Plaintiff v COMMISSIONER OF STATE REVENUE VICTORIA

2 Capital Securities (Aust) Pty Ltd, which I will call CSA, appeals against the order of Associate Justice Efthim made 26 May 2009, dismissing CSA's application to set aside a statutory demand of the Commissioner of State Revenue Victoria under s.459G of the Corporations Act 2001.

3 The Commissioner's statutory demand relies on four assessments, one of 10 September 2008 for $128.74, and the other three of 11 September 2008.[1]

4 CSA disputes the existence of the debt said to arise on the three 11 September assessments on the ground that the assessments were invalid and also on the ground that the amount of the assessments are in dispute. It does not dispute the assessment of 10 September 2008. I understand it is no longer relied on.

5 On 23 July 2007, the State Revenue Office (SRO) sent a letter to CSA informing CSA that it had been selected for an investigation to assess its compliance with the Payroll Tax Act 1971 and Payroll Tax Act 2007 for the period 1 July 2004 to 30 June 2007, and that CSA had the opportunity to review its payroll liability and make a voluntary disclosure and electronic registration by 13 August 2007.

6 On 16 August 2007, the SRO sent a follow up letter.

7 On 12 September 2007 the SRO sent another follow up letter to CSA and advised CSA to provide the information requested by 19 September 2007 or assessments would be issued based on available information at that time. No responses were received to those letters, although CSA says it did register electronically on 26 November 2007, but nothing was heard of from the SRO.[2]

8 On 30 October 2007, payroll tax assessments were issued, numbers 54261161, 54261187 and 54261234.[3] CSA was advised that under the Taxation Administration Act 1997 CSA could lodge an objection with the Commissioner if dissatisfied with the assessments.[4]

9 On 10 December 2007, an accountant, Kevin Lucas & Associates Pty Ltd emailed profit and loss statements to the SRO.[5] On 13 December 2007, the SRO replied and informed CSA that payments to contractors were taxable unless an exemption applies. The SRO asked CSA to review the payments to contractors and advise whether they were exempt or taxable.[6]

10 On 13 February 2008, CSA by its then accountant, Max Warlow, advised the SRO that it would be lodging a formal objection and requested that the SRO withhold legal action to pursue the payroll debt. CSA requested permission to lodge an out of time objection and advised that the existing assessments were excessive.[7]

11 CSA informed the SRO that if payments to consultants were taxable, which CSA had not as yet determined and which was unknown, then the total remuneration would have been for 04/05, $568,729; 05/06 $788,766; and 06/07 $989,098. CSA asserted that even on the worst case, that is assuming all the payments to consultants were taxable and none were exempt, the assessments of October were excessive.

12 On 25 March 2008, CSA lodged an objection to the assessments.

13 On 15 August 2008, the SRO responded to CSA's objection of 25 March 2008.[8] The SRO treated CSA's letter of 13 February and 25 March 2008 as invalid objections as they were not received by the SRO within 60 days of the date of service of the assessments. The SRO treated, however, the letter of 13 February 2008 as a request of the Commissioner for permission to lodge an objection after the 60 day period. The Commissioner decided not to exercise his discretion to extend time for lodging an objection.

I advise that your letter 25 March is not a valid objection to the assessments. However reassessments for the period 1 May to 30 June 2007 based on the correct wage and superannuation figures as well as the commission and consultancy payments, will be issued. In relation to the default assessments, a reassessment may be issued, if the Company can provide actual taxable wages to the State Revenue Office. Please note the reassessment may include late payment interest and penalty.

Although the Company did not provide the information in relation to the commission and consultancy payments, consideration has been give to the fact that the Company had provided profit and loss statements to support the correct wage and superannuation figures for the 2005 to 2007 financial years, on 10 December 2007 and 20 December 2007. Accordingly, reassessments for the period 1 May 2005 to 30 June 2007, based on the correct wage and superannuation figures as well as the commission and consultancy payments, would be issued.[9]

16 As foreshadowed in SRO's letter of 15 August 2008, reassessments were issued on 11 September 2008.[10] The assessments were issued, however, before the correct taxable wages were provided to the State Revenue Office as indicated in the letter of 15 August 2008.

17 The notices of assessment issued by the State Revenue Office on 11 September, were issued as reassessments. At one stage during the hearing it was said by an officer of the State Revenue Office that the initial assessments were withdrawn. However, during submissions counsel for the State Revenue Office said the better view was that the reassessments amended the initial existing assessments, and they were not in fact withdrawn.

18 The first assessment, 58246545, was for a period of two months from 1 May 2005 to 30 June 2005. The taxable wages were said to be $568,729 and the tax was said to be $36,135.55. The taxable wages for each of the three years, the subject of the three assessments were those advised by Mr Warlow in his letter of 13 February 2008. CSA contends that it also apparent from the face of the first assessment for the two month period from May to June 2005, that the State Revenue Office has assessed CSA using the $568,729 wages figure taken from the letter from Max Warlow to the SRO being the gross wages for the 12 month period 1 July 2004 to 30 June 2005.

19 On 29 September 2008, the State Revenue Office sent reminder notices for the assessments. On 7 October 2008, Mr Warlow on behalf of CSA replied to the SRO's letter of 15 August 2008, that rejected CSA's request for an extension of time to lodge its objections to the initial assessments. Mr Warlow said that the State Revenue Office did indicate a reassessment may be issued if CSA could provide actual taxable wages to the State Revenue Office. He said that he had finally been able to obtain accurate taxable wages, which he set out for each of the Years 2005, 2006 and 2007. They were $402,375, $612,975 and $977,352 respectively, all of which are less than the wages referred to in the reassessments.

20 He said that the difference in these figures and those used by the SRO, is the treatment of payment to contractors. He said that "Given the SRO was not provided with any indication as to the extent to which the payment to contractors was taxable or otherwise, the SRO assessed a total payments to contractors and commissions". And he said in his letter, "However, as can be seen not all these payments are taxable".[11]

21 I have been informed from the Bar table and accept in view of the terms of the letter, that Mr Warlow was not aware of the 11 September 2008 reassessments when he wrote his letter, which explains his failure to refer to the letter and also explains why he had requested that a reassessment be made on the basis of the actual wages and remuneration paid.

22 On 9 October 2008, the State Revenue Office sent a final notice for $87,980.16 to CSA,[12] and on 13 November 2008 the SRO sent an urgent notice, "Legal action pending", this time stating $83,280.29 was still owing.[13]

23 By letter dated 18 December 2008, the State Revenue Office replied to Mr Warlow's letter of 7 October 2008.[14] The letter was headed with the numbers of the three assessments issued in October 2007.[15] The letter made no reference at all to the reassessments which had been issued in September 2008. The State Revenue Office stated that CSA was advised in the State Revenue Office's letter of 15 August, that reassessments may be issued if CSA could provide the actual taxable wages in relation to default assessments for the period July to October 2007, November 2007 and December 2007, which is the period after the investigation and does not relate to the assessments the subject of this objection. The letter went on to say that, "Accordingly this issue in relation to the assessments", that is the initial assessments in October 2007, "Is now finalised".[16]

24 Regretfully the State Revenue Office did not reply within the 60 days of the reassessment, and advise Mr Warlow that the reassessments had issued and that the remuneration figure that they relied on came from his letter of 13 February 2008. If the State Revenue Office had done so this proceeding may have been avoided, and the company may have had its liability determined at a hearing, although s.97 of the Tax Administration Act 1997 does limit the grounds upon which the company could have objected to the reassessments.

25 On 9 December 2008, the Commissioner issued a creditor's statutory demand for payment of debt. The demand related to the three reassessments issued on 11 September 2008 and one other. The demand totalled $85,574.83.[17] On the following day, on 10 December 2008, Mr Nixon the solicitor for CSA was retained in this matter. On 11 February 2009, the company requested the Commissioner to treat Mr Warlow's letter of 7 October as an objection to the assessments of 11 September 2008.[18] On 19 February 2009, the State Revenue Office wrote to Mr Nixon, but did not answer his question whether the State Revenue Office was considering Mr Warlow's letter as an objection to the assessment.[19]

26 On 4 March 2009, Mr Nixon replied to the State Revenue Office's letter of 19 February, and asked for an extension of time in which to lodge objections.[20] On 17 March 2009, the State Revenue Office responded, but did not respond to the request for an extension of time to lodge an objection to the reassessments of 11 September 2009.

27 At this stage, the Commissioner has still not responded to the request to extend the time for objection to the reassessments. In view of the troubled history the Commissioner may now wish to do so. I should also mention on the facts that on 19 December 2008 CSA paid the Commissioner $33,548.62.

28 Before enumerating the grounds of dispute I should emphasise that it's not my task to make any findings on any of the arguments, beyond whether or not those arguments establish a genuine dispute about the existence of the debt to which the demand relates. For example it is not my task to make any finding that the assessments were validly issued or not validly issued, as contended for by the company. My role is simply limited to assessing whether the plaintiff company has, as it is required to do under the Act, satisfied me that there is a genuine dispute between it and the Commissioner about the existence or amount of the debt to which the demand relates. There is no question in this case of any set off.

29 In Rhagodia v National Australia Bank,[21] I canvassed the relevant legal principles on the issue of what the plaintiff needed to establish. I refer to and seek to repeat them here.[22] At this stage it is sufficient to quote from the decision of Dodds-Streeton JA in TR Administration Pty Ltd v. Frank Marchetti & Sons Pty Ltd,[23] where her Honour says:

As the terms of s.459H of the Corporations Act 201 and the authorities make clear, the company is required in this context only to establish a genuine dispute or offsetting claim. It is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. The dispute or offsetting claim should have sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance at this stage a fully evidenced claim. Something, 'between mere assertion and the proof that would be necessary in a court of law', may suffice. A selective focus on a part of the formulation in South Australia v. Wall divorced from its overall context, may obscure the flexibility of judicial approach approximate in the present context if it suggests that the company must formally or comprehensively evidence the base of its dispute or offsetting claim. The legislation requires something less.[24]

30 CSA relies on the following rounds in support of its contention that the three assessments are invalid. CSA contends the assessments are invalid on the following alternate grounds:

(i) There are two sets of assessments which have been issued, relating to the same taxpayer for the same period. It asserts they are irreconcilable and therefore invalid.

(ii) The reassessments are invalid by reason of the failure of the defendant to issue and to serve a notice of withdrawal of the original assessments on the plaintiff. The failure to serve the notice of withdrawal is a pre-condition to the validity of the subsequent notice of reassessment.

(iii) The assessments are tentative or provisional in nature, having regard to the extensive review undertaken by the defendant, after the issue of 11 September 2008 reassessments and after the issuing of the statutory demand.

31 Alternatively, CSA says that if the assessments are valid, there is a genuine dispute as to the amount of the debt because there is no conclusive evidence of the debts. CSA contends that section 127 of the Tax Administration Act 1997 does not apply to the documents tendered in evidence, the copies of the assessment by reason of the nature of the documents tendered.

32 CSA says, alternatively, if the assessments are valid no certificate has been produced under s.128 or, even if it had been, such certificate is only prima facie evidence of the debt - and the plaintiff has led considerable evidence in denial of the allegations of the debts said to be owed to the defendant.

ASSESSMENTS NOT CONCLUSIVE EVIDENCE OF THE ALLEGED DEBT

33 I'll deal with the last ground first, which is the ground on the basis that the assessments are valid. Section 127 of the Tax Administration Act 1997 provides:

Production of a notice of assessment or of a document signed by the Commissioner purporting to be a copy of a notice of assessment is (a), conclusive evidence of the due making of the assessment, and (b), conclusive evidence that the amount and all particulars of the assessment are correct except in objection, review or appeal proceedings in which it is proof in the absence of evidence to the contrary.

34 In my opinion the Commissioner is not required to prove the assessment. The onus is on the plaintiff to establish a genuine dispute. The plaintiff does not allege that the assessments were in the incorrect form or not served on it. In my opinion, no genuine dispute is raised on the ground of the failure of the Commissioner to prove the assessment under s 127. In any event, I've given leave to the Commissioner to tender a copy of an assessment which he has signed.

35 I will now turn to the grounds of the alleged invalidity of the assessments. CSA contends that it has been issued with two sets of assessments for the same period that are inconsistent. Section 8 of the Act provides that the Commissioner may issue an assessment, and section 9 provides the Commissioner may also issue or make more reassessments. Although "reassessment" is defined it goes no further than a reference to a reassessment of tax liability under section 9. Section 9, however, makes it clear that a reassessment follows a "previous assessment" or "an initial assessment", those words being taken out of s.9. Accordingly the issue of a reassessment, by implication, replaces or amends the initial or previous assessment.

36 That view is supported by the authorities referred to, and in particular the decision of the Federal Commissioner of Taxation v. Stokes.[25]

37 I therefore reject the submission that a genuine dispute has been established by the plaintiff on this ground.

38 The second ground relates to the Commissioner's failure to issue a notice of withdrawal. CSA contends that the reassessments are invalid as the Commissioner failed to serve a notice of withdrawal of the initial assessments. The Commissioner on his part contends that by this submission, CSA assumes that a reassessment under s.9 necessarily involves the withdrawal by a separate notice of the initial assessment. The Commissioner contends that the Act says no such thing and relies on Federal Commissioner of Taxation v. Stokes[26] which I have just referred to, where it is said that "An amended assessment will not operate as an alternative to an original assessment, for it operates to alter the original assessment by amending it".[27]

39 I agree with the Commissioner's submission to the extent that it is necessary to do so, that is, to say there is no genuine dispute established. Section 9 expressly contemplates that a reassessment may be issued where the initial assessment has not been withdrawn. For example, under s.9(3) it is provided that a reassessment may be issued if it is to adjust tax to give effect to a decision on an objection ,review or appeal as to the initial assessment. Further s 9(4) provides that a reassessment may be made under s 9(3) even if the initial assessment is withdrawn. This implies that the assessment need not be withdrawn.

40 For those reasons I find that the plaintiff has not established a genuine dispute about the invalidity of the assessments on that ground.

41 The final ground is the assertion by the company that the assessments are tentative or provisional and not true assessments. CSA submits that the State Revenue Office continued to actively review the amounts which were the subject of the assessments up until the date of the first hearing on 18 March 2009.

42 The evidence above discloses that the September reassessments were issued using the figures for total remuneration supplied by Mr Warlow in his letter of 13 February 2008. It will be recalled that Mr Warlow asserted in his letter that he had yet to determine whether or not they were the actual taxable remuneration.

43 CSA contends that the State Revenue Office proceeded to undertake a detailed review of the assessments, which were still continuing at the time of the reassessments and at the time of the first court hearing. CSA says that shortly before the hearing the State Revenue Office was still calling for detailed invoices and bank statements relating to the payments which are the subject of the assessments.

44 The company relies on Exhibits SN-4, SN-5 and SN-7 in support of this argument. Exhibit SN-4 is a letter delivered 13 February 2009 to the State Revenue Office, which includes payroll information on consultancy for 2005, 2006 and 2007. Exhibit SN-5 is a letter from the State Revenue Office to CSA's solicitors. The State Revenue Office asked for information on payments made to persons which are subject to a claimed exemption. I assume that this relates to a claim by CSA that certain payments to contractors were not subject to payroll tax. Exhibit SN-7 is a letter of 6 March 2009 whereby the information requested is provided.

45 Even with the assumption that the State Revenue Office was reconsidering the assessments, that does not mean that the reassessments were tentative or provisional. Rather, it merely indicates that the State Revenue Office may have been prepared to reconsider the reassessments. A reassessment validly issued does not become invalid if at some subsequent date a taxpayer brings some relevant information to the attention of the Commissioner that may indicate the assessment was excessive, and the Commissioner, acting properly, agrees to consider the information. The system of assessment would not work if such was the case.

46 Is there otherwise a genuine dispute that the assessments made in September were not valid assessments? In FJ Bloeman Pty Ltd v Federal Commissioner of Taxation[28] Mason J and Wilson J refer to and cite with approval the passage of a judgment of Chief Justice Sir Garfield Barwick in Bailey v. The Commissioner of Taxation,[29] where Sir Garfield said:

the process of assessment requires the application of the Act to the facts as known to and accepted by the Commissioner. He must of necessity as part of that process adopt a view of the relevant facts.[30]

47 As I indicated above, I am not obliged or entitled to make any decision on the validity of the assessment. My task is limited to ascertaining whether the plaintiff has established that there is a genuine dispute about the existence of the debt. The reassessments of 11 September contain a glaring error in that the first one records, as the taxable wages for the two months from 1 May 2005 to 30 June 2005, the yearly wages for the year 1 July 2004 to 30 June 2005 as given by Mr Warlow in his letter of February of 2008. Secondly, the assessment also relies upon the remuneration figures that appear in Mr Warlow's letter of 13 February 2008, which Mr Warlow expressly said had not been checked to see whether in fact the payments to contractors were exempt or not. The SRO knew the figures supplied by Mr Warlow that they used were to be reviewed by Mr Warlow.

48 The letter that was sent to him on 15 August 2008 by the SRO is, in my view, open to the construction that he was being invited to provide correct wage and superannuation figures as well as commission and consultancy payments so that reassessments could be issued for the relevant periods. The SRO then, without waiting for a response from Mr Warlow, issued the amended assessments including the blatant error, the 'fundamental misconception' I think it was called by the plaintiff, for the first year and including the figures which came from Mr Warlow's letter which said that at that stage it had not been determined whether the contract payments were captured by the Act or not.

49 Sir Garfield Barwick speaks about a valid assessment requiring the Commissioner having facts which he knows of and accepts. In my view there is a genuine dispute open to the taxpayer in this case that these assessments were not based upon known facts accepted by the Commissioner, but were issued in some way in error.

50 Mr Warlow supplied the correct figures in October 2008. The error in the assessments were not corrected. In fact the SRO's letter of 18 December 2008, which is a most confusing letter, doesn't even tell Mr Warlow that the reassessments have been issued and purports to treat with him on the basis that the initial assessments are still the relevant assessments.

51 I am satisfied that there is a genuine dispute that the assessments were validly issued in those circumstances. I emphasize once again, I am not finding that they were invalidly issued To make that finding, a lot more evidence would have to be heard. The only question I have to answer is, am I satisfied that CSA has established there is a genuine dispute. As I said previously, when I quoted from Dodds-Streeton JA, such an argument does not include the merely fanciful or futile.

52 I've been told, and I accept, that the Act requires that any objections to a valid assessment must be dealt with by the objection procedure and are not subject to any review in a court of law. I've been taken to a several cases today, however, which establish that an invalid assessment is not an assessment which is caught by the provisions of the Act.

53 The statutory demand, however, is a step in an application to wind up a company on the grounds of insolvency. The demand is not a debt collection procedure. It is part of a process which is conducted for the benefit of the public and all creditors to wind up insolvent companies. That is why applications to wind up companies are advertised and that is why other creditors may come in to support the application.

54 Bearing that in mind, however, the Commissioner of State Revenue is quite entitled to issue a notice if he feels that he has grounds to do so and seek the winding up of an insolvent company. I make no criticism at all of the Commissioner for adopting the procedure that he did. However, it is a procedure which is not primarily designed for the collection of debts, and what it does do, is to allow a company which has a genuine dispute to the debt claimed in the statutory demand, to have the demand set aside.

55 For those reasons I propose to allow the appeal and set aside the statutory demand. I would entertain an application for costs.

[1] Exhibit TG-1 to the affidavit of Terry Arhontogiorgis sworn 12 February 2009 ("the Arhontogiorgis affidavit").

[2] Exhibit TG-8 to the Arhontogiorgis affidavit, p3.

[3] Exhibit AH-4 to the affidavit of Ashley Hyssoli sworn 16 February 2009 ("the Hyssoli affidavit").

[5] Exhibit TG-4 to the Arhontogiorgis affidavit.

[6] Exhibit TG-5 to the Arhontogiorgis affidavit.

[7] Exhibit BUS-9 to the Bernhard Ulrich Seifert affidavit ("the Seifert affidavit").

[8] Exhibit BUS-12 to the Seifert affidavit.

[10] Exhibit TG-13 to the Arhontogiorgis affidavit.

[11] Exhibit TG-16 to the Arhontogiorgis affidavit.

[12] Exhibit TG-17 to the Arhontogiorgis affidavit.

[13] Exhibit TG-18 to the Arhontogiorgis affidavit.

[14] Exhibit TG-19 to the Arhontogiorgis affidavit.

[15] Exhibit AH-4 to the Hyssoli affidavit.

[16] Exhibit TG-19 to the Arhontogiorgis affidavit.

[17] Exhibit BUS-1 to the Seifert affidavit.

[18] Exhibit SN-2 to the Nixon affidavit.

[19] Exhibit SN-5 to the Nixon affidavit.

[20] Exhibit SN-6 to the Nixon affidavit.

[21] [2008] NSWCA 73; (2008) 67 ACSR 367.

[23] [2008] VSCA 70; (2008) 66 ACSR 67.

[25] [1996] FCA 1128; (1996) 72 FCR 160.

[26] [1996] FCA 1128; (1996) 72 FCR 160.

[27] [1996] FCA 1128; (1996) 72 FCR 160 at 166.

[28] [1981] HCA 27; (1981) 147 CLR 360.

[29] [1977] HCA 11; (1977) 136 CLR 214.

[30] [1977] HCA 11; (1977) 136 CLR 214 at 217.