Deputy Commissioner of Taxation v Fayad

The hearing

1. At the commencement of the hearing, Ms Fayad's solicitor, Mr Pope, informed the court that the notice of motion seeking a stay of the proceedings was abandoned. Despite this, he sought to rely upon an affidavit of Lucinta Gerges affirmed on 3 September 2024 in support of an application that I would defer delivering judgment in this matter for 21 days.
2. The DCT opposed that course and objected to the affidavit. Mr Pope made some general submissions in support of adjourning the matter to investigate Ms Gerges' affidavit. He referred to a speech given by Rares J in which his Honour observed that the complexity of tax matters often necessitated a reliance upon tax agents and their "access to portals". Mr Pope submitted that tax was an opaque area and described the defendant as a "lovely woman" with "10 grandchildren".
3. For reasons I provide below at [46]-[53], I refused leave to file the affidavit in court and rely on it.
4. It was otherwise accepted by Ms Fayad that she had no defence to the Commissioner's claim. It was candidly accepted on her behalf that the proceedings in the AAT were not progressing quickly because Ms Fayad was non-compliant with the timetable.
5. The DCT relied upon the following affidavits: the affidavit of Timothy Wright affirmed on 11 March 2024 with Exhibit "TW-1", the affidavits of Dennis Olthof sworn on 30 May 2024 and 27 August 2024, and the affidavit of Matthew McCaw affirmed on 2 September 2024.
6. A Joint Chronology filed on 27 August 2024 and a Joint Memorandum of Facts and Issues filed 27 August 2024 were also relied upon. Detailed written submissions were also filed on behalf of the DCT setting out the relevant statutory regime and principles.
7. Although three affidavits of Ms Fayad affirmed on 9 April 2024, 19 April 2024 and 17 June 2024 were included in the Court Book, they were not ultimately read in court as they were all directed at the stay application which was abandoned.
8. In the absence of the background material in Ms Fayad's affidavits, there was limited factual background provided to the court. I accept that this reflects the nature of the statutory scheme and the fact that the court is not required to make any assessment of Ms Fayad's tax liability.

Background facts

1. The limited background facts were set out in the plaintiff's four affidavits.
2. Timothy Wright is employed in the Lodge and Pay section of the Australian Tax Office ("ATO"). He deposed that Ms Fayad was assessed for income tax for the financial years of 2006, 2010, 2011, 2012, 2013, 2014 and 2015. She failed to pay the amount due on or before each of the due dates. Mr Wright accessed the ATO computer systems and itemised the amounts owing by Ms Fayad as at the commencement of these proceedings. He exhibited to his affidavit a certificate under s 350-10(3) of Schedule 1 to the TAA 1953 in respect of Ms Fayad's liability for income tax and GIC specifying the amount owed.
3. Mr Wright noted that by failing to provide returns for the years ending 30 June 2014 and 2015 Ms Fayad became liable to pay administrative penalties. She then failed to pay the Failure to Lodge penalties on or before the due dates. This meant that she also became liable to pay GIC. He exhibited to his affidavit a certificate under s 350-10(3) of Schedule 1 to the TAA 1953 in respect of Ms Fayad's liability for administrative penalties specifying the amount owed.
4. Mr Wright explained that Ms Fayad was liable to pay shortfall interest charge ("SIC") in respect of the additional amounts of income tax she was liable to pay as a result of amended assessments for the years ending 30 June 2006, 2010, 2011, and 2013. She failed to pay SIC on or before the due dates. This meant that she became liable for GIC. Mr Wright exhibited to his affidavit a certificate under s 350-10(3) of Schedule 1 to the TAA 1953 in respect of Ms Fayad's liability for SIC and GIC specifying the amount owed.
5. Mr Wright also explained that Ms Fayad was assessed for administrative penalties for the same four years (2006, 2010, 2011 and 2013). She was given written notice and failed to pay the due amounts. This meant she became liable for GIC. Again, he exhibited to his affidavit a certificate under s 350-10(3) of Schedule 1 to the TAA 1953 in respect of Ms Fayad's liability for administrative penalties and GIC specifying the amount owed.
6. Mr Wright also deposed to Ms Fayad's liability for Division 293 tax and exhibited to his affidavit a certificate under s 350-10(3) of Schedule 1 to the TAA 1953 in respect of her liability for Division 293 tax and GIC specifying the amount owed.
7. Mr Olthof's first affidavit of 30 May 2024 referred to the AAT proceedings and noted that that review does not relate to a number of the tax related liabilities the subject of this claim. He also noted that as at 18 April 2024 the Commissioner was compliant with all orders made in the AAT proceedings.
8. Mr Olthof's second affidavit of 27 August 2024 deposed to the fact that at the mention of this matter before the Registrar on 18 June 2024, at which time it was listed for hearing, the parties were required to file and serve affidavits of readiness for hearing by 27 August 2024. It was noted that immediately prior to the hearing the DCT would file an affidavit updating the amount of the claim to include any payments and/or credits received and further GIC. Consistent with that indication, on 2 September 2024, an affidavit of Matthew McCaw affirmed that day was filed. Mr McCaw works in the Frontline Compliance section of the ATO. In his affidavit he provided updated amounts in relation to the five bases for liability set out in Mr Wright's affidavit by annexing updated certificates under s 350-10(3) of Schedule 1 to the TAA. I have included these updated amounts in the summary at [1] and [2] above and in the orders I have made.

Relevant law

1. The Plaintiff's written submissions provided a detailed summary of both the statutory scheme and the relevant principles derived from the leading cases in this area. The following summary is largely derived from those submissions.
2. 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).
3. 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.
4. Section 170 of the ITAA 1936 empowers the Commissioner to amend assessments within certain prescribed time limits. An amended assessment is an 'assessment' for the purposes of the ITAA 1936: s 173 of the ITAA 1936.
5. Section 174(1) of the ITAA 1936 provides that the Commissioner must serve a notice of assessment as soon as convenient after an assessment is made. Service of the notice of assessment on the taxpayer fixes the amount of tax payable and brings the process of assessment to an end.
6. Section 175 of the ITAA 1936 states that "[t]he validity of any assessment shall not be affected by reason that any of the provisions of [the ITAA 1936] have not been complied with." It has been held that the effect of s 175 is to enlarge the field within which the Commissioner may validly act.
7. Under s 175A(1) of the ITAA 1936 a taxpayer who is dissatisfied with an assessment may lodge an objection against it in the manner set out in Part IVC of the TAA.
8. As for the GIC claim, s 5-5 of the ITAA 1997 specifies when income tax is due and payable and s 5-15 of the ITAA 1997 and Part IIA of the TAA provides that GIC accrues on any unpaid amount.
9. As for the penalties, s 298-30(1) of Schedule 1 to the TAA provides that: The Commissioner must make an assessment of the amount of an administrative penalty under Division 284 or section 288-115.
10. Pursuant to s 286-75(1) of Schedule 1 to the TAA a taxpayer is liable for a "Failure to Lodge" administrative penalty ("FTL Penalty") where the taxpayer is required under a taxation law to give a return, notice, statement or other document to the Commissioner in the approved form by a particular day; and the taxpayer does not give the return, notice, statement or other document to the Commissioner in the approved form by that day. The amount of the FTL Penalty imposed is prescribed by s 286-80 of Schedule 1 to the TAA.
11. The Commissioner is required to give written notice to the defendant of the defendant's liability for administrative penalties: s 298-10 of Schedule 1 to the TAA. The administrative penalties become due on the date specified in the notices. In accordance with s 298-15 of Schedule 1 to the TAA, that date must be at least 14 days after the notice was given to the taxpayer. By operation of s 298-25 of Schedule 1 to the TAA, GIC accrues on unpaid administrative penalties from the date on which they were due and payable.
12. Finally, Division 293 of the ITAA 1997 reduced the concessional tax treatment of superannuation contributions for high income individuals. Section 155-5(1) of Schedule 1 to the TAA provides that the Commissioner may at any time make an assessment of an assessable amount. The term "assessable amount" is defined in s 155-5(2) of Schedule 1 to the TAA to include an amount of Division 293 tax payable for an income year in relation to an individual's taxable contributions for the income year is an assessable amount. The term "assessment" is defined in s 995-1 of the ITAA 1997 and means, among other things, the ascertainment of an "assessable amount". Section 155-85 of Schedule 1 to the TAA provides that: The validity of any assessment of an *assessable amount is not affected by non-compliance with the provisions of this Act or of any other *taxation law.
13. Section 293-65 of the ITAA 1997 specifies when Division 293 tax is due and payable. Where Division 293 that is due and payable remains unpaid, GIC accrues on the unpaid amount: s 293-75 of the ITAA 1997 and Part IIA of the TAA.
14. A taxpayer who is dissatisfied with an assessment of Division 293 tax may object against it in the manner set out in Part IVC of the TAA: s 155-90 of Schedule 1 to the TAA.

Prima facie evidence provisions

1. Section 350-10(1) of Schedule 1 to the TAA provides that a notice of assessment is conclusive evidence that the assessment was properly made and, except in proceedings under Part IVC of the TAA, that the amounts and particulars of the assessment are correct. Section 350-10(1) Item 2 states: The production of a notice of assessment under a taxation law is conclusive evidence that: (a) the assessment was properly made; and (b) except in proceedings under Part IVC of [the TAA] on a review or appeal relating to the assessment - the amounts and the particulars of the assessment are correct.
2. Section 350-10(1) replaces s 177(1) of the 1936 Act. The scope of the former s 177(1) was considered by the High Court in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146; [2008] HCA 32. The plurality (Gummow, Hayne, Heydon and Crennan JJ) observed the following:(citations omitted): "[64] The evident policy referred to in the terms of s 177(1) is the facilitation of proceedings for the recovery of tax which are instituted by the Commissioner under s 209 of the Act in a court of competent jurisdiction. Corresponding provision is made elsewhere in the Act for the recovery of other amounts. The action for recovery is facilitated by the 'conclusive evidence' provision in s 177(1). … [67] … The requirements of the Act which govern the making of an assessment do not produce any inconsistency with the provision that a notice of assessment constitutes conclusive evidence in recovery proceedings. That is because s 175 provides that the validity of any assessment shall not be affected by reason of the fact that any of the provisions of the Act have not been complied with…Having regard to s 175, there is no inconsistency, apparent or otherwise, between the requirements of the Act relating to the making of an assessment and s 177(1), and no reconciliation is called for. Indeed, as I have said, s 177(1) does no more than give evidentiary effect to s 175."
3. As Payne JA (with whom McColl and Meagher JJA agreed) observed in Anglo American Investments Pty Ltd v Deputy Commissioner of Taxation [2017] NSWCA 17 at [44], where a notice of assessment is admitted in evidence in recovery proceedings, it will conclusively be established that the assessment was "properly made" and "except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment… the amounts and particulars of the assessment… are correct".
4. The production of an evidentiary certificate signed by the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner that states that, from the time specified in the certificate, an amount is payable under a taxation law to the Commissioner, is prima facie evidence that the amount is payable from that time and that the particulars stated in the certificate are correct : see ss 350-10(3) and 350-12 of Schedule 1 to the TAA.
5. Pursuant to s 280-110(3) of Schedule 1 to the TAA, the production of notices stating the amount of the SIC that the defendant is liable for is also prima facie evidence of the matters stated in those notices.
6. The prima facie evidentiary provisions are not conclusive of liability for the amount claimed. Nor do they alter the legal burden of proof which rests on the DCT. But if a taxpayer does not go into evidence a prima facie evidentiary certificate may be determinative.

Appeals to the AAT

1. Part IVC of the TAA provides for taxation objections, reviews and appeals.
2. Section 14ZZK(b) of the TAA provides that on an application for review of a relevant decision in the AAT, the applicant has the burden of proving the assessment is excessive or otherwise incorrect. The same burden applies for an appeal to the Federal Court against an objection decision: s 14ZZO.
3. Pursuant to ss 14ZZM and 14ZZR of the TAA, the fact that a review or appeal 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.
4. The full effect of the conclusive evidence provision in s 350-10(1) of Schedule 1 to the TAA, and the authorities that have considered it, is that the defendant in these proceedings does not have any means, legal or factual, to resist judgment: Lamont v Deputy Commissioner of Taxation [2019] NSWCA 221 at [11].

Reasons for excluding the affidavit of Lucinta Gerges

1. At the hearing of the DCT's claim, I refused leave for Ms Fayad to file the affidavit of Ms Gerges sworn on 3 September 2024 in court and rely on it so that judgment could be delayed for 21 days whilst the claim was investigated further. My reasons for taking that approach are as follows.
2. The affidavit of Ms Gerges was a hearsay account of Ms Fayad's tax position for the years ended 30 June 2011, 30 June 2012, 30 June 2014 and 30 June 2015. It was provided to Ms Fayad's solicitor by Ms Fayad's tax accountant. It sets out what Ms Fayad's tax accountant, Rajeeb Panta, reports as being Ms Fayad's tax liability. Mr Panta's conclusion is that Ms Fayad's tax liabilities for the years 2011, 2012, 2014 and 2015 have been paid in full and that her "total unpaid liability in respect to penalties and Division 293 Tax Notice Assessment is $4050.90".
3. It was submitted by Mr Pope on behalf of Ms Fayad that he had only just learned of this material and felt obliged to investigate it. I heard submissions from the parties and then refused leave to file the affidavit in court for the following reasons.
4. First, the parties were directed to file any affidavit evidence by 28 May and 11 June 2024 respectively. The parties were also directed to file readiness affidavits prior to the hearing. The defendant was ordered to file submissions 21 days before the hearing date (on or before 12 August 2024). No submissions were ever filed. When I caused my associate to contact the defendant's solicitor the day prior to the hearing, she was advised that there would be short oral submissions made on behalf of Ms Fayad instead. It was not foreshadowed that there would be any late evidence.
5. Secondly, the lateness of the affidavit meant that the DCT had not had time to obtain instructions in relation to its contents. An adjournment would be required in order for that to take place.
6. Thirdly, given the principles I have referred to above as to the evidentiary effect of the certificates, there was nothing in the affidavit that amounted to a defence to the claim.
7. Fourthly, the hearsay assertion by the defendant's tax agent that instead of owing over $24 million the defendant only owed about $4,000 was, on its face, very difficult to accept. That is particularly so when regard is had to the fact that nearly half of the amount owed is derived from penalties.
8. Finally, it was accepted by Mr Pope that the matters raised in the affidavit could be relied upon in the AAT proceedings in any event.

Consideration

1. Once the notice of motion seeking a stay of the hearing was abandoned and the affidavit of Ms Girgis was not admitted into evidence, the defendant did not raise any opposition to the orders being made beyond the general submissions about the complexity of tax law I have referred to above. The only identifiable defence pleaded in this matter was the existence of the AAT proceedings.
2. The applicable principles governing an application for a stay on that basis were 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). Having regard to those principles, it is understandable why the stay application was not pressed.
3. I have set out the relevant statutory scheme and the principles derived from the decisions which have considered them. I have proceeded on the basis that there is no jurisdiction in this Court to go behind the assessments to examine the merits of any dispute as to the amount owed. Assessed amounts are recoverable by the Deputy Commissioner as debts due to the Commonwealth.
4. I have examined the notices of assessment in Exhibit "TW-1" and the evidentiary certificates issued under s 350-10(3) of Schedule 1 to the TAA exhibited to Mr Wright's affidavit and the updated evidentiary certificates annexed to Mr McCaw's affidavit. I accept that the assessments are to be given conclusive evidentiary force by operation of the relevant principles and those evidentiary certificates.
5. I have considered the terms of s 280-100(2) of Schedule 1 to the TAA, and subject to subs (3), Ms Fayad is liable for SIC for each day in the period beginning at the start of the day on which income tax under the first assessment for the relevant year was due to be paid (or would have been due to be paid if there had been any) and ending at the end of the day before the day on which the Commissioner gave Ms Fayad notice of the amended assessment. The amount and rate of SIC is calculated under s 280-105 of Schedule 1 to the TAA.
6. In respect of the Division 284 Administrative Penalties, the DCT relies on the notices of assessment in Exhibit "TW-1". Again, those assessments are to be given conclusive evidentiary force along with the evidentiary certificates.
7. Pursuant to s 161(1) of the ITAA 1936, the defendant was required to give to the Commissioner returns of income tax for the years ended 30 June 2014 and 30 June 2015 within the period specified by the Commissioner for that purpose in notices published in the Gazette. She failed to do so and became liable to FTL Penalties. I have had regard to the evidentiary certificates. The Commissioner gave written notice to Ms Fayad of her liability to pay FTL Penalties and they were due on the date specified in the notice. By operation of s 298-25 of Schedule 1 to the TAA, she was liable to pay GIC calculated in accordance with Part IIA of the TAA because the FTL Penalties were not paid on time.
8. As to the amount of the order, the figures claimed were as at 2 September 2024. The DCT accepted that figure as being the amount claimed at the conclusion of the hearing and did not seek any adjustment of those figures to reflect the date of the judgment.
9. As for the abandonment of the defendant's motion, given that this did not occur until the day of the hearing, I see no reason to depart from the usual rule that costs follow the event.
10. Having considered the assessments and evidentiary certificates and the other material relied upon by the DCT, and in the absence of, ultimately, any opposition by the defendant I make the following orders.

Orders 1. The defendant's notice of motion is dismissed. 2. The defendant is to pay the plaintiff's costs of the motion on the ordinary basis. 3. The defendant is to pay to the plaintiff the amount of $24,405,424.43. 4. The defendant is to pay the plaintiff's costs of the proceedings on the ordinary basis.

Amendments 06 September 2024 - coversheet correction 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 September 2024