DCT v Epov

PARTIES : Deputy Commissioner of Taxation (Plaintiff) Peter Epov (Defendant)

C Malcolm Australian Government Solicitor (Plaintiff) SOLICITORS : M Conomos Conomos & Spinak Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12667/2005 - DEPUTY COMMISSIONER OF TAXATION v PETER EPOV

JUDGMENT (Strike out defence) 1 HER HONOUR: By notice of motion filed 2 June 2008, the plaintiff seeks an order that the further amended defence filed 9 May 2008 be struck out and that pursuant to Rule 13.1 of the Uniform Civil Procedure Rules judgment be entered for the plaintiff. 2 The plaintiff is the Deputy Commissioner of Taxation (DCT). The defendant is Peter Epov. The DCT relied on the affidavit of Peter Douglas sworn 18 April 2008 and 12 September 2008. The defendant relied on the affidavit of Marcus William Conomos sworn 16 May 2008.

The pleadings 3 By further amended statement of claim (FASC) the DCT claims the sum of $1,464,598.42 which is due and unpaid together with (a) further general interest charged pursuant to s 204 of the Income Tax Assessment Act 1936 (ITAA36) and Part IIA of the Taxation Administration Act 1953 (TAA53) calculated upon an amount or amounts and for a period or periods, at the rates prescribed in the TAA53 to payment or judgment; and (b) further general interest charged pursuant to s 8AAZF and Part IIA of the TAA53 calculated upon an amount or amounts and for a period or periods, and at the rates provided in the TAA53 to payment or judgment. 4 By further amended defence (FAD) filed 9 May 2008, the defendant admits paragraphs 1, 2 and 3 of the FASC. As to paragraph 4, the defendant admits that the Notice of Assessment provided for payment by the due date 16 October 2001, but states that an objection to the Notice of Assessment was made. The DCT disallowed the objection. 5 On 14 December 2004, the defendant appealed that decision to the Federal Court and Justice Hill made orders setting aside the objection decision and the defendant's objection was allowed in part so that the taxable income and tax payable in respect of the relevant year of income be in accordance with the amended assessment issued to the defendant on 22 June 2004. For these reasons the defendant denies that he failed to pay income tax and additional tax for the year of income ended 30 June 1999 as alleged in paragraphs 5, 6 and 7 of the FASC. 6 The defendant denies that he is indebted to the Commonwealth of Australia in the sum of $108, 167.05 as alleged in paragraph 8 of the FASC. He denies paragraphs 9, 10, 11, 12, 13 and 14 and says that the DCT has failed to take into account the assessments which issued on 6 June 2006 and 30 May 2006 in respect of the income tax years ending 30 June 2000 and 30 June 2001. The defendant denies that he failed to pay the Running Balance Account deficit debt as alleged in paragraph 16 of the FASC by reasons of the fact that he denies being indebted to the DCT as alleged.

Summary judgment and strike out defence 7 Rule 13.1(1) of the Uniform Civil Procedure Rules provides: 13.1(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and

(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,

the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 8 Rule 13.4(1) of the Uniform Civil Procedure Rules provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious; or, if no reasonable cause of action is disclosed; or, if the proceedings are an abuse of the process of the court. 9 Rule 14.28(1) of the Uniform Civil Procedure Rules provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 10 Rule 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under sub-rule (1). 11 In Commonwealth of Australia v Griffiths & Anor [2007] NSWCA 370 Beazley JA with whom Mason P agreed said: "11 The general principles relating to the summary disposal of proceedings are well-known: see General Steel Industries Inc v Commissioner for Railways (NSW) & Ors [1964] HCA 69; (1964) 112 CLR 125 at 129. If it is demonstrated that there is a real question to be tried, the matter is inappropriate for the entry of summary judgment: Dey v Victorian Railway Commissioners [1949] HCA 1; (1949) 78 CLR 62. The tests stated in the authorities as to whether it is appropriate that a case be disposed of by the entry of summary judgment include statements such as that the matter is "so obviously untenable that it cannot possibly succeed"; "manifestly groundless" or "would involve useless expense": see General Steel Industries at 129.

12 The summary disposal of proceedings or part thereof deprives a party of the right to a contested hearing. For that reason it is said that the requirement for establishing that there is no triable issue is demanding: Air Services Australia v Zarb (Court of Appeal, 26 August 1998, unreported). In Webster & Anor v Lampard [1993] HCA 57; (1993) 177 CLR 598, Mason CJ, Deane and Dawson JJ said at 602: "… the issue before the learned Master on the application for summary judgment was not whether [the plaintiffs] would probably succeed in their action against [the defendant]. It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail. The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried." (Citations omitted) 12 This FASC is confined to the amounts owing by the defendant to the DCT for the financial year ending 30 June 1999. The FASC pleads that the amounts owing by the defendant are pursuant to firstly, a Notice of Assessment of Income Tax in respect of the year of income ended 30 June 1999, which issued on 11 September 2001 and was payable by 16 October 2001; and secondly a Running Balance Account established by the DCT commencing on 29 April 2002.

(i) Notices of assessment 13 On 11 September 2001, the DCT issued a Notice of Assessment to the defendant for income tax and additional tax for 1999 due and payable on 16 October 2001. The taxable income was calculated at $500,000. This Notice of Assessment was subject to challenge by the defendant in the Federal Court of Australia. On 22 June 2004, the DCT issued a Notice of Amended Assessment for the year ending 30 June 1999. The amended taxable income was $80,291. The date due for payment was expressed to be "as previously advised". 14 On 14 December 2004, Mr Justice Hill made the following orders: "1. The objection decision be set aside and in lieu thereof the applicant's objection be allowed in part so that the taxable income and tax payable thereon in respect of the relevant year of income be in accordance with the amended assessment issued to the applicant on 22 June 2004. 2. The respondent pay the applicant's costs." 15 Hence, the taxable income and tax payable is in accordance with the amended assessment issued on 22 June 2004. Justice Hill did not decide that the date which the tax was payable was incorrect. It is true to say that his Honour made no finding on this issue. 16 The defendant says the 1999 assessment was the subject of a decision of Justice Hill of the Federal Court of Australia on 14 December 2004 and submitted that because of the orders made by Justice Hill, that assessment is, as described at the time, "dead in the water". 17 The defendant submitted that there are material differences between the 1999 assessments issued on 11 September 2001 and the amended assessment issued on 22 June 2004. At paragraph 8 of the FASC an amount of $58,344.56 in relation to interest for late payment calculated from 16 October 2001 is claimed. The defendant says that this amount cannot be claimed as it is calculated from the due date of the original assessment. According to the defendant, the date from which interest can be claimed is from 21 days after 22 June 2004 ie, 13 July 2004. 18 The DCT has pleaded that by reason of the failure to pay income tax by the due date, the defendant became liable to pay the general interest charge (GIC) pursuant to s 204 of the ITAA36 and Part IIA of the TAA. The GIC was calculated on a compounding daily basis from the end of each of the respective due dates until 8 January 2008 by multiplying the GIC rate for each day (GIC daily rate) by the sum of so much of the following amounts as remained unpaid: a) the income tax for the year ending 30 June 1999; and b) the GIC from previous days (paras [6]-[7] FASC). 19 Section 163B of the ITAA36 provides that if a person does not lodge a return by the due date for lodgement and an assessment is made of the income tax payable by the person for the year of income, the person is liable to pay additional tax, being GIC on an amount calculated pursuant to s 163B(2) for the period starting on the day by which the return was to be furnished and ending on the day before the return is furnished or the day the Commissioner made the assessment, whichever is earlier. 20 Section 204 of the ITAA36 relevantly reads: 204 When tax payable

(1) Subject to the provisions of this Part, the tax payable by a taxpayer other than a full self-assessment taxpayer for a year of income becomes due and payable: … (ii) 21 days after a notice of assessment is given to the taxpayer; or (b) in any other case - 21 days after that due date for lodgment.

(1AA) To avoid doubt, the reference in subparagraph (1)(a)(ii) to an assessment does not include a reference to an amended assessment.

(2) An amount of tax that a taxpayer is liable to pay because the Commissioner amends the taxpayer's assessment is due and payable on the 21st day after the day on which the Commissioner gives the taxpayer notice of the amended assessment.

(2A) An amount of shortfall interest charge that a taxpayer is liable to pay is due and payable on the 21st day after the day on which the Commissioner gives the taxpayer notice of the amount of the charge.

(3) If any of the tax or shortfall interest charge which a person is liable to pay remains unpaid after the time by which the tax or charge is due to be paid, the person is liable to pay the general interest charge on the unpaid amount for each day in the period that: (a) started at the beginning of the day by which the tax or shortfall interest charge was due to be paid; and (b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

(i) the tax or shortfall interest charge; (ii) general interest charge on any of the tax or shortfall interest charge.

Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953 , and the shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act." 21 Such tax as assessed becomes due and payable on the date specified in the Notice of Assessment (s 204(1)), as a debt due to the Commonwealth (s 208(1)), and where unpaid may immediately be sued for and recovered by the Commissioner in any court of competent jurisdiction (ss 207(2), 209(1)). 22 Section 204(3) provides that if any tax remains unpaid after the time by which it is due to be paid the general interest charge (GIC) is payable for late payment. The amended notice stated that the date due for payment "is as previously advised". The earlier notice stipulated that payment was due for payment on 16 October 2001. The solicitor for the DCT explained that the liability to pay interest existed as from the date of the assessment, its calculation of the amount differed because it was based on the sum of $80,291 not $500,000. The amount of interest due and payable depended upon the amount of tax that was payable. The amended assessment calculated interest owing on the taxable amount of $80,291 (not $500,000) due and owing as at 16 October 2001. 23 Section 177(1) of the ITAA provides:

"The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of assessment are correct." 24 By virtue of s 177(1) of the ITAA36 the production of a notice of assessment by the Deputy Commissioner is, except in proceedings on appeal against the assessment, conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct. Upon production of the notices of assessment in recovery proceedings, s 177(1) operates to preclude the tax payer from impugning their veracity in those proceedings - see McAndrew v FCT (1956) 98 CLR 263 at 281; FJ Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360 at 375; 11 ATR 914; DCT v Jonrich Pty Ltd (1986) 17 ATR 880 at 883, 899-900. The veracity of the assessments can only be impugned in proceedings by way of appeal under Part IVC Divisions 4 and 5 of the TAA53.

The defendant has already exercised his rights to challenge the assessment. The order made by Hill J on this occasion was; the objection decision be set aside and in lieu thereof the Applicant's objection be allowed in part so that the taxable income and tax payable thereon in respect of the relevant year of income be in accordance with the amended assessment issued to the Applicant on 22 June 2004. The due date for payment on the Notice of Amended Assessment which was issued on 22 June 2004 was "as previously advised", being 16 October 2001, the date on the preceding notice of assessment. Had the defendant sought to challenge the date that the amount became payable he had the opportunity to put that in issue in the earlier Federal Court proceedings. The legislation is clear a notice of assessment is conclusive evidence except in proceedings under Pt IVC of the TAA which the current proceedings are not. This argument is hopeless.

(ii) The Running Balance Account 25 The DCT submitted that the defendant is liable for certain tax related liabilities, namely BAS amounts as defined in subs 995-1(1) of the ITAA97 (this was formerly known as provisional tax). These liabilities are "primary tax debts" within the meaning of s 8AAZA of the TAA53 and relate to the defendant's liability for PAYG instalments due under Schedule 1, Part 2-10 of the TAA53. 26 Pursuant to 8AAZC of the TAA53, the DCT established and maintained a Running Balance Account (RBA) in respect of the primary tax debts (PAYG instalments) of the defendant. The DCT allocated primary tax debts to the RBA, pursuant to s 8AAZD of the TAA53. Payment made by the defendant to the DCT were allocated to the Running Balance Account pursuant to Division 3 of Part IIB of the TAA53. 27 From time to time the balance on the RBA was in favour of the Commissioner of Taxation, and was accordingly a "Running Balance Account deficit debt" within the meaning of s 8AAZA of the TAA53. 28 Pursuant to s 8AAZF(1) of the TAA53 the GIC is imposed on the balance of the RBA at the end of each day where there is a Running Balance Account deficit debt. In this way the balance of the RBA is altered in the DCT's favour by the addition of the daily GIC payable under s 8AAZF(1) of the TAA53. 29 The defendant accepts that he is obliged to pay the BAS amounts. However, the defendant submitted that the amounts claimed by the DCT are notional PAYG amounts, not based upon the Notice of Amended Assessment for the 1999 tax year and subsequent assessments which have issued in respect of the 2000, 2001, 2002 and 2003 assessments. The defendant submitted that there are anomalies in relation to line nos. 1, 9, 18 and 39 in the Running Balance Account annexed to the FASC.

The Certificate 30 Section 8AAZJ of the TAA53 provides that: "In proceedings for recovery of an RBA deficit debt, a Commissioner's certificate stating any of the following matters in respect of a specified RBA is prima facie evidence of those matters: (a) that no tax debts (other than general interest charge on the RBA deficit debt) were allocated to the RBA after the balance date shown on a specified RBA statement for the RBA; (b) that general interest charge is payable on the RBA deficit debt, as specified in the certificate; (c) that payments and credits were allocated to the RBA, as specified in the certificate; (d) that a specified amount was the RBA deficit debt on the date of the certificate." 31 On 18 April 2008, a certificate under s 8AAZJ was issued. It reads: "Pursuant to section 8AAZJ of the Taxation Administration Act 1953 I hereby certify that: In relation to proceedings 12667 of 2005 in the Supreme Court of NSW at Queens Square, Sydney to recover debts including an RBA deficit debt owed by Peter Epov as specified in the statement of account dated 9 January 2008 which is Schedule A to the Further Amended Statement of Claim filed in these proceedings. 1. No tax debts (other than general interest charge on the RBA deficit debt) were allocated to the RBA after the balance date of 7 January 2008 shown on the statement; 2. No payments and credits have been allocated to the RBA since 7 January 2008; 3. As at 17 April 2008, the RBA deficit debt owed by Peter Epov is $1,410,221.73.

DATED: This 18th day of April 2008" [signed] 32 Even if I accept that the defendant is correct in its assertion that the quantum claimed by the DCT is incorrect, the certificate issued above is prima facie evidence that the defendant owes the sum of $1,410,211.73 as at 17 April 2008. However, the defendant's solicitor submitted that if the matter goes to trial he will obtain expert evidence to show that the calculations are incorrect. However, a certificate has been issued and pursuant to s 8AAZT, it is prima facie evidence that the sum of $1,410,211.73 was due and owing as at 18 April 2008. A pleading that the quantum is incorrect is insufficient to displace the prima facie evidence, something more was needed from the defendant to raise doubt as to the amount contained in the certificate as being incorrect. This defence cannot succeed. 33 The defences raised by the defendant are hopeless. The further amended defence filed 9 May 2008 is struck out. Liberty to the plaintiff to apply for default judgment in the registry. 34 Costs are discretionary. Costs normally follow the event. The defendant is to pay the plaintiff's costs as agreed or assessed.

(1) The further amended defence filed 9 May 2008 is struck out.

(2) The defendant is to pay the plaintiff's costs as agreed or assessed.

(3) Liberty to the plaintiff to apply for default judgment in the registry. **********

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