The plaintiff, the Deputy Commissioner of Taxation claims income tax debts of over $3 million alleged to be owed by the defendant in respect of amended assessments issued for the financial years ended 30 June 2009 to 30 June 2012 inclusive. I will refer to these financial years hereafter as FY 2009, FY 2010 and so on. The Commissioner also claims in respect of an original assessment issued for FY 2014. I will refer to the amended assessments and the original assessment for FY 2014 collectively as "the assessments".
The debt now claimed includes, for each of FY 2009 to FY 2012 inclusive, primary tax and Medicare levy; interest on the shortfall between the amount of tax initially assessed by the Commissioner and the greater amount payable under the amended assessments; general interest charge ("GIC") and shortfall penalties. Primary tax and a penalty for non-lodgement of return claimed for FY 2014.
The defendant resists the Deputy Commissioner's claim on grounds pleaded in a defence filed 19 December 2016. Most of the defence is concerned with denying or not admitting paragraphs of the statement of claim in which the assessments are pleaded and the assessed and/or accrued amounts of shortfall interest, GIC and penalty are set out. At para 20 of the defence, the defendant pleads that he did not receive in the relevant years the amounts of income upon which he has been re-assessed and/or assessed and that his receipts of funds which the Commissioner of Taxation has treated as income were in fact repayments of loans on capital account, not assessable to tax as income.
Paragraph 20 of the defence is misconceived. The amounts of tax assessed are payable as debts due to the Commonwealth under provisions which will be noted shortly and they cannot be contested in a proceeding in this Court for their recovery. The assessments are, in this Court, conclusive evidence that the amounts which they show as due to be paid are correct: 5350 - (10(1) of Sch 1 of the Taxation Administration Act 1953 ("TAA53") and item 2 in the table under that section.
The defendant had open to him the statutory right to object to any assessment or amended assessment. He exercised that right with respect to all amended assessments relevant to the present debt action. Upon the Commissioner disallowing the objections, as he did in respect of the relevant financial years, the defendant had a choice of appeal to the Administrative Appeals Tribunal, ("AAT"), or on a more narrow basis to the Federal Court of Australia: s 175A of the Income Tax Assessment Act 1936 ("ITAA36") and Pt IVC of the TAA53.
The defendant has lodged appeals to the AAT and they are at an interlocutory stage. There is no jurisdiction in this Court to go behind the assessments to examine their merits according to competing contentions regarding how much income was derived in the subject years. The scheme of Commonwealth income tax legislation is clear. Assessed amounts are recoverable by the Deputy Commissioner as debts due to the Commonwealth.
The exercise of appeal rights in respect of disallowed objection does not provide any ground for resisting payment under the assessments. If the defendant should ultimately be successful in his appeals and if the assessments should be set aside or replaced with assessments in lesser amounts, he will become entitled to a refund.
The plaintiff has established the facts pleaded in the statement of claim by an affidavit of Mr Handle Vassallo, sworn 23 June 2017, to which are annexed the assessments and other notifications issued by the Commissioner of Taxation. Conclusive effect is given to these assessments and notifications by statutory provisions.
First, with respect to primary income tax and Medicare levy, each of the assessments is proved by Mr Vassollo's affidavit and it is deposed that they were served by prepaid post in accordance with the service requirements under s 174 of the ITAA36. The evidence of issue of the assessments and of service is not challenged. The assessments show that against the amount of primary income tax and Medicare levy assessed there have been taken into account all credits up to the date of the assessment. There were total credits in respect of FY 2009 of $101,245.46, which includes credited amounts of GIC.
Secondly, the amended assessments show the amount of shortfall interest charge which has been levied on the difference between the primary tax reassessed and the amounts initially assessed. The interest on that difference has been calculated over the period from the due date of the original assessment up to the date of notice of the amended assessment, in accordance with the legislation providing for such shortfall interest charge. This shortfall interest is assessable pursuant to Div 280 of Sch 1 to TAA 53 and ss 5-10 of the Income Tax Assessment Act 1997 ("ITAA97"). The amounts shown on the assessments are recoverable as debts due to the Commonwealth pursuant to s 250-10 and s 255-5 of Sch 1 to TAA53.
Thirdly, the affidavit of Mr Vassallo and a supplementary affidavit of Mr Vasilee Zarogiannis, sworn 31 January 2018, provide a calculation of GIC from the due dates for each amount assessed. GIC has been calculated up to 1 February 2018 in accordance with the PE IIA of the TAA53. It is payable pursuant to ss 5-15 of the ITAA97. The affidavit and supplementary affidavit prove the dates upon which each assessed amount fell due, which is the commencement date for the calculation of GIC. In accordance with the legislation the GIC has been calculated on the entire amount of each assessment. That is on the combined amount of primary tax and Medicare levy plus the shortfall interest charge.
Fourthly, the affidavits establish that the defendant has become liable for administrative penalties pursuant to s 284.75 of Sch 1 to the TAA53, for failure to declare his assessable income fully for FY 2009 to FY 2012 and for failure to lodge on time his return for FY 2014. Mr Vassallo has deposed to the assessment by the Commissioner of these administrative penalties. The calculation has been done in accordance with s 298.30 and Div 284 Sch 1 of the TAA53. Mr Vassallo has deposed to the issue of the notices of assessment of the administrative penalties and to the due dates for payment of those penalties. By reason of the defendant's failure to pay them on the due dates they are also liable to bear GIC by the operation of s 298-27 of Sch 1 to TAA53. GIC has accordingly been calculated from the due date for payment of each penalty up to 1 February 2018.
All of these calculations as deposed to in two affidavits relied upon by the Commissioner have been effected through its computerised central accounting system. The Commissioner has operated different systems at different times. One system known as the ATO Integrated System and subsequently a system known as Integrated Core Processing System have been used. Annexed to Mr Zarogiannis' affidavit is a fifteen-page printout of the entries derived from interrogating these systems. This report shows that the correct amounts of principal (that is, primary tax and Medicare levy and administrative penalties) have been entered into the system so that the calculations of GIC which the system has delivered may be relied upon.
At the end of the print out of the running account report annexed to Mr Zarogiannis' affidavit is a summary of the account. It shows a balance due of $3,185,656.40. The report provides a breakdown of this amount into "primary tax", payments (or credits) against primary tax, an amount described as "GIC compounding" and a final amount described as "miscellaneous debit".
Based upon the entries in the accounting system of figures which are supported by the notices of assessment, the plaintiff's counsel has submitted to the Court a schedule which breaks down the total debt. This divides up the total somewhat differently to how it appears at the end of Mr Zarogiannis' report of the running account generated by the plaintiff's computer system. The Commissioner's schedule, as submitted by counsel, contains five columns of figures. There is a total at the end of each column and all of those totals are added up to a grand total which corresponds with the grand total at the end of the report from the running account.
In the course of submissions to the Court, the reconciliation of the totals at the end of the five columns on counsel's schedule to the breakdown at the end of the running account report has been explained satisfactorily. I am comfortably satisfied that the total balance figure of $3,185,656.40 is substantiated by the running account which Mr Zarogiannis has produced.
In the course of argument, Mr Hunt, solicitor representing the defendant, pointed out some very minor discrepancies between the amount of primary tax shown on the first page on each of the amended assessments as compared to the amounts of primary tax referred to on the third page of each assessment (which is a page containing explanations to the taxpayer). The discrepancies range between two cents and sixty-one cents. Those discrepancies are of no consequence because it is the amount on the first page of the assessment which is notified to the taxpayer as the amount to which he is assessed which matters for statutory purposes. Further, it is that figure on the first page of each assessment which has been entered into the running account. Accordingly, the subsequent calculations of interest made by the accounting system, is a calculation that has been made upon the right number. The discrepancy to which Mr Hunt points does not cause me to have any doubt regarding the correctness of the Commissioner's figures.
The defendant relied upon two affidavits. The first was sworn by Mr Addinall on 6 October 2017. He deposed that he and his firm, Kells Solicitors, do not have carriage of the appeals which Mr Elia is conducting in the Administrative Appeals Tribunal. He annexed to his affidavit a letter from Samaris Lawyers Pty Limited dated 4 October 2017. That firm of solicitors does have carriage of the taxation appeals. The letter from Samaris Lawyers Pty Limited sets out the state of those proceedings as at the date of the letter. There is no evidence before the Court of any update about the state of those proceedings. I read the affidavit subject to an objection of relevance from counsel for the Commissioner. In view of what I have said earlier about the liability of the taxpayer on the assessed amounts, by force of statute, Mr Addinall's affidavit is irrelevant to the proceedings before the Court. Whatever may be the state of the appeals in the Administrative Appeals Tribunal it cannot make any difference to the defendant's liability to pay the tax to which he has been assessed.
Mr Hunt also sought to read the affidavit of the defendant himself, sworn 12 October 2017. I disallowed most of that affidavit because it contained depositions to a number of detailed facts concerning financial dealings of Mr Elia and concerning the character of his receipts. The affidavit is concerned with the merits of the appeals against the Commissioner's disallowance of his objections to assessments. For reasons already given, that is all entirely irrelevant to the Commissioner's entitlement to judgment for the debt which he has assessed and which he now claims. I will append to these reasons a copy of the Commissioner's schedule breaking down the amount of the total debt.
[2]
Orders
For these reasons:
1. I give judgment for the plaintiff against the defendant in the sum of $3,185,656.14.
2. I order the defendant to pay the plaintiff's costs.
[3]
Commissioner's Schedule (69.8 KB, pdf)
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: 06 February 2018