CORPORATIONS - Winding up - Statutory demand - whether genuine dispute about existence or amount of debt - Application of principle in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd - [2019] NSWSC 65 - NSWSC 2018 case summary

Supreme Court of NSW|2018-09-25|Before: White J

Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 Category: Principal judgment Parties: Citadel Financial Corporation Pty Ltd (Plaintiff) Deputy Commissioner of Taxation (Defendant) Representation: Counsel: A Gerard (Plaintiff) Z Heger (Defendant)

Solicitors: Bridges Lawyers (Plaintiff) Australian Government Solicitor (Defendant) File Number(s): 2017/387810

Judgment

HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand dated 1 December 2017 served by a Deputy Commissioner of Taxation. There is no dispute that the originating process and supporting affidavits were filed and served within time.

... Prima facie evidence (3) The production of a certificate that: (a) is signed by the Commissioner, a *Second Commissioner, a *Deputy Commissioner or a delegate of the Commissioner; and (b) states that, from the time specified in the certificate, an amount was payable under a *taxation law (whether to or by the Commissioner); is prima facie evidence that: (c) the amount is payable from that time; and (d) the particulars stated in the certificate are correct. (3A) A document that is provided to the Commissioner under a *taxation law, and that purports to be made or signed by or on behalf of an entity, is prima facie evidence that the document was made by the entity or with the authority of the entity. Signed copies are evidence (4) The production of a document that: (a) appears to be a copy of, or extract from, any document (the original document) made or given by or to an entity for the purposes of a *taxation law; and (b) is signed by the Commissioner, a *Second Commissioner, a *Deputy Commissioner or a delegate of the Commissioner; is evidence of the matters set out in the document to the same extent as the original document would have been evidence of those matters."

Section 14ZZM and s 14ZZR of the TAA provide that the fact that a review of a taxation decision is pending in the Administrative Appeals Tribunal or an appeal is pending before the Federal Court does not affect the decision and any tax, additional tax or other amount may be recovered as if no review were pending.
Provisions to materially the same effect as these provisions were considered by the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473; [2008] HCA 41. The High Court held that the fact that an assessment was the subject of objection and an application for review before the Administrative Appeals Tribunal did not mean that there was a genuine dispute in relation to the debt the subject of the assessment that provided a ground for setting aside a statutory demand pursuant to s 459H(1)(a) of the Corporations Act. The conclusive effect of the assessment in proceedings, other than review or appeal proceedings in Pt IVC, coupled with other provisions, give "tax debts" arising from assessments a special character such that they cannot be the subject of a genuine dispute for the purposes of s 459H(1)(a) (at [54]-[56], [60], 495, 496).
Another component of the RBA deficit debt as at 1 December 2017 was the imposition of administrative penalties. These were the subject of a notice of assessment dated 25 November 2016 of shortfall penalties for the period from 1 July 2012 to 30 June 2014 of $411,319.20 (under 284-75). An argument that the Commissioner failed to adhere to s 298-10 of Schedule 1 to the TAA, failed correctly to apply s 284-90(1) of Schedule 1, and that there was no "validity" provision of the type contained in s 155-85 of Schedule 1 (whose predecessor provision (s 175 of the Income Tax Assessment Act 1936 (Cth)) was considered by the High Court in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146; [2008] HCA 32) was not pressed. Mr Gerard, who appeared for the plaintiff, conceded such a contention was precluded by the decision of the Court of Appeal in Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation (2017) 347 ALR 134; [2017] NSWCA 17 that unless "judicial review" proceedings were successfully conducted, a court in "recovery proceedings" must give full effect to the conclusive evidence provision in s 350-10(1) (at [44]-[50]). Implicit in this concession was acknowledgment that proceedings for the setting aside of the statutory demand should be characterised as "recovery proceedings". This is in accordance with Broadbeach Properties at [58] and Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 at [57]).
The grounds upon which the plaintiff contended that there were offsetting claims and a genuine dispute with respect to the components of the debt the subject of the statutory demand were as follows: 1. the plaintiff claims to be entitled to a credit in respect of input tax credits arising from creditable acquisitions said to have been made between 1 July 2009 to 30 June 2014 totalling $523,580. Insofar as the claim is in respect of input tax credits for the period the subject of the notice of amended assessment dated 23 November 2016 (viz. 1 July 2012 to 30 June 2014) the plaintiff contends that the "conclusive evidence" provision contained in item 2 in s 350-10(1) of Schedule 1 to the TAA is inapplicable because the document in evidence, as a copy of the assessment, was not signed by the Commissioner, a Second Commissioner, a Deputy Commissioner, or a Delegate of the Commissioner as is said to have been required by s 350-10(4). I will refer to this as the First Offsetting Claim; 2. although not raised in the supporting affidavit, in oral submissions the plaintiff submitted that there was a genuine dispute as to the assessment of GST payable for the period from 1 July 2012 to 30 June 2014. The defendant did not rely on the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452; [1996] FCA 822. I will refer to this as the Disputed Debt; 3. the plaintiff claims that the Commissioner ought not to have assessed the plaintiff as being liable for administrative penalties because the plaintiff was entitled to the benefit of the "safe harbour" protection provided by s 284-75(6) of Sch 1 to the TAA on the basis that the statements found by the Commissioner to be false and misleading in a material particular (being the GST return submitted) were made by a registered tax agent engaged by the plaintiff to whom the plaintiff had given all relevant taxation information and the false or misleading nature of the statement did not result from an intentional disregard by the tax agent of a taxation law or recklessness as to the operation of a taxation law. The plaintiff contended that s 350-10 did not give conclusive effect to the notice of assessment of penalties. This was because the copy of the assessment in evidence was not signed (see para (a) above) or because item 2 in s 350-10(1) of Sch 1 to the TAA is invalid to the extent that it purports to confer on the Commissioner a conclusive power to determine whether a person has committed a wrong of a kind referred to in s 284-75 of Sch 1, as that function involves the exercise of judicial power which is reserved for a Ch III court. I will refer to this as the Second Disputed Debt; 4. the plaintiff claims to be entitled to a refund of GST incorrectly paid in the amount of $59,281 on 30 September 2012 in respect of an out of court settlement. It relies on this as an offsetting claim, and I will refer to this ground as the Second Offsetting Claim; and 5. the plaintiff claims to have an offsetting claim to a GST refund that was payable to a related company, Action Scaffolding and Rigging Pty Ltd (In Liq) ("Action") pursuant to a charge given by Action over all its assets of which the plaintiff took an assignment, such that the refund was payable to the plaintiff. The Commissioner paid the refund to the liquidators of Action. I will refer to this as the Third Offsetting Claim.

First Offsetting Claim: creditable acquisitions between 1 July 2009 and 30 June 2014

The director of the plaintiff, Mr Antonio Maiolo, deposed that from late 2008 the plaintiff licensed scaffolding equipment to Action and remitted GST on its licensing supplies to Action. He deposed that in the period from 1 July 2009 to 30 June 2014 the plaintiff made acquisitions in its own right which related to the making of its taxable supplies as follows: "Period GST paid on acquisitions 1 July 2009 - 30 September 2011 $276,248 1 October 2011 - 30 June 2012 $184,411 1 July 2012 - 30 June 2014 $62,921"
This information was provided in the affidavit supporting the application to set aside the statutory demand and was admissible as identifying one of the issues in the proceedings. However, the affidavit did not identify what acquisitions were made that gave rise to an entitlement to input tax credits. Mr Maiolo deposed that on 24 December 2015 the plaintiff lodged Amended Business Activity Statements which claimed input tax credits in respect of acquisitions attributable to the period 1 July 2009 to 30 June 2012. He deposed that a copy of the amended Business Activity Statements attributable to the period from 1 July 2009 to 30 June 2012 was exhibited at tab 13 of the exhibit to his affidavit (para 36). Tab 13 did not include Amended Business Activity Statements for the period from 1 July 2009 to 30 June 2010.
It appears from a letter written by Ernst & Young acting for the plaintiff to the ATO dated 19 August 2016 that the plaintiff had claimed input tax credits for the period from 1 July 2009 to 30 September 2011 totalling $276,248, for the period from 1 October 2011 to 30 June 2012 totalling $184,411 and for the period from 1 July 2012 to 30 June 2014 totalling $62,921. Ernst & Young acknowledged that the claim for input tax credits of $276,248 attributable to the period ended 30 September 2011 might be outside the four-year limit as at 24 December 2015. They asserted that the plaintiff had been informed by Mr Higgins of the ATO that the plaintiff should not lodge any amended BAS as any amended BAS would not be considered until after the finalisation of the audit. They submitted that the ATO was partially responsible for the claims being potentially out of time.
Mr Maiolo deposed that in or about August 2014 he had a discussion with Mr Higgins to the following effect: "Higgins: Hi Tony this is David Higgins from the ATO. I: Hi David. [Higgins]: As you know, we are currently auditing CFC and certain documentation has been requested from CFC. This Audit needs to be conducted quickly so it can be finalised as soon as possible. I: We are working as fast as we can. You have just extended the audit period for CFC, are auditing my sister's personal affairs, my personal affairs and you have just requested an audit on Steinlead Pty Limited. [Higgins]: The information requested should already be held. I: Well CFC has a substantial refund payable to it that will put CFC in credit. [Higgins]: The ATO will not consider any Business Activity Statements until after finalisation of the audit of CFC. I: Ok so the ATO requires completion of the income Audit before it will consider any further Business Activity Statements lodged by CFC. [Higgins]: Yes that's correct, you need to get the accounts lodged so we can wrap up this audit. I: That's easy, stop extending and adding years to the audit so we can have a clear run. [Higgins]: Tony please get the information over to me so I can finalise the Audit. [I]: I will however we have a large GST refund due so I want to make sure this gets dealt with. [Higgins]: As I said get the audit information to me and we can deal with the GST component after we finalise the other portion of the audit. I: Ok I will get onto Gary and let him know, I know he is working as fast as he can to get the information across to you."
The input tax credits claimed for the periods from 1 October 2011 to 30 June 2012 and from 1 July 2012 to 30 June 2014 were allowed by the ATO and are credited in the plaintiff's RBA. As to the input tax credit claimed for the period from 1 July 2009 to 30 September 2011 ($276,248) the initial position of the defendant was that the taxpayer was not entitled to a refund unless within four years after the end of the tax period the taxpayer notified the Commissioner (in a GST return or otherwise) that it was entitled to a refund (DWS para [37]). In oral submissions Ms Heger appearing for the defendant, did not press that submission. Instead, the defendant's position was that there was insufficient evidence of input tax credits arising from creditable acquisitions from 1 July 2009 to 30 September 2011 to meet even the very low threshold of a genuine claim.
This was not the ground upon which the Commissioner had rejected the claim for input tax credits. The claim was rejected on the ground that the BAS claiming input tax credits had been filed out of time. The claim for input tax credits for the later periods was allowed.
The Commissioner accepted that there had been no assessment made in respect of the period from 1 July 2009 to 30 September 2011 and accepted that the conclusive evidence provision in s 350-10 of Sch 1 to the TAA did not apply to input tax credits claimed for the period 1 July 2009 to 30 September 2011.
The amended BAS statements for the period from 1 July 2010 to 30 September 2011 claimed input tax credits in the following amounts: 1 July 2010-30 September 2010 $9,626 1 October 2010 - 31 December 2010 $13,641 1 July 2011 - 31 March 2012 $61,364 1 April 2011 - 30 June 2011 $154,405 1 July 2011 - 30 September 2011 $54,723 Total $293,759
The returns as originally lodged claimed input tax credits as follows: "Period Amount of (Quarter ending) credit September 2010 $1,438 December 2010 $4,979 March 2011 $ 883 June 2011 $1,839* September 2011 $2,970* *Per revised BAS"
There was evidence that on 6 July 2017 the plaintiff objected to GST assessments for the tax periods from 1 July 2010 to 30 September 2011, but not for the period from 1 July 2009 to 30 June 2010. The notices of assessment were not in evidence and Ms Heger did not rely upon s 350-10 as a conclusive evidence provision in relation to the period the subject of the objection. On 10 November 2017 the ATO approved an extension of time for the lodgment of the objection, but disallowed the objection. There was no evidence that any objection had been made to an assessment for the period from 1 July 2009 to 30 June 2010 and there was no evidence as to what returns were lodged for that period.
The reasons given by the ATO for rejecting the objection to the GST assessments for the period from 1 July 2010 to 30 September 2011 were as follows: Quarterly Tax Period Ended G11 and 1B amounts Comments $ ● Tax invoices have not been provided for this period; 30 September 2010 G11 $105,889 ● Evidence of consideration made has not been provided; 1B $9,626 ● You have not sufficient records to evidence a creditable acquisition ● 1B claim increase disallowed ● Tax invoices provided for this period only total $65,487; G11 $150,057 ● Copy of properly executed rental contract to support invoice claim of $35,123.37 for rent paid not provided; 31 December 2010 1B $13,641 ● Evidence of consideration made has not been provided; ● You have not sufficient records to evidence a creditable acquisition ● 1B claim increase disallowed ● Tax invoices provided for this period only total $450,872; 31 March 2011 G11 $675,006 ● Evidence of consideration made has not been provided; 1B $61,364 ● You have not sufficient records to evidence a creditable acquisition ● 1B claim increase disallowed ● Tax invoices provided for this period only total $1,175,186; 30 June 2011 G11 $1,698,459 ● Evidence of consideration made has not been provided; 1B $154,405 ● You have not sufficient records to evidence a creditable acquisition ● 1B claim increase disallowed ● Tax invoices provided for this period only total $406,205; 30 September 2011 G11 $601,963 ● Evidence of consideration made has not been provided; 1B $54,723 ● You have not sufficient records to evidence a creditable acquisition ● 1B claim increase disallowed

The reference to "G11" is to the claimed non-capital purchases amount and the reference to "1B" was to the claimed input tax credits in respect of acquisitions made for the tax period in question.

The ATO also stated that the returns provided did not report any amounts received for services provided or sales made and the Commissioner was not satisfied with the nil return for sales/income for those tax periods. The Commissioner said that it was apparent from income tax returns lodged and bank statements and accounting records provided that income was derived in the relevant periods. Also, information requested about the relationship between the plaintiff and Action had been requested, but had not been supplied. The reasons for dismissing the objection included that the plaintiff had failed to provide contemporaneous evidence of supplies and acquisitions and the Commissioner had not been able to determine whether the supplies to the plaintiff were taxable supplies and whether the plaintiff provided some or all of the consideration for the purchases, nor the tax period in which the consideration was provided.
On 8 December 2017 the plaintiff lodged an application with the Administrative Appeals Tribunal seeking review of the Commissioner's decision of 10 November 2017. The form of the application required the applicant (plaintiff) to state why it claimed the decision was wrong. In answer to that question the plaintiff stated: "The company was audited initially over a three period [sic] from 2011 to 2013 and then it was extended to 2014. The final decision disallowed GST credits because they were outside the four-year period and imposed severe penalties and interest which supersede the alleged primary debt. Despite many meetings and assurances from the ATO that a settlement would be welcomed they refused to do so and did not fulfil any commitments that they had made to us."
Mr Gerard for the plaintiff also submitted that there had been no assessment of GST for the period from 1 July 2010 to 30 September 2011. I was told that in the AAT proceedings the Commissioner had provided the plaintiff with a letter suggesting that there was error in the Commissioner's having purported to make an objection decision in respect of assessments never made. That letter was not in evidence. It was common ground that the jurisdiction of the Administrative Appeals Tribunal to deal with the application for review of the Commissioner's decision of 10 November 2017 was not a question in issue on the present application. The only issue was whether there was enough evidence to show that there was a plausible contention requiring investigation as to whether the plaintiff was entitled to additional input tax credits as claimed for the period from 1 July 2009 to 30 September 2011. As noted above, the defendant did not press a submission that there was no arguable offsetting claim because the plaintiff is out of time to claim the input tax credits for the period 1 July 2009 to 30 September 2011.
In judging the sufficiency of the evidence to give rise to an offsetting claim, the question is not whether the evidence is sufficient to establish the offsetting claim or its amount, but whether it is sufficient to establish that the offsetting claim is genuine and its genuine level (Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605; Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [48] and [49]). It is sufficient if there be a plausible contention requiring investigation (Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at [70]). The offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and not be merely fanciful or futile (TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71] cited with approval in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd at [52]-[53]).
Paragraph 33 of Mr Maiolo's first affidavit goes no further than an assertion that the plaintiff paid $276,248 of GST on acquisitions during the period from 1 July 2009 to 30 September 2011. There was no evidence of GST paid on acquisitions between 1 July 2009 and 30 June 2010.
The plaintiff relied upon its amended BAS statements claiming input tax credits for the period from 1 July 2010 to 30 September 2011. By themselves they do not give rise to a plausible contention requiring investigation. There is no reason to think that the amended returns lodged on 24 December 2015 had greater cogency than the returns originally lodged, mostly within weeks of the expiry of each relevant quarter. Moreover, the returns lodged for the period 1 July 2010 to 30 September 2011 asserted the making of creditable acquisitions that gave rise to input tax credits of $293,759 which was more than the input tax credits claimed by Mr Maiolo in his first affidavit for the period from 1 July 2009 to 30 September 2011.
However, some credence to the claim for input tax credits greater than those originally claimed is provided by the Commissioner's reasons of 10 November 2017 for disallowing the GST objection dated 6 July 2017. That objection was not in evidence. Nor was any of the material provided by the plaintiff in support of the objection. But from the table quoted at [26] above it appears that the plaintiff provided the Commissioner with tax invoices for the periods from 1 October 2010 to 30 September 2011 totalling $2,097,750. A consistent ground for rejecting the claim for input tax credits was that "evidence of consideration made [sic] has not been provided". It is not clear what this means. It may mean that evidence of consideration paid had not been provided. But it would be a matter for investigation as to whether the plaintiff accounted on an accruals or cash basis and whether or not evidence was available of the plaintiff's having paid for, or become indebted in respect of, acquisitions made. The fact that the evidence in support of the objection provided to the ATO was insufficient to persuade the Commissioner that the input tax credits claimed should be allowed does not mean that the claim is not worthy of investigation.
It appears from the Commissioner's decision that at least some of the invoices were for services Action provided to the plaintiff. A matter worthy of investigation would be whether the plaintiff became indebted to Action in respect of such services (if in truth they were provided) for which invoices were raised.
The reference to the invoice claim of $35,123.37 in the quarter ended 31 December 2010 appears to be to an invoice that formed part of the invoices provided for that period totalling $65,487. The fact that a properly executed rental contract was not provided to support the tax invoice for $35,123.37 does not preclude the possibility that a contract in terms of an unexecuted (or an improperly executed) rental contract was entered into. That would be a matter worthy of investigation.
It is not sufficient for the defendant to show grounds for scepticism. It is enough for the plaintiff to establish that the offsetting claim is genuine and to establish what is a genuine level of the claim. The fact that the input tax credits claimed as a result of amended BAS statements for the periods from 1 October 2011 to 30 June 2014 were accepted by the Commissioner suggests that the claim is genuinely raised.
Unsatisfactory as the plaintiff's evidence is, there is sufficient evidence that the claim for input tax credits for the period from 1 July 2010 to 30 September 2011 is genuine to the extent that tax invoices were provided to the Commissioner to support the claim. No invoices were provided for the period from 1 July 2010 to 30 September 2010. I conclude that the plaintiff has established an offsetting claim for the following amounts in respect of the following periods: 1 October 2010 - 31 December 2010 $9,146 1 January 2011 - 31 March 2011 $40,988 1 April 2011 - 30 June 2011 $106,835 1 July 2011 - 30 September 2011 $36,928 The total amount of the offsetting claim so established is $193,897. Adjustments will need to be made to recalculate the general interest charge after giving credit for the above sums in respect of the periods identified above.
However, there is no evidence going beyond mere assertion that the plaintiff is entitled to a GST credit for the period from 1 July 2009 to 30 June 2010. As noted at [16], Mr Maiolo deposed that the plaintiff paid GST of $276,248 for the period from 1 July 2009 to 30 September 2011. The GST claimed to have been paid for the period from 1 October 2010 to 30 September 2011 for which there is a genuine claim is $193,897. There is no evidence establishing grounds for a genuine dispute for the earlier period of 1 July 2009 to 30 September 2010.

The First Disputed Debt: GST assessment of $672,438 for period 1 July 2012 to 30 June 2014

There is no genuine dispute that this component of the Running Balance Account and the general interest charge referable to it is a debt payable by the plaintiff to the Commissioner. One reason for this is that the High Court's decision in Broadbeach Properties applies. Mr Gerard submitted that Broadbeach Properties did not apply because for item 2 of s 350-10(1) item 2 to apply there must be evidence of a notice of assessment under a taxation law. He submitted that by reason of s 350-10(4) such evidence is only provided if the document produced appears to be a copy of or extract from the original document and is signed by (relevantly) a Deputy Commissioner.
I do not consider that to be the correct construction of s 350-10(4). The provision is facilitative. It is not exhaustive. In this case evidence of the notice of assessment was admitted without objection.
In any event, the notice of assessment was issued in the name of a Deputy Commissioner, Mr Cranston. Regulation 24(1) of the Taxation Administration Regulations 2017 (Cth) provides: "24 Presumption as to signatures (1) A document bearing the name (however produced) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner in the place of the person's signature is taken to have been duly signed by the person, unless it is proved that the document was issued without authority."
The plaintiff did not contend that the document was issued without authority. The document bore the name of a Deputy Commissioner and is taken to have been duly signed by him, notwithstanding that no signature appears.
In any event, Mr Maiolo gave no evidence to the effect that the notice of assessment was incorrect. He attached a position paper explaining the ATO's reasons for assessing the plaintiff as being liable to pay GST for the period from 1 July 2012 to 30 June 2014. He did not give any evidence challenging those reasons. It appears from the Commissioner's decision of 10 November 2017 in relation to a GST objection dated 6 July 2017 that objections to amended GST notices of assessments, penalties imposed and interest for that period were withdrawn.

The Second Disputed Debt: Assessment of administrative penalty

The plaintiff disputed that the notice of assessment of administrative penalties was conclusive evidence that the assessment was properly made and the amounts and particulars of the assessment are correct. It relied on four grounds. First, absence of signature. Secondly, the notice was not an "assessment". Thirdly, if it were, it was not conclusive evidence in these proceedings of the existence of a wrong of the kind that would make the plaintiff liable to an administrative penalty. Fourthly, that s 350-10(1) in its application to an assessment of administrative penalties is invalid.
As to the first ground, for the same reasons as in para [41] above, the fact that there is no facsimile signature on the notice of assessment of administrative penalties does not displace the operation of item 2 of s 350-10(1). The plaintiff argued that an assessment under s 298-30(1) of Sch 1 was not an "assessment" within the meaning of s 350-10(1). In s 350-10(1), "assessment" is a defined term by virtue of s 3AA(2) of the TAA. Section 995-1 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997) defines "assessment" as follows: "assessment: (a) of an *assessable amount, means an ascertainment of the assessable amount; and (b) in relation to a *tax‑related liability not covered by paragraph (a), has the meaning given by a *taxation law that provides for the assessment of the amount of the liability. Note: The table lists provisions of taxation laws that define assessment. Taxation laws that define assessment Item Taxation law Provision 1 Income Tax Assessment Act 1936 subsection 6(1) 5 Fringe Benefits Tax Assessment Act 1986 subsection 136(1) 10 Petroleum Resource Rent Tax Assessment Act 1987 section 2 15 Superannuation Guarantee (Administration) Act 1992 section 6 20 Superannuation Contributions Tax (Assessment and Collection) Act 1997 section 43 25 Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 section 38"

An administrative penalty is not an "assessable amount". It is a "tax-related liability" within the meaning of para (b). This is clear given the definition in s 255-1 in Sch 1 to the TAA. The plaintiff argued that the TAA did not give meaning to the term "assessment" as it relates to the "tax related liability", this liability being the administrative penalties imposed, and therefore there was not an "assessment" as defined in s 995-1 of the ITAA 1997.
Division 284 in Sch 1 to the TAA sets out the circumstances in which administrative penalties apply for a taxpayer's making false or misleading statements or taking a position that is not reasonably arguable or entering into schemes, and sets out the amount of those penalties (s 284-5). Section 298-30 provides: "298‑30 Assessment of penalties under Division 284 or section 288‑115 (1) The Commissioner must make an assessment of the amount of an administrative penalty under Division 284 or section 288‑115. (2) An entity that is dissatisfied with such an assessment made about the entity may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953."
Prior to 25 February 2015, s 298-30 included subsections (3) and (4) that provided: "(3) The production of a notice of such an assessment, or of a copy of it certified by or on behalf of the Commissioner, is conclusive evidence of the making of the assessment and of the particulars in it. (4) Subsection (3) does not apply to proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment."
On 25 February 2015 those subsections were repealed by clause 71 of Schedule 2 of the Treasury Legislation Amendment (Repeal Day) Act 2015 (Cth). The explanatory memorandum for the Treasury Legislation Amendment (Repeal Day) Bill stated that Schedule 2 simplified taxation laws by consolidating duplicated taxation administration provisions contained in various Taxation Acts into a single set of provisions in Sch 1 to the TAA (clauses 2.1 and 2.18). The explanatory memorandum stated that the amendments to Sch 1 to the TAA did not alter the intended operation of the provisions as they applied to the administration and operation of various taxation laws (clause 2.26). The existence of subss (3) and (4) suggests that assessments under s 298-30 were - and still are - treated as "assessments" within the TAA.
The aim of the parliamentary draftsman did not miscarry. There was an "assessment" within the meaning of item 2(a) of s 350-10(1) being, in relation to a tax-related liability not covered by para (a) of the definition of assessment in s 995-1 of the ITAA 1997, that it has the meaning given by s 298-30 of Sch 1. That section gives meaning to the assessment of an administrative penalty by providing that the assessment is an assessment to be made by the Commissioner of the amount of the administrative penalty under Div 284 or s 288-115. In order for the word "assessment" to be given meaning by a taxation law that provides for the assessment of the amount of the liability it is not necessary for the taxation law in question to provide a definition of the term. That is the better contextual reading and the reading that promotes the purpose of the provisions. I do not think the contrary is seriously arguable.
As to the third ground, the plaintiff argued that ss 298-30 and 350-10 in Sch 1 only provide that a notice under those sections is conclusive evidence that the assessment was properly made and the amounts and particulars of the assessment are correct. The plaintiff argued that the notice of assessment was not conclusive evidence of the existence of a wrong of the kind that would make the plaintiff liable to administrative penalty under s 284-75 in Sch 1.
That is a distinction without a difference. If in these proceedings the amount and particulars of the assessment of administrative penalties is to be taken as conclusively correct there can be no genuine dispute as to this component of the debt.
As to the fourth ground, notices of a constitutional matter were served on the Attorneys General of the Commonwealth, States, and Territories under s 78B of the Judiciary Act 1903 (Cth). The s 78B notices identified the relevant issue arising under the Constitution or involving its interpretation as: "whether the function said to be conferred on the Commissioner of Taxation to conclusively determine that a person is liable to pay a penalty (being a determination which is not subject to de novo review by a court) is a 'function closely analogous to [that] of a court in deciding criminal or civil cases' (Brandy v Human Rights and Equal Opportunities Commission (1995) 183 CLR 245 at 269) and therefore one which is 'appropriate exclusively to judicial action, as punishment for crime or trial of actions for breach of contract or for wrongs' (Commissioner of Taxation v Munro (1926) 38 CLR 153 at 173.)"
A second issue said to arise under the Constitution or involve its interpretation was whether the function of the Commissioner: "merely involves 'the completion of the process by which the provisions of the Act related to liability to [a penalty] are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper [penalty] in that case' (Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 at 252)."
No Attorney-General sought to intervene.
Division 284-B of Sch 1 to the TAA sets out administrative penalties for which a taxpayer is liable if the taxpayer makes a false or misleading statement about a tax-related matter, or takes a position that is not reasonably arguable about a tax-related matter, or if the Commissioner determines a tax-related liability without documents the taxpayer was required to provide (s 284-70). Section 284-75 provides four bases on which a taxpayer is liable to an administrative penalty. These include that the taxpayer makes a statement to the Commissioner that is false or misleading in a material particular, whether because of things in it or omitted from it (s 284-75(1)(b)).
The Commissioner concluded that statements made by the plaintiff in its tax returns for the year ended 30 June 2013 contained false or misleading statements as the returns incorrectly stated the plaintiff's taxable income. He concluded that Business Activity Statement lodged for the periods from 1 July 2012 to 30 June 2014 contained false or misleading statements as they incorrectly stated the GST payable.
Section 284-75(6) provides: "284‑75 Liability to penalty ... (6) You are not liable to an administrative penalty under subsection (1) or (4) if: (a) you engage a *registered tax agent or BAS agent; and (b) you give the registered tax agent or BAS agent all relevant taxation information; and (c) the registered tax agent or BAS agent makes the statement; and (d) the false or misleading nature of the statement did not result from: (i) intentional disregard by the registered tax agent or BAS agent of a *taxation law (other than the *Excise Acts); or (ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts)."
In the statement of reasons for the ATO's decision that the plaintiff was liable to administrative penalties the ATO said: "94. We have considered the application of safe harbour to the statements made in your income tax return for the year ended 30 June 2013 and for the BAS periods during 1 July 2012 to 30 June 2014 and determined that this exception does not apply due to the following: ● you engaged Lissa Advisory Services Pty Ltd, a registered tax agent (your agent); ● the statements were false and misleading; ● we do not have information to determine whether you provided all relevant taxation information to your tax agent; and ● we do not have information whether all bank statements and other financial information was provided to your tax agent to ensure all income was reported. 95. Therefore, in the absence of evidence showing otherwise, we consider that the safe harbour provisions do not apply and that you are liable to an administrative penalty for making a false or misleading statement."
Section 284-75(7) provides: "(7) If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6)(b). Further exception to subsection (1)"
The Commissioner concluded that there was a shortfall amount within the meaning of s 284-80 because the tax-related liability of the plaintiff, worked out on the basis of the statements provided, was less than it would be if the statements were not false or misleading (s 284-80(1)). Section 284-90 provides for the imposition of a "base penalty amount" of either 75 per cent, 50 per cent or 25 per cent of the shortfall amount depending upon whether a misleading statement was intentional, reckless or arose from a failure by the taxpayer or its agent to take reasonable care to comply with the taxation law.
In relation to the amendments to the Business Activity Statements for the periods 1 July 2012 to 30 June 2014 the Commissioner took the view that the plaintiff was liable to an administrative penalty on the basis that it did not take reasonable care and this amounted to gross carelessness amounting to recklessness (ATO reasons for decision, [107]-[109], [115]-[117]). Section 284-220 provides that the base penalty amount is increased by 20 per cent if, amongst other circumstances, the taxpayer took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of the statement, in relation to which the base penalty amount was calculated (s 284-220(1)(a)). The Commissioner determined that the base penalty amount was to be increased by 20 per cent pursuant to s 284-220(1)(a) because the ATO requested information and documents on 2 May 2014 but did not receive pertinent information until 15 February 2016 despite repeated attempts to obtain the information. Hence, the Commissioner determined that the plaintiff was liable to pay an administrative penalty of 60 per cent (50 per cent x 120 per cent) of the shortfall amount. The penalty was calculated to be $411,319.20. As noted above, a notice of assessment of the shortfall penalty was issued on 25 November 2016.
Section 298-30 of Sch 1 provides that the Commissioner must make an assessment of the amount of an administrative penalty under Div 284 and that an entity that is dissatisfied with such an assessment may object against it in the manner set out in Pt IVC of the TAA. That notice of assessment is conclusive evidence that the assessment was properly made, and, except in proceedings under Pt IVC, that the amounts and particulars of the assessment are correct.
The plaintiff submits that there is a genuine dispute as to whether the administrative penalty was properly assessed. Mr Maiolo deposed that he provided the plaintiff's accountant, a Mr Gary Lissa, with all documents necessary to enable Mr Lissa to prepare, finalise and lodge the plaintiff's accounts, including providing the accountant with all source documents, such as bank statements and invoices, and that the plaintiff relied upon the accountant to accurately prepare and lodge its accounts with the ATO. The plaintiff contends that it is entitled to the "safe harbour" protection afforded by s 284-75(6) of Sch 1.
In response to the Commissioner's reliance upon the conclusive effect of the notice of assessment in proceedings other than in review or appeal proceedings under Pt IVC, the plaintiff contends that s 350-10 in its application to assessments of administrative penalties is invalid in purporting to confer on the Commissioner a conclusive power to determine whether a person has committed a wrong of the kind described in s 284-75 of Sch 1. (Plaintiff's submissions, [52]).
As noted above, s 284-75 provides four bases upon which a taxpayer will be liable to an administrative penalty. The first, and the one immediately relevant, is where the taxpayer or its agent makes a false or misleading statement in material particular, whether because of things in it or omitted from it, and the taxpayer has a shortfall amount as a result of the statement (s 284-75(1)). The second is if the taxpayer made a statement to the Commissioner in which the taxpayer treated the income tax law as applying to a matter that was not reasonably arguable (s 284-75(2)). The third is if the taxpayer fails to provide a return, notice or other document by the day it is required to be given, and the document is necessary for the Commissioner to determine the taxpayer's liability accurately and the Commissioner determines the tax-related liability without the assistance of that document (s 284-75(3)). The fourth concerns false or misleading statements made to an entity other than the Commissioner or an entity exercising powers or performing functions under a taxation law.
In the present case the Commissioner was required to make a determination of the facts relevant to an assessment of the plaintiff's GST liability so as to assess the "shortfall amount". The Commissioner was also required to determine whether statements made in the return were false or misleading, or were not reasonably arguable, and whether the "safe harbour" protection in s 284-75(6) was available and in particular whether the plaintiff had established that he had given his tax agent all relevant taxation information and the false or misleading nature of the statement did not result from intentional disregard by the tax agent of the taxation law or recklessness by the agent as to the operation of the taxation law.
The plaintiff was entitled to object to the decision to impose administrative penalties. If the objection were disallowed the plaintiff could either seek a review of the adverse objection decision in the Administrative Appeals Tribunal or appeal from the adverse decision to the Federal Court (TAA, s 14ZZ).
The fact that the Commissioner was empowered to make factual determinations and apply legal standards in assessing administrative penalties does not mean that the Commissioner was exercising judicial power. That function is characteristic of both judicial and administrative decision-makers (Federal Commissioner of Taxation v Munro; British Imperial Oil Co v Federal Commissioner of Taxation (1926) 38 CLR 153 at 176 per Isaacs J, 201 per Higgins J; Luton v Lascelles (2002) 210 CLR 333 at 345 [21], per Gleeson CJ, 361 [79] per McHugh J; [2001] HCA 13).
The issues identified in the s 78B notices (quoted at [53] and [54] above) ignore the fact that the Commissioner's assessment is subject to review by the Administrative Appeals Tribunal or appeal to the Federal Court under Pt IVC of the TAA. It is true that in other proceedings the Commissioner's assessment is conclusive, but that does not mean that it is conclusive for all purposes. It is liable to be reviewed on its merits.
In Federal Commissioner of Taxation v Munro; British Imperial Oil Co Ltd v Federal Commissioner of Taxation (1926) 38 CLR 153, the High Court held that following amendments made in 1925 to the Income Tax Assessment Act 1922 (Cth) the Board of Review did not exercise judicial power in reviewing decisions of the Commissioner. On appeal to the Privy Council (Shell Co of Australia Ltd v Federal Commissioner of Taxation (1930) 44 CLR 530) the Privy Council noted with evident approval that it was conceded that the Commissioner himself exercised no judicial power (at 543-544). The conclusion that the Board of Review did not exercise judicial power was upheld. If the Board of Review (now the Administrative Appeals Tribunal) did not exercise judicial power even though there was a pending proceeding before it between contesting parties in which evidence was adduced and witnesses could be cross-examined, a fortiori the Commissioner would not exercise judicial power.
It is not seriously arguable that the Commissioner exercised judicial power in making (through his delegate) the assessment of the plaintiff's liability to administrative penalties. Although the plaintiff's argument was confined to an assessment of administrative penalties, there is no reason to distinguish the Commissioner's function in assessing administrative penalties from his assessment of taxation liabilities. In either case the Commissioner has to find facts and apply his understanding of the law to the facts found.
Brandy v Human Rights and Equal Opportunities Commission (1995) 183 CLR 245, upon which the plaintiff principally relied, does not assist the plaintiff's submission. There it was held that the Human Rights and Equal Opportunities Commission exercised judicial power not merely because it decided controversies between the parties by determining rights and duties based upon existing facts and application of the law as set out in the Racial Discrimination Act 1975 (Cth), but, critically, because its determination was binding and conclusive between the parties and enforceable because its determination was to be registered in the Federal Court and had effect as if it were an order made by the Federal Court (at 254, 269).
As indicated above, the decision in Federal Commissioner of Taxation v Munro to which the plaintiff also referred is also inconsistent with a conclusion that the Commissioner was exercising judicial power as it was there held that the Board of Review did not exercise judicial power, even though the Board of Review had made determinations in proceedings to which the Commissioner and the taxpayer were parties. In the case of the Commissioner's assessment there is no such pending proceeding.
Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 is not relevant.
None of the grounds relied on to dispute the conclusiveness of the assessment of administrative penalties is seriously arguable. Consistently with the decision in Broadbeach Properties there is no genuine dispute as to the debt arising from the assessment of administrative penalties.

The Second Offsetting Claim: incorrectly remitted GST

Mr Maiolo deposed that on or about 21 August 2012 the plaintiff received $652,091 by way of an out-of-court settlement of a claim for damages against its former solicitor. He deposed that it remitted to the ATO the sum of $59,281 as GST in the 30 September 2012 tax period. The plaintiff contends that it erred in remitting the sum of $59,281 as GST as the settlement moneys received were not consideration for a supply made by it.
The Commissioner issued a notice of assessment on 23 November 2016 for periods that included the tax period of 1 July 2012 to 30 September 2012. The Commissioner assessed the plaintiff as being entitled to a credit for that period in the "net amount" of $23,405. Except in Pt IVC proceedings that assessment conclusively determined the amount of the credit payable to the plaintiff for that period. The credit was taken into account in assessing the debt the subject of the statutory demand.
Even if Broadbeach Properties did not stand in the plaintiff's way, it does not have a genuine claim to recover this amount as a debt. As the defendant submitted, Mr Maiolo's evidence went no further than bare assertion of a claim without providing any evidence of the facts that $652,091 had been received by way of an out-of-court settlement and that $59,281 had been remitted as GST that was not in fact payable. Moreover, the time for correcting the alleged error expired four years and one day after lodgment of the Business Activity Statement (s 155-35 of Sch 1 to the TAA). That period expired in October 2016.
For these reasons the plaintiff does not have a genuine offsetting claim for the allegedly overpaid GST.

Third Offsetting Claim: plaintiff's entitlement to a tax refund of $104,222 payable to Action

On 3 July 2008, Action granted a fixed and floating charge over all its present and future assets and undertakings to Bibby Financial Services Australia Pty Ltd. On 5 June 2012 Bibby Financial Services and the plaintiff entered into a Deed of Assignment which recited that Bibby Financial Services had provided financial accommodation to Action and in support of that financial accommodation had obtained the Charge. The deed recited that all amounts due to Bibby Financial Services had been paid, that the plaintiff sought to take an assignment of the Charge from Bibby Financial Services and Bibby Financial Services had agreed to assign the Charge to the plaintiff. The deed provided for the assignment to the plaintiff of all of its rights under the Charge.
The plaintiff contends that on 6 December 2012 the plaintiff exercised its rights under the Charge and appointed itself as controller of the assets of Action that were the subject of the Charge, namely, all present and future assets and undertakings of Action.
The defendant has not disputed that that step was taken.
The charge secured payment of the "Secured Money". This was defined comprehensively but related to any liabilities of Action to Bibby Financial Services or a related corporation of Bibby Financial Services. There was no evidence as to whether the plaintiff had paid moneys owed by Action to Bibby Financial Services or whether it had taken an assignment of the debt owed to Bibby Financial Services. No submissions were made by either party on this issue. The defendant did not contend that no moneys were secured by the charge, or that the charge secured less than the tax refund.
The plaintiff sought to obtain a GST refund of $104,222 that the Commissioner had acknowledged was payable to Action. It relied on its having given notice to the Commissioner of the assignment of the debt payable by the Commissioner to Action.
On 16 June 2017 Bridges Lawyers, solicitors for the plaintiff, wrote to the ATO and noted that the ATO intended to pay the refund to the liquidators of Action in accordance with "the ATO's policy". Bridges Lawyers also referred to the fact that the ATO had referred to sections of the Corporations Act 2001 (Cth) (namely, the former s 471A, and ss 474 and 477(2)(m) of the Corporations Act) in asserting that the refund was to be paid to the liquidators of Action. Bridges Lawyers noted that s 471A related to the suspension of powers of officers and directors of a company once it was being wound up, but submitted that the plaintiff's rights arose under the Charge and it was neither an officer nor a director of Action and did not seek to exercise any rights as such. They contended that ss 474 and 477(2)(m) which deal with the powers and duties of a liquidator to take possession of assets of a company are to be read subject to the plaintiff's rights as a secured creditor entitled to enforce its Charge.
The ATO paid the tax refund to the liquidators of Action.
The tax refund owed to Action was a chose in action owned by it which was the subject of a fixed charge to Bibby Financial Services. By clause 4.3 of the charge Action assigned that debt to Bibby Financial Services subject to a proviso for redemption. Bibby Financial Services assigned the debt to the plaintiff. It would be a matter for investigation whether Action was entitled to the benefit of the proviso for redemption, and there would be a serious question to be tried as to whether the effect of the notice of assignment was that the Commissioner was in any event obliged to pay the tax refund to the plaintiff.
Subject to any contrary statutory provision, it is arguable that the plaintiff is entitled to recover from the Commissioner the refund payable to Action.
The defendant submitted that refunds are required to be processed in accordance with Div 3 and 3A of Pt IIB of the TAA. Section 8AAZLF(1) of the TAA provides: "8AAZLF Commissioner must refund RBA surpluses and credits (1) The Commissioner must refund to an entity so much of: (a) an RBA surplus of the entity; or (b) a credit (including an excess non‑RBA credit) in the entity's favour; as the Commissioner does not allocate or apply under Division 3. Voluntary payments only to be refunded on request (2) However, the Commissioner is not required to refund an RBA surplus or excess non‑RBA credit that arises because a payment is made in respect of an anticipated tax debt of an entity unless the entity later requests, in the approved manner, that the Commissioner do so. (3) On receiving such a request, the Commissioner must refund so much of the amount as the Commissioner does not allocate or apply under Division 3. Effect of refunding RBA surplus (4) If the Commissioner refunds an RBA surplus under this section, the Commissioner must reduce by the same amount excess non‑RBA credits that relate to the RBA. Effect of refunding credit that relates to an RBA (5) If, under this section, the Commissioner refunds an excess non‑RBA credit that relates to an RBA, the RBA is adjusted in the Commissioner's favour by the same amount."
Section 8AAZLH(2) and (2A) provide: "8AAZLH How refunds are made ... (2) The Commissioner must pay those refunds to the credit of a financial institution account nominated in the approved form by the entity. The account nominated must be maintained at a branch or office of the institution that is in Australia. (2A) The account must be one held by: (a) the entity, or the entity and some other entity; or (b) the entity's registered tax agent or BAS agent; or (c) a legal practitioner as trustee or executor for the entity."
The defendant submitted that the effect of these provisions was that refunds were to be paid to the taxpayer and only to the taxpayer or to the taxpayer's registered tax agent or BAS agent, or a legal practitioner as trustee or executor for the entity. The defendant submitted that the plaintiff's alleged appointment as controller and assignee of the debt payable to Action did not have the effect of converting the plaintiff into an "entity" to whom a refund could be made for the purposes of the TAA.
Whether ss 8AAZLF and 8AAZLH apply where an entity entitled to a refund has assigned the debt and notice of the assignment has been duly given to the Commissioner, or whether the sections only apply where the refund is payable to the entity, is a genuine issue. It is not appropriate to decide that issue on an application to set aside the statutory demand. To purport to do so might embarrass a judge who later had to decide the question. It is enough on the application to set aside the statutory demand that the issue is genuinely raised. The plaintiff has established a genuine offsetting claim in the amount of $104,222 arising from the date it gave notice to the Commissioner of the assignment of the debt payable by the Commissioner to Action.

Summary and conclusions

It follows that the plaintiff has established offsetting claims for the amounts totalling $193,897 in respect of the periods set out at [37] above and for the sum of $104,222 referred to at [85] ff. The defendant accepted that an adjustment to the general interest charge should be made if this conclusion were reached. (This adjustment is not made under s 459J(1)(b) of the Corporations Act as the plaintiff submitted but as a component of the offsetting claim as defined in s 459H(5).) An order should be made under s 459H(4) varying the demand. The calculation of the demand as varied will require a recalculation of the general interest charge. The proceedings should be stood over to enable the parties to bring in a calculation of the demand as varied in accordance with these reasons, including a calculation of the general interest charge to take account of the offsetting claims that I have accepted. I will hear the parties on costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 February 2019

Treasury Legislation Amendment (Repeal Day) Act 2015(Cth)

CORPORATIONS - Winding up - Statutory demand - whether genuine dispute about existence or amount of debt - Application of principle in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd

At a glance

Court

Decision date

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Source

Judgment (13 paragraphs)

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Legislation Cited (10)

Cases Cited (18)

Cited By (10)