Corporations Act 2001

Superannuation Guarantee (Administration) Act 1992

Taxation Administration Act 1953

Kanwa Nominees Pty Ltd v Australian Taxation Office [2001] ACTSC 30

Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379; (2000) 44 ATR 263

Softex Industries Pty Ltd v Commissioner of Taxation [2001] QSC 377

BETWEEN: KANWA NOMINEES PTY LIMITED (ACN 080 604 753) AS TRUSTEE FOR THE KANAWATY FAMILY TRUST

1. 1. The statutory demand be set aside pursuant to s 459J.

3. This is an application to set aside a statutory demand pursuant to s 459J(1)(b) of the Corporations Act 2001. The respondent served the applicant with a statutory demand in accordance with s 459E on 14 February 2001 setting out details of a debt said by the respondent to be in the sum of $218,207.38 by posting it by pre paid mail. The application to set aside the statutory demand was filed on 13 March 2001, being 22 days after service, and so outside the 21 day time limit set by s 459G of the Corporations Act. The respondent challenged the validity of the application, but in a decision of 6 April 2001 (Kanwa Nominees Pty Ltd v Australian Taxation Office [2001] ACTSC 30) I ruled that the application was valid because there was a public holiday falling within the period between the service and the application being lodged, which should not be taken into account into account in calculating the time allowed for lodging an application.

4. The statutory demand relates to payments alleged to be due to the Australian Taxation Office in respect of superannuation guarantee charge payments, and associated late payment and interest charges, for the financial years ended June 30 1998 and 1999.

5. The evidence establishes that the applicant was served with a notice of assessment in respect of superannuation guarantee payments penalties and interest on 17 October 2000 in the then sum of $211,000. A Notice of Objection to that assessment was lodged on 18 December 2000, and was annexed to the affidavit of Mr Kanawaty, Director of the applicant.

6. In the affidavit of 9 March 2001 Mr Kanawaty says that he believes that the Australian Taxation Office has erred in regarding Kanwa as a group employer to the extent of the notice of assessment. He says:

"During a season I can have up to 140 labourers on my books at any time. The maximum number of packers employed would be approximately 10 -20 people out of 140 people on my books."

7. Mr Kanawaty had previously said that pickers are contractors, whereas packers are employees. He continued:

"I verily believe that the ATO is incorrectly attempting to assess the group tax liability of Kanwa for the full 140 employees. I dispute the liability to the ATO on that basis."

8. In the notice of objection lodged with the Tax Office on 8 December 2000 the applicant claimed that the number of employees employed by the taxpayer does not amount to the number indicated on the assessments.

9. The applicant does not dispute that it has a liability to the respondent in the amount set out in the statutory demand, because it accepts that the statutory regime creates a debt. Section 36(3) of the Superannuation Guarantee (Administration) Act 1992 provides that, where the commissioner makes a default assessment of an employer's superannuation guarantee charge for a particular year, then that superannuation guarantee charge is taken to have been payable on 14 August of the following year, and it is not in dispute that this is what has occurred here, together with the relevant penalty provisions. Although the applicant has lodged an objection to this amount, section 14ZZR of the Taxation Administration Act 1953 provides that the fact that an appeal is pending, "does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending."

10. Prior to the applicant's objection being dealt with formal assessments were issued on 14 February 2001, and were exhibit 1 in these proceedings. On that same day the creditors statutory demand the subject of this application was served on the applicant. By the time the applicant commenced these proceedings to challenge the statutory demand, the notice of objection had not been dealt with by the respondent .I was told that on 20 April 2001 the respondent disallowed in full the applicants notice of objection, but a copy of this decision was not in evidence.

11. This decision, being the disallowance of the applicant's objection, is said by the applicant to be challenged by the applicant in proceedings filed in the ACT District Registry of the Federal Court of Australia on 5 June 2001 in matter A30 of 2001.A copy of the originating application formed exhibit A in these proceedings, and the respondent says that this application, on its face, does not relate to the issue of the applicant's liability in respect of superannuation guarantee charges. The originating application identifies that it is an appeal in respect of the objection decision notified in the respondent's notice of objection dated 20 April 2001, and states that the manner in which the decision is sought to be varied in the appeal is :

"1. By allowing the objection lodged, to the extent of excising from the Applicant's taxable income for the relevant years of income, the following amounts:

a. $10,981 in respect of the year of income ended 39 June 1997

b. $14,848 in respect of the year of income ended 30 June 1998

c. $14,602 in respect of the year of income ended 30 June 1999

2. By reducing or remitting all of the Penaties, Tax Shortfall Penalties, General Interest Charges or other sanctions which have been imposed on the Applicant by the Respondent."

12. Counsel for the responded says that as the initiating application refers only to variations to the applicant's taxable income, it is not relevant to the issue of the superannuation guarantee charge, stating:

"As the applicant's taxable income has no bearing whatsoever upon its legal liability in respect of Superannuation Guarantee Charge Assessments, it is difficult to see how the Federal Court proceedings "challenge" the liability which is the subject of the Statutory Demand in the present proceedings".

13. Mr Powrie, the solicitor for the applicant, filed an affidavit of 19 October 2001 in which he states that the Federal Court proceedings, "involve the same issues which underpin the present proceedings", and he annexed to his affidavits the statements of facts, issues and contentions filed by both parties to Federal Court matter A30 of 2001. In the notice filed by the respondent Federal Commissioner of Taxation on13 August 2001 the facts are said to be:

"1. At all material times the Applicant was engaged in a business which involved, amongst other things, the farming, planting, cultivation, picking and packing of vegetables and produce. The Applicant engaged workers to perform those activities for it and made payments to them for that work.

2. On 16 October 2000 the Respondent issued Superannuation Guarantee Assessments in accordance with the Superannuation Guarantee (Administration) Act 1992 to the Applicant for the years of income ended 30 June 1998(the 1998 Assessment) and 30 June 1999(the 1999 Assessment)"

14. It then sets out the forms of those assessments and continues:

5. By notice of Objection dated 18 December 2000 (the Objection) the Application objected to the 1998 Assessment and the 1999 Assessment. By notice sent to the Applicant on 29 April 2001 the Respondent disallowed the Objection in full".

15. The respondent in this statement of facts seems to be dealing with the Federal Court appeal as though it does, as the applicants say, relate to the issue of the liability of the applicant to make superannuation guarantee payments The respondent identifies the issues in the Federal Court proceedings as whether, in relation to both income years, the applicant is entitled to a reduction or remittance of the nominal interest, administration, general interest and penalty charges for the superannuation guarantee charges for those years.

16. In the applicant's statement of facts issues and contentions in Federal Court matter A30 of 2001 the facts set out the applicants view that it has a small number of employees and a larger number of contractors, and says that the issues before the court are:

1. Whether the respondent is entitled to impose the obligations relating to employees under the relevant taxation statutes to the contractors;

2. Whether the contractors are employees for the purposes of the relevant taxation statutes;

3. Whether the Respondent is entitled to impose any penalties on Applicant for the manner in which the Applicant treated the contractors for the purposes of the relevant taxation statutes".

17. It seems to me that the issues in the Federal Court proceedings, which proceedings were initiated with out delay, and in which statements of facts and contentions have been filed by both parties, does involve the question of whether the contractors on the books of the applicant are persons to whom the superannuation guarantee charge should apply.

18. The respondent says that there is no evidence to suggest any genuine or substantial dispute about the applicant's liability under the Superannuation Guarantee (Administration) Act 1992. It points to s13(3) of that Act which provides an expanded definition of the terms employer and employee, and states :

"If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract."

19. This may well be a conclusive argument in the Federal Court, but there has certainly been not attempt to strike out the proceedings, and directions have been made in respect of the filing of the statements of facts issues and contentions and affidavits, with the matter being re-listed for directions on 14 December 2001. I note that the statements of facts, issues and contentions were in fact filed by both parties outside these time lines, in the case of the respondent by a few days only, and in the case of the applicant by five weeks. Nevertheless, they are now in, and the matter is listed for further directions and, I was told, the likely allocation of a hearing date early next year. This is dealt with in paragraph 2 of exhibit A, referred to in paragraph 9 of this decision.

20. The Commissioner of Taxation is in a privileged position as a debtor, and for understandable policy reasons. The legislation provides that certain administrative acts of the Commissioner can be conclusive in establishing a debt, and that an appeal does not affect that debt. It is therefore not open to a citizen confronted with a statutory demand from the Commissioner to seek to set it aside on the normal basis of there being a genuine dispute, because the legislative scheme resolves any such dispute conclusively in the Commissioners favour. That is why the discretion exists in s 459J. As Austin J observed in Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379; (2000) 44 ATR 263:

"The policy underlying Section 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the Commissioner should not use the statutory demand procedure to supply coercive pressure to a taxpayer who genuinely objects to the Commissioners decision. To do so would be to take unfair advantage of those provisions of the taxation legislation (such as ss 14 ZZMM and 14 ZZT of the Taxation (Administration) Act which say that an amount owing in consequence of the Commissioner's decision is recoverable, notwithstanding that an objection has been lodged against the decision.

If the Commissioner decides not to await the outcome of the objection, the proper course will often be for him to take proceedings for recovery of the debt rather than to summon up the spectre of liquidation by issuing a statutory demand. If the Court forms the view that the commissioner has acted oppressively or unfairly by issuing a statutory demand in such circumstances, the appropriate course is for the Court to set the demand aside under Section 459J(1)(b). By doing so the Court does not deny that the debt is recoverable although an objection has been made, but it thereby insists that the statutory demand procedure should not be used to apply pressure for payment of an amount which might ultimately be found not to be payable."

21. It seems to me that this is the situation I am now confronted with. While the drafting of the originating application in the Federal Court has been such that the respondent has been able to argue before me that it does not appear on its face to squarely deal with the issue of the applicant's liability to the superannuation guarantee charge, it seems from an examination of the statements of facts, issues and contentions filed in those proceedings that the matter does involve the very debt that is the subject of the statutory demand. The respondent submits that it has a strong case based on s 12(3) of the Superannuation Guarantee (Assessment) Act 1992, but the issues remain before the Federal Court, and no interlocutory steps have been taken to circumvent the matter going to a hearing next year.

22. The applicant taxpayer has formed the view that it is not liable in respect of either the superannuation guarantee charges or the associated penalty and interest payments, and has objected to the assessment in the proper form. The notice of objection has been rejected in full by the respondent. The taxpayer has then promptly filed an appeal, the form of which alone and on its face has left me with some doubt as to whether it extends to the issue of the superannuation guarantee charge, but in the statements of facts issues and contentions filed by both parties it is apparent that the issue of liability to superannuation guarantee charge is before the Federal Court. Indeed, the Commissioner's statement of issues identifies the question of whether the applicant is entitled to a reduction of the interest and penalty charges in relation to the superannuation guarantee charges as the central issue before the Federal Court. These interest and penalty provisions amount to $82,699.91 of the total sum claimed in the statutory demand of $218,207.38. The applicant asserts in their statement of contentions that the question of whether there is any liability to a superannuation guarantee charge in respect of the contractors is before the court.

23. While these issues are before the court, in a proper appeal filed within time and where the interlocutory steps have been progressing, it seems to me that it would be unjust to allow the Commissioner to in effect avoid this review by issuing a statutory demand in respect of the sum under appeal. Applying the reasoning of Austin J in Moutere, I am persuaded by the applicant that I should set the statutory demand aside. I note that in that case His Honour was not so persuaded, but in that case the taxpayer had not invoked any formal review, whereas the applicant has formally lodged an objection, which was eventually dismissed after four months, and has promptly exercised their right to take the matter to the Federal Court. Those proceedings are moving to a hearing date, with statements of facts, issues and contentions filed which raise the issue of the validity of the respondent's original decision to levy the superannuation guarantee charge.

24. I note that in Softex Industries Pty Ltd v Commissioner of Taxation [2001] QSC 377 Mulllins J considered an application to set aside a statutory demand where part at least of the amount under demand was the subject of an application for special leave to the High Court. His Honour said at para 69:

"An issue of fairness arises about the Commissioner's decision to adopt a course in relation to the statutory demand which requires the applicant to pay about $15m to satisfy the demand, when there is a bona fide proceeding on foot awaiting a decision which has been reserved for nine months which could reduce that sum of $15m to about $11m."

25. In this case, the respondent's own statement of contentions in the Federal Court matter acknowledge that a substantial proportion of the debt is a matter for determination in those proceedings. I note also that in that case Mullins J observed that the respondent refrained from issuing the statutory demand until the objection and the Federal Court proceedings had been resolved. In this case, the statutory demand was issued before the objection had been determined.

26. In exercising my discretion I have been mindful of the submission made by the respondent that Mr Kanawaty admitted in cross examination that the applicant company had not made any superannuation guarantee charges, even in respect of persons that it acknowledged were employees. While this no doubt goes to the general credit of the applicant, it does not, it seems to me, derogate from the general principles of fairness outlined above.

27. The statutory demand is set aside pursuant to s 459J. The respondent should pay the applicants costs.

I certify that the preceding twenty five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of Master T. Connolly.

Solicitor for the Defendant: Australian Government Solicitor