Deputy Commissioner of Taxation v Harding

Evidence at the Final Hearing

1. Ms Ensor of counsel appeared for the Plaintiff at the hearing of this matter. As mentioned earlier, Mr Raffell appeared for the Defendant.
2. The Plaintiff relied upon the following affidavits in support of its claim: 1. affidavit of Saurabh Sharma affirmed 4 October 2016; 2. further affidavit of Saurabh Sharma affirmed on 6 March 2017 (filed at 1.14 pm that day); 3. further affidavit of Saurabh Sharma affirmed 6 March 2017 (filed at 3.05 pm that day); 4. further affidavit of Saurabh Sharma affirmed 5 June 2017.
3. In addition, the Plaintiff relied upon a calculation sheet with respect to general interest charges as at 5 June 2017 (Exhibit B).
4. A Statement of Agreed Facts was also tendered (Exhibit A, Tab 10).
5. The Defendant relied upon his own affidavits sworn on 20 February 2017 and 7 June 2017.
6. Neither Mr Sharma nor the Defendant were cross-examined on their affidavits. There was no oral evidence adduced at the hearing.

The Statutory Scheme for Income Tax, Interest Charges, Administrative Penalties and Recovery

1. The statutory scheme giving rise to the Plaintiff's claim is not in dispute and is summarised below.
2. The Commissioner must make an assessment of a taxpayer's taxable income and the tax payable and serve a written notice of assessment on the taxpayer: s.174 Income Tax Assessment Act 1936 (Cth) ("ITA Act"). Income tax is then due and payable generally 21 days after the date on which the taxpayer is required to lodge their return with the Commissioner, or the Commissioner furnishes a notice of assessment. Where the Commissioner amends an assessment, any extra tax resulting is again due and payable 21 days after the date on which the Commissioner gives the taxpayer notice of the amended assessment.
3. A taxpayer is liable to pay a shortfall interest charge ("SIC") on an additional amount of income tax that they are liable to pay because the Commissioner amends their assessment for an income year: Sch.1, s.280-100(1) Taxation Administration Act 1953 (Cth) ("TA Act"). A taxpayer is liable to pay SIC for the period from when the income tax should have been paid to the day preceding the issue of the notice of an amended assessment. The Commissioner must give written notice to a taxpayer of their liability to pay SIC. Such a notice is prima facie evidence of the matters stated in it: Sch.1, s.280-110(3) TA Act. SIC becomes due for payment 21 days after the notice is given to the taxpayer.
4. Where income tax or SIC is not paid by the relevant due date, the taxpayer becomes liable to pay a general interest charge ("GIC") daily on the unpaid amount of the income tax or SIC and any unpaid GIC: s.5-15 ITA Act.
5. A taxpayer is liable to pay an administrative penalty, inter alia, if: 1. they make a statement to the Commissioner which is false or misleading in a material particular (whether because of things in it or omitted from it): Sch.1, s.284-75(1) TA Act; or 2. they are required under a taxation law to give a return, notice, statement or other document (including an income tax return) to the Commissioner in an approved form by a particular day and do not do so: Sch.1, s.286-75(1) TA Act.
6. The Commissioner must make an assessment of the amount of the penalty: Sch.1, s.298-30(1) TA Act. The Commissioner must give written notice to a taxpayer of their liability to pay the penalty and of the reasons why the taxpayer is liable to pay the penalty. The penalty becomes due for payment on the day specified in a notice, which must be at least 14 days after the notice is given to the taxpayer.
7. If any of the penalty remains unpaid after it is due, the taxpayer is liable to pay GIC daily on the unpaid amount of the penalty and any unpaid GIC: Sch.1, s.298-25 TA Act.
8. Each of income tax, SIC, GIC and administrative penalties are tax-related liabilities: Sch.1, s.250-10(2) TA Act. These liabilities may be recovered by the Deputy Commissioner as a debt due to the Commonwealth and payable to the Commissioner: s.3AA(2), Sch.1, ss.255-1 and 255-5 TA Act.
9. In these proceedings, a statement or averment about a matter in the Plaintiff's complaint, claim or declaration is prima facie evidence of the matter: Sch.1, s.255-50 TA Act. Further, the production of a notice of assessment is conclusive evidence of its due making and, other than on an appeal against an assessment, that the amount and all the particulars of the assessment are correct: Sch.1, s.350-10(1) TA Act; Anglo American Investments Pty Limited v Deputy Commissioner of Taxation [2017] NSWCA 17 at [40]ff.
10. Accordingly, the taxpayer is precluded from challenging the accuracy of the assessments in recovery proceedings: Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at 166-167 [64]-[67]; [2008] HCA 32; Bell Group NV (In Liq) v Western Australia (2016) 103 ATR 178 at 191 [54]; [2016] HCA 21. The accuracy of assessments can only be challenged in proceedings by way of appeal under Part IVC of the TA Act. A pending appeal of this nature does not affect the obligation to pay tax or the Commissioner's ability to bring recovery proceedings: ss.14ZZM, 14ZZR TA Act.

The Plaintiff's Claim Against the Defendant

1. The statutory scheme as summarised at [13]-[21] above is not in dispute and provides the legislative framework for the Plaintiff's claim against the Defendant.
2. I mentioned earlier in this judgment (at [7]-[10]), the affidavits relied upon by the parties at the hearing. I mentioned, as well, the Agreed Statement of Facts. It is not necessary to reproduce the contents of that Statement in this judgment. It is sufficient to observe that it provides a clear foundation for the great bulk of the Plaintiff's claim against the Defendant.
3. The amount specified in paragraphs 1-3 of the Statement of Agreed Facts remain unpaid: affidavit of Saurabh Sharma affirmed 5 June 2017, paragraphs 8-9.
4. On 5 June 2017, the Commissioner certified that the Defendant has a tax-related liability owing to the Commissioner in the sum of $1,081,921.27: affidavit of Saurabh Sharma affirmed 5 June 2017, paragraphs 10-11, Annexure B. That certificate is prima facie evidence of the Defendant's liability: Sch.1, s.255.45(1) TA Act.

Amounts in Dispute

1. At the commencement of the hearing on 8 June 2017, the only matters which the Defendant appeared to raise in opposition to the Plaintiff's claim were: 1. whether an amount of $9,549.20 paid by the Defendant on 7 September 2015 had been accounted for: affidavit of the Defendant sworn 20 February 2017, paragraphs 3-4; and 2. whether an agreed reduction in administrative penalties of $31,979.50 had been accounted for: affidavit of the Defendant sworn 20 February 2017, paragraphs 5-6.
2. It was submitted for the Plaintiff that both of these amounts have been fully credited to the Defendant and are not sought to be recovered in these proceedings.
3. After Ms Ensor had taken the Court to various parts of the documentary evidence, Mr Raffell indicated that the Defendant did not press the argument with respect to the agreed reduction in administrative penalties of $31,979.50 (at 26) (T23-24, 8 June 2017).
4. This left as the sole issue in dispute the debate concerning the sum of $9,549.20 (at 26). Submissions Concerning the $9,549.20 Payment
5. The evidence concerning this sum indicates that the Defendant did pay this amount to the Plaintiff. As at September 2015, the Commissioner had established two accounts for the Defendant: 1. an income tax-related liability account, being an account in relation to income tax, SIC, administrative shortfall penalties, administrative penalties and GIC for the income years 30 June 2008 to 30 June 2013 - this relates to the Defendant's indebtedness to the Plaintiff to which the present claim relates; and 2. a running balance account in relation to the Defendant's liabilities under the Business Activity Statement provisions, specifically liabilities in respect to income tax instalments under the PAYG instalment provisions - this relates to a separate area of indebtedness on the part of the Defendant to the Plaintiff.
6. Each of these accounts had separate numbers. The income tax-related liability account had a payment reference number ("PRN") ending "… 421". The running balance account had a PRN ending "… 559".
7. On 7 September 2015, the Defendant paid $9,549.20, through Bendigo e-banking. The transfer record stated, as the "BPAY Reference Account", the PRN ending "… 559". The same document stated, as the "Payment Description", the PRN ending "… 421". The Court was informed that the "BPAY Reference/Account" field is transmitted with the payment, with the "Payment Description" field being a private field which is not transmitted, but is retained as a personal reference field to allow the sender to note the purpose of the payment.
8. In accordance with the Defendant's apparent transmitted instructions (which referred to the PRN ending "… 559"), the Commissioner allocated the sum of $9,549.20 to reduce indebtedness on the running balance account. The documents which reveal this state of affairs appear at pages 32-37 of Mr Sharma's affidavit affirmed on 5 June 2017 and page 5 of the Defendant's affidavit sworn on 20 February 2017.
9. It was the evidence of the Defendant that, as at September 2015, he was unaware that the Australian Taxation Office ("ATO") maintained separate tax accounts for him. In his affidavit of 7 June 2017, the Defendant said that, when he made the payment of $9,549.20 on 7 September 2015, he intended to pay the sum to reduce his indebtedness for the PRN ending "… 421" and not some other liability which he had which was affected by the second account which the ATO had opened up.
10. These documents suggest that the Defendant intended to pay the sum of $9,549.20 to reduce his indebtedness under his income tax account, but that the transmitted PRN saw the sum being used to reduce his indebtedness on another account, being the running balance account.
11. Ms Ensor pointed to the fact that an ATO notice dated 20 July 2015 had informed the Defendant that there were two PRNs which related to him (see pages 36-37 of the affidavit of Saurabh Sharma affirmed 5 June 2017). I infer that it was this document which led the Defendant to insert both numbers on the Bendigo e-banking transfer dated 7 September 2015.
12. Mr Raffell submitted that the ATO should have realised that the payment that was being made on 7 September 2015 related to the Defendant's income tax liability, so that the amount should have been credited for that purpose and not to the running balance account. Mr Raffell submitted that the Plaintiff should have applied its own policy concerning payment and credit allocation under the Law Administration Practice Statement PS LA 2011/20 ("PS LA 2011/20 ") (affidavit of Mr Sharma affirmed 5 June 2017, pages 22-31). He referred to the general policy contained in paragraph 5 of PS LA 2011/20 which relevantly provides (page 23): "Payments Payments representing the full amount of a taxpayer's obligations are usually applied to the taxpayer's accounts in accordance with the taxpayer's directions (for example by using a payment reference number). However, in appropriate circumstances you can choose to set aside a taxpayer's directions and allocate the payment differently, using the discretion in section 8AAZLE of the TAA. Common examples of when we would do this are: * Where a payment does not finalise the outstanding tax debts or is less than the full amount of an obligation * Where legislation requires that we allocate certain payments with specific components of a debt (for example superannuation guarantee charge (SGC)) * Where an account reconciliation is required to isolate certain component debts (for example, in the case of director penalty liabilities, Unless there is a valid reason not to do so (see above for examples), our policy for allocating a payment for which no direction is received, is: * all payments will be allocated to the earliest (oldest) debts within an account * except where the payment relates to a 'Listed Payment'. Listed payments have specific rules in relation to their allocation. These are outlined in Attachment A. The order of allocation for the accounts themselves (where the payment is not a listed payment) is outlined separately at Attachment C. If payments are allocated differently to a taxpayer's direction, you should advise the taxpayer as soon as possible. Where there are no unpaid tax debts to apply a payment against, before any amount is refunded to a taxpayer it will be allocated: * firstly to any family tax benefit debts, provided the refund relates to income tax then to: * any child support debts as notified by the Child Support Agency then to: * debts in relation to Social Security, Family Assistance or Student Assistance where a garnishee has been received from Centrelink."
13. Mr Raffell submitted that the Court should approach this matter upon the basis that the Defendant has paid this sum with respect to his income tax liability and that it was irrelevant that the sum had been applied by the Plaintiff towards a different form of indebtedness of the Defendant to the ATO. He submitted that the present claim by the Plaintiff related to the Defendant's income tax liability only and not any alleged liability with respect to the running balance account.
14. Ms Ensor submitted that the Plaintiff had received the sum from the Defendant and had allocated it in accordance with the PRN which had been communicated to the Plaintiff by the Defendant. The fact that this account number related to the running balance account (and not the income tax-related liability account) meant that the ATO effectively followed its own policy by following the taxpayer's direction as he used a PRN for the running balance account.
15. Ms Ensor submitted that the Plaintiff was entitled to rely upon the certificate and averment provisions in support of the claim. It was argued that the present proceedings were not an appropriate forum for a type of indirect challenge based upon the suggested failure of the ATO to apply this sum to one account instead of another under the relevant policy. It was submitted that the sum in dispute should be included in the Plaintiff's claim in this case. Decision
16. It is necessary to keep in mind that the Defendant had two separate lines of liability to the Plaintiff as at September 2015, one related to his income tax-related liability and the other related to a running balance account, although it may not have been clear to the Defendant that the ATO was dividing his liability in that way. That said, it was clear to the Defendant that there were two different PRNs and he referred to both of them on his 7 September 2015 transfer document. I accept that the Defendant thought that, in making this payment, he was directing the money towards his income tax-related liability. However, he inserted a number which was transmitted to the ATO which was the relevant number for his running balance account. The payment was allocated by the ATO in accordance with that direction.
17. The present claim by the Plaintiff is concerned solely with the Defendant's income tax-related liability. The certificate and other documentary evidence has prima facie evidentiary effect for the purpose of these proceedings. That evidence indicates that the Plaintiff has not allocated the relevant sum to reduce the Defendant's income tax-related liability which is the subject matter of these proceedings.
18. It is relevant that the Defendant had a separate line of liability to the Plaintiff. The relevant sum was received on 7 September 2015 and allocated to reduce the Defendant's liability under that separate channel. The Defendant has received the benefit of that liability being reduced by that amount in his dealings with the Plaintiff for a different purpose.
19. If the Defendant's argument was to be accepted in this case, he would receive a type of windfall where he would not be required to pay this sum to the Plaintiff under the present claim. In practical terms, if this argument was accepted, then the Defendant would effectively obtain a double reduction of his level of indebtedness by the making of one payment in September 2015, which happened to have been directed to one channel of his liability and not the other.
20. I do not consider that the Defendant's position is assisted by reference to PS LA 2011/20. On the face of it, the ATO applied the sum paid on 7 September 2015 in accordance with the Defendant's direction by reference to the PRN which he provided. It has not been suggested that the Defendant did not have liability in at least that sum under the running balance account.
21. There is force in the Plaintiff's submission that if the Defendant wished to challenge, on administrative law grounds, the approach of the Plaintiff in allocating the payment to one account and not the other, then the appropriate pathway was by way of proceedings seeking administrative law review.
22. I am not persuaded in this case that the Defendant has demonstrated a viable defence to the Plaintiff's claim for payment of the sum of $9,549.20 as part of the judgment debt in these proceedings.

Conclusion

1. Accordingly, I am satisfied that the Plaintiff is entitled to judgment in the full amount of the claim brought against the Defendant.
2. As noted earlier, the Court was informed that judgment was sought in the amount of $1,081,921.27 together with orders for further GIC as detailed in paragraph 25 of the Amended Statement of Claim.
3. I will allow the parties an opportunity to bring in Short Minutes to reflect the quantum of the judgment having regard to my finding that the Plaintiff is entitled to the full claim made.
4. The Plaintiff has succeeded entirely in the claim against the Defendant. It is appropriate that costs should follow the event. The Short Minutes of Order should include an order that the Defendant pay the Plaintiff's costs of the proceedings.

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: 15 June 2017