Muc v Commissioner of Taxation

BACKGROUND 6 The applicant is a solicitor. At all relevant times, she conducted a legal practice under the name of G H Healey & Co, Sydney. 7 On 15 January 2003, the Deputy Commissioner issued proceedings out of the District Court at Newcastle (later transferred to Sydney: No. 3816 of 2004) against the applicant claiming $291,921.09 for income tax as assessed for the year ended 30 June 2000 plus GIC thereon less payments/credits (net $84,024.34) and running balance account ('RBA') deficit debt of $207,896.75. 8 On 5 August 2003, the Deputy Commissioner issued proceedings out of the District Court at Newcastle (later transferred to Sydney: No. 3817 of 2004) against the applicant claiming RBA deficit debt of $71,990.11. 9 On 6 August 2003, the Deputy Commissioner issued proceedings out of the District Court at Newcastle (later transferred to Sydney: No. 3818 of 2004) against the applicant claiming $167,161.01 for PAYE deductions for the period 1 July 1995 to 30 June 1996 ($28,426.31) plus GIC ($19,156); PAYE deductions for the period 1 July 1996 to 30 July 1997 ($59,808.49) plus GIC (40,304.25); and PAYE deductions for the period 31 July 1997 to 31 December 1997 ($11,629.36) plus GIC ($7,836.60). 10 On 14 July 2006, the applicant wrote to the Deputy Commissioner seeking revision of all or part of the GIC imposed and claimed in proceedings Nos. 3816, 3817 and 3818 of 2004 pursuant to the provisions of s 8AAG of the TAA. 11 At the hearing in the District Court in Sydney on 25 and 26 July 2006, the Deputy Commissioner's claim was summarily quantified as follows: No. Tax periods Primary debt Nature of Debt GIC Total claim 3816 1.7.00 - 30.11.02 $172,927.12 ITI, GST and ITW $152,015.16 $324,942.28 3817 1.10.02 - 30.6.03 $60,206.00 ITI, GST and ITW $34,853.60 $95,059.60 3818 1.7.95 - 30.6.98 $99,864.16 PAYE withhold $141,544.90 $241,409.06 Totals $332,997.28 $328,413.66 $661,410.94

Where: ITI = PAYG income tax GST = Goods and services tax ITW = PAYG withholding tax PAYE withhold = PAYE withholding tax GIC = General interest charge 12 By letter dated 16 August 2006, the Deputy Commissioner, through Ms Parker, communicated to the applicant, the first decision in response to the applicant's letter of 14 July 2006. 13 On 29 August 2006, Johnstone DCJ found in favour of the Deputy Commissioner in a total amount to be calculated. That calculation required a re-assessment of GIC, having regard to his Honour's findings as to the correct amount of ITW in proceedings Nos. 3816 and 3817 of 2004; $380,906 instead of $382,228, a difference of $1,382. 14 By letter dated 5 September 2006, the applicant sought review of the first decision and by letter dated 31 October 2006, the Deputy Commissioner, through Mr Atkinson, communicated the second decision, that he had decided to uphold the first decision. 15 By letter dated 1 November 2006, the applicant sought a further review of the first decision and submitted '… grounds for the Commissioner to remit at least part of the GIC …' (emphasis added). There has been no response to this application; no indication whether a decision has or has not been made in response to it; and that lies at the heart of para (5) of the applicant's further amended application - para (b) of the particulars to para (5) reading: 'Further, the applicant made another application for remission of GIC, or alternatively an application for the respondent to reconsider her original application, by letter dated 1 November 2006. The respondent failed or refused to consider that application. Accordingly, the applicant seeks an order in the nature of mandamus to require the respondent to consider the application contained in her letter dated 1 November 2006.'

THE EFFECTIVE OR OPERATIVE DECISION 16 In my view, there can be no real doubt that the effective or operative decision was the second decision. First, it was a review or reconsideration of the first decision; second, it was made by a delegate of the Deputy Commissioner who, at the relevant time, was at a higher level to the delegate of the Deputy Commissioner who made the first decision: see Amcor Ltd v Comptroller-General of Customs (1988) 79 ALR 221 at 226; Corinthian Industries (Syd) Pty Ltd v Comptroller-General of Customs & Ors (1989) 86 ALR 387 at 388; Universal Magazines Pty Ltd v Comptroller-General of Customs (1990) 21 ALD 502 at 503, 504; and Post Office Agents Association Ltd & Anor v Australian Postal Commission (1988) 84 ALR 563 at 571. 17 The applicant's written submissions were principally directed to alleged legal errors by the Deputy Commissioner in making the first decision. However, those same submissions contended that if the second decision '… is in truth to be regarded as the "operative decision", the later [second] decision is vitiated by the same legal errors as the first and should be quashed'. This is reflected in the form of the further amended application filed by the applicant after the hearing (see [5] above) in which the first and second decisions were assailed in the alternative, but on the same grounds.

RELEVANT LEGISLATION 18 Pursuant to s 8AAG of the TAA, the Commissioner may remit all or part of the GIC payable by a person. Section 8AAG is in the following terms: '(1) The Commissioner may remit all or a part of the charge payable by a person. (2) However, if a person is liable to pay the charge because an amount remains unpaid after the time by which it is due to be paid, the Commissioner may only remit all or a part of the charge in the circumstances set out in subsection (3), (4) or (5). (3) The Commissioner may remit all or a part of the charge referred to in subsection (2) if the Commissioner is satisfied that: (a) the circumstances that contributed to the delay in payment were not due to, or caused directly or indirectly by, an act or omission of the person; and (b) the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances. (4) The Commissioner may remit all or a part of the charge referred to in subsection (2) if the Commissioner is satisfied that: (a) the circumstances that contributed to the delay in payment were due to, or caused directly or indirectly by, an act or omission of the person; and (b) the person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; and (c) having regard to the nature of those circumstances, it would be fair and reasonable to remit all or a part of the charge. (5) The Commissioner may remit all or a part of the charge referred to in subsection (2) if the Commissioner is satisfied that: (a) there are special circumstances because of which it would be fair and reasonable to remit all or a part of the charge; or (b) it is otherwise appropriate to do so.' 19 Subsections 8AAG(3) and 8AAG(4) are true alternatives. Subsection 8AAG(5) is intended to cover cases which are not within subs (3) and (4): Elias v Commissioner of Taxation (2002) 51 ATR 1 at [45]. 20 The Commissioner is required to reach a state of satisfaction as to the elements in subss 8AAG(3), (4) and (5). 21 If the Commissioner is satisfied as to the matters referred to in one of the subsections, then the Commissioner is required to remit all or part of the GIC. Use of the expression 'the Commissioner may remit' the GIC if satisfied as to specified matters, does not confer a residual discretion not to remit all or part of the GIC: Webb v Commissioner of Taxation (No. 2) (1993) 27 ATR 459 at 469; followed in Elias at [46]. On the other hand, the expression '… all or a part of the charge …' gives the Commissioner a residual discretion as to how much of the charge is remitted even if he is satisfied as to the specified matters in subs 8AAG(3), (4) or (5). 22 Subsections 8AAG(4)(c) and 8AAG(5)(a) require the Commissioner to be satisfied that it would be 'fair and reasonable' to remit all or part of the GIC. In determining the issue whether it would be fair and reasonable to remit the GIC, the Commissioner is entitled to take into account in the exercise of that discretion the policy of the TAA that additional tax is payable as at a certain date. That is a matter to be weighed in determining the fairness and reasonableness of remission: Webb at 469, followed in Elias at [47].

THE GROUNDS OF REVIEW 23 Ground numbered 2 in the further amended application asserted that the first and second decisions ('the decisions') involved errors of law within the meaning of subs 5(1)(f) of the ADJR Act in that: (a) the Deputy Commissioner failed to take relevant matters into account in making the decision(s) (subs 5(2)(b)), namely: (i) The Deputy Commissioner failed to consider or to adequately consider the grounds stated in the application dated 14 July 2006. This application led to the first decision; it has no direct relevance to the second decision and since that is the effective or operative decision, in the absence of any particularisation of the grounds that were not considered and their relevance to the second decision, this ground must be rejected. (ii) The Deputy Commissioner accepted that the applicant had medical reasons for not complying with all of her income tax obligations but ignored that matter in making the decision. The Deputy Commissioner wrongly considered that the applicant's failure to notify the ATO of her medical condition was reason to disregard it. Dealing with the first part of this ground, the Deputy Commissioner did not ignore the applicant's health problems; on the contrary, he acknowledged them as ongoing but queried as to what extent they interfered with the applicant's ability to work. The basis for this was that from 1995 to 1997 the applicant took on partnership roles at Bondi, Hurstville, Avalon and Blacktown. Whilst she claimed to not be capable of working full time, it appeared to the Deputy Commissioner that she was actually increasing her management/work responsibilities rather than reducing them. As to the second limb of this ground, the Deputy Commissioner in his letter of 16 August 2006 did write: 'However there is no record that you advised the Tax Office of your condition nor that you attempted to make arrangements to pay your debt.' However, there is no suggestion in that letter, or in the Deputy Commissioner's letter of 31 October 2006, that the Deputy Commissioner considered the applicant's failure in that regard to be a basis upon which her medical condition could or should be disregarded. This particular ground is not made out. (iii) The Deputy Commissioner failed to take into account the fact that the applicant disputed the primary liabilities upon which the GIC had been charged and that her basis for doing so was both genuine and arguable. The Deputy Commissioner also failed to take into account that the applicant had sought an extension of time in which to lodge objections against assessments in which that dispute could be litigated and that, at the time of making the decision, that application had either not been dealt with or had been refused. This ground is totally flawed because it is clear from the applicant's letter of 14 July 2006 that the GIC on which she sought remission was not in respect of assessments of income tax but rather in respect of running balance accounts of her business trading as 'G H Healey & Co.' Consequently, the fact that the applicant put into dispute the primary liabilities under such assessments by objection, or had sought extensions of time in which to lodge objections against such assessments, applications for which had not been dealt with or had been refused, is totally irrelevant. (b) the Deputy Commissioner took irrelevant considerations into account in making the decision(s) (subs 5(2)(a)), namely: (i) The Deputy Commissioner wrongly considered that the applicant's 'computer system was rectified in 1998'. However, the basis upon which the application had been made was the very opposite of that, namely, that the difficulties with the accounting system increased in 1998. In his letter of 31 October 2006, the Deputy Commissioner wrote: 'The accounting system used by the firm was initially centralised before, on the behest of the Law Society in 1998, being decentralised. This was compounded by data corruption, using cash accounting basis for tax with a system set up for accrual accounting, non-reconciliation of accounts, errors in BAS preparation by the financial controller, GST failures, and, incorrect record keeping of expenses. However, you state that in 2000 you relied on the financial controller to look after the accounting function and tax compliance. It would be reasonable to expect that given the financial difficulties of the business greater assurances would have been sought.' This, in my view, is a complete answer to the allegation of taking an irrelevant consideration into account in making the decision(s). (ii) The Deputy Commissioner considered that the applicant had a history of not lodging and paying her BAS as and when it fell due and therefore considered that the application should be refused. That consideration was irrelevant because it was that matter for which the applicant effectively sought to be excused in the application for remission. It is true that in his letter of 16 August 2006, the Deputy Commissioner gave as one of his reasons for his decision communicated in that letter that a review of the applicant's RBAs showed that she had a history of not lodging and paying her BAS as and when they fell due. But the basis upon which that consideration is said to be irrelevant, because it was that matter for which the applicant effectively sought to be excused in the application for remission, does not make sense. The applicant's application for remission of GIC has nothing whatsoever to do with her being excused, if that is possible, from being required to lodge BAS and pay the amount of tax payable as disclosed by such BAS. Again, this ground cannot be sustained. 24 Ground numbered 3 in the further amended application asserted that the decisions involved an improper exercise of power within the meaning of subs 5(1)(e) of the ADJR Act or, alternatively, the decision involved an error law within the meaning of subs 5(1)(f) of the ADJR Act in that: (a) The Deputy Commissioner considered that other taxpayers organise their affairs differently and that, therefore, a remission of the applicant's GIC would be unfair. The Deputy Commissioner wrongly considered that a remission of the applicant's GIC, assuming she was otherwise entitled to remission, would have given her 'an advantage … over other taxpayers'.

This particular ground was not the subject of any observation or submission in the applicant's written submissions; nor was it advanced in the applicant's oral submissions. In my view, it is an entirely legitimate consideration for the Deputy Commissioner to have regard to in terms of subss 8AAG(4)(c) and 8AAG(5)(a) and I am unable to identify any error of law in the fact that the Deputy Commissioner took that matter into consideration. Indeed, while this particular consideration was referred to in the Deputy Commissioner's letter of 16 August 2006, it was not given as one of the reasons for his decision as communicated in that letter; on the other hand, in terms of the criteria that have to be satisfied in subss 8AAG(4) and (5), it cannot be regarded as an irrelevant consideration.

(b) The Deputy Commissioner should have considered the statutory question of whether it was fair and reasonable to grant a remission of GIC but failed to do so. Instead, the respondent inflexibly applied a policy in making the decision, namely paragraph 93.5.13 of the 'ATO Receivables Management Policy'.

This ground was not pressed in either written or oral submissions and neither limb has any substantive basis. 25 Ground number 5 in the further amended application, in reliance on the grounds referred to in [23] above, seeks orders that a writ of certiorari be issued to the Deputy Commissioner to quash the first decision or, alternatively, the second decision and that a writ of mandamus be issued to the Deputy Commissioner to require the applicant's application for remission of GIC pursuant to s 8AAG of the TAA be determined according to law. 26 This was particularised on two bases: (1) That the applicant should have been given an opportunity to comment on the assertions of fact stated in the second and further bullet points on the second page of the letter dated 31 October 2006. In failing to give the applicant that opportunity, the applicant was denied natural justice. The comments that the applicant wished to make were set out in the letter from the applicant to the Deputy Commissioner dated 1 November 2006. (2) Further, the applicant made another application for remission of GIC or, alternatively, an application for the Deputy Commissioner to reconsider her original application, by letter dated 1 November 2006. The Deputy Commissioner failed or refused to consider that application. Accordingly, the applicant sought an order in the nature of mandamus to require the Deputy Commissioner to consider the application contained in her letter dated 1 November 2006. 27 The Deputy Commissioner was under no obligation, statutory or otherwise, to afford the applicant an opportunity to comment on the assertions of fact stated in those parts of the Deputy Commissioner's letter of 31 October 2006 identified in para (1) of the particulars, prior to the Deputy Commissioner sending that letter; and his failure to do so does not involve the applicant being denied natural justice. The applicant was able to provide her comments following her receipt of the Deputy Commissioner's letter and indeed did so the following day, by letter dated 1 November 2006. 28 On the other hand, it is clear in my view, that the applicant, by her letter of 1 November 2006, did ask the Deputy Commissioner to further reconsider her application for remission of GIC; her request in the fifth paragraph on the first page of her letter that '… you take the correct facts into account and re-determine my application', says as much. The 'correct facts' are those set out in the bullet points that follow on pages 2 - 4 inclusive of the applicant's letter. By that I do not mean that such points are confined exclusively to such process of correction; but a number are. 29 The Deputy Commissioner has not responded to this further request and there was nothing in the evidence to suggest that he had reconsidered the applicant's application for remission of GIC or, if he had, whether he had made a decision in respect of it. In my view, he is under a duty to do both and that duty is none the less because, if it be the case, the material put before the decision-maker for reconsideration is not likely to lead to a decision different from the anterior decisions. 30 For this reason, there should be an order that the respondent reconsider the applicant's further application for remission and make a decision in respect of it. Otherwise, the application should be dismissed with costs. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Solicitor for the Respondent: Australian Government Solicitor