Hyder v Commissioner of Taxation

[2024] FCA 464

Federal Court of Australia|2024-05-07|Before: Mr P, Thawley J

View original source

At a glance

Source facts

Court

Federal Court of Australia

Decision date

2024-05-07

Before

Mr P, Thawley J

Source

Original judgment source is linked above.

Judgment (17 paragraphs)

[1]

The application be allowed.
The decision of the respondent made on 14 November 2023 be set aside.
The applicant's request for remission of GIC under s 8AAG of the Taxation Administration Act 1953 (Cth) be remitted to the respondent for reconsideration by a different decision-maker in accordance with law.
Unless either party applies for a different order as to costs within 7 days of these orders, the respondent pay the applicant's costs.
If either party applies for a different order as to costs as envisaged by Order 4, the application must: (a) be made by email to the Associate to Thawley J; (b) specify the order sought; and (c) be accompanied by a submission of not more than 2 pages explaining the basis the order sought is appropriate. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

BACKGROUND 1 In early 2015, Mr Elton Matthew Hyder IV took steps to establish the Screaming Eagle Partnership (SEP) - see: [11.1] of the Commissioner's Position Paper dated 6 May 2020 (PP). The SEP was a general law partnership, referred to as a "controlled partnership": PP at [11.1]. The partners were Screaming Eagle Pty Ltd (SEPL) and Mr Hyder: PP at [23]. SEPL was entitled to 99% of the profits and Mr Hyder was entitled to 1% of the profits. Mr Hyder was the "controlling partner", meaning he was in control of the partnership in accordance with the partnership deed. 2 The SEP was established on the advice of Mr Stuart Dreves, an accountant, and with advice from Mr Lister Harrison QC, a barrister: PP at [398]. Mr Hyder was advised that the partnership would need to undertake some form of commercial activity, because a partnership had to conduct a business: PP at [108.18]. An equipment finance business was selected and the SEP entered into one arrangement with a related party: PP at [396]. Under that arrangement, the SEP purchased equipment already held by the related entity and leased the equipment back to the entity. 3 The structure involved the incorporation of Screaming Eagle Co Pty Ltd (SEC) to hold all of the shares in SEPL and the establishment of the Screaming Eagle Family Trust, with SEC as trustee. 4 The SEP, and associated structure, was conceived at a time when Mr Hyder was expecting substantial profits to arise in his property development businesses. Mr Hyder undertook property development projects through special purpose unit trusts, with profits going to EMH IV Pty Ltd as trustee for the EMH IV Family Trust: PP at [55]. It was envisaged that these profits would then be distributed to the SEP. 5 Mr Hyder was told by his advisers that one of the benefits of the structure was that the SEP could make loans to him, without him needing to pay interest and without the provisions of Division 7A of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) being attracted: PP at [108.14]. 6 In substance, Mr Hyder was advised that he could access the whole of the profits of the SEP with SEPL only needing to pay 30% tax in respect of its 99% share of profits and without him needing to pay any top-up tax or make any interest payments in relation to his use of the funds. 7 The EMH IV Family Trust appointed the bulk of its income for the 2015 income year ($18,040,507) to the SEP: PP at [89]. An amount of $13,304,054.61 was paid to the SEP by the EMH IV Family Trust in 2015, leaving the SEP with an unpaid present entitlement (UPE) of $4,701,501: PP at [87.1]. In the 2016 year, an amount of $1,357,000 was paid to the SEP by the EMH IV Family Trust: PP at [13.1]. 8 Mr Hyder withdrew a total of $13,250,000 from the SEP's bank account in the 2015 income year: PP at [11.3]. The first withdrawal was in the amount of $9,700,000 on 20 February 2014 which was used by Mr Hyder to fund the purchase of the Hyder family home: PP at [296]. An amount of about $1.3 million was withdrawn from the SEP's bank account in the 2016 income year: PP at [69]. 9 SEPL's tax return for the 2015 income year recorded that it was liable to $5,354,424.21 in tax, being 30% of SEPL's 99% share of the distribution which had been made to the SEP by the EMH IV Family Trust: PP at [15]. 10 On 27 May 2016, Mr Hyder and Mr Dreves executed a "Purchase of Business Agreement" for the sale of all the issued shares in SEC to Mr Dreves for $1.00. Mr Hyder resigned as secretary and director of SEPL and SEC and Mr Dreves was appointed in his place: PP at [77]. 11 On 6 June 2016, SEPL was notified by Australian Taxation Office (ATO) of an overdue tax liability of $5,376,187.55, including the general interest charge (GIC). 12 On 1 July 2016, Mr Dreves and his wife executed a "Deed of Assignment of Debt": PP at [78] to [80]. The assignor was specified as the SEP and the assignee was specified to be Mr Dreves: PP at [79]. This Deed purported to assign a debt of $13,250,000 to Mr Dreves for consideration of $1 payable by Mr Dreves: PP at [78]. 13 Mr Dreves placed SEPL into liquidation on 28 October 2016: PP at [84]. SEPL did not pay its tax liabilities. 14 Unsurprisingly, on 8 May 2017, the Commissioner commenced a risk review of Mr Hyder's taxation affairs. This was escalated into an audit on 24 April 2018: PP at [16]. 15 On 3 July 2017, a "Deed of Debt Forgiveness", relating to the amounts which Mr Hyder had withdrawn from the SEP bank account, was executed by Mr Dreves as "lender" and Mr Hyder as "borrower". Mr Dreves forgave the alleged debt owed by Mr Hyder for what was described as "natural love and affection": at [14.2]. 16 On 24 June 2018, SEPL was deregistered by ASIC. 17 SEPL was reinstated on 21 October 2019: PP at [86]. On 7 November 2019, SEPL paid its income tax liability for the 2015 income year: PP at [94]. It also paid GIC of $222,803.87, which had accrued until 28 October 2016: PP at [94]. 18 After the audit was completed, the Commissioner issued: (a) on 20 May 2020: an assessment to the trustee of the EMH IV Trust in respect of the 2015 income year; (b) on 22 May 2020 amended assessments to Mr Hyder in respect of the 2015 and 2016 years; (c) on 7 September 2020, penalty assessments to EMH IV and Mr Hyder. 19 EMH IV and Mr Hyder objected against the various assessments. On 8 February 2021, the Commissioner issued a Notice of Objection Decision disallowing all the objections. 20 These events gave rise to five proceedings in this Court and two proceedings in the Administrative Appeals Tribunal of present relevance. 21 The five proceedings in this Court were as follows. 22 First, EMH IV as trustee for the EMH IV Trust v Commissioner of Taxation (QUD 41 of 2021). The Commissioner took the view that s 100A of the ITAA 1936 applied with the result that the SEP was deemed not to be presently entitled to the income appointed to it in the 2015 income year. EMH IV appealed under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953) from the Commissioner's objection decision concerning the present entitlement of the SEP in the 2015 income year. 23 Secondly, Elton Matthew Hyder IV v Commissioner of Taxation (QUD 40 of 2021). This was Mr Hyder's appeal from the Commissioner's objection decision concerning the 2015 and 2016 years. There were two issues in this proceeding: (a) The first issue was whether Div 7A of the ITAA 1936 applied to deem Mr Hyder to have received unfranked dividends from SEPL. (b) The second issue was whether, if Div 7A did not apply, the general anti-avoidance provision in Part IVA applied to include a tax benefit in Mr Hyder's assessable income. 24 Thirdly, Elton Matthew Hyder IV & Ors v Commissioner of Taxation (QUD 384 of 2022). This was Mr Hyder's, EMH IV's and ACN 603 939 939 Pty Ltd's (formerly SEPL) application to review the Commissioner's decision to refuse to exercise discretion under s 255-10 in Sch 1 to the TAA 1953 to defer the due dates for payment of the tax-related debts of Mr Hyder and EMH IV for the 2015 and 2016 income years. 25 Fourthly, Elton Matthew Hyder IV v Commissioner of Taxation (QUD 558 of 2023). This was Mr Hyder's application for judicial review of the Commissioner's decision to refuse to remit all of the GIC that had accrued with respect to his income tax liability for the period 15 June 2020 to 20 April 2023. 26 Fifthly, EMH IV as trustee for the EMH IV Trust v Commissioner of Taxation (QUD 559 of 2023). This was EMH IV's application for review of the Commissioner's decision to refuse to remit all of the GIC that had accrued with respect to its income tax liability for the period 7 June 2016 to 20 April 2023. 27 The two proceedings in the AAT were reviews under Part IVC of the TAA 1953 of the objection decisions concerning penalties. 28 The parties wanted QUD 40 of 2021 and QUD 41 of 2021 in the Federal Court and the two AAT proceedings to be heard together with evidence in the two Federal Court proceedings being evidence in the AAT proceedings and vice versa. This approach was followed, it being conducive both to a significant reduction in costs for the parties and to the more expeditious determination of those four proceedings. Just before the end of closing submissions these four proceedings were resolved by consent between the parties on the basis that the assessment to EMH IV was correct by reason of the operation of s 100A. As had always been the Commissioner's position, this necessarily meant that: (a) Mr Hyder's appeal in QUD 40 of 2021 had to succeed because, if the assessment to EMH IV was correct, the assessment to Mr Hyder was necessarily excessive; and (b) steps would need to be taken to regularise SEPL's position, because the assessment issued to it could not be correct if the SEP was not presently entitled to the EMH IV Family Trust's income in the 2015 year. 29 The parties agreed that both of the penalty proceedings in the AAT be allowed. The penalty related to Mr Hyder was necessarily excessive because the appeal in QUD 40 of 2021 was allowed. The penalty related to EMH IV was excessive, not because of any argument advanced on behalf of EMH IV, but because of a concession made by the Commissioner. 30 The remaining three Federal Court proceedings were scheduled to be heard immediately after closing submissions in QUD 40 of 2021 and QUD 41 of 2021 and the AAT proceedings. 31 At the commencement of the hearing of the three remaining proceedings, QUD 558 of 2023 was resolved by consent, with an order that the proceeding be dismissed but costs reserved. This left two proceedings for determination: QUD 384 of 2022 and QUD 559 of 2023. 32 These reasons for judgment concern those two proceedings.

[4]

Reasons for decision 37 Those reasons contained the following in relation to the background: C. The [previous] deferral of the time for payment decision [10] By letter dated 11 June 2020, Mr Konrad Wojtasik (Mr Wojtasik) of Small Myer Hughes Lawyers, the legal representative of Mr Hyder and EMH IV requested that the time at which the taxpayers' tax-related liability would become due and payable be deferred (11 June letter). [11] In the alternative to the deferral of the due date for payment of the tax related liabilities, the 11 June letter also included submissions in support of an application for deferral of the commencement of recovery action. [12] On 16 June 2020, the ATO provided a response to Mr Wojtasik's 11 June letter rejecting the request to defer the time for payment of the outstanding debt. An explanation was also provided as to the reason the due and payable date of the EMH IV assessment for the financial year ended 30 June 2015 was 7 June 2016 as detailed in the Notice of Assessment issued on 20 May 2020. An option to enter into a 50/50 arrangement was also included in the response. [13] On 7 July 2020, Mr Wojtasik wrote on behalf of his clients that: (a) they were preparing to lodge objections to the amended assessments issued to Mr Hyder and EMH IV; (b) Mr Hyder and his advisers were currently reviewing assets, liabilities, income and expenditures. They needed further time to provide an updated statement, however, the most recent summary of assets and liabilities of Mr Hyder's group was exhibited to an affidavit filed in Court and served on the Commissioner in November 2019 (November 2019 statement); (c) a copy of the November 2019 statement was provided with an explanation that this affidavit was filed by Mr Hyder in support of a Court application by which the Liquidators of Screaming Eagle Pty Ltd (SEPL) were directed to pay the Commissioner $5,577,228.08 in income tax and interest on 5 November 2019; (d) the approximate $5 million in tax paid by SEPL represents the tax on the same income assessed in May 2020 to EMH IV and to Mr Hyder personally which will be the subject of the objection. The amended assessments issued to Mr Hyder and EMH IV are alternative assessments to SEPL; (e) since SEPL has already paid the tax on the income, then there is no basis on which the Commissioner can collect tax on two alternative assessments; and (f) they request that a statement of reasons be provided with regards to the refusal to defer the payment due date of the outstanding amounts. [14] On 21 July 2020, the ATO provided responses to the taxpayers' solicitor outlining the reasons for refusing to defer the due date for payment of the debt and the commencement of recovery action (21 July response). [15] On 5 August 2020, the ATO sent an email to the taxpayers' solicitor following up the offer to enter into a 50/50 payment arrangement or to provide security for the outstanding debt of the taxpayers conveyed in the letter of 21 July 2020. [16] On 7 August 2020, the taxpayers' solicitor wrote to the ATO requesting a statement of reasons regarding the decision to refuse to defer the due date for payment … [19] On 15 September 2020, the statement of reasons under subsection 13(1) of the Administrative Decisions (Judicial Review) Act 1977 was provided to the taxpayers via an email to the taxpayer's solicitor. … [21] On 9 October 2020, Mr Hyder and EMH IV filed an Originating Application seeking judicial review of the reconsideration decision dated 21 July 2020. … [23] On 21 February 2021, Ms Llorca, an authorised officer of the Deputy Commissioner of Taxation, made a decision to refuse the taxpayers' requests for deferral of payment time and enclosed a statement of reasons pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977 (AD(JR) Act). [24] On 5 May 2021, by order of Greenwood J in the Proceeding, the taxpayers were given leave to amend the respective Originating Application to seek review of Ms Llorca's decision dated 21 February 2021 under the AD(JR) Act. [25] On 23 September 2021, at the hearing of the Federal Court of Australia proceedings number QUD314 of 2020, the representatives for the Commissioner of Taxation communicated verbally to the Court and representatives for the Applicants in those proceedings that the Commissioner provided an undertaking not to take recovery action with respect to the tax debts owed by both Mr Hyder and EMH IV until the conclusion of the appeals filed under Part IVC of the Taxation Administration Act 1953 (TAA). [26] On 22 March 2022, judgement [sic] was entered in favour of the taxpayers. On 21 April 2022, by order of Greenwood J, the decision of Maria Llorca of 26 February 2021 was set aside and remitted to the Commissioner of Taxation to be decided according to law. 38 The reasons stated the following in relation what was relied upon by the decision-maker: D. Evidence or other material on which these findings were based [27] In making my decisions, I have considered the correspondence sent to the ATO on behalf of the taxpayer since 11 June 2020, including correspondence dated 1 September 2022 in which the representative for the taxpayers highlights the accrual of general interest charge (GIC) on the tax liabilities owed by the taxpayers. [28] Before I made my decision, I considered the ATO policies for the collection of taxation debts set out in: (a) Practice Statement Law Administration 2011/4: Collection and recovery of disputed debts (PS LA 2011/4); (b) Practice Statement Law Administration 2011/14: General debt collection powers and principles (PS LA 2011/14); (c) Practice Statement Law Administration 2011/18: Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts (PS LA 2011/18); and (d) Practice Statement Law Administration 2006/7: Alternative Assessments (PS LA 2006/7). [29] I approached my decision upon the basis that I must make the correct and preferable decision having regard to the circumstances of the taxpayers' particular cases. [30] Before I made my decision, I made the findings of fact that I have recorded below. [31] I also considered the following documents: (a) Notice of (Amended) Assessments for the years ended 30 June 2015 and 30 June 2016 issued to Mr Hyder and EMH IV; (b) The position papers issued to Mr Hyder and The Trustee for EMH IV dated 6 May 2020 (position papers); (c) The objection decisions and applications to appeal the objection decisions in respect of both Mr Hyder and EMH IV; (d) The application for judicial review and for relief pursuant to section 39B of the Judiciary Act 1903 and supporting material; (e) The 11 June letter and enclosed submissions in support of a deferral of payment time and, in the alternative, deferral of recovery action; (f) The judgment of Greenwood J dated 22 March 2022 in the Proceeding and orders entered on 21 April 2022; (g) The letter issued by Mr Wojtasik on 26 May 2021 and attachments, further detailing the financial position of the taxpayers and their associated entities; and (h) The letter issued by Mr Wojtasik on 1 September 2022 and enclosed assets and liabilities statement, sent in response to my request for further information dated 16 August 2022. 39 The reasons included the following in relation to the findings on material questions of fact: E. Findings of material questions of fact [32] As at 9 September 2022, in respect of the Relevant Assessments, Mr Hyder was indebted to the Commissioner in respect of income tax liabilities, including SIC and general interest charge (GIC), in the amount of $17,510,005.04. [33] As at 9 September 2022, in respect of the Relevant Assessments, the Trustee for EMH IV was indebted to the Commissioner in respect of income tax liabilities, including SIC and GIC, in the amount of $19,758,742.25. [34] Notices of assessment have been issued to Mr Hyder and EMH IV. The debts are due and payable. (a) Mr Hyder's income tax assessments are valid and stand alongside the assessment issued to SEPL in respect of the 2015 financial year. Amounts paid by SEPL upon its reinstatement do not reduce or in any way affect the tax debt of Mr Hyder arising from the 2015 and 2016 financial years. (b) EMH IV's income tax assessment is valid and is an alternative assessment to the income tax assessments issued to Mr Hyder (as well as the income tax assessment of SEPL). [35] From reviewing the position papers, Mr Hyder and EMH IV were involved in the following scheme: (a) EMH IV Family Trust distributed approximately $18 million to a purported 99:1 Management Partnership comprising Mr Hyder and SEPL (the Screaming Eagle Partnership) for 2015 and 2016 income years; (b) SEPL was liable to pay tax on 99% of the $18 million (approximately $5.2 million), but was liquidated without paying its tax. (c) Mr Hyder withdrew $13,250,000 for his personal use from Screaming Eagle Partnership's bank account in the 2015 income year; (d) Mr Hyder withdrew $1,357,000 for his personal use from Screaming Eagle Partnership's bank account in the 2016 income year; and (e) the amount of $4,710,501, retained in the trust in the 2015 income year, was reclassified as a capital contribution of Mr Hyder to the trust. As a consequence of this scheme, the Commissioner's position is that: (f) irrespective of the reinstatement of SEPL and payment of $4,577,228.08 (which included some interest) in the 2020 income year, Division 7A applied to the transactions in the 2015 and 2016 income years and resulted in a total amended tax liability for Mr Hyder of $8,748,782.43; i. Per his objection decision, in the alternative, the Commissioner's position with respect to Mr Hyder's position is that he obtained a tax benefit of $17,848,435 pursuant to section 177D of the Income Tax Assessment Act 1936 (ITAA 1936) in the 2015 year. The Commissioner has made a determination that the whole or a part of that amount, namely $13,250,000, shall be included in the assessable income of Mr Hyder for that year of income. and his alternative position is that: (g) section 100A of the ITAA 1936 applied, where EMH IV is assessed with a total liability of $8,834,073.78 for the 2015 income year. If this alternative is found to apply, the payment made by SEPL in 2020 would be applied as a credit against the trustee assessment. [36] Per letter from his solicitor on 27 July 2021, the Commissioner does not intend to double recover the relevant tax and his intention is ultimately to collect the relevant amount of tax payable on the Relevant Assessments to the extent they prove correct to the exclusion of others. [37] The Commissioner has further agreed to defer recovery action with respect to the tax debts owed under the Relevant Assessments by Mr Hyder and EMH IV until the conclusion of the Part IVC appeal process. 40 The last sentence in [35(g)] is (strictly) incorrect, but the intended meaning is clear enough: if the assessment to EMH IV were found to be correct, then SEPL would need to be refunded to the extent it had been taxed on the basis of the SEP being presently entitled to the EMH IV Family Trust's income. 41 The reasons included the following: F. Reasons for decision [42] It is an expectation that tax debtors pay their tax debts as and when they fall due for payment. Notwithstanding this, section 255-10 of Schedule 1 to the TAA enables the Commissioner to defer the time for payment of a tax-related liability having regard to the circumstances of a particular case. Per PS LA 2011/14, the mere existence of the power to defer the time for payment does not confer upon a tax debtor any right or entitlement to its exercise. The interaction of the assessments [43] I have considered the fact that there are primary and alternative assessments issued for the same or similar years: (a) Mr Hyder was assessed on distributions he received from the Screaming Eagle Partnership under Division 7A of the ITAA 1936. It was determined that the amounts or other benefits Mr Hyder received from SEPL were a dividend for income tax purposes. (b) Upon being notified that he would be assessed on these distributions under Division 7A, Mr Hyder reinstated SEPL and caused SEPL to pay its outstanding tax debt in respect of these distributions, in the amount of $5,577,228.08. However, Mr Hyder has been assessed on the basis that the payments he received from SEPL were unfranked. For this reason, notwithstanding the tax paid by SEPL, Mr Hyder remains liable to income tax for the 2015 and 2016 income years and the amended assessments for these years stand alongside (and are therefore not alternative to) the assessments of SEPL. i. Further, in the alternative, there was a scheme whereby Mr Hyder obtained a tax benefit under section 177D of the ITAA 1936 for the 2015 income year. Resultingly, the Commissioner determined to cancel the whole or a part of the tax benefit under section 177F of the ITAA 1936. (c) EMH IV was assessed on the alternative basis under section 100A of the ITAA 1936. The EMH IV assessment for the 2015 income year is therefore an alternative assessment to the assessments issued to Mr Hyder and SEPL. [44] To the extent that Greenwood J found that the Commissioner, in seeking to enforce payment from both Mr Hyder and EMH IV, had engaged in oppressive conduct in the sense contemplated their Honours in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) CLR 55 at 67, I consider that the undertaking to defer recovery action provided by the Commissioner on 23 September 2021 alleviates any such prejudice on the taxpayers. This undertaking remains in effect until conclusion of the Part IVC appeal process. The disputed tax liability and GIC [45] The relevant tax liabilities of the taxpayers are now the subject of appeals under Part IVC of the TAA, filed with the Federal Court on 22 February 2021. The legislative regime concerned with the collection and recovery of taxation debts provides that such debts may be recovered notwithstanding that they may be disputed. [46] The cases, including Barina Corporation Ltd v Deputy Commissioner of Taxation (Cth) (1985) 6 FCR 368 and Thurecht v Deputy Commissioner of Taxation (Cth) (1984) 3 FCR 570, make clear that the taxpayers' prospects of success is not a factor that the Commissioner can reliably take into account, unless the outcome is obvious in that the taxpayer's objection is bound to succeed. In the current circumstances I do not consider that the outcome of the appeals will obviously result in an outcome favourable to the taxpayers. [47] I have also taken into account the fact that GIC continues to accrue on the Relevant Assessments and that the effect of deferring the time for payment would be that GIC on the respective assessments would not be payable until (and from) the deferred date. However, in the context of there being primary and alternative assessments subject to a dispute, GIC will only remain payable at the conclusion of the dispute on the liability that is ultimately found to be correct. [48] For example, should the Part IVC appeals result in Mr Hyder's assessment being found to be correct, the alternative assessment issued to EMH IV would be set aside and any GIC payable by EMH IV would as a matter of law cease to be payable. [49] It follows that in circumstances where the Commissioner has undertaken not to recover the tax debts (including GIC) of the taxpayers until the conclusion of the Part IVC appeal process, there is no prejudice (beyond that which is obvious and consistent with other tax debtors) to the taxpayers in GIC continuing to accrue on the primary and alternative assessments because GIC will only be payable on any tax liability found to be properly owed upon conclusion of the Part IVC appeals process. [50] In this sense, there is no difference to a Part IVC proceeding that is not concerned with alternative assessments. While in these circumstances GIC will continue accrue on tax debts arising on both primary and alternative assessments, upon conclusion of the Part IVC appeals process GIC will ultimately adjust to whatever amount a taxpayer remains liable for under an assessment (or assessments) that prove correct to the exclusion of others. [51] Furthermore, I note the Commissioner has a separate and wide discretion to remit GIC under section 8AAG of the TAA, including where he considers it otherwise appropriate to do so. [52] For these reasons, the fact that there are disputed debts accruing GIC, which arise from primary and alternative assessments, in my view does not warrant the exercise of the discretion to defer the time for payment of those liabilities in the case of either taxpayer.

[6]

Grounds 1(a)(i) to (iv) 43 It is convenient to address grounds 1(a)(i) to (iv) together. These grounds were: (a) The decision-maker failed to take into account relevant considerations in the exercise of the power as follows: (i) The decision-maker failed to take into account, in that he misunderstood the applicable law and misunderstood the case being advanced to him by [Mr Hyder and EMH IV], the fact that the … Commissioner of Taxation, was not authorised by the Income Tax legislation to recover twice (or thrice) annual income tax assessed on the same source of income to different taxpayers in the same year of income (here [Mr Hyder and EMH IV]), to the extent that the [Commissioner] has already recovered that income tax from those taxpayers (here [SEPL] as to 99% and the [Mr Hyder] as to 1%), and dismissed that fact as a relevant consideration by reason of the existence of an undertaking given by Senior Counsel for the [Commissioner], at the hearing of Matter No. QUD 314/2020 before Greenwood J on 23 September 2021, that no recovery action would be taken until the "end of" the Part IVC proceedings between Mr Hyder and the [Commissioner] and EMH IV as trustee for the EMH IV Family Trust and the [Commissioner] to which [SEPL] was not a party; (ii) Further and alternatively, the decision-maker failed to take into account, in that he misunderstood the applicable law and misunderstood the case being advanced to him by [Mr Hyder and EMH IV], and failed to properly apply, the law set out by the High Court in Deputy Federal Commissioner of Taxation v Moorebank Pty Ltd [1988] HCA 29; (1988) 165 CLR 55, as explained by Greenwood J in Hyder at [216], that it was "obviously" "oppressive" for the Commissioner to seek to recover income tax assessed on the same source of income to different taxpayers in the same income year (here [Mr Hyder] and [EMH IV]) in the alternative before "the final resolution of a genuine dispute about the correctness of the assessment"; (iii) the decision-maker failed to take into account the fact that GIC continues to accrue on tax on the same income assessed to [Mr Hyder and EMH IV] in circumstances where tax on the same income has been assessed to [Mr Hyder and SEPL] and has been paid in full including general interest charge ("GIC"). (iv) the decision-maker failed to take into account that the outcome of the tax appeals will not necessarily regularise the GIC imposed and paid on the alternative assessments issued to [Mr Hyder, EMH IV and SEPL] and impose a financial penalty on money that has already been received by the Commonwealth. 44 As noted earlier, the decision-maker's reasons included the following: [36] Per letter from his solicitor on 27 July 2021, the Commissioner does not intend to double recover the relevant tax and his intention is ultimately to collect the relevant amount of tax payable on the Relevant Assessments to the extent they prove correct to the exclusion of others. [37] The Commissioner has further agreed to defer recovery action with respect to the tax debts owed under the Relevant Assessments by Mr Hyder and EMH IV until the conclusion of the Part IVC appeal process. … [44] To the extent that Greenwood J found that the Commissioner, in seeking to enforce payment from both Mr Hyder and EMH IV, had engaged in oppressive conduct in the sense contemplated their Honours in Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) CLR 55 at 67, I consider that the undertaking to defer recovery action provided by the Commissioner on 23 September 2021 alleviates any such prejudice on the taxpayers. This undertaking remains in effect until conclusion of the Part IVC appeal process. The disputed tax liability and GIC [47] I have also taken into account the fact that GIC continues to accrue on the Relevant Assessments and that the effect of deferring the time for payment would be that GIC on the respective assessments would not be payable until (and from) the deferred date. However, in the context of there being primary and alternative assessments subject to a dispute, GIC will only remain payable at the conclusion of the dispute on the liability that is ultimately found to be correct. [48] For example, should the Part IVC appeals result in Mr Hyder's assessment being found to be correct, the alternative assessment issued to EMH IV would be set aside and any GIC payable by EMH IV would as a matter of law cease to be payable. [49] It follows that in circumstances where the Commissioner has undertaken not to recover the tax debts (including GIC) of the taxpayers until the conclusion of the Part IVC appeal process, there is no prejudice (beyond that which is obvious and consistent with other tax debtors) to the taxpayers in GIC continuing to accrue on the primary and alternative assessments because GIC will only be payable on any tax liability found to be properly owed upon conclusion of the Part IVC appeals process. 45 The Commissioner took into account: that there were assessments which were alternative to others; that the consequences to Mr Hyder and EMH IV of there being alternative assessments, included that the alternative assessments each imposed a liability which was then due and payable, but which could not all ultimately be correct; that the Commissioner did not intend to double recover tax and that his intention was ultimately to collect the relevant amount of tax payable only on those assessments which proved to be correct, following Part IVC proceedings; that the Commissioner had given an undertaking on 23 September 2021 to defer recovery action in relation to the assessments to Mr Hyder and EMH IV until after the conclusion of the Part IVC appeal process; the fact that GIC continued to accrue on the assessments to Mr Hyder and EMH IV and that the effect of deferring the time for payment, if such a deferral was to be made, would be that GIC on the respective assessments would not be payable until (and from) the deferred date; and the fact that GIC would only ultimately be payable in respect of the liability that was found to be correct at the conclusion of the Part IVC proceedings. 46 In grounds 1(a)(i) to (iv), the applicants have not identified a consideration which was a mandatory relevant consideration that is shown as not having been taken into account.

[7]

Grounds 1(a)(v) and (vi) 47 It is convenient to address grounds 1(a)(v) and (vi) together. These grounds were: (a) The decision-maker failed to take into account relevant considerations in the exercise of the power as follows: … (v) the decision-maker failed to take into account the fact that the amended assessments issued to [Mr Hyder] for the years ended 30 June 2015 and 2016 and the assessment issued to [EMH IV] for the year ended 30 June 2016 together with the shortfall interest charge assessments and the penalty assessments were all disputed on substantial grounds, namely that the assessed trust income was the income of [SEPL], which was not disputed by [SEPL] and was not open for the [Commissioner] to dispute, it having assessed [SEPL] to income tax on that income and taken that tax from [SEPL]; (vi) the decision-maker failed to take into account the matters and arguments raised in the notices of objection lodged on behalf of [Mr Hyder and EMH IV] to the assessments of primary tax and the assessments of shortfall interest charge and penalty, and the tax appeals and failed to form any view as to the prospects of success of the objections apart from asserting that [Mr Hyder and EMH IV's] prospects of success was not obvious and that [Mr Hyder and EMH IV] were not bound to succeed and therefore failed to take into account as a relevant consideration the fact that the objections had not only good prospects of success, but inevitably must be successful to the extent of the tax assessed to [SEPL], and taken from [SEPL] by the [Commissioner]; 48 The decision-maker took into account the objections which had been made and, having considered those objections, formed a view that they were not bound to succeed. No other conclusion was reasonably open. If the assessment to SEPL were correct, then the assessments to Mr Hyder could also be correct. If the assessment to EMH IV were correct, then the assessments to Mr Hyder were necessarily incorrect. It was not obvious which of the various assessments were correct. 49 As noted earlier, the reasons included: [31] I also considered the following documents: (a) Notice of (Amended) Assessments for the years ended 30 June 2015 and 30 June 2016 issued to Mr Hyder and EMH IV; (b) The position papers issued to Mr Hyder and The Trustee for EMH IV dated 6 May 2020 (position papers); (c) The objection decisions and applications to appeal the objection decisions in respect of both Mr Hyder and EMH IV; (d) The application for judicial review and for relief pursuant to section 39B of the Judiciary Act 1903 and supporting material; (e) The 11 June letter and enclosed submissions in support of a deferral of payment time and, in the alternative, deferral of recovery action; (f) The judgment of Greenwood J dated 22 March 2022 in the Proceeding and orders entered on 21 April 2022; … [45] The relevant tax liabilities of the taxpayers are now the subject of appeals under Part IVC of the TAA, filed with the Federal Court on 22 February 2021. … [46] The cases, including Barina Corporation Ltd v Deputy Commissioner of Taxation (Cth) (1985) 6 FCR 368 and Thurecht v Deputy Commissioner of Taxation (Cth) (1984) 3 FCR 570, make clear that the taxpayers' prospects of success is not a factor that the Commissioner can reliably take into account, unless the outcome is obvious in that the taxpayer's objection is bound to succeed. In the current circumstances I do not consider that the outcome of the appeals will obviously result in an outcome favourable to the taxpayers. 50 This process of reasoning was permissible. 51 In the events which transpired, the parties agreed that the assessment to EMH IV was correct on the basis that s 100A of the ITAA 1936 operated to deem the SEP not to have been presently entitled to the income of the EMH IV Family Trust. 52 This means that the assessments to Mr Hyder and SEPL are incorrect to the extent that those assessments are based on SEP's present entitlement to the EMH IV Family Trust income in the 2015 income year. Contrary to the applicants' submissions, the objections were not "inevitably" going to be successful to the extent of the tax assessed to SEPL. 53 In oral submissions, the applicants argued to the effect that the Commissioner could or should not assert a right to payment of GIC on the amounts assessed to Mr Hyder and EMH IV whilst retaining the tax which had been paid by SEPL. This argument was in substance the same as that which had been put to the Full Court in Hyder No 2. In that regard, the Full Court stated: [63] By the conclusion of oral submissions, it appeared that part of the declaratory relief sought by the Appellants before this Court was to restrain the Commissioner from asserting a right to payment of GIC on the amounts assessed to the Trustee and Mr Hyder whilst the Commissioner retained the tax paid by SEPL. The contention appeared to be that the Commissioner was required to make an allowance for the tax paid by SEPL in calculating the amount of tax the taxpayer was liable to pay, including for the purposes of determining any amount of GIC accruing. That contention was based on the Appellants' construction of the intent of the statutory scheme and what they termed "fundamental principle". [64] Section 5-15 of the Income Tax Assessment Act 1997 (Cth) provides: If an amount of income tax or *shortfall interest charge that you are liable to pay remains unpaid after the time by which it is due to be paid, you are liable to pay the *general interest charge on the unpaid amount for each day in the period that: (a) starts at the beginning of the day on which the amount was due to be paid; and (b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid: (i) the income tax or shortfall interest charge; (ii) general interest charge on any of the income tax or shortfall interest charge. Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953. Note 2: Shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act. [65] The Appellants' reasoning appeared to be that, because SEPL had paid the assessments issued to it in respect of 99% of the EMH IV Family Trust income, no other taxpayer could be taken to have a liability to pay income tax in respect of that Trust income without credit being given for the tax paid by SEPL. It followed that, in so far as SEPL had paid tax on its share of the net income of the EMH IV Family Trust, there was no liability for income tax which "remained unpaid" and no GIC could accrue in respect of the tax payable which the Commissioner asserted was payable by that other taxpayer in respect of that Trust income, at least without the Commissioner taking into account the payment of tax by SEPL. Because the Commissioner was asserting that there was unpaid tax in the amounts assessed on which GIC was being calculated, the Commissioner had engaged in unlawful conduct. [66] There are a number of difficulties with the Appellants' contention. [67] First, the Appellants' contention does not appear to be related to any of its stated grounds of appeal. Nor does the contention clearly relate to the form of the declarations sought in the Appellants' originating application (as amended). In particular, the Appellants did not seek relief before the primary judge in relation to the construction of s 5-15 or the meaning of the phrase "an amount of income tax that you are liable to pay that remains unpaid". The proper construction of s 5-15 is not a matter before this Court. Nor is there any constitutional issue concerning the validity of s 5-15, or the imposition of GIC more generally, raised for consideration by this Court. [68] Second, it is not the assertion by the Commissioner which results in the accrual of GIC but the operation of the legislation. Whether there remains unpaid an amount of income tax that a taxpayer is liable to pay after the time by which it is due to be paid on which GIC accrues is a function of the operation of the statute. Restraining the Commissioner from asserting a right (whether by writ of prohibition or otherwise) does not and cannot restrain the operation of the statute. [69] Third, and by way of observation, the Appellants' contention is not supported by Richardson. In that case, Evatt J responded to a contention by Mr Richardson that the amount on which additional tax was imposed ought to be the sum of which the revenue was deprived in respect of the relevant income year, taking into account the amount returned by Mr Richardson's nominee and on which tax had been paid. By this contention, "the tax properly payable" was not the tax assessed to Mr Richardson but was a sum determined after deducting the tax already paid by Mr Richardson's nominee. In respect of that contention, Evatt J held (at 213) that "'the tax properly payable' means the tax payable by the taxpayer if he had included the omitted income in his return". Dixon J adopted the same construction of the phrase (at 209), concluding that "tax properly payable" was a reference to the tax which ought to have been paid by the taxpayer and is not a reference to the loss suffered by the revenue. [70] In Richardson, however, Evatt J left open to determination by the Commissioner the question of whether the fact that the nominee had paid tax ought to result in the Commissioner exercising his power of remission. So too here, it would be open to the Commissioner to have regard to the payment of tax by SEPL in considering whether any GIC ought to be remitted. … [85] The Appellants' case was dependent upon the proposition that, unless SEPL asks for a refund of the tax it paid, or the Commissioner refunds the tax paid by SEPL, the Commissioner must be permanently restrained from collecting on any alternative assessment even if those alternatives are judicially determined to be correct. The Appellants further contend that there can be no judicial determination of the correctness of those alternative assessments unless SEPL is refunded tax paid in respect of assessments which SEPL does not challenge. In effect, SEPL seeks to preclude the Commissioner from effectively exercising his power to assess alternative taxpayers by selectively paying and not challenging the preferred alternative assessment. Taxpayers by their own actions cannot render a valid assessment sterile in this way. 54 In any event, the Commissioner was not seeking to enforce recovery of GIC on the assessments issued to Mr Hyder or EMH IV in making the decision under s 255-10 of Sch 1 or otherwise. 55 In grounds 1(a)(v) and (vi), the applicants have not identified a consideration which was a mandatory relevant consideration that is shown as not having been taken into account.

[11]

Ground 1(b)(viii) 65 Ground 1(b)(viii) was: (b) the decision-maker took into account irrelevant considerations in the exercise of the power as follows: … (viii) the incorrect assertion by the [Commissioner] that Mr Hyder … did not cause his lawyers to apply to the Supreme Court of Queensland, on 16 May 2019, for the reinstatement of [SEPL], or cause [SEPL] to pay its outstanding tax debt plus GIC to the [Commissioner], in the amount of $5,577,228.08, on 7 November 2019, until he was notified that he would be assessed on distributions from the Screaming Eagle Partnership, under Division 7A of the ITAA 1936, in the Audit Position Paper dated 6 May 2020. 66 As noted above, the decision-maker stated: [43] I have considered the fact that there are primary and alternative assessments issued for the same or similar years: … (b) Upon being notified that he would be assessed on these distributions under Division 7A, Mr Hyder reinstated SEPL and caused SEPL to pay its outstanding tax debt in respect of these distributions, in the amount of $5,577,228.08 … 67 It is not clear what the decision-maker was referring to when stating "[u]pon being notified". The PP dated 6 May 2020 included: 17. Subsequent to the formal interviews with the Taxpayer (which took place on the 9 and 16 May 2019), the Commissioner was advised that the Taxpayer had instructed his Legal Representative to reinstate Screaming Eagle and pay the Income tax liability of Screaming Eagle for the income year ended 30 June 2015. The Commissioner advised Mr Hyder that irrespective of the payment of corporate rate of tax by Screaming Eagle after its reinstatement, the provisions of Division 7A, section 100A, and section 6-5 would still apply (para 21 below), however Mr Hyder's Legal Representative held a contrary view. 18. Mr Hyder noted that the reinstatement proceedings was both costly and time consuming and that he wanted to settle with the Commissioner and made a settlement proposal on 21 May 2019. Settlement discussions were held with the Taxpayer but concluded without a settlement on 10 September 2019. 68 Mr Hyder or his representatives may have been "notified" that Mr Hyder would be assessed under Division 7A during one or more of the events described. 69 In any event, however, these background facts recited by the decision-maker (even if in error) were not considerations which the decision-maker was forbidden from taking into account. Nor was there any attempt to show that the fact, if erroneous (which has not been established), was in any way material to the outcome.

[13]

Grounds 1(d) and (e) 73 Grounds 1(d) and (e) were: (d) the decision is unreasonable in the legal sense. Particulars (i) the [a]pplicants repeat and rely on the particulars provided in sub-paragraphs 1(a) hereof. (ii) the findings by the [Commissioner] were unreasonable, irrational and illogical. (iii) the decision under review lack any evident and intelligible justification and are therefore legally unreasonable. (e) The decision involved an error of law or was otherwise contrary to law. Particulars (i) The [Commissioner] did not comply with the order of the Court to decide the application for deferral of the due dates for payment according to law and the Reasons for Judgment of the Court. 74 The decision-maker's decision was not legally unreasonable, irrational or illogical. Nor did it involve an error of law. Nor was it contrary to law. 75 The decision-maker took into account the reasons for judgment which had been given by Greenwood J in setting aside the earlier decision in under 255-10 of Sch 1: reasons at [31(f)]. Greenwood J stated at [244]: For these reasons, relevant circumstances to be taken into account by Ms Llorca (among others) on 26 February 2021 were the assessments issued to Mr Hyder, on the one hand, and the alternative assessment to the Trustee, on the other; the circumstance that the assessments were truly alternative assessments; the elements of PS LA 2006/7 and how those elements might inform the exercise of the discretion; the fact of the objections, the objection decisions, the appeal and any responsive documents; the content of the documents to the extent that they raised serious questions; and the earlier payment of tax by SEPL as one element in those circumstances. However, forming a view about the merits of the contention concerning the extent to which the earlier payment of tax by SEPL affected or would affect the correctness of the alternative assessments was not a relevant matter informing the exercise of the discretion. 76 The decision-maker on remittal has not been shown not to have done what Greenwood J indicated needed to be done or otherwise to have erred. The decision-maker took into account that: there were assessments which were in various respects alternative. It is clear from what the decision-maker stated that he took into account that, if the EMH IV Family Trust was correctly assessed under s 100A, then the assessments to SEPL and Mr Hyder were necessarily incorrect; the correctness of the assessments would be determined in Part IVC proceedings which were then extant; a consequence of not deferring the due date was that GIC would continue to accrue on all of the assessments; the Commissioner would not enforce recovery in respect of the assessments issued to EMH IV or Mr Hyder pending resolution of the Part IVC proceedings; and at the conclusion of the Part IVC proceedings, GIC would not be payable on those assessments found to be excessive. 77 Having taken those matters into account, amongst others, the decision-maker decided not to defer the due date for payment of tax. 78 Not only was this not legally unreasonable, or irrational or illogical, it was an obviously available way to have proceeded, consistent with the legislative scheme. 79 Contrary to the submission advanced by senior counsel for the applicants, it could not "fairly" be said that the decision-maker breached the undertaking given to the Court in the proceeding before Greenwood J by not deferring the due date for payment: T415.30. Contrary to the submissions advanced, the Commissioner was not - by declining to defer the due date for payment - enforcing payment of liabilities in breach of his undertaking not to do so. Contrary to the submissions advanced, the decision-maker was not "opportunistically" relying on the Commissioner's undertaking in order "to refuse to consider the fundamental matter Greenwood J directed him to" consider and the decision-maker's reliance on the undertaking was not "misconceived": AS[6]. 80 Greenwood J identified the "difficulty" with the earlier decision under s 255-10 in the following way at [245]: The difficulty with Ms Llorca's decision is that although she recognised that the amended assessments issued to Mr Hyder on the one hand, and the assessment to the Trustee, on the other, were alternative assessments (see para 38), engaging PS LA 2006/7 (see para 22(d)), there is no recognition that the consequence of the relevant "circumstance", in the "particular case" of each taxpayer, was that because the Commissioner had issued alternative assessments (described as a "primary" assessment to Mr Hyder and an "alternative" assessment to the Trustee), the Commissioner necessarily had held "genuine doubt about where the final liability to tax rests" when issuing the alternative assessments (PS LA 2006/7; [2006], Statement 1), which, under PS LA 2006/7 involved acceptance of "multiple assessments being issued in which the same underlying amount is assessed". Nor do the reasons recognise that because the assessments are alternative assessments, the "genuine doubt" about the correctness of one or other of the assessments would fall to be resolved in the Part IVC proceedings with the result that, at best, one or other of the assessments would prove to be valid (validity being a live issue within the Part IVC proceeding) and thus, at best, the debt under one or other but not both assessments would prove to be payable. 81 These criticisms could not appropriately be made of the decision the subject of this proceeding. The decision-maker addressed these matters and reached a conclusion which can only be described as reasonable. The decision is certainly not one which, by reason of being capricious, bespeaks error. 82 The decision-maker could not have been clearer that the Commissioner would not seek to enforce recovery of the relevant amounts until after the conclusion of the Part IVC proceedings and, at that point, would only seek recovery to the extent that recovery would be lawful. 83 In oral submissions, senior counsel for the applicants submitted that, if EMH IV and Mr Hyder had sought to pay the tax liabilities to the Commissioner, then the Commissioner could not have accepted such payments: T416.32. That submission is plainly wrong. In Hyder (Orders), Greenwood J made declarations about the conduct of the Commissioner in "seeking to enforce" all of the assessments. Declaration 4, which was definitional, was in the following terms: For the purposes of these declarations, the phrase "seeking to enforce payment" in the relevant periods means seeking to require of the taxpayers payment in full of each of the alternative assessments or alternatively payment of 50% of each of the alternative assessments with the balance the subject of securities provided by the taxpayers and others and otherwise seeking to secure arrangements for the payment of the full amount owing under both assessments jointly. 84 EMH IV and Mr Hyder could, for example, always have sought to resolve the dispute with the Commissioner. At least by the time Hyder 1 was heard, it was clear that the Commissioner was not seeking to recover in relation to the assessments issued to Mr Hyder and EMH IV until after the Part IVC appeal process was over. The Commissioner's position has been clear that if the EMH IV was correctly assessed under s 100A, then the assessments to SEPL and Mr Hyder were necessarily incorrect. If EMH IV had sought to resolve the case on that basis, the Commissioner would not have breached the undertaking which had been given to the Court in accepting payment from EMH IV. Obviously, that would have required the Commissioner to regularise the position with respect to SEPL. 85 It was submitted that a refusal to defer the due date for payment was "obviously infected by legal error" because "it failed to relieve each taxpayer of its obligations to pay immediately and the oppression of GIC penalties for non-payment": ARS[2]. It was said that the decision-maker erred by ignoring the Commissioner's genuine uncertainty and acted as if each of the taxpayer's liabilities are all payable: AS[5]. It was submitted that the Commissioner's "duty is to resolve his genuine uncertainty, at which future point in time, at best, one or other debt, but not both, will prove payable": ARS[4]. 86 These submissions misunderstand the operation of the legislative scheme. The onus is on the relevant taxpayer to demonstrate that an assessment is excessive. The imposition of the onus on the taxpayer reflects the fact that it is the taxpayer which knows what it did and why. If the Commissioner is uncertain about who the correct taxpayer is (as he was in this case), consistently with his obligations to administer the taxation laws he is at least permitted, and probably required, to issue assessments which might not or cannot all be correct. Contrary to the submissions advanced by the applicants, the Commissioner is not required to take a single position about which is correct with the result that, if he is wrong, the taxpayer ultimately found to be liable has avoided imposition of GIC. 87 The legislative scheme contemplates that uncertainties will be resolved through the objection process and any reviews or appeals under Part IVC of the TAA 1953. If amounts have been paid to the Commissioner which are ultimately found to have been incorrectly paid, those amounts must be refunded, generally with interest. The scheme does not require the Commissioner to resolve his uncertainty concerning alternative assessments merely because a taxpayer with an alternative assessment has made a request under s 255-10 of Sch 1 to defer the due date for payment. That is not to say that the fact that there are alternative assessments, and that one or other taxpayer has made a payment under such an assessment, are not relevant in considering whether or not to exercise the power in s 255-10 of Sch 1 having regard to the particular circumstances of the taxpayer.

[14]

The request for remission 89 On 24 March 2023, the solicitors for Mr Hyder and EMH IV wrote to the Commissioner seeking remission of GIC under s 8AAG of the TAA 1953. The letter included the following background: 1 We act for the above taxpayers. Mr Hyder and his family trust, the EMH IV Family Trust, have instructed us to seek remission of GIC imposed on their income tax accounts in respect of the assessments and amended assessments referred to below. 2 For the 2015 year, the EMH IV Family Trust distributed all of it's [sic] income, 99% of which was assessed to an associated company, Screaming Eagle Pty Ltd (SEPL). The tax on the 2015 year trust income assessed to SEPL has been paid in full, plus GIC due to a delay in making the payment. The payment in the amount of $5,354,424.21 (primary tax) and $222,803.87 (GIC) was made on 7 November 2019 pursuant to orders made on 3 October 2019 by the Supreme Court of Queensland, by consent. In an application which the Commissioner of Taxation was a party. 3 My Hyder and the EMH IV Family Trust were the subject of an audit with respect to the 2015 year of income, with particular focus upon the trust income which had previously been assessed to SEPL (as to 99%) and Mr Hyder (as to 1%). That audit resulted in alternative assessments being issued by the Commissioner for the 2015 year income to both Mr Hyder and the EMH Family Trust. 4 The Commissioner amended Mr Hyder's 2015 year income tax assessment to include the income assessed to SEPL on 22 May 2020, with the amended tax becoming payable from 15 June 2020. 5 The Commissioner also issued an original assessment to the trustee of the EMH IV Family Trust for the 2015 year. The assessment was an original assessment because the trust had not needed to lodge having distributed all of its income. That assessment was issued on 20 May 2020, with the due date for the tax payable being 7 June 2016. 6 No amendment has been made to the SEPL's 2015 year assessment, and the Commonwealth has retained the tax and GIC paid (in the total amount of $5,577,228.08). 7 At least one, and arguably two, of these three alternative assessments for the 2015 year income cannot stand, nor can those taxpayers be liable to the tax presently assessed to them as was recognised by Greenwood J in Hyder v Commissioner of Taxation [2022] FCA 264 (Hyder No 1); and, on appeal, by the Full Court in Hyder v Commissioner of Taxation [2023] FCAFC 29 at [16] (Hyder No 2). 8 My Hyder and the EMH IV Family Trust objected to the alternative assessments on 17 July 2020, and those objection were subsequently disallowed on 8 February 2021. The matter has not yet resolved and Part IVC proceedings are currently on foot in the Federal Court of Australia. At this stage, it is not expected that the current proceedings will be heard until some time in 2024 (the matters are tentatively set for hearing before Thawley J from 22 April to 30 April 2024). In the meantime, GIC has continued to accrue on the alternative assessments in the amount of not less than $1.9m per month (based on the Commissioner's correspondence to our clients). 9 On 11 June 2020, Mr Hyder and the EMH IV Family Trust sought a deferral of the due dates for payment of their 2015 years assessments pending the outcome of the Part IVC proceedings. The effect of granting deferral would be that the GIC on those assessments would cease to accrue. The Commissioner refused to defer the due dates. 10 Our clients then commenced proceedings in the Federal Court of Australia to set aside the refusal decision and prevent the Commissioner from seeking to recover the amounts of the alternative assessments. On 21 April 2022, Greenwood J (in Hyder No 1) set aside the Commissioner's refusal decision and declared that seeking to recover the alternative assessments was oppressive in the circumstances. The Commissioner undertook to refrain from commencing debt recovery proceedings while the Part IVC proceedings remained on foot. No undertaking was made with respect to remission of GIC. 90 The letter then discussed the appeal from Hyder No 1, stating: 11 On 24 May 2022, our clients appealed part of the decision in Hyder No. 1 and sought orders that the Court should have ordered prohibition and granted the other releif [sic] sought before Greenwood J. During the course of the hearing before the Full Court the issue of the accruing GIC was raised again (the issue had previously been raised before Greenwood J at the first instance). 12 On the first day of the hearing there was an exchange between Counsel for our clients and the Court as follows: LOGAN J: I will just work through this with you, Mr Robertson. So that's not the concern, but upon that debt arising, there is a due date for payment. And then, if the tax assessed is not paid, there is a general interest charge that runs. So is the concern a simultaneous running of general interest charges in respect of multiple assessments? MR ROBERTSON: Well, that's the simultaneous compulsion - yes, you Honour, that's the simultaneous compulsion by parliament. LOGAN J: So it's the GIC? MR ROBERTSON: Yes. That's right. The GIC is a penalty--- LOGAN J: Yes. MR ROBERTSON: ---for non-payment of tax which is payable. HESPE J: And the Commissioner has a discretion to remit that GIC and any of your clients have the right to request such a remission. and then later: LOGAN J: And that failure to flow from the position under statute whereby there are now multiples assessments, one of which is not under active challenge, and which has been paid in full, and other assessments which are under active challenge, which have due dates for payment in respect of which general interest charges running, and it's said that for that general interest charge to run, there is some element of oppression in this scenario. Is that it? MR ROBERTSON: Yes, because the general interest charge is imposed by Parliament as part of the collection regime to ensure that unpaid tax is paid on time. LOGAN J: Yes. 13 The Court dismissed the appeal on 8 March 2023 (Hyder No 2). In the reasons for decision the Court stated at paragraph [70]: In Richardson, however, Evatt J left open to determination by the Commissioner the question of whether the fact that the nominee had paid tax ought to result in the Commissioner exercising his power of remission. So too here, it would be open to the Commissioner to have regard to the payment of tax by SEPL in considering whether any GIC ought to be remitted. 14 The Court did not consider it necessary to order that the Commissioner be prohibited from collecting the alternative assessments noting that any prejudice to our clients in the form of accruing GIC could be ameliorated by the Commissioner exercising his remission power. 91 The letter included the following by way of argument: 19 Subsections 8AAG(4) and (5) of the TAA 1953 give the Commissioner power to remit GIC where it is fair and reasonable to do so or it is otherwise appropriate to do so. We submit that in this case, where one of the alternative assessments has been paid in full by SEPL some years ago, on 7 November 2019 (on the 99% distribution to SEPL, and by Mr Hyder on the 1% distribution to him), and our other clients are pursuing review of the objection decisions pursuant to Part IVC to ensure that the correct taxpayer is assessed, that the substantial GIC accruing on the alternative assessments to EMH IV Pty Ltd and Mr Hyder should be remitted in full. 20 This is a case where the income tax assessed on the 2015 year trust income has been paid in full by SEPL and Mr Hyder, the Commissioner has accepted those taxpayers as liable, and has retained the tax they have paid. Imposing continuing GIC on the alternative assessments in the circumstances is inconsistent with the deterrent objective of the GIC and is oppressive. 21 It would be unfair, should one of the disputed alternative assessments be held to be correct, to take the position that there has been a delay in payment of that assessment and therefore retain and not remit the GIC that has accrued throughout the Part IVC review process. That assessment should not be viewed in isolation from the alternatives. This is particularly so in circumstances where alternative assessments have been paid in full. Alternative assessments have issued because the Commissioner alleges that there is continuing uncertainty as to the correct taxpayer. Our clients are not uncertain and continue to maintain that SEPL is the correct taxpayer as to 99% of the net income of the trust estate and Mr Hyder as to 1% of the net income of the trust estate. Even if our clients' are ultimately incorrect, it does not therefore mean that there has been a delay in paying the tax. It is just that the wrong taxpayer has paid the tax. 22 The Commonwealth has had the benefit of the tax plus GIC paid by SEPL in the total amount of $5,577,228.08 throughout this period. 92 It can be seen that one of the central issues raised by Mr Hyder and EMH IV, if not the central issue, was the proposition that GIC should be remitted by reason of the circumstance that SEPL had paid tax and GIC on the assessment issued to it and that, for that reason, GIC should be remitted in relation to the other assessments.

[15]

Reasons for decision 93 The reasons for the decision not to remit GIC in relation to the assessment issued to EMH IV were given on 14 November 2023 by Mr Zafiriou. The reasons included: Client circumstances 1. Your client was subject to an ATO audit in the 2015 and 2016 income years, where it was determined that they had a tax shortfall in the 2015 year. 2. As a result, the assessment was amended to reflect this tax shortfall, upon which GIC was imposed and has been accruing in our systems since 7 June 2016. 3. Your client objected to the alternative assessment on 17 July 2020 and those objections were subsequently disallowed on 8 February 2021. 4. Part IVC proceedings are currently ongoing. 5. Our decision to partially remit GIC will be processed pending the Part IVC decision. Your submission and response to subsequent ATO information request: 6. You have requested full GIC remission as the client is involved in property development and the business relies heavily on its ability to obtain affordable finance to fund projects. 7. The GIC directly affects their credit assessment, and therefore has a direct impact on your client's ability to obtain finance. 8. On 20 September 2023 we requested further information regarding your claims and we were provided with the below on 9 October 2023. a) The Chief Investment Officer has carried out significant additional work as a result of the continuing accrual of GIC. b) Your Chief Investment Officer has been required to provide regular updates throughout the term of the loan facilities, which requires explaining why the issue of the tax liability has not been resolved. c) The ongoing tax liabilities are not viewed favourably by financiers, and the time it is taking to resolve the matter impacts their credibility. d) You fear the client will reach a point where further finance will either not be available, or only be available on very unfavourable terms including, but not limited to, higher interest rates. e) Your client has been waiting approximately seven and a half months for a decision on their GIC remission requests. Our decision 9. In considering your request for remission of GIC we have considered the following: • The circumstances of the outstanding GIC is due to a tax assessment made by the ATO as a result of an audit in the 2015 year. • The time it has taken for our final response regarding your GIC remission request. • Our policy on this issue, Practice Statement Law Administration 2011/12 (PS LA 2011/12). • Section 13 of the Administrative Decisions (Judicial Review) Act 1977 with respect to reasons for decision may be obtained. 10. We have considered the GIC remission request pursuant to section 8AAG of the Taxation Administration Act 1953 (TAA 1953) and the Law Administration Practice Statement (PS LA) 2011/12 - Remission of General Interest Charge. GIC is imposed by law where an amount owing to us remains unpaid or where there is an underpayment of tax following an amendment to an assessment. Very generally, GIC is intended to: • encourage the timely payment of tax • deny late payers an unfair financial advantage over those who pay on time, and • compensate the Australian Government for the impact of late payments. The Commissioner has the discretion to remit GIC in whole or in part and his policy on emission of GIC is outlined in PS LA 2011/12. However, where GIC is payable because an amount is overdue, it can only be remitted if: • the circumstances that contributed to the delay in payment were not attributable to an act or omission of the taxpayer, and that person has taken reasonable action to mitigate those circumstances. • where the circumstances contributing to the delay in payment were attributable to an act or omission of the taxpayer, that person has taken reasonable action to mitigate those circumstances or their effect, and it would be fair and reasonable to remit the GIC; or • there are special circumstances that make it fair and reasonable to remit. 11. GIC Remission not granted between 7 June 2016 to 20 April 2023. • PS LA 2011/12 Remission of General Interest Charge, sets out the guidelines on the remission of general interest charge. • Paragraph 3 of the PS LA states that the onus is generally on the client to satisfy us that remission is warranted and must provide us with sufficient information to allow us to make a decision. • Paragraph 4 of the PS LA provides that GIC may be remitted if we are satisfied that: • The circumstances contributing to the delayed payment are not the client's fault, and; • The client has taken reasonable steps to mitigate, or mitigate the effects of those circumstances. • Further, as mentioned above, Paragraph 4 of the PS LA also provides that you should consider what reasonable steps the client has, or could have, taken (for example, realise assets or seek finance) to lessen the severity of the circumstances causing the payment delay. • GIC is imposed on the basis that taxpayers are expected to pay their tax debts as and when they fall due to encourage timely payment of tax and to deny late payers an unfair financial advantage over those who pay their tax on time. • A decision to remit the incurred GIC need not only be fair to the taxpayer, it must be fair to the whole community as well. • Therefore, it must be considered whether ordinary and reasonable members of the community who pay their taxes on time would see the circumstances as fair and reasonable to remit. • With respect to the circumstances contributing to the delayed payment, GIC that accrued during this time for which you are requesting remissions relate to the audit decision made by the Commissioner in the 2015 year. An objection was lodged and that was disallowed by the Commissioner. • While your client is entitled to a Part IVC proceeding, we have received no evidence as to why the taxpayer is entitled for a GIC remission during this time. • As mentioned in your submission above, you stated your clients' Chief Investment Officer has been required to provide regular updates throughout the term of the loan facilities, which requires explaining why the issue of the tax liability has not been resolved. • Further, you also submitted that the ongoing tax liabilities are not viewed favourably by financiers, and the time it is taking to resolve the matter impacts the credibility of the clients and the client fears they will reach a point where further finance will either not be available, or only be available on very unfavourable terms including, but not limited to, higher interest rates. • Circumstances such as general adverse business conditions facing an industry, general economic downturn or fluctuations of currency exchange rates would not usually justify remission. • Similarly, a client whose ability to pay on time is affected by an extended credit policy to maintain business which adversely affects their cash flow, or who uses available funds to buy assets or to pay other creditors, will not usually qualify for remission. • Therefore, in accordance with PS LA 2011/12, the community would not generally perceive it to be fair and reasonable to a receive a remission for this reason.

[16]

Grounds of application in QUD 559 of 2023 94 EMH IV's grounds of judicial review in relation to the decision about GIC were set out in an amended originating application filed on 9 February 2024. They are lengthier than those in QUD 384 of 2022, but share many similarities in content and quality. 95 It is sufficient for present purposes to focus on one issue, because that issue is determinative. As mentioned, the central issue raised by EMH IV was the contention that GIC should be remitted because: (a) SEPL had paid tax and GIC; (b) the amount paid by SEPL had been retained by the Commissioner; and (c) the assessment issued to EMH IV was alternative to that issued to SEPL. 96 This issue was neither referred to, nor addressed, in the reasons for decision made by Mr Zafiriou on 14 November 2023. 97 It was unlawful to decide the GIC remission request without addressing the central issue raised by EMH IV, it being an issue which was relevant to the decision (Hyder No 2 at [70]) and seriously advanced by EMH IV. The jurisdictional error can be characterised in a number of ways, including as an exercise of jurisdiction in breach of the implied statutory condition that it be exercised reasonably or as a breach of procedural fairness. The power to remit GIC must be exercised reasonably (in the legal sense) and in accordance with the rules of procedural fairness. Procedural fairness requires the affording of an opportunity to be heard, not just an opportunity to speak: Khawaja v Attorney-General (Cth) [2022] FCA 334 at [93]. The rules of procedural fairness required the decision-maker to turn his mind to and address the central submission which had been made in circumstances where that submission was relevant to the exercise of the power and of substance: National Disability Insurance Agency v KKTB [2022] FCAFC 181; 295 FCR 379 at [163(1)]. The failure to consider the central submission which had been put was a breach of the implied condition to exercise the power under s 8AAG of the TAA 1953 reasonably. Whilst EMH IV did not cast its case as one of breach of procedural fairness, it did contend that the decision was legally unreasonable and the underlying facts were sufficiently raised by the lengthy pleadings. 98 There is no doubt that the Commissioner could lawfully have refused to remit GIC. It has relevantly always been the case that, if the assessment to EMH IV was found to be correct in proceedings under Part IVC of the TAA 1953, then SEPL's payment of tax would need to be regularised with the result that an amount of tax and GIC paid by SEPL would need to be repaid to SEPL, presumably with interest on overpayment. It would be open not to remit GIC to EMH IV in those circumstances. However, it was not lawful to make the remission decision without addressing the central argument which had been put forward by EMH IV. I note that, on remittal, the circumstances will be quite different because the Part IVC proceedings have now been resolved. 99 Many of the contentions made by EMH IV in the amended originating application have been addressed by what has been said earlier in relation to QUD 384 of 2022. 100 A further argument which was put was that Mr Zafiriou exercised the power "at the direction or behest of another person". This was said to be established through various communications within the ATO throughout the decision-making process. 101 The ATO officer originally assigned to make the decision was Mr Guglielmi. He had prepared a draft letter refusing remission of GIC by 4 August 2023, which he emailed to Ms Llorca for review. His draft letter addressed the central issue which had been raised. Ms Llorca responded on 4 August 2023, including by saying to Mr Guglielmi: … 2. The request is about GIC remission. As the matter is still under Part IVC, please focus on the GIC remission and not the circumstances that is currently being disputed - i.e., alternative and primary. We do not want to be caught up in the argument noting that the GIC remission decision is a reviewable decision under ADJR. 3. Consider your decision using PS LA 2011/12 - Remission of General Interest Charge rather than PS LA 2006/7 Alternative assessments. We do not want to be involved in that argument about alternative assessments which is currently being disputed. 4. Please focus on the request and the reason/s for the request rather than the position paper or the audit and avoid any mention of the decisions in the s39B. Please revise and consider simpler, concise and reasoned responses rather than arguing and reiterating the s39B decisions. 102 Mr Guglielmi redrafted the GIC remission letters and sent them to Ms Llorca for review on 15 August 2023: CB1989. 103 In an email dated 18 August 2023, Mr Guglielmi stated to EMH IV's solicitor that the "reasons for decision are being reviewed by a technical leader" and that a further update would be provided mid-week. 104 Ms Llorca sent an email to Mr Guglielmi on 31 August 2023 stating that, as had been discussed, further information was needed from Mr Hyder and attaching a revised letter requesting information. She requested Mr Guglielmi to obtain feedback from Ms Shuchi Sethi and Mr Greg Feely before sending the letter to Mr Hyder's solicitor. The letter as revised by Ms Llorca included: You wrote that your client is prejudiced by the substantial accruing GIC as it directly affects his credit assessment and therefore his ability to obtain finance. You explained that is it appropriate for the Commissioner to exercise his discretion to remit the GIC to prevent the oppressiveness where the tax liabilities were based on alternative assessments notwithstanding that it is still disputed. As you are aware, there is still outstanding Part IVC appeals as such, in the context of there being primary and alternative assessments, GIC will only remain payable at the final determination of the dispute on the liability that is eventually established to be correct. That is, any GIC payable by your client would as a matter of law stop being payable should it be determined that your client does not have any tax that is due and payable. In fact, should there be no tax payable by your client, GIC would be adjusted to nil on the disputed liabilities. Notwithstanding, we are prepared to consider your request, however, advise that we need further information to enable us to properly review this. To that extent, please provide the following: … 105 Ms Sethi provided comments by an attachment to an email sent on 4 September 2023. Ms Sethi suggested removing the middle paragraph in the passage set out above. Her comment was (CB2014): To keep the letter simple and given you are seeking further information to consider his request, I suggest removing this para. The legal representative is already aware of our view and the whole purpose of this remission request is to test our view. Better to keep this letter simple and focus on the request for information. 106 Ms Sethi's email included: Can I please check whether we need TCN involved in reviewing this response. Reading the tone of the letter and the history of this matter as a whole, I think our response needs to be carefully considered by other stakeholders, so that we are prepared for any future litigation on this particular response. 107 By 2 October 2023, a decision was made to assign the GIC remission request to Mr Zafiriou. In a letter to Mr Zarifiou on 20 October 2023, EMH IV's solicitor wrote: 5. As previously advised, and as should be self-evident, the very substantial quantum of GIC accruing is sufficient evidence, in and of itself, to demonstrate substantial prejudice to our clients. This continuing prejudice is occurring in circumstances where the Commissioner has already collected full tax plus GIC on the 2015 year income from Screaming Eagle Pty Ltd (SEPL) and Mr Hyder. Mr Hyder and EMH IV have been assessed in the alternative in the 2015 year, and GIC continues to accrue on those alternative assessments. Only one of those three alternative assessments can be correct. 6 That is the "element of oppression" Justice Logan referred to during the 24 May 2022 hearing in the Full Court of the Federal Court when discussing simultaneous running of GIC in respect of multiple assessments (referred to in paragraph 12 of the request for remission letter dated 24 March 2023), and the basis for remission of the GIC. 7 This prejudice to our clients could have been remedied if the Commissioner had deferred the due dates of the alternative assessments, however, the Commissioner has refused to do so on three occasions, the most recent being 9 September 2022. While the Commissioner maintains the alternative assessments as due and payable, the GIC continues to accrue, and so it is appropriate, given the Commissioner's continued refusals to defer the due dates, to remit that GIC. 108 Mr Zafiriou made his decision on 14 November 2023. Before that time, he sent drafts of his reasons to others within the ATO and he received various comments. These communications indicate that Mr Zafiriou was acting independently in making his decision and not at the direction or behest of others. 109 Given the terms of the remission request made on 24 March 2023, and the terms of the further letter of 20 October 2023, it is remarkable that the central issue raised by EMH IV was neither considered nor addressed. As I have said, this failure has resulted in jurisdictional error. However, the material does not establish that Mr Zafiriou acted "at the direction or behest of another person" in making the decision.

Hyder v Commissioner of Taxation

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (9)

Cited By (1)