Taxes and duties - Income tax and related legislation - Collection and recovery of tax - Proceedings for recovery - Where appeal pending - Stay of proceedings or execution - Court's discretion - Relevant considerations.

Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 followed.

Judgment Number: [2010] TASSC 67

DEPUTY COMMISSIONER OF TAXATION v CAROL SUSAN WOODS

1 On 14 October 2010 I determined that summary judgment would be given in favour of the Deputy Commissioner of Taxation for $1,652,392.81 adjusted for statutory general interest charges accruing between 1 October and the date of the judgment (see Deputy Commissioner of Taxation v Woods [2010] TASSC 46). I said, however, that I would defer giving judgment until the defendant had an opportunity to pursue her foreshadowed application for a stay of enforcement. The application was heard on 13 December 2010.

2 The purpose of the application for the stay is to protect the defendant from bankruptcy pending the determination of a review of the taxation assessments, the subject of the proceedings, by the Administrative Appeals Tribunal and pending the determination of an appeal to be lodged in this court against the judgment.

3 The defendant has filed a short affidavit in support of her application. In it she states that she is without assets of any significant value. She says that she is a director of a company which holds assets as the trustee of a discretionary family trust of which she is a potential beneficiary. She says that the company is funding her legal representation, but that she will have to repay the money to the company. She has said that her sole source of income consists of an annual director's fee of $20,000 paid by the company.

4 The most notable feature of the defendant's affidavit is its lack of specificity. The value of the trust's assets is not stated. The names of the primary beneficiaries are not given. The trust deed has not been produced. No details of any benefits which she receives from the trust have been provided. For example, it is not stated whether her residence is property of the trust.

5 Counsel for the defendant submitted, firstly, that a stay ought to be granted because the issue of the assessments, the subject of the proceedings, was an abuse of office by the Deputy Commissioner. Secondly, counsel submitted that if a stay is not granted the likely outcome is that the Deputy Commissioner will commence bankruptcy proceedings. He submitted that bankruptcy will cause extreme personal hardship to the defendant because:

● she will suffer the serious social stigma of bankruptcy;

● the fact of the bankruptcy will remain on her record forever;

● she will lose her directorship of the company which administers the family trust and consequently will lose her annual director's fee of $20,000;

● her ability to engage in commercial activities will be restricted; and

● the trustee company will cease funding the review pending before the Administrative Appeals Tribunal.

6 It was common ground that the principles to be applied are as set out in Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 at 139. After reviewing a number of authorities French J said:

"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:

1 The policy of the ITAA as reflected in its provisions gives priority to recovery of the revenue against the determination of the taxpayer's appeal against his assessment.

2 The power to grant a stay is therefore exercised sparingly and the onus is on the taxpayer to justify it.

3 The merits of the taxpayer's appeal constitute a factor to be taken into account in the exercise of the discretion (although some Judges have expressed different views on this point).

4 Irrespective of the legal merits of the appeal a stay will not usually be granted where the taxpayer is party to a contrivance to avoid his liability to payment of the tax.

5 A stay may be granted in a case of abuse of office by the Commissioner or extreme personal hardship to the taxpayer called on to pay.

6 The mere imposition of the obligation to pay does not constitute hardship.

7 The existence of a request for reference of an objection for review where appeal is a factor relevant to the exercise of the discretion."

7 The matters raised by counsel for the defendant appear at point 5.

8 The reference by French J to abuse of office by the Commissioner is taken from the judgment in Federal Commissioner of Taxation v Mackey (1982) 64 FLR 432. There Hutley JA referred to "the comparatively rare case where the Commissioner abuses his position, for example by assessing and endeavouring to collect tax in defiance of a decision of the High Court or other superior court precisely in point". Counsel for the defendant did not specify in his submissions the nature of the abuse nor the evidence demonstrating its existence. I infer that he relies upon the submission made at the hearing of the summary judgment application that there is an arguable case that the assessment had issued as a result of maladministration. In determining that application I concluded that there was no possibility of the maladministration claim being made out. If I had thought otherwise I would not have decided to give judgment. It follows that I reject the contention that this is a case of abuse of office.

9 As to the second contention, I accept that bankruptcy proceedings are probable if a stay is not ordered. The defendant has said in her affidavit that she has no assets of significant value. The Deputy Commissioner was asked by the solicitor for the defendant to indicate whether it was the intention to execute on the judgment before the outcome of the Administrative Appeal Tribunal proceeding is known. An undertaking not to enforce was not forthcoming.

10 There is the possibility that the Federal Court might not order sequestration because of the pending review. The existence of this possibility, however, is not such as to justify withholding a stay of enforcement. As was pointed out in Deputy Commissioner of Taxation v Denlay (2010) QCA 217 at par48, although the Supreme Court's power to stay should be exercised sparingly or with great caution, it is not a power to be surrendered to a court exercising federal jurisdiction.

11 I must consider whether bankruptcy would cause extreme personal hardship to the defendant as asserted by her counsel.

12 There is no evidence to suggest that in bankruptcy the defendant would lose her home or assets of special significance to her or that there will be any material change to her lifestyle. I was not referred to any authority where it has been held that the stigma of bankruptcy amounts to extreme personal hardship. There is no evidence that the defendant is engaged in business. There is no evidence that she has or is dependent upon an unblemished business reputation or has a good general reputation. In short, there is no evidence as to how the stigma of bankruptcy might impact on her.

13 It was submitted that bankruptcy would be likely to put an end to the defendant's legal representation as she would no longer be able to borrow money from the trustee company to pay the costs. Although the defendant refers to a liability to repay the money which the trustee company spends on legal services it appears that the only means which the defendant would have of satisfying such a liability would be if she succeeds in her review and is awarded costs. She has said that she has no assets of significant value. The defendant is a director of the trustee company, but she has not said in her affidavit that the continuing funding of her legal representation will cease upon bankruptcy. There is no evidence that the trust will continue to fund the defendant's legal representation even if there is no bankruptcy. There was no submission that the defendant would be incapable of conducting the review herself without legal representation. I am not persuaded that without a stay of execution the defendant will lose her capacity to demonstrate that the assessments were wrong.

14 The defendant has failed to persuade me that bankruptcy will result in extreme personal hardship.

15 The policy of the legislation is that proceedings to recover tax are not to be put on hold pending the determination of an objection, review or appeal (see Taxation Administration Act 1953 (Cth), ss14ZZM and 14ZZR). As explained in Federal Commissioner of Taxation v Mackey (supra) by Moffitt P at 435, an exercise of the discretion which heavily or merely depends upon whether the taxpayer has an arguable case and where the balance of convenience lies is to deprive legislative policy behind the reservation of recovery rights of the force warranted. There will not be an order for a stay.

16 Counsel for the defendant advised that he was content that the Court should act on the Deputy Commissioner's certification as to the amount owing on the assessments at the time judgment is entered. These are the orders:

(1) Judgment is to be entered, on the date the Deputy Commissioner of Taxation gives to the Court a certificate or certificates stating the current liability under the assessments the subject of the proceedings, for the amount certified plus costs to be taxed.

(2) The application for a stay of enforcement is dismissed.