Deputy Commissioner of Taxation v Doyle

Supreme Court of NSW|2018-11-06|Before: Adamson J

Solicitors: Australian Government Solicitor (Plaintiff) KPMG Law (Defendant) File Number(s): 2017/335664

Introduction

By notice of motion filed on 27 April 2018 Donna Doyle, the defendant, seeks a stay of these proceedings pursuant to s 67 of the Civil Procedure Act 2005 (NSW). The proceedings were commenced on 6 November 2017 by the plaintiff, the Deputy Commissioner of Taxation (the DCT) by filing a statement of claim. The DCT claims an amount in the order of $14 million for income tax, including penalties and interest, arising from notices of assessment issued to Ms Doyle. Ms Doyle seeks a stay pending the DCT's determination of her objections to the assessments. The DCT opposes the stay.

The factual background

Ms Doyle did not lodge income tax returns for the years ending 30 June 2008 to 30 June 2010 as she contended that she was not an Australian tax resident. She lodged tax returns for the years ending 30 June 2007 and 30 June 2011 to 30 June 2016 which the DCT does not accept as accurate. She has not undertaken any paid employment for at least the last 11 years.
On 25 August 2015 Ms Doyle listed her home in Plunkett Road, Mosman (the Property) for sale with Belle Property Mosman.
On 20 July 2016 the DCT began a covert audit of the defendant's taxation affairs.
On 13 September 2016 Ms Doyle entered into a contract to sell the Property for $17.5 million. On 22 September 2016, officers of the Australian Taxation Office (ATO) accessed the premises of Belle Property Mosman to inspect and copy documents relating to the sale of the Property.
On 28 September 2016 the DCT, as part of the audit, applied to the Family Court for leave to access the court files relating to Ms Doyle and her former husband, Alan Doyle. The Registrar of the Family Court notified the DCT that access would only be granted if neither of the parties objected. On 14 October 2016, the DCT was notified that Mr and Ms Doyle objected to his obtaining access to the files.
On 6 January 2017, the sale of the Property settled, as a result of which Ms Doyle received two cheques, one for $1.2 million and the other for $6,282,414.62. Later that day, the cheque for $6,282,414.62 was deposited in an account with the Bank of Queensland (BOQ) in the joint names of Ms Doyle and her father, Mr McInnes (BOQ Joint Account No 1). Three days later, on 9 January 2017, the first cheque for $1.2 million was deposited with the Delphi Bank into an account in Ms Doyle's name (the Doyle Delphi Account).
On 17 January 2017 the DCT formally notified Ms Doyle of the audit into her taxation affairs for the financial years ending 30 June 2007 to 30 June 2016 and required her to attend an interview with the ATO. On 25 January 2017 Ernst & Young (E&Y) notified the DCT that they were authorised to act on Ms Doyle's behalf. Ms Doyle attended an interview with the ATO. In the course of the interview she told the ATO that she could provide certain documents. The DCT requested these documents on 24 February 2017.
After the sale of the Property, Ms Doyle bought another house in Mosman for an amount in the order of $5 million, which is not encumbered. She still had surplus cash from the sale of the Property and, in March 2017, she met with a financial adviser, Ms O'Brien, for the purposes of "generating a stable income stream and economically increasing [her] wealth". Ms O'Brien gave Ms Doyle written advice in which she listed Ms Doyle's "goals and objectives" as including the following: "You would like to increase wealth in a tax effective way. . . . You would like to purchase a better home with views which you estimate will cost approximately $9 million."
Ms O'Brien's advice to Ms Doyle included the following: "As part of our analysis of your situation, we have reviewed how to best structure your assets to meet your goal of generating an income of $300,000 per annum net of tax. We believe that you would benefit from retaining the bulk of your assets through a Family Trust. Therefore, some of our recommendations are addressed to you as a Trustee of a Family Trust. Our recommendations to the Trustee of the Family Trust are to: 1. Appropriate structure - Establish a Family Trust. - Transfer $5.5 million from the Hub account to a Family Trust, except the value of the Magellan Global Fund ($261,028.82) which will be transferred in specie. These transfers can be gifted or lent by you to the Trust We recommend that you consult with your tax accountant and solicitor in relation to the establishment of the Trust."
On 4 April 2017, $4,545,000 was transferred from BOQ Joint Account No 1 to another joint bank account at BOQ which was also held in the names of Ms Doyle and her father (BOQ Joint Account No 2).
On 7 April 2017 the DCT asked E&Y for information in respect of Ms Doyle's bank accounts with HSBC Bank Jersey and other overseas banks.
On 25 May 2017 Larkson Pty Ltd (Larkson) was registered. Ms Doyle was its sole director and shareholder. On 29 May 2017 a discretionary trust, known as the Larkson Family Trust, was created, of which Larkson was the trustee and Ms Doyle the appointor.
On 9 June 2017 Ms Doyle redeemed managed investments in the Platinum International Fund and Bennelong Kardinia Absolute Return Fund of $138,885.68 and $251,575.72, respectively, and deposited the amounts into the Doyle Delphi Account.
On 8 August 2017 $4,186,062.65 was transferred (by cheque) from BOQ Joint Account No. 2 into the Doyle Delphi Account. On 11 August 2017 $3,500,000 was transferred from the Doyle Delphi Account to another Delphi Bank account in the name of Larkson as trustee for (atf) Larkson Family Trust (Larkson Delphi Account).
On 30 August 2017 a total amount of $4.2 million was transferred to the St George Bank into an account in the name of Larkson atf Larkson Family Trust (Larkson St George Account). The total comprised: $700,000 from the Doyle Delphi Account; and $3.5 million from the Larkson Delphi Account.
On 14 September 2017 the DCT issued to Ms Doyle notices of assessment for the years ended 30 June 2008 to 30 June 2016, accompanied by his statement of reasons. At that time the debt payable to the DCT by Ms Doyle totalled $13,994,393.09, including shortfall interest charges and penalties. Garnishee notices were subsequently issued from which the DCT has collected an amount in the order of $1.2 million. I note that Ms Doyle has challenged the DCT's decision to issue these garnishee notices in proceedings in the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 (Cth).
The DCT said, in his statement of reasons, that Ms Doyle had not declared income from overseas sources but that she was obliged to as he considered her to be a resident of Australia for tax purposes. The DCT said that he would make a judgment as to her taxable income pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) and issue a notice of assessment accordingly. All of the assessments issued by the DCT on 14 September 2017 were default assessments pursuant to s 167 of the ITAA 1936.
The DCT's reasons indicated that Ms Doyle had declared a total taxable income of $67,280 for the nine year period. He made adjustments to the figure for income tax owing of $14,607,178, which comprised a tax shortfall amount, penalties and interest. The DCT listed various offshore accounts in Ms Doyle's name with HSBC Jersey and HSBC UK. The reasons set out the movements of funds from offshore accounts to Australian bank accounts, as well as the acquisition of various properties by Ms Doyle in the relevant period.
The reasons also detailed the results of the interview with Ms Doyle referred to above. It set out the audit methodology, which included various steps taken to ascertain Ms Doyle's taxable income. For example, paragraph [150] said: "On 28 October 2016, an Exchange of Information notice was sent to Jersey requesting information related to the bank accounts of you and Alan for the purpose of establishing your correct taxable income, including whether you have funds invested offshore and whether there is a material risk that these funds are generating income that may be assessable to an Australian resident."
The DCT explained in the reasons why he proposed to make a default assessment pursuant to s 167 of the ITAA 1936 and the basis on which his judgment of her taxable income would be made. He said: "306 The Commissioner conducted an analysis of the following in order to determine the correct taxable income which should be attributed to you: i. All available domestic bank accounts held or controlled by you to identify unexplained deposits and payments; ii. Available offshore bank accounts held or controlled by you to identify unexplained deposits and payments iii. All of your incoming and outgoing transactions between Australia and offshore categorised by: a. Payments made from your offshore accounts to Australian third party accounts; 307 This analysis identified a number of unexplained deposits, payments and transfers. A reasonable inference from the facts is that you received these unexplained deposits either directly or indirectly pursuant to your involvement in business activities and receipt of income both in Australia and offshore. This analysis has resulted in a $14,415,166.42 income shortfall attributable to you as an Australian resident and an explanation of the Commissioner's methodology follows."
On 26 September 2017 Ms Doyle entered into a Deed of Gift with Larkson atf the Larkson Family Trust which provided that the abovementioned amounts totalling $4.2 million were transferred from Ms Doyle to Larkson and accepted by Larkson as "absolute unconditional irrevocable gifts".
On 20 October 2017 Larkson lodged ASIC Form 484 entitled "Change to Company Details" which recorded that Mr Innes was appointed a director effective from 20 September 2017 and that, on that date, he had acquired from Ms Doyle 50% of her shareholding in Larkson.
On 13 November 2017, E&Y lodged objections on behalf of Ms Doyle to each of the assessments of income tax. There were five principal bases of objection: 1. The DCT did not apply a cost base in respect of structured products; 2. The DCT did not apply a cost base in respect of shares she held in companies listed on the Australian Securities Exchange (ASX); 3. Ms Doyle was incorrectly assessed in respect of loans from third party banks and transfers between her accounts in respect of those loans; 4. the defendant was incorrectly assessed in respect of refunds received by her; and 5. the defendant was incorrectly assessed in respect of miscellaneous items.
On 27 November 2017, the defendant was served with the statement of claim in these proceedings.
On 20 July 2018 the ATO wrote to Ms Doyle's legal representative and said: "As stated below, we are currently reviewing your RFI response received on 29 June 2018, and note that from our initial review, we have determined that a number of transactions are not taxable to the taxpayer. We will continue to review the remaining transactions and will let you know if we have any further questions. However, in the meantime, we await the outstanding supporting documentation and explanations not yet provided."
The DCT is yet to determine the Ms Doyle's objections but has indicated that they are likely to be finalised by early 2019. He wrote to Ms Doyle's representative on 28 September 2018 and said: "The primary reason for the further time required is that in response to our requests for further information, you have asserted that a significant portion of funds deposited into Donna's bank accounts were received from her former spouse, and should not be assessed to Donna as income. Accordingly, to progress this objection, we need to independently examine the ultimate source of these stated funds. We expect this exercise will take some time due to the large volume of transactions, and as such we will be unable to finalise your client's objection until early next year."
Since its establishment the Larkson Family Trust has advanced $669,926.60 to Ms Doyle by way of loan. During the 2018 income year the trust also made distributions totalling $170,000 to Ms Doyle's son, aged 12, and daughter, aged 9. Ms Doyle's children have lent their distributions to their mother.
On 16 March 2018 Ms Doyle offered an undertaking to the DCT in return for a stay of the proceedings. She undertook, if the DCT agreed to a stay, not to sell or further encumber a number of real properties she owns, including her home in Mosman as well as three properties in Tasmania and a property in Grafton which she rents out to produce what her counsel described as her "passive income". Ms Doyle estimated that the combined value of these properties is $7 million. The DCT rejected the undertaking and made a counter-offer on 24 April 2018 which was in substance that if Ms Doyle consented to the entry of judgment and provided suitable security for her liabilities he would not enforce the judgment pending the determination of the objections.

Ms Doyle's objections

Mr McGovern SC, who appeared with Mr Josifoski for Ms Doyle, accepted that I was not in a position to determine the merits of the objections. However, he contended that I should take into account that there was substance in the matters raised by the objections which could, or would, lead to the DCT issuing reduced assessments following his determination of the objections. He submitted that Ms Doyle's position generally was that, even if she was found to be an Australian tax resident for the years ended 30 June 2008 to 30 June 2010, her tax shortfall would be in the order of $641,455.72 (excluding interest and penalties). He relied on her affidavit evidence as to her sources of income for the relevant period, which was the basis for the tax shortfall figure calculated above.
Mr McGovern took me to the evidence in support of the five objections set out above and contended as follows.

The structured products objection

In respect of (1), he referred to evidence which tended to show that the HSBC 1Y AUD Best Coupon on Global Energy Stocks and the HSBC 1Y AUD Quarterly Digital on FTSE were each acquired on 11 August 2009 for $2.5 million, being a total of $5 million. These structured products were subsequently sold for $5 million. On Ms Doyle's case, there would be, in these circumstances, no tax payable in respect of the sale. Mr McGovern submitted that it was plain that the tax assessed on these transactions was excessive as no tax was payable.
Mr McGovern also drew my attention to the passage from the DCT's reasons for the assessments, which indicated that the DCT did not have sufficient evidence as to the cost base for the purchase of these structured products to allow any amount. Mr McGovern pointed to the email from Keith Swan, Ms Doyle's legal adviser dated 7 March 2018 in which the following "explanation" was given: "The $5m to acquire the two structured products was sourced from Ms Doyle's AUD Capital Account held with HSBC Private Bank, account number xxxxxx. The original source of these funds was the HSBC account held jointly by Mr Alan Doyle and Ms Doyle. An amount of $8,558,556.49 was transferred from the HSBC joint account to Ms Doyle's account. We have attached to this email a copy of the HSBC statement for Ms Doyle's account number xxxxxx showing the crediting of these funds from the HSBC joint account (which was also included in the bundle of documents enclosed with the objection). The funds deposited were rolled into regular 'time deposits' until the $5 million was invested into the two structured products. The funds in the HSBC joint account were sourced from Mr Doyle and/or his investments/business ventures. It is therefore difficult for Ms Doyle to provide further information in this regard. This is coupled by [sic] the fact that a significant amount of time has elapsed."
Mr O'Brien, who appeared on behalf of the DCT, submitted that the picture was not as simple as the one painted by Mr McGovern. He submitted that, although the transaction appeared to be as described above, the DCT had expressly reserved his position in an email dated 28 February 2018, since he had not been told the source of the $5 million which Ms Doyle used to purchase the two structured products. Mr O'Brien informed me that the DCT does not accept that it is sufficient for Ms Doyle to assert that the money paid to her came from her husband or that it is encumbent on the DCT to make enquiries of Mr Doyle, when it is plain that Mr and Mrs Doyle have a continuing financial relationship which has involved Mrs Doyle lending him money. Mr O'Brien referred to evidence that the most recent loan was made on 22 May 2018.

The lack of cost base for the sale of listed shares

Mr McGovern relied on the DCT's reasons for not allowing a cost base for shares Ms Doyle purchased in companies listed on the ASX. In the reasons, the DCT said that no cost base had been allowed for as neither the dates, nor prices, of purchase had been known. Mr McGovern referred to evidence which the plaintiff furnished with her objections which indicated the dates on which the shares were purchased and the price for which each parcel was purchased, thereby establishing a cost base. He submitted that it was inevitable that, when the cost base was factored in, the corresponding tax assessment would be reduced.

Alleged third party loans

Mr McGovern noted that on 28 March 2018 the DCT had provided a list of transactions to Ms Doyle and invited her to review the spreadsheet and explain why each transaction ought not be considered to be assessable income. In response, Ms Doyle identified two amounts which she contended related to loans and were therefore not income: the first, $1.2 million, was said to be a home loan from Delphi Bank in February 2016; and the second, $794,800 was said to be a subset of the $1.2 million. Mr McGovern submitted that if the amount of $1.2 million were characterised, as he submitted it would be, as a loan there would be a corresponding reduction in the tax assessment, which was based on its being income.

Alleged refunds of amounts

Mr McGovern contended that the DCT had assessed Ms Doyle on amounts which were actually refunds paid to her, either because funds had been paid to the wrong account (in the case of the proceeds of the sale of the furniture from the Property), or because they constituted true refunds, as in the case of payments from the ATO or from Medicare. Mr McGovern submitted that as these amounts had been treated by the DCT as assessable income, it was inevitable that when proper allowance was made for their true character, the assessments would be reduced accordingly.

Miscellaneous transfers

Mr McGovern also relied on particular amounts identified by Ms Doyle as not amounting to income because they comprised, for example, a payment from her then boyfriend or transfers for charitable donations for her son's participation in a fund-raiser. Mr McGovern submitted that the DCT had treated these amounts as income and that, once their true character had been identified (as it was when Ms Doyle responded on 29 June 2018 to the DCT's request), the probability was that the assessment would be reduced accordingly.

The DCT's submissions on the above objections

Mr O'Brien submitted that when a default assessment is issued pursuant to s 167 of the ITAA 1936, a taxpayer cannot merely identify errors in the assessment to produce a better result for the taxpayer, as he contended Ms Doyle had attempted to do in the present case. He submitted that s 167 empowered the DCT to form an opinion about taxable income without necessarily undertaking the conventional process undertaken for an assessment pursuant to s 166. He contended that, in empowering the DCT to "make an assessment of the amount upon which in his or her judgment income tax ought be levied" and providing that "that amount shall be the taxable income of that person", Parliament had expressly contemplated that there would be errors or some degree of inexactitude in the process: see R v Deputy Commissioner of Taxation (WA); ex parte Briggs (1987) 14 FCR 249 at 270 (Shepherd J).

Hardship

Mr McGovern contended that Ms Doyle would suffer substantial hardship if a stay were not granted. He submitted that the entry of judgment would affect her capacity to borrow money and her general creditworthiness, which would affect her capacity to buy and develop real estate. He also submitted that, if she were bankrupted, she would not only suffer personal hardship of having to sell all her properties, including her home in Mosman where she lives with her children, but she would also lose her standing to press her objections in the Administrative Appeals Tribunal (AAT) or the Federal Court. Mr McGovern contended that this would amount to extreme hardship. He also referred to the personal disruption that this would cause her school-aged children who have only recently moved from the Property, the sale of which settled on 6 January 2017.
Mr McGovern referred to an internal ATO email dated 19 September 2017 in which one ATO officer wrote to another: "Mrs Donna Doyle has dissipated the majority of her cash in early September. She was aware of the ATO audit. I believe this is an act of bankruptcy and we should seek a sequestration order immediately. Once we have more information we will do a referral to you."
He submitted that this email showed that the DCT was determined to bankrupt Ms Doyle. He also submitted that this Court ought not surrender its jurisdiction to grant a stay to a Federal Court judge in the bankruptcy proceedings and that it was no answer to her application that an application could also be made at a later stage in the Federal Court.
Mr O'Brien submitted that there would be no particular hardship associated with the entry of judgment. He contended that Ms Doyle appeared to be able to obtain funds by way of loans from the Larkson Trust and from her children, who had substantial funds to make available to their mother because of distributions which had been made to them by the Larkson Trust. He submitted that while the garnishee orders in place would prevent Larkson making distributions to her as beneficiary, she had recently obtained loan monies from that source. Mr O'Brien argued that the only time any hardship to Ms Doyle was likely to approach the requisite threshold would be were the DCT to seek a sequestration order on the basis of the presentation of a creditor's petition. He submitted that any hardship caused by the DCT's obtaining judgment, issuing a bankruptcy notice on the basis of the judgment debt, presenting a creditor's petition on the basis of an act of bankruptcy constituted by non-compliance with a bankruptcy notice would not be sufficient to warrant a stay. Indeed, he submitted that the DCT was, in effect, entitled and obliged to move to present a creditor's petition once the other steps had been taken in order to protect his position under s 120 of the Bankruptcy Act to have any transfers other than for full value set aside.

Assessments of taxable income and default assessments

Section 166 of the ITAA 1936 provides: "Assessment From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of: (a) the amount of the taxable income (or that there is no taxable income) of any taxpayer; and (b) the amount of the tax payable thereon (or that no tax is payable); and (c) the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds)."
Section 167 of the ITAA 1936 provides: "Default assessment If: (a) any person makes default in furnishing a return; or (b) the Commissioner is not satisfied with the return furnished by any person; or (c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income; the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166."

Taxation objections, reviews and appeals

Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) provides for taxation objections, reviews and appeals.
A taxpayer may require the DCT to make an objection decision by giving notice to the DCT pursuant to s 14ZYA of the TAA. The effect of such a notice is to require the DCT to determine the objections or be deemed, if no determination was made within 60 days, to have made an adverse decision, which would entitle the taxpayer to apply to the AAT for review.
On an application for review of a relevant decision in the AAT, the applicant has the burden of proving, if the tax decision is an assessment, both that the assessment is excessive or otherwise incorrect and what the assessment should have been: s 14ZZK(b)(i). In any other case, the applicant has the burden of proving that the taxation decision should not have been made or should have been made differently: s 14ZZK(b)(ii). The same burden applies for an appeal to the Federal Court against an objection decision: s 14ZZO.
The fact that a review (s 14ZZM) or an appeal (s 14ZZR) is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review or appeal were pending.

Voidable transactions

Section 120 of the Bankruptcy Act 1966 (Cth) provides that particular transfers at undervalue are void as against the trustee in bankruptcy in certain circumstances if the transfer took place within a particular period of the commencement of the bankruptcy. Pursuant to s 115 of the Bankruptcy Act the bankruptcy is taken to have commenced at the time of commission of the earliest act of bankruptcy committed within the period of 6 months immediately before the creditor's petition was presented.

General principles

It was common ground that this Court has power to stay its own proceedings in a case such as the present.
Although Ms Doyle's objections have not yet been determined by the DCT, it was also common ground that the relevant principles and factors to be taken into account were as summarised by the Full Federal Court in Southgate Investment Funds Limited v Deputy Commissioner of Taxation (2013) 211 FCR 274; [2013] FCAFC 10 (Southgate) at [77] (McKerracher, Jagot and Griffiths JJ) as follows: "[T]he discretion to grant a stay of the execution of a judgment debt based upon a taxation assessment involves 'an open-ended discretion' and that it 'is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so'. Bearing in mind those salutary words and without wishing to be prescriptive or exhaustive, we consider that it is possible, however, to extract from the case law the following general principles which guide the exercise of that discretion: (a) the power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances; (b) great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a Pt IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of Pt IVC proceedings; (c) the merits of pending Pt IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation; (d) in cases where a judge is unable to form even a tentative view of the strength of Pt IVC proceedings, it is unlikely that the judge's discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer's prospects of success in having the assessment overturned; (e) it is too narrow a view of the discretion to grant a stay of proceedings or execution merely because Pt IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the Court; (f) that is not to say, however, that the outcome of Pt IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high; (g) in cases where the Court considers that it is in a position to assess the merits of pending Pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case; (h) similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point; (i) due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that: (i) the mere obligation to pay income tax of itself does not impose extreme hardship; and (ii) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant Pt IVC proceedings; (j) irrespective of the merits of pending Pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and (k) other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of Pt IVC proceedings."
It was accepted, in accordance with these principles, that the power to grant a stay ought be exercised sparingly, having regard to the clear legislative policy in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that objections made by taxpayers have not yet been determined: Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation [2016] VSCA 191; (2006) 64 ATR 316 at [20].
The relevant principles relevant to objections to default assessments were articulated in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3 and summarised by the Full Federal Court in Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30. For present purposes, the relevant principles are: 1. In proceedings under Pt IVC of the TAA, the onus is on the taxpayer to prove in respect of an assessment issued under s 167 of ITAA 1936 that it is excessive; the onus is not on the DCT to show that the assessments were correctly made. 2. Absent agreement between the DCT and the taxpayer to confine the issues for determination in such proceedings, the DCT is entitled to rely upon any deficiency in the taxpayer's proof to uphold the assessment. 3. Because the process of assessment under s 167 of ITAA 1936 is different from that undertaken pursuant to s 166 of ITAA 1936, the taxpayer cannot, in the former case, discharge the burden of proving that an assessment is excessive, merely by showing error by the DCT in making the assessment.
The Full Court in Gashi v Federal Commissioner of Taxation also referred to Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 at 230 where Burchett J identified a number of steps which would be involved in a taxpayer discharging the onus of proving that an assessment under s 167 of the ITAA 1936 is excessive: identifying sources of income; explaining a taxpayer's activities; and explaining the source or sources of a taxpayer's assets. Their Honours said at [65]: "Put another way, if the disclosed 'actual' taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive."

Consideration

Ms Doyle has sworn an affidavit as to what she considers her income for the relevant years to have been. However, her financial affairs have been relatively complex and have involved overseas bank accounts, some of which were held jointly with her husband. Although their divorce was finalised on 13 October 2015, Ms and Mr Doyle continue to engage in financial transactions together, including loans. The DCT's position is that Ms Doyle has failed to provide sufficient financial information to establish the source of her considerable wealth. In these circumstances, although Mr McGovern has pointed to areas where the assumptions made by the DCT in making the default assessments may well be revised in light of information provided by Ms Doyle subsequently (and an acceptance by the ATO that from its initial review a number of transactions are not taxable), this is not sufficient to persuade me that the assessments will necessarily, or even probably, be reduced, or by how much.
It was common ground that I could not determine the merits of the objections for the purposes of the stay application: Southgate at [51]-[56]. I accept that the objections referred to above appear to be matters of substance and that they are made bona fide. However, by reason of the nature of a default assessment, I am not satisfied that I am in a position to ascertain the prospects of Ms Doyle discharging the onus that lies on her to establish that the default assessments are excessive.
It was not suggested that the DCT had abused his position, although Mr McGovern accused the DCT of not acting in accordance with the ITAA 1936 in that he appears to have treated the whole of proceeds of sale as income without deducting the amount of the cost base. I note that it appears that the DCT did not have information as to the relevant cost base, or the dates of purchase of these particular assets, at the time the assessments were made, although these details were later supplied by Ms Doyle. There is no suggestion that the DCT does not accept the fundamental proposition that a taxpayer is not to be assessed on gross income: Martin v Federal Commissioner of Taxation (1993) 27 ATR 282 at 291 (Davies J).
I do not regard the conduct of the DCT as warranting the grant of a stay: cf. Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119. The course taken by the DCT was open to him and expressly contemplated by s 167 of the ITAA 1936. Nor do I regard the passage of time it has taken, and will take, the DCT to form a judgment on the objections as undue or indicating any lack of expedition. Mr McGovern accepted that there had been no wrongdoing or undue delay on the part of the DCT and intimated that Ms Doyle did not want to "upset the apple cart" which I took to mean that Ms Doyle did not want to require the DCT to make an objection decision by serving a notice under s 14ZYA of the TAA: cf. Deputy Commissioner of Taxation v Warrick (No 2) [2004] FCA 918; (2004) 56 ATR 371.
As referred to above, Ms Doyle's financial affairs are complex. It has taken time for information, where it has been forthcoming, to be provided to the DCT. The evidence established that Ms Doyle's advisers have sought extensions of time to provide information to the DCT on her behalf. For example, a request made by the DCT on 28 March 2018 was not responded to until 29 June 2018. A supplementary response was provided on 13 July 2018. Extensions of time were sought to provide the information requested. There are also significant areas where information has not been provided, except in the most general terms. For example, on several occasions, Ms Doyle has purported to explain deposits in her bank account by saying merely that she received them from her then husband.
I turn to the question of hardship. The stay is sought for the period until the DCT determines Ms Doyle's objections. This determination is expected early next year. Accordingly, the stay may only be for a period of three months or so. The only thing that is likely to happen in that period is for judgment to be entered in favour of the DCT. Mr McGovern accepted that Ms Doyle has no defence to the statement of claim. He indicated that the reason no defence had been filed, notwithstanding that on three occasions her representatives had consented to directions for its filing, was, in effect, that she had none. Mr McGovern accepted that Ms Doyle "wouldn't have a defence based on the statutory construct that the debt is treated as being unarguably due and payable at this level of the process". It is to be expected that the DCT will enter default judgment, or move for summary judgment in the near future.
I do not regard the entry of judgment of itself as creating any particular hardship for Ms Doyle. While it may affect her creditworthiness were she to approach a bank or other financial institution for a loan, she is unlikely to do so as the narrative set out above shows that she has been able to have recourse to the monies in the Larkson Family Trust by way of loans. Thus, while Ms Doyle wishes to have funds to develop and renovate properties, she would appear to have an available source in the Larkson Family Trust.
Once judgment is entered, it would appear that the DCT may issue a bankruptcy notice. If Ms Doyle fails to comply with it, the DCT will be in a position to file a creditor's petition. Once the creditor's petition is filed, the DCT's position under s 120 is protected and the bankruptcy, if one ensues, will be taken to have commenced. At that point, if Ms Doyle does not accept the DCT's determination of her objections and wishes to seek review in the AAT, she will have better grounds on which to apply for a stay: Southgate Investment Funds Limited v Deputy Commissioner of Taxation at [59(d)]; Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation at [24]; Seller v Deputy Commissioner of Taxation [2011] FCA 865 at [34]; (2011) 84 ATR 80. One such ground would be that, if a sequestration order were made, her trustee in bankruptcy would have standing to challenge the DCT's determination of her objections: McCallum v Commissioner of Taxation (1997) 75 FCR 458.
Ms Doyle has raised various matters of a personal nature as reasons why a stay ought be ordered, including the need to provide security and stability for her two children. Any disruption to the living circumstances of Ms Doyle and her children would only arise were the family home to be sold and a move to another dwelling required. This step is unlikely to happen (unless Ms Doyle seeks to move to a better dwelling as was her intention when she saw Ms O'Brien) before the presentation of a creditor's petition. At that point, if the objections have not yet been resolved or reviewed by the AAT or the Federal Court, a further application for a stay could be made at that time.
Mr McGovern contended that the DCT was determined to bankrupt Ms Doyle and that this Court ought not "surrender" its jurisdiction to grant a stay to the Federal Court by refusing to grant a stay on the grounds that one could be granted later by that court. I do not regard this as the proper analysis. This Court, in regarding the application for a stay as premature, is not surrendering its jurisdiction. Rather, it is exercising its jurisdiction by refusing the stay. Further, I do not regard the email sent on 19 September 2017 as more than an in-house expression of opinion by an officer of the ATO. The DCT plainly did not act on the officer's opinion, 14 months having passed since it was expressed. The DCT has an obligation to recover unpaid tax or to proceed against the taxpayer in a way that determines that the tax is irrecoverable. Bankruptcy proceedings are one way of concluding the matter in cases such as the present where, if the assessments stand, the taxpayer does not, apparently, have the wherewithal to pay them.
I am not persuaded that it is, in the circumstances of the present case, appropriate to grant a stay.

Costs

Mr McGovern indicated that an offer had been made which might make it inappropriate for costs to follow the event. Accordingly, I will make orders which preserve the parties' right to make an application for a different costs order.

Orders

For the reasons give above, I make the following orders: 1. Refuse the defendant's application for a stay of the proceedings. 2. Dismiss the defendant's notice of motion filed on 27 April 2018. 3. Subject to (4), order the defendant to pay the plaintiff's costs of the motion. 4. If either party seeks a different order from (3) above, direct the party to make an application in writing to my Associate, together with any evidence and submissions relied upon, within 7 days of the date of this order. In that event the other party is to reply with evidence and submissions within 7 days, with the intention that the matter be determined on the papers.

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: 09 November 2018

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