Deputy Commissioner of Taxation v TDE Nominees Pty Ltd

EX TEMPORE Judgment 1The applicant, TDE Nominees Pty Ltd, has filed a notice of motion that seeks an order that there be a stay of these recovery proceedings pending the outcome of any appeal or review under Part IVC of the Taxation Administration Act 1953 (Cth). 2That is, prior to there being a judgment against it, TDE seeks a stay of these proceedings for the duration of the period in which it may seek to exercise rights of appeal in the Federal Court of Australia. 3In about September 2010, a Deputy Commissioner of Taxation issued notices of amended assessment to TDE for income tax years ended 30 June 2005, 30 June 2006, 30 June 2007, 30 June 1995 (x 2), 30 June 1996 (x 2), 30 June 1997 (x 2), 30 June 1998 (x 2), 30 June 1999 (x 2) and 30 June 2002 (x 2). 4On 8 November 2010, TDE lodged an objection to all notices of assessment issued to it by the Deputy Commissioner. 5On 17 December 2010, the Deputy Commissioner commenced these proceedings by filing a statement of claim. 6On 4 March 2011, an amended statement of claim was filed with leave and a defence was filed on 5 April 2011. 7On 1 August 2011, the Deputy Commissioner issued a notice of objection decision disallowing the objection. 8On 12 August 2011, TDE filed its notice of motion and on 24 August 2011 it filed a notice of appeal against the notice of objection decision in the Federal Court. 9TDE is the trustee of the TDE Superannuation Fund. The Deputy Commissioner's claim seeks recovery of income tax, penalties for tax shortfalls and shortfall interest charges. 10TDE's defence traverses the pleading of the Deputy Commissioner and also pleads positive defences. 11With respect to income tax, TDE alleges that the amount of tax assessed is excessive and that amounts treated as income of TDE have been returned by Kristim Finance Pty Ltd as income and, accordingly, these amounts are not due and payable by TDE. 12With respect to penalties, TDE alleges that the penalty amounts are incorrect by reason of the defect in the assessed income tax. For the same reason it is alleged that the interest charges are excessive. 13Part IVC of the Taxation Administration Act makes provision for challenges to taxation assessments. A taxpayer may seek a review of the notice of objection decision in the Administrative Appeals Tribunal or may appeal against it to the Federal Court. 14As to the Deputy Commissioner's right of recovery s 14ZZR of the Taxation Administration Act provides as follows: "The fact that an 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 appeal were pending." 15Section 14ZZM applies to AAT review applications and is in like terms. 16The Income Tax Assessment Act 1936 (Cth), s 177(1) provides: "The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct." 17So far as administrative penalties are concerned, the Taxation Administration Act , Sch 1, s 298-30 is in the following terms: "(1) The Commissioner must make an assessment of the amount of an administrative penalty under Division 284 (2) An entity that is dissatisfied with such an assessment made about the entity may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953. (3) The production of a notice of such assessment or a copy of it certified by or on behalf of the Commissioner, is conclusive evidence of the making of the assessment and of the particulars in it. (4) Subsection (3) does not apply to proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment." 18The legislative scheme established in relation to tax recovery, as manifested in provisions like s 14ZZR of the Taxation Administration Act reflects a clear policy in favour of the Revenue and against the taxpayer. The Commissioner is placed in a position of special advantage and is, in general, free to pursue recovery of proceedings, despite outstanding appeals and reviews against disallowance of an objection: Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation [2006] VSCA 191; (2006) 64 ATR 316 at [19]; 322, referring to Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 48 ALR 545 at 547. 19The policy of the Income Tax Assessment Act 1936 as reflected in its provisions gives priority to recovery for the Revenue against the determination of the taxpayer's appeal against the assessment. 20The effect of s 177 of the Income Tax Assessment Act 1936 and s 14ZZR of the Taxation Administration Act is to give primacy to the general right of the Deputy Commissioner to have tax paid irrespective of the pendency of an appeal and its merits: Deputy Commissioner of Taxation (NSW) v Mackey (1982) 13 ATR 547 at 550; Deputy Commissioner of Taxation v Ho (1996) 131 FLR 188 at 191; Deputy Commissioner of Taxation v Feldman [2006] NSWSC 378; (2006) 62 ATR 253 at [15]; 256. 21The mere fact that an appeal or review is pending is not sufficient to grant a stay: Trade World at [20]-[21]; 322. 22Liability to pay the assessed tax is not suspended pending the outcome of the review: Deputy Commissioner of Taxation v Alvaro (1990) 21 ATR 726. 23Great weight must be given to the effect of provisions such as s 14ZZM and s 14ZZR of the Taxation Administration Act : Trade World at [20]; 322; Mackey at 287; Feldman at [15]; 256; Ho at 190. 24The Court has jurisdiction to stay recovery proceedings pending a review of or an appeal against an assessment, but the power is discretionary and should be exercised with great caution and only, in my view, in special or exceptional circumstances: Feldman at [15]; 256; Ho at 191; Deputy Commissioner of Taxation v Gergis (1991) 22 ATR 1 at 3; Trade World at [21]; 322. 25The onus is on the applicant to demonstrate sufficient circumstances to warrant the grant of a stay: Ho at 192. The power to grant a stay is exercised sparingly and the onus is on the taxpayer to justify it. 26The effect of s 14ZZM and s 14ZZR of the Taxation Administration Act is said to preclude the Court from considering the prospects of success of any review or appeal by a taxpayer to either the Administrative Appeals Tribunal or the Federal Court: Feldman at [15]; 256, although there are statements to the contrary. 27Hardship to the taxpayer is a relevant matter: Trade World at [21]; 322. If the taxpayer can establish "extreme personal hardship" a stay may be granted: Cywinski v Deputy Commissioner of Taxation [1990] VR 193 at 197; Ho at 193; Deputy Commissioner of Taxation v Enal Pty Ltd (1987) 19 ATR 23 at 24. 28The mere obligation to pay the assessment, however, is not hardship in itself: Cywinski at 197; Ho at 273. The possibility that the taxpayer may be bankrupted is not, of itself, an extreme personal hardship: Ho at 274; Deputy Federal Commissioner of Taxation v Akers 89 ATC 4725 at 4727. 29The extreme personal hardship must be in relation to the taxpayer called on to pay: Mackey at 551. 30In exercising the discretion to grant a stay, whether the Commissioner has abused his or her position, is a relevant matter: Cywinski at 197. Delay by the Commissioner is also a relevant matter: Deputy Commissioner of Taxation (Vic) v Trower (1986) 17 ATR 473 at 478. 31If a taxpayer has been party to a contrivance to avoid his or her liability to tax, the Court should not stay proceedings or execution otherwise than in the most exceptional circumstances: Trade World at [21]; 322; Gergis at 3; Mackey at 287. 32The principles are conveniently summarised by French J in Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 at 139: "It may generally be concluded from the preceding review, that the power of State courts to stay recovery proceedings instituted in them under the ITAA is well established and that courts exercising it have regard to the following propositions: