without consideration of the tax liability.

(iii) He has not failed to pursue debts owed to him.

(iv) He has not structured his affairs to place himself in a position of hardship.

(v) He has not delayed the lodgement of his tax returns to accumulate debts.

(vi) He has not be paid JobKeeper/JobSeeker during COVID.

(k) The applicant rejects that he had a "cavalier" attitude towards his tax obligations as submitted by the respondent. The applicant contends that at the time he requested that the PAYG income tax amount not be withheld from his bonus payment he had a reasonable basis for believing he would have the financial capacity to pay the liability in the future. The applicant states that he formed that view on the basis that at the time he held approximately $6 million worth of rights in NewSat and also that he had a reasonable expectation that he would be paid future bonuses by NewSat. The applicant contends that he could not have reasonably foreseen the events that followed or that his bonus and other entitlements would not be paid to him by NewSat or that the rights he held in NewSat would ultimately become worthless.

(l) The applicant contends that he continues to suffer an incredible stigma because of pleading guilty in relation to the ASIC prosecution in relation to the authorisation of a number of false and misleading invoices. He told the Tribunal "I've paid a huge price... It was stupidity... I didn't pick it up".

(m) The applicant contends that in all of the circumstances the discretion available should be exercised in his favour to release him of his tax liability and to enable him to get on with his life and make a further positive contribution to the community.

23. In making the decision under review the respondent considered the three tests as set out in the Practice Statement and concluded as follows:

(a) Income/outgoing test: This test was satisfied on the material provided by the Applicant. There was a monthly deficit of $3,797.

(b) Assets/liabilities test: This test was also satisfied on the material provided by the Applicant. He had net assets of $25,633 (excluding the tax liability).

(c) Other relevant factors test: This test was not satisfied. The Commissioner referred to, among other things, late lodgement of income tax returns, the fact that the correct amount of tax was not withheld from income and poor compliance history.

24. The respondent contends that, on the basis of the evidence, the Tribunal should not be satisfied that the decision under review was an incorrect decision or one that should have been made differently.

25. More specifically, in written submissions the respondent contends as follows:

(a) The Applicant is an experienced businessman. He is, or has been a director of at least nine companies, including NewSat Ltd. He has, or has had, a business relationship with at least 12 other companies. Accordingly, one would expect that he has an understanding of company records and tax requirements.

(b) When the applicant received a bonus of $1.2 million in 2013/2014 he must have known that tax has not been deducted. It is no excuse to say that NewSat should have deducted the tax.

(c) The applicant has not explained what he did with the bonus, and indeed what he did with his other income from NewSat.

(d) The applicant has not explained why he did not lodge his tax return for 2013/2014 year until 20 April 2017.

(e) The applicant hasa business relationship with 'The Trustee for the Adrian Ballintine Family Trust.' He has not produced any financial records of the trust.

(f) The applicant has not produced any financial records for members of his family, other than a reference to a car owned by his wife.

(g) The applicant has not explained how he has funded his lifestyle, given that he has disclosed a monthly deficit of $3,800.

(h) The applicant has not explained how he earned income, nor has he explained how the existence of the tax liability (or any bankruptcy) might jeopardise his ability to work.

26. In closing, the respondent's representative made a number of further submissions as follows:

(a) While the respondent has previously accepted that the applicant satisfies the income/outgoing's test and the assets/liabilities test for the purpose of granting relief in accordance with the Practice Statement the applicant's evidence with respect to his financial position as given at the hearing was less clear. The respondent contends that the applicant's evidence with respect to his financial affairs has been inconsistent and that there is an absence of supporting documentation to demonstrate more clearly his financial position.

(b) The applicant is an experienced business person who knows how the PAYG system works. This is not a case of an employer failing to meet the requirement to deduct appropriate levels of income tax without notice to the employee. Rather this is a case where the applicant himself explicitly requested that the company not withhold the income tax. In those circumstances the respondent contends that it would be inappropriate to grant release from the tax liability as the applicant has been the "author of his own misfortune".

(c) The applicant has not adequately explained how the risk of bankruptcy impedes his future capacity to work noting that he does not need a licence to undertake his business consulting work and while he would need a passport to undertake work overseas a trustee in bankruptcy has the power to release the bankrupt's passport for genuine travel which could include travel undertaken for the purpose of earning income. There is no reason to believe that the applicant would likely be a flee risk and for these reasons there is no substantive evidence to support the contention that he cannot work if made bankrupt.

(d) The respondent contends that in all the circumstances of the case the discretion should not be exercised to release the applicant of his tax liability and the applicant has failed to meet the burden of proof necessary to satisfy the Tribunal that the decision under review should not have been made or should have been made differently.

27. The applicant told the Tribunal that he had suffered a complete unwinding of his financial position as a consequence of NewSat's collapse. The applicant told the Tribunal that his shares and options in NewSat had all been made worthless as a result of the company's demise. His evidence was that those rights were once valued at approximately $6 million. He told the Tribunal that as a result of the company going into liquidation his share options never vested and that he was not paid certain statutory entitlements nor any additional bonuses by the company.

28. The applicant told the Tribunal that his other business interest, Christa Motor Yacht, was also liquidated in 2016 and that he had lost a significant amount of investment capital in that business venture also. The applicant told the Tribunal that he believed Christa Motor Yacht had failed because of the reputational damage he had suffered following the NewSat collapse and also in connection with the ASIC prosecution.

29. The applicant told the Tribunal that towards the end of 2015 the family had been forced to sell the family house due to a mortgagee lien over the property and that there was no surplus left after the transaction. That property was previously held in the applicant's wife's name. There was evidence before the Tribunal of the sale of a property registered in the name of the applicant's wife which was completed in around December 2015 for a sale price of $2,850,000.

30. The applicant told the Tribunal that as at the hearing he had no residual assets of any substance including no substantive savings and no superannuation.

31. The applicant told the Tribunal that his net monthly financial position as at the hearing was substantially similar to that as set out in his application for release but that his net monthly position was now a small surplus rather than a deficit.

32. The applicant stated in his application for release that his income was zero and his wife's income was $2,000 after tax and that his combined monthly expenses were $5,800 which included $3042 in rent with a monthly deficit of approximately $3,800. The applicant stated in the application that the couple had three bank accounts with a balance of $5,678, $338 and $9,167 respectively. He stated in the application that the couple had no other substantive assets except for a car registered in the name of the applicant's wife with an approximate value of $10,000. He stated in the application that the couple had two credit cards with a combined debt of $15,500. He stated in the application that the couple had no other substantive debts.

33. The applicant told the Tribunal at the hearing that he had been earning a small amount of income at the time of his release application. This is inconsistent with the documentary evidence. It was not clear to the Tribunal whether the applicant was confusing his income at the time with that of his wife. The applicant did confirm that his income at that time was approximately $2250. That figure is consistent with the before tax figure attributable to his wife's income included the application for release. The Tribunal accepts that the applicant was at the time of his application for release in receipt of a combined income of $2250 before tax.

34. The applicant told the Tribunal at the hearing that he was now earning a combined income of approximately $7500 per month and that his combined monthly expenditure was now approximately $5500 per month resulting in a small surplus of approximately $2000 per month. He told the Tribunal that he was earning income as a business consultant through a consulting company by the name of Stratford Capital. He told the Tribunal that he had previously been a partner with the consulting business but that he was now engaged as a consultant although he was still a partner in name only and that he was not a director of the business and he had no formal employment or consulting agreement with the business. He described his work with the business as business consulting assisting start-up companies "gestate" and with much of his work focussed on the middle east and in India although with some work still in Australia. He told the Tribunal that he had been earning additional income through his consulting work since around February of this year.

35. The applicant told the Tribunal that he felt an obligation to continue to work due to help support his wife and also assist in the care of his grandchild. The applicant told the Tribunal that his wife suffers from hypergammaglobulinemia which requires a monthly blood transfusion. The applicant's evidence was that he and his wife had moved to Queensland where they currently rent a house in order to have the benefit of a warmer climate which assists with his wife's condition. The applicant told the Tribunal that his wife is no longer able to work. The applicant also told the Tribunal that the move to Queensland had allowed him to better help his son and daughter in law in the care of their child (the applicant's grandchild) who suffered a stroke at birth and who is severely handicapped with cerebral palsy and epilepsy.

36. The applicant told the Tribunal that he believed he would be able to secure some level of ongoing business consulting work but that it was limited due to the significant reputational damage he has suffered as a consequence of the collapse of his business interests. He told the Tribunal that his work capacity has also been impacted by his involvement in litigation associated with his business interests which had significantly occupied his time and therefore reduced his working capacity, had caused him significant stress and which had also further damaged his reputation.

37. The applicant told the Tribunal that he had also been caught up in extended civil litigation associated with the NewSat collapse. He gave evidence that he had been pursued by the receiver and managers of NewSat for alleged breaches of directors' duties but that the litigation had ultimately settled and his legal costs had been paid by his insurer.

38. The applicant also gave evidence that he had been the subject of a prosecution by ASIC for his involvement in the authorisation of a number of false and misleading invoices that had been issued in connection with a number of NewSat payments. The applicant told the Tribunal that he pleaded guilty to the charge but that he could not explain how the invoices had come about. He put the incident down to a failure to pay attention to the "finer detail of things" and the fact that he was preoccupied with the business at the time.

39. The applicant told the Tribunal that he and his wife have no substantive assets, they do not own a home and are continuing to rent. He told the Tribunal that he and his wife have depleted any savings that they previously had. He told the Tribunal that other than for a small amount of credit card debt he has no other substantive debts of any kind although he did acknowledge that he was yet to pay the fine he incurred as a consequence of the ASIC prosecution. He told the Tribunal that they do not have any super. When asked what had happened to superannuation paid by NewSat the applicant told the Tribunal that it had all gone. He told the Tribunal that he has previously had a self-managed fund and that it had been lost in the collapse of his business investments. The applicant acknowledged that a family trust was still in place but stated that it did not have any assets and that it did not trade.

40. The Tribunal has some concern in relation to the lack of up to date documentary evidence in relation to his and his wife's bank accounts and also documentary evidence in relation to the his and his wife's superannuation accounts and the family trust. Nonetheless, on the basis of the material before it, the Tribunal accepts the applicant's evidence that he and his wife have no substantive assets to meet the tax liability. The Tribunal accepts the applicant's evidence that he and his wife do not own a home or other property, have no super and that the family trust holds no assets. The Tribunal accepts the applicant's evidence that he and his wife have no other substantive savings. The Tribunal accepts that the applicant's monthly combined income and expenses are consistent with his evidence at the hearing. The Tribunal accepts that the applicant's household expenditure as stated at the hearing is reasonable.

41. While the applicant's net monthly position involves a surplus, having regard to the very substantial amount of the tax liability, the Tribunal is satisfied that the surplus is insufficient to meet the tax liability within a reasonable period. The Tribunal accepts the applicant's evidence that due the significant damage done to his reputation in connection with the collapse of his business interests, as well as the other factors impeding his earning potential as identified by the applicant, it is unlikely that the applicant's financial position will substantially change in the foreseeable future.

42. The applicant referred the Tribunal to a number of decisions that considered the discretion to release a taxpayer of a tax liability including Federal Commissioner of Taxation v a Taxpayer [2006] FCA 888 ("Taxpayer") and Federal Commissioner of Taxation v Milne [2006] FCA 1005 ("Milne"). Both of the Taxpayer and Milne cases involved consideration of the impact of potential bankruptcy of the taxpayer.

43. The Tribunal accepts that if the applicant is required to satisfy the tax liability it is reasonable to infer that it would likely lead to him being declared bankrupt. The Tribunal accepts that in those circumstances the applicant is likely to suffer further reputational damage and also have some constraints placed on his capacity to travel which will further impede his earning capacity and therefore exacerbate his hardship. In reaching this conclusion the Tribunal accepts, as contended by the respondent, that the applicant does not require a licence to undertake his consulting work. This is in contrast to the facts in both Taxpayer and Milne. Nonetheless the Tribunal is satisfied that while not preventing the applicant from undertaking such work as a matter of right, he is likely to have his earning capacity further impacted for the reasons stated above. The Tribunal also accepts, as contended by the respondent, that a bankruptcy trustee would retain the power to release a passport to the applicant if considered appropriate and that those circumstances may include the need to travel overseas to earn income. However, again, the Tribunal accepts that bankruptcy is likely to impose additional practical restraints to some degree on the applicant's capacity to travel overseas even where a bankruptcy trustee might be minded to exercise their power to release the applicant's passport, for example, the ability to travel at very short notice.

44. For these reasons, the Tribunal is satisfied that the income/outgoing test and the asset/liabilities test as set out in the Practice Statement are both satisfied. The Tribunal is also satisfied that given the amount of the tax liability and having regard to the applicant's financial position any requirement for the applicant to pay his tax liability will cause serious hardship.

45. Therefore, the residual question for the Tribunal is whether in all the circumstances the discretion available under section 340-5 of the TAA should be exercised in favour of the applicant in releasing all or part of his tax liability. In giving consideration to this question the Tribunal has had regard to all the evidence before it, and has considered the types of factors as set out in the Practice Statement as well as other factors that have been referred to by the parties or that otherwise emerge on the basis of the evidence.

46. The Tribunal accepts that a number of the factors referenced in the Practice Statement as being examples relevant to the exercise of the discretion are not present in the circumstances of this case. More specifically, the Tribunal accepts that there is no evidence before it that supports a conclusion that the applicant:

(a) has unreasonably acquired assets ahead of meeting his tax liability;

(b) has failed to pursue debts owed to him or paid other debts in preference to the tax liability;

(c) has structured his affairs to place himself in a position of hardship; or

(d) is likely to suffer serious hardship only in the short term.

47. The respondent contends that the applicant's tax liability should not be released because the tax liability arose in significant part as a consequence of the applicant's own actions and in that sense the applicant can be said to have been the "author of his own misfortune" in accumulating the tax liability. The respondent referred the Tribunal to an earlier decision of Deputy President Forgie in Rasmussen v Federal Commissioner of Taxation [2013] AATA 746 ("Rasmussen"). In that case Deputy President Forgie gave consideration of the principles that should be applied when considering the exercise of the discretion to release a tax liability under section 340-5 of the TAA in the context of the Practice Statement. Deputy President Forgie states at [88]:

Another consideration arises from the behaviour of the taxpayer. In assessing serious hardship, consideration is not given to how the person came to be in the particular financial situation when the application for release of debt is made. The taxpayer may have spent money wisely, imprudently or even extravagantly but, at that stage, it is a matter of "... little, if any significance, for the money, having been spent, is unavailable to be used again to alleviate the financial hardship. ..." Where it does become relevant is on the exercise of the discretion. That is where Wilcox J saw its relevance in Corlette v Mackenzie in the passage I have set out at [85] above. In his view, "It would be extremely odd if a taxpayer who was the author of his or her own misfortunes, through imprudent or extravagant expenditure, was entitled, as a matter of right, to a release of unpaid income tax.

48. The Tribunal accepts the applicant's contention that, based on the evidence before it, the applicant's day to day expenditure does not appear to be extravagant or unreasonable. However, the respondent contends that the applicant has been the "author of his own misfortune" in a different sense to that expressly referred to in Rasmussen. The respondent is not suggesting that the applicant has necessarily engaged in imprudent or extravagant expenditure, but rather that the applicant has, by his own conduct, helped create the circumstances in which the tax liability arose.

49. The Tribunal certainly accepts, consistent with the reasoning in Rasmussen, that where the applicant seeking relief has been the author of his own misfortune by taking actions that have in significant part contributed to the extent of the tax liability in question, then those actions are an appropriate factor to consider in deciding whether or not to exercise the discretion to relieve the applicant of the tax liability. The question is, has the applicant been the author of his own misfortune in that sense.

50. In considering this issue it is appropriate to set out in some detail the evidence relating to the applicant's career, involvement with NewSat and the circumstances giving rise to the tax liability.

51. The applicant gave evidence that he had first commenced work as an administrative officer at a local council in 1973. Some years later he commenced a role with an ASX listed technology company. The applicant subsequently became involved in the establishment of technology-based businesses. In 1992 the applicant worked on the listing of Gupta Technologies on the NASDAQ and in 1994 he partnered with Microsoft co-founder, Paul Allen, in advancing a number of other technology ventures including Asymetrix, Starwave and 3dEye. In 1999, the applicant again partnered with Paul Allen in the listing of MultiEmedia Ltd on the ASX. MultiEmedia Ltd changed its name to NewSat Ltd in 2005 to reflect its move into satellite communication services.

52. The applicant was employed as CEO of NewSat and continued in that role until being made redundant on 29 May 2015. He was also a founding shareholder in the company.

53. The applicant's evidence was that NewSat had grown rapidly from a modest teleport operator into a substantial satellite service provider with $1billion worth of customer contracts. The company secured blue chip clients worldwide and had a substantial contract with the US Department of Defence. In 2013 NewSat successfully completed approximately $900m of additional capital raising.

54. In late 2013 NewSat had engaged a consultant to help manage its growth and improve its corporate governance. The applicant's evidence was that in June 2014 a number of NewSat directors resigned without notice on the back of concerns raised by the consultant which the applicant described as being defamatory and without foundation. The applicant's evidence was that an email written by the consultant setting out his concerns had been leaked to the company's lenders without the Board having the opportunity to respond to the concerns raised. The applicant stated that as a consequence of the leaked email, critical company bank finance was withdrawn. The applicant's evidence was that the leaked email had set in train a series of events from which the company never recovered. The applicant's evidence was that in April 2015 the company was put into receivership and in August 2015 a liquidator was appointed.

55. The applicant gave evidence that in 2013, in addition to his $1.2 million salary, NewSat had paid him a bonus of $1.2 million in a series of payments across 2013 and 2014 but without withholding the appropriate amount of PAYG income tax ("PAYG shortfall"). The applicant stated in his written submissions that $450,000 of his bonus had been paid in 2013 but only included in his payment summary upon amendment by the company in 2015.

56. The applicant told the Tribunal that the failure to withhold the PAYG shortfall from the 2013/14 bonus payments had been voluntarily disclosed to the ATO on around 5 February 2015 following a discussion between EY, acting on behalf of NewSat, and the ATO. A letter from Mr Frank Klasic, a partner with EY, dated 11 February 2015 which was included in the Tribunal's materials supports the applicant's evidence in this respect. The letter notes that a meeting had taken place between Mr Klasic, acting on behalf of NewSat, and representatives of the ATO on 6 February 2015. Mr Klasic's letter describes there having been two issues with the 2013 and 2014 returns, namely, an incorrect reporting of the applicant's gross income in the respective years, as well as an incorrect reporting of the PAYG tax withheld in each of the years and an associated failure to withhold an appropriate PAYG amount. The letter notes that the incorrect reporting and failure to withhold PAYG related to a payment to the applicant of a cash bonus. The letter states that $450,000 of the cash bonus had been erroneously included in the applicant's 2014 assessment when in fact it was paid to the applicant in the 2013 income year. The letter also states that $558,000 of PAYG withholding had been reported on the applicant's 2013 tax assessment which had not in fact been withheld or remitted.

57. There was evidence before the Tribunal that the applicant's tax liability was also in part a consequence of the tax treatment of share options the applicant had been issued in NewSat under an Employee Share Scheme ("ESS"). The applicant told the Tribunal that as part of his remuneration arrangements he had been granted options to acquire shares in NewSat under the ESS. The discount amount in respect of options issued under the ESS had been recorded in the applicant's subsequent tax return as an assessable income amount of $750,000. Again, there was a further shortfall in the income tax paid in respect of that amount in the 2013/14 year.

58. The applicant's evidence was that the rights he held under the ESS had not been recorded in his 2014 tax assessment as an income amount on the basis that the options had not "vested". This was inconsistent with the treatment given to the value of the discount amount in respect of those rights in the applicant's tax assessment prepared by his tax agent. There was no independent evidence before the Tribunal that supports a conclusion that the ATO's tax treatment of the discount amount was incorrect or should have been made differently. It was clear from the materials before the Tribunal that the applicant had not previously objected to the tax treatment as determined by the ATO but rather had objected to the decision not to release him from the tax liability under the serious hardship provisions.

59. The Tribunal accepts that the incorrect reporting and failure to withhold and redeem the PAYG shortfall occurred broadly as set out in Mr Klasic's letter. However, Mr Klasic's letter describes the incorrect reporting and failure to withhold and redeem the PAYG shortfall as having been due to "an internal error". To the extent that reference was intended to infer an inadvertent error the Tribunal does not accept that characterisation. Any suggestion that the incorrect reporting and failure to withhold and redeem the PAYG shortfall was inadvertent is inconsistent with the evidence given by the applicant at the hearing. In his evidence to the Tribunal the applicant stated that he had requested that income tax on his bonus payment not be deducted as he had wanted to reinvest the gross amount, including the PAYG shortfall, into the Christa Motor Yachts business. The Tribunal found the applicant's evidence on this point to be very frank and forthright and accepts the applicant's evidence in this respect.

60. Notwithstanding the fact that the applicant requested that income tax not be deducted from the bonus payments the applicant still maintains that the failure to withhold and redeem the PAYG shortfall should not weigh against the exercise of the discretion in his favour as he only made a request for the amounts of PAYG to not be deducted and ultimately it was the actions of NewSat itself to not withhold and redeem the PAYG shortfall that gave rise to that component of the tax liability. The applicant told the Tribunal that the method of payment of his bonus in 2013/14 had also been approved by the company's Chairman, the Chairman of the Remuneration Committee, and the CFO.

61. The Tribunal does not accept the applicant's contentions in this respect. While acknowledging that the failures to withhold and redeem the PAYG shortfall were ultimately the actions of NewSat, the fact that the applicant had requested that income tax not be withheld from his bonus payments cannot be ignored. The applicant was not just any employee. He was the CEO and a founding shareholder of the company. The Tribunal is satisfied that the applicant's request set in train the series of events that lead to the shortfall in payments and therefore the applicant bares a substantial level of responsibility for those failures and for the tax liability that arose as a consequence of the shortfall. The Tribunal is satisfied that had the applicant not made the request to not have the PAYG shortfall withheld then those amounts would have been withheld and redeemed in the ordinary course. There is no evidence to suggest the contrary. The fact that the method of payment the applicant requested was approved by officers and senior executives of the company does not take away from the applicant's responsibility in this respect.

62. In addition, the Tribunal accepts, as contended by the respondent, that the applicant is a sophisticated and experienced businessperson who demonstrated in his evidence a good level of understanding of the PAYG tax system. In his evidence the applicant told the Tribunal that he knew at the time of the bonus payments that the PAYG shortfall had not been withheld. There is no evidence that, armed with that knowledge, the applicant took steps to remedy that situation. Far from it. He made clear to the Tribunal, as he did to the relevant officers of the company at the time, that he did not want the PAYG component of his bonus payments withheld. In these circumstances the applicant cannot now shirk a substantial level of responsibility for the company's actions in not withholding the relevant amounts of PAYG.

63. In his evidence the applicant told the Tribunal that he had wanted to have the benefit of the PAYG shortfall to help fund his other business interest, Christa Motor Yachts. The applicant told the Tribunal that he had always intended to pay the tax to the ATO. The applicant told the Tribunal that he had intended to pay the amount at a later time by agreement in a manner similar to an arrangement he had entered into previously with the ATO. The applicant told the Tribunal that at the time of receiving the bonus he believed he would be in a position to repay the tax as he was meeting KPI's and had an expectation that he would become entitled to future bonus payments. The applicant told the Tribunal that despite his expectations at the time he had not received any further bonus payments prior to the company's collapse and had not received other statutory entitlements and that, as a consequence, he has not been in a position to meet the tax liability. The applicant made clear to the Tribunal that he believes the collapse of the business was the result of circumstances out of his control and that at the time those circumstances were not foreseeable. The applicant contends that for these reasons he should not be responsible for his inability to now repay the tax liability.

64. Again, the Tribunal rejects this contention. The Tribunal accepts that the applicant had a genuine intention to subsequently pay the PAYG shortfall although the applicant conceded he had not raised the prospect of entering into an arrangement with the ATO at the time. He told the Tribunal that at the time he had been preoccupied with other issues facing the business. It appears to the Tribunal that the applicant simply assumed that he would be able to secure an agreement with the ATO in relation to the payment of the PAYG shortfall at a later time.

65. The Tribunal accepts that the circumstances leading to the collapse of NewSat were not within the applicant's capacity to control and also that they were not foreseeable at the time. However, the Tribunal does not accept that these factors mitigate the applicant's level of responsibility for the applicant's current tax liability in respect of the PAYG shortfall and his present circumstances of not being able to pay that liability.

66. In requesting NewSat to not withhold the PAYG shortfall and using that amount to reinvest in his other business interest the applicant assumed the risk of his financial circumstances subsequently taking a turn for the worse. The applicant knew the PAYG shortfall had not been deducted thereby giving rise to a substantial tax liability and yet he nonetheless made the conscious decision to use that shortfall for his other business. In the Tribunal's view he must bear substantial responsibility for the predicament he now finds himself in with respect to that component of the tax liability. That is because had he not made the request there would be no liability in respect of the PAYG shortfall that he is now not able to meet.

67. In addition, in the Tribunal's view, having requested the PAYG shortfall not be withheld and then, rather than saving that amount, instead investing that amount in the Christa Motor Yacht business, the applicant has failed to appropriately manage his financial affairs so as to be able to meet his future tax obligations. This is because the appropriate way to have managed his financial affairs would have been to ensure that the PAYG component of his bonus payments were withheld or, alternatively, saving any shortfall not withheld to ensure it was available to meet the liability that the failure to withhold the appropriate amount gave rise to. The applicant did neither. Again, in the Tribunal's view, for this reason also the applicant bears a substantial responsibility for his current predicament in respect of the PAYG shortfall component of his tax liability.

68. For these reasons, the Tribunal accepts the respondent's contention that the applicant has been the author of his own misfortune in respect of the PAYG shortfall component of his tax liability.

69. In addition, the Tribunal is satisfied that by redirecting the PAYG shortfall to his Christa Motor Yachts business the applicant has placed his personal interests ahead of his tax obligations and in that sense has demonstrated a serious disregard of the need to meet his tax obligations. In the Tribunal's view it is also an example of the applicant having expended funds without giving appropriate consideration to his tax liability. It is important to note in this context that the applicant by his own evidence knew at the time he redirected the shortfall to his other business interest that a future tax liability had crystallised. The applicant simply assumed that he would be able to enter into an agreement with the ATO to pay the amount at a later time. The Tribunal accepts the respondent's characterisation of the applicant's conduct in this respect as having been somewhat "cavalier". This is reinforced by the applicant's acknowledgment at the hearing that he had not paid sufficient attention to his tax affairs during this period. Again, that demonstrates a somewhat cavalier attitude. The Tribunal does not accept that the difficult business circumstances the applicant was having to navigate during this period is an adequate excuse for his conduct. Many people face difficult business and personal circumstances and yet still ensure their tax affairs are appropriately managed. That is a responsibility all taxpayers share.

70. In the Tribunal's view, having regard to the applicant's conduct it would be unjust and improper in all of the circumstances for the applicant to now have his tax liability released. The Tribunal's view in this respect is not just limited to the PAYG shortfall component of his tax liability but extends to the component relating to the ESS discount amount shortfall as well as all subsequent interest charges. The Tribunal reaches this conclusion notwithstanding the serious hardship a requirement to pay the tax liability will have for the applicant as well as the other significant personal hardship the applicant faces included the ongoing financial pressure and mental strain he is under, the ongoing reputational damage he continues to suffer, the real risk of being made bankrupt and the impact these circumstances have on his family including in particular his wife and grandchild who are both suffering debilitating conditions. The Tribunal also acknowledges the significant contribution that the applicant has made to the community through the payment of tax over the course of his career and through his business endeavours more broadly. However, in the Tribunal's view, these considerations are outweighed by the nature of the applicant's conduct with respect to his tax obligations in the circumstances of this case.

71. The respondent also contends that the applicant's broader tax non-compliance further weighs against the release of the applicant's tax liability.

72. In his evidence to the Tribunal that applicant conceded that he had lodged each of his 2013, 2014 and 2015 tax returns late. The Tribunal accepts this. On the basis of the documentary evidence the Tribunal is satisfied that the applicant's 2014 and 2015 tax returns were lodged on 20 April 2017 and his amended 2013 tax return was lodged on 26 April 2017.

73. When asked why he had failed to lodge his relevant income tax returns on time the applicant told the Tribunal that he had been preoccupied with the serious issues confronting the business at the time. He told the Tribunal that through the course of 2015 and 2016 he was battling issues on multiple fronts and described the period as having been a "tumultuous" 18 months. He told the Tribunal that it was not until 2017 that he had found the capacity to be able to address his tax affairs and that it was at that point that he had lodged his amended 2013 tax return as well as his 2014 and 2015 tax returns. The applicant told the Tribunal that all of his tax returns were now up to date and that prior to 2014 he had a very positive tax compliance history. The applicant told the Tribunal that he was committed to ensuring that all future tax obligations were complied with.

74. The applicant told the Tribunal that his failure to lodge tax returns on time should not weigh against him as he was under immense pressure at the time due to his busines issues, he was having difficulty reconciling his tax position as a consequence of uncertainty regarding payment of entitlements from NewSat and because he otherwise has a very positive tax compliance record. The applicant contends that his failure to lodge tax returns on time did not significantly contribute to the accumulation of the tax liability he now faces.

75. The Tribunal accepts that the applicant has a positive record of tax compliance over a very extended period prior to 2014 and more recently since the lodgement of his returns in 2017. The Tribunal also accepts that the applicant is genuine in his stated determination to ensure future tax obligations are complied with and the Tribunal acknowledges that the applicant's more recent tax returns have all been lodged on time.

76. However, the Tribunal does not accept that the personal and business difficulties the applicant has faced are a satisfactory excuse for him failing to address his tax affairs in an appropriate manner and meet his obligation to lodge tax returns on time. Many people face significant personal difficulties while at the same time ensuring that their tax obligations are fully complied with. Again, that is an obligation all taxpayers share. In addition, the Tribunal does not accept that the uncertainty that existed at the time surrounding the future of the NewSat business and potential payment of the applicant's entitlements is an adequate excuse for having not finalised his tax returns. There is no evidence that the applicant reached out to the ATO in respect of those circumstances.

77. During the period the applicant delayed the lodgement of his returns he was on notice that he had a significant tax liability to address. By his own evidence the applicant was aware at the time his bonus payments were made that there was a significant shortfall in income tax paid. While the Tribunal accepts that the applicant's case is not an example of a taxpayer accumulating a large tax debt over time through a series of late lodgement of returns, neither is the Tribunal satisfied that the late lodgements of returns had no practical consequence. At the very least it has meant that the shortfall interest charge is more substantial than it might otherwise have been, although the Tribunal certainly acknowledges that this represents a small component of the applicant's overall tax liability. In addition, by delaying the lodging of his returns, the applicant delayed the point in time that his tax assessments for the relevant years were finalised and that he was able to fully understand his tax liability position. This is particularly so with respect to the shortfall in connection with the applicant's ESS related assessable discount amount.

78. For these reasons, the Tribunal is satisfied that the applicant's failure to lodge his tax returns on time does weigh against the exercise of the discretion to release him of his tax liability but not substantially so. The Tribunal is satisfied that the weighting given to this consideration is mitigated to some reasonable degree by the applicant's otherwise positive tax compliance record together with his stated commitment to meet his tax obligations in the future. In any case, the Tribunal's conclusion in giving some weight to this consideration simply further reinforces the Tribunal earlier conclusion that, having regard to the applicant's conduct in connection with the PAYG shortfall and his decision to redirect that amount towards his interest in the Christa Motor Yacht business, it would not be just or proper to exercise the discretion to release the applicant of his tax liability.

79. In light of these findings the Tribunal is satisfied that a decision to not release the applicant of his tax liability, notwithstanding the serious hardship he will face if required to pay the liability, is reasonable, fair and appropriate in all of the circumstances.

80. For these reasons, the Tribunal is not satisfied that the decision under review was an incorrect decision or one that should have been made differently.

I certify that the preceding 81 (eighty-one) paragraphs are a true copy of the reasons for the decision herein of The Hon. Matthew Groom, Senior Member

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[1] See Powell v Evreniades [1989] FCA 114; (1989) 21 FCR 252, 264 and also Watson v Commissioner of Tax [2014] AATA 823.

[2] Powell v Evreniades, op.cit, 258, Van Grieken v Veilands [1991] FCA 167; (1991) 21 ATR 1639, Spicer and Commissioner of Taxation [2004] AATA 960.

[3] See Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85; (1980) 44 FLR 41 and also Corlette v Mackenzie [1996] FCA 1482; (1996) 62 FCR 597 which considered a similarly worded predecessor to s340-5 of the TAA.