Preston International Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 603 | Case summary

1940/07 Preston International Pty Ltd v Deputy Commissioner of Taxation JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand. The application is made under s 459J(1)(b) of the Corporations Act 2001 (Cth). The demand was issued by the Deputy Commissioner of Taxation and is dated 1 March 2007. It requires the plaintiff company to pay an amount of $1,563,377.96. That debt is further described as comprising three components. 2 The first is an income tax liability for the year ended 30 June 1995 as per a notice of assessment issued on 8 August 2002, which became due for payment on 12 September 2002, plus the general interest charge pursuant to s 204 of the Income Tax Assessment Act 1936 (Cth) and Div 1 of Pt 2A of the Taxation Administration Act 1953 (Cth) calculated up to and including 26 February 2007. After allowance for payments or credits, such a liability, including the general interest charge, is $916,220.91. 3 The second component of the debt relates to the plaintiff company's income tax liability for the year ended 30 June 1996 as per a notice of assessment issued on 16 August 2002, which is claimed to have become due for payment on 16 August 2002. Including the general interest charge and after allowance for payments or credits, the 1996 income tax liability was stated to be $459,158.66. 4 The third component of the debt comprises an amount for income tax liability for the year ended 30 June 2000 as per a notice of assessment issued on 19 August 2002, which became due for payment on 23 September 2002. After inclusion of the general interest charge and allowance for payments or credits, the amount claimed for that component is $187,998 39. 5 The plaintiff company challenged each of the notices of assessment before the Administrative Appeals Tribunal. Its application to review the assessment was heard in the Tribunal over 13 days between 9 November 2004 and 8 August 2005. On 20 October 2005, the Tribunal handed down its decision and its reasons for decision. It substantially upheld the assessments, although reducing the rates of penalty tax for each of the years under review. The amounts claimed in the statutory demand reflect the reductions in the penalty tax which was the subject of the Tribunal's decision. 6 An appeal from the Tribunal's decision was filed in the Federal Court on 16 November 2005. On 9 June 2006, orders were made by consent that that appeal be dismissed. Accordingly, there is no dispute that the plaintiff is liable for the amount of tax and interest claimed in the statutory demand. 7 The plaintiff contended nonetheless that there is "some other reason," within the meaning of s 459J(1)(b) of the Corporations Act why the demand should be set aside. Two such reasons were advanced. The first was that the Deputy Commissioner of Taxation had acted unfairly or unconscionably or unreasonably in his dealings with the plaintiff leading up to the issue of the statutory demand. It was said that the issue of a statutory demand was a part of those unfair, unconscionable and unreasonable dealings. The reason it was alleged that the defendant had acted unreasonably, unconscionably or unfairly was that he adopted differential treatment of the different parties to the transaction which gave rise to the plaintiff's taxation liability. 8 The plaintiff's liability for taxation arose, it was said, from a deposit of $2,400,000 made into an account in the name of the plaintiff in June 1994. The plaintiff is liable and has been found liable to pay income tax in respect of that deposit. 9 The opposite side of that transaction, it was said, was that Lafoten Pty Ltd and its parent company, IMB Limited, should obtain taxation benefits in relation to that payment. The payment was said to be a payment of a licence fee for the purchase of the right to use technology of the plaintiff. Lafoten or IMB Limited, it was said, were to obtain taxation benefits in respect of that payment. However, the plaintiff claimed that the Australian Taxation Office had disputed the entitlement of those companies to claim taxation benefits. The plaintiff contended that IMB Limited and its subsidiaries settled their dispute with the Australian Taxation Office. In circumstances where the Australian Taxation Office had denied the availability of taxation benefits to those parties, it was unconscionable, it was said, for it to claim income tax from the plaintiff. 10 The second ground related to the interest charge. Substantial amounts of interest charge were imposed by the Taxation Administration Act on the unpaid taxation liabilities. The statutory demand identified $389,639.24 as the amount of the general interest charge on the 1995 income tax liability, $194,568 49 as the general interest charge on the 1996 income tax liability and $79,558.78 as the general interest charge for the 2000 income tax liability. The Commissioner has a discretion to remit a general interest charge pursuant to s 8AAG of the Taxation Administration Act. It was said that it was unfair for the Commissioner not to remit the general interest charge in the circumstances of this case, where the relevant assessments were not made until years after the income tax liability arose. 11 Neither of these grounds of challenge suggested that the Deputy Commissioner was in any way seeking to use the procedures for service of statutory demands for a purpose for which they were not intended. There is no question in this case of there being any outstanding appeal against the assessment of taxation liability. There is no question in this case of the statutory demand being issued in order to impose pressure on a taxpayer who seeks to challenge an assessment, or to pre-empt the assessment procedures. There is no suggestion that the statutory demand procedures have been availed of to deter or prevent the plaintiff company from pursuing whatever rights it has to seek administrative review of the exercise, or failure to exercise, a discretion to remit the general interest charge. 12 Counsel for the plaintiff referred me to the decision of the Full Court of the Federal Court in Hoare Bros Pty Limited v Deputy Commissioner of Taxation (1996) 14 ACLC 394 where their Honours said (at 406): " In the present case, Olney J implied that he would have been prepared to exercise the discretion [under s 459J(1)(b)] in the Company's favour, had it been shown that the Commissioner's conduct was unconscionable, was an abuse of process, or had given rise to substantial injustice. " 13 It was submitted that the Court could exercise its discretion under s 459J(1)(b) wherever it appeared that the Deputy Commissioner had acted unconscionably or in a way which gave rise to substantial injustice, whether or not such unconscionable conduct or injustice related to the purpose for which the statutory demand procedure was being used. I do not so read the decision. As appears from page 405, the context in which the observations quoted were made was one where the taxpayer company was pursuing an objection to, review of, or appeal from, the assessment. To use a statutory demand procedure in those circumstances in a way which could tend to prejudice a taxpayer's pursuit of such an objection, review or appeal is one thing. To suggest that s 459J(1)(b) justifies a roving inquiry into the Deputy Commissioner's conduct in relation to a different taxpayer's affairs is an altogether different thing. 14 In Moutere Pty Ltd v Deputy Commissioner of Taxation (2000) 34 ACSR 533, Austin J (at [54] and [55]) dealt with the remarks of the Full Court of the Federal Court in Hoare Bros in the same way as I have indicated I understand those remarks. His Honour emphasised that a statutory demand is not an instrument of debt collection, and that the discretion exists under s 459J(1)(b) to set aside a statutory demand if it is being used oppressively, notwithstanding that it cannot be disputed that the taxpayer is indebted for an amount of an assessment. Hoare Bros itself shows that the taxpayer will not be able to establish that there is a genuine dispute about a debt by proving that it has lodged objections and is pursuing an application to the Administrative Appeals Tribunal. Section 177 of the Income Tax Assessment Act makes an assessment conclusive, without precluding a taxpayer from pursuing the avenues for review provided by that legislation. I do not doubt that if improper use were made of s 459E of the Corporations Act when such a review is pending, that an order could be made under s 459J(1)(b). This is not such a case. 15 Nor do I see any reason to make an order under s 459J(1)(b) because a result of the lapse of time in making an assessment has been the imposition of a general interest charge. The fact remains that, unless and until that charge is remitted, the plaintiff is liable for that part of the debt. In my view, there is every reason not to set aside the demand in the circumstances of this case, where the liability is unchallenged. If the plaintiff company is unable to pay the amount demanded, there is every reason why the presumption of insolvency arising from non-compliance with the statutory demand should be permitted to arise. For all that appears the plaintiff company may be trading. It may be continuing to incur debts. 16 For these reasons, I order that the originating process be dismissed. I will hear argument on costs of the originating process and on the interlocutory application of today.

Preston International Pty Ltd v Deputy Commissioner of Taxation

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