Priority Matters Pty Ltd v Deputy Commissioner of Taxation

Some relevant statutory provisions summarised

1. It is unnecessary for the purposes of determining the question of leave to appeal to describe at great length the estimates regime. Transtar contains a helpful overview of that regime, which was first introduced in 1993 and was then rewritten in 2010. The regime is complex, as is evident from the primary judge's summary of it at [15] to [27]. The following statutory provisions are particularly relevant in this proceeding.
2. Part 2-5 of Sch 1 to the Taxation Administration Act deals with PAYG withholding. Under s 12-35, an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee, whether of that or another entity. It is significant to note that the obligation to withhold includes, but extends beyond, "wages". As will shortly emerge, this is relevant in assessing whether Ms Lee's affidavit complied with the requirements in ss 268-40 and 268-90.
3. By s 16-70, an entity that withholds an amount under Div 12 must pay the amount to the Commissioner in accordance with Sub-div 16-B. Section 268-10 empowers the Commissioner to estimate the unpaid and overdue amount of a liability (which is known as the "underlying liability").
4. Section 268-40 of Sch 1 to the Taxation Administration Act is of central importance. It provides three ways by which an estimate may be reduced or revoked (with particular emphasis in this case on items 2 and 3): 268‑40 How estimate may be reduced or revoked - statutory declaration or affidavit Scope (1) This section applies as set out in the following table: Statutory declaration or affidavit Item This section applies if ... and ... within ... 1 the Commissioner gives you notice of the estimate you give the Commissioner a statutory declaration for the purposes of this section (a) 7 days after the Commissioner gives you the notice; or (b) a longer period allowed by the Commissioner. you: (a) 14 days after you first take a procedural step as a party to the proceedings; or 2 you are a party to proceedings before a court that relate to the recovery of the unpaid amount of the estimate (a) file an affidavit for the purposes of this section; and (b) a longer period allowed by the court. (b) serve a copy on the Commissioner (a) the estimate is of the unpaid amount of a liability of a company; and the company: (a) 14 days after notice of the application was served on the company; or 3 (b) the Commissioner serves on the company a *statutory demand relating to the company's liability to pay the unpaid amount of the estimate; and (a) files an affidavit for the purposes of this section; and (b) a longer period allowed by the court. (c) an application is made to a court under section 234, 459P, 462 or 464 of the Corporations Act 2001 for the company to be wound up (b) serves a copy on the applicant

Example: For the purposes of item 2 of the table, taking a procedural step as a party to proceedings includes entering an appearance, filing a notice of intention to defend, or applying to set aside judgment entered in default of appearance. Note 1: Section 459C of the Corporations Act 2001 creates a presumption that a company is insolvent, and may be wound up, if the company fails to comply with a statutory demand. Note 2: See section 268‑90 for what the statutory declaration or affidavit must contain and who must make, swear or affirm it. Reduction (2) The amount of the estimate is reduced if the statutory declaration is to the effect, or the affidavit verifies facts sufficient to prove, that a specified lesser amount is the unpaid amount of the underlying liability. Example: Subsection (2) will apply if the statutory declaration etc. is to the effect that the underlying liability has been discharged in full (and therefore the unpaid amount of the liability is nil). (3) The amount of the reduction is the amount by which the unpaid amount of the estimate (just before the reduction) exceeds the amount specified. Note: The effect of subsection (3) is to reduce the unpaid amount of the estimate to the amount specified. Revocation (4) The estimate is revoked if the statutory declaration is to the effect, or the affidavit verifies facts sufficient to prove, that the underlying liability never existed.

1. It is also desirable to set out the relevant terms of s 268-90, which sets out the requirements inter alia for an affidavit filed for the purposes of either items 2 or 3 of s 268-40: 268‑90 Requirements for statutory declaration or affidavit Scope (1) This section applies to a statutory declaration given, or an affidavit filed, for the purposes of section 268‑40 or 268‑45 in relation to the estimate. Content (2) In a case covered by paragraph 268‑10(1)(a) (estimate of liability under requirement to pay to the Commissioner amounts you have withheld under the Pay as you go withholding rules), the statutory declaration or affidavit must verify the following facts: (a) whichever of the following are applicable: (i) the sum of all amounts you withheld under Division 12 during the relevant period, or the fact that you did not withhold any such amounts during the period; (ii) the sum of all amounts you were required to pay under Division 13 (Alienated personal services payments) during the relevant period, or the fact that you were not required to pay any such amounts during the period; (iii) the sum of all amounts you were required to pay under Division 14 (non‑cash benefits and accruing gains) during the relevant period, or the fact that you were not required to pay any such amounts during the period; (b) what has been done to comply with Division 16 (Payer's obligations and rights) in relation to the amounts referred to in paragraph (a). … Maker or deponent (3) The statutory declaration or affidavit must be made, sworn or affirmed by: (a) an individual specified in the following table; or (b) your liquidator, receiver or trustee in bankruptcy (if and as applicable). Who must make the statutory declaration or swear or affirm the affidavit Item A statutory declaration or affidavit in relation to an estimate of a liability of ... must be made, sworn or affirmed by ... 1 … … 2 a body corporate (a) in the case of a company that has a director or a company secretary (within the meaning of the Corporations Act 2001) - a director of the company or the company secretary; or (b) … (c) in any case - the public officer of the body corporate (for the purposes of the Income Tax Assessment Act 1936). … … …

Some procedural matters

1. It was common ground that the applicant requires leave to appeal under s 101(2)(p) of the Supreme Court Act 1970 (NSW) because the judgment and orders below arise from an application under s 459G of the Corporations Act. The two proposed grounds of appeal are: 1 The Primary Judge erred in finding at [45] that the application brought by the Appellant under section 459G of the Corporations Act 2001 to set aside the statutory demand issued by the Deputy Commissioner of Taxation was not a proceeding before a court that "related to" the recovery of an estimate within the meaning of section 268-40 of Schedule 1 to the Taxation Administration Act 1953. 2 The Primary Judge erred in finding at [55] that there was not some other reason to set aside the Statutory Demand.
2. It should be noted that the Deputy Commissioner filed a notice of contention dated 14 June 2022. In brief, the notice of contention claims that: 1. the primary judge erred in finding that, if it were necessary to decide, there was a genuine dispute that Ms Lee's affidavit complies with ss 268-40(4) and 268-90(2) of Sch 1 to the Taxation Administration Act; and 2. the primary judge should have determined as a jurisdictional fact in the proceedings whether Ms Lee's affidavit verifies facts in accordance with those provisions.
3. The parties agreed that the application for leave to appeal should be heard concurrently with any appeal.
4. For completeness, it should also be noted that the Deputy Commissioner filed a notice of motion on 14 September 2022 seeking pursuant to s 75A(7) and (8) of the Supreme Court Act to have leave to rely upon further evidence. That further evidence (which was voluminous), was set out in or was annexed to an affidavit affirmed on 14 September 2022 by Ms Alexandra Donohoo an officer of the Australian Taxation Office. The Court was advised shortly before the hearing commenced that the parties consented to the notice of motion being dismissed, together with an order that the Deputy Commissioner pay the applicant's costs of the motion.

Some further matters

1. As noted, Ms Lee's affidavit affirmed on 29 March 2021 was relied on by Priority Matters below in support of its s 459G application. Ms Lee's affidavit was relatively brief. She stated that she was familiar with, and had inspected the books and records of, Priority Matters. She described the background and activities of that company of which she was the sole director. She deposed that Priority Matters is one of several companies of which either she or her husband (Kia Silverbrook) were directors. She identified two of those other companies as being "relevant" (without explaining why they were relevant), namely Worldwide Speciality Property Services Pty Ltd and Mpowa Pty Ltd. She described how the "companies together performed various functions which are interrelated and intended to operate a business of creating, developing and commercialising inventions". She deposed that Priority Matters did not, at any point, during the period 1 July 2009 and 30 June 2015, "pay amounts to any individual as wages" and that, at various times, it did not even maintain a bank account.
2. Ms Lee deposed that she did not have copies of the notices of the estimates, but she said that she understood that they covered periods from 1 July 2009 to 30 June 2015 inclusively. In her affidavit, Ms Lee: 1. identified the amount of the Deputy Commissioner's estimate of Priority Matters' liability for PAYG withholding for each of the relevant financial years; 2. deposed that, from her own knowledge and review of the company's books and records, Priority Matters did not pay any employee wages in any of the relevant financial years; 3. deposed that no deductions were made by the company for the purposes of Divs 1AA, 2, 3A, 3B or 4 of the Income Tax Assessment Act 1936 (Cth) during the financial year 2009-10, with the consequence that she said that the company was not required to do anything to comply with Divs 1AAA, 3B or 4 of that Act; 4. deposed that the company did not withhold any amounts under Div 12 of Sch 1 to the Taxation Administration Act during any of the relevant financial years; 5. asserted that no amounts were required to be paid by the company under Div 13 of Sch 1 to the Taxation Administration Act during any of the relevant financial years; and 6. asserted that no amounts were required to be paid by the company under Div 14 of Sch 1 to the Taxation Administration Act during any of the relevant financial years.
3. In its written submissions below, Priority Matters contended at [53] that "[t]here can be no doubt as to the characterisation of the facts verified [in Ms Lee's affidavit], which are that there were simply no employees whatsoever that were engaged by, or paid by [Priority Matters] at all, in any period the subject of the Estimates". At [52(c)], Priority Matters submitted that the basis for the matters deposed to in Ms Lee's affidavit was that Priority Matters "had no employees". Priority Matters' s 459G application was dismissed by the primary judge on 9 February 2022.
4. The Court was informed that, on 13 May 2022 (ie shortly after the applicant filed its summons in this Court seeking leave to appeal), the Deputy Commissioner commenced proceedings in the Federal Court of Australia seeking orders that Priority Matters be wound up in insolvency based on the presumption of insolvency which arose from the company's failure to comply with the statutory demand. On 3 June 2022, Ms Lee filed and served an affidavit in that proceeding which purports to comply with item 3 in s 268-40(1) (see [14] above). The Court was also told that the winding-up application was yet to be allocated to a docket judge in the Federal Court.

Should leave to appeal be granted?

1. Priority Matters contended that leave should be granted because the first proposed ground of appeal raised issues of principle as to the proper construction of item 2. It contended that it was a matter of general public importance to clarify the opportunities which taxpayers have to revoke or revise an estimate, particularly where the estimates regime invests the Commissioner with "extraordinary powers".
2. As to the second proposed ground of appeal, the applicant contended that leave should be granted because the primary judge failed to take account of the fact that failure to comply with the statutory demand created consequences that extended beyond exposing the applicant to the risk of being wound up. It also complained that it was prejudiced because a winding-up application would put its solvency in issue.
3. Priority Matters contended that there would be a clear injustice to it if leave were not granted arising from the fact that, unless the statutory demand were set aside, it would have committed an act of insolvency on the basis that it had a liability of approximately $4.9 million.
4. The Deputy Commissioner opposed the grant of leave. The Deputy Commissioner contended that the fact that leave was required under s 101(2)(p) of the Supreme Court Act reflected a policy to discourage appeals in relation to statutory demands (citing Passion Projects (ALLYOUNEEDISLOVE) Pty Ltd v Concept Moulding Pty Ltd [2014] NSWCA 415 at [3]). On the question whether there is sufficient injustice in permitting the primary judgment to stand (see Infratel Networks Pty Ltd v Gundry's Telco & Rigging Pty Ltd [2012] NSWCA 365 at [25]), the Deputy Commissioner submitted that there was no such injustice because item 3 of s 268-40(1) provided an opportunity for Priority Matters to file and serve a complying affidavit which could reduce or revoke the estimate. As noted above, an affidavit purporting to meet the requirements relating to item 3 has now been filed in the winding-up proceeding in the Federal Court.
5. It is uncontroversial that it is unnecessary and unwise to lay down rigid rules of practice or exhaustive criteria guiding the Court's broad discretion whether or not to grant leave to appeal (see Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170 at 175). Leave should only be granted where there are substantial reasons which warrant appellate review. Generally, this requires the Court to be satisfied that the decision below raises an important issue of principle, a question of general public importance or gives rise to a reasonably clear injustice.
6. For the purposes of determining whether leave to appeal should be granted in the particular circumstances of this case, it is appropriate first to focus attention on whether Ms Lee's affidavit complied with the relevant statutory requirements. If not, there would be little or no utility in granting leave to appeal on the proposed two grounds of appeal because they would effectively be moot.
7. In determining whether or not leave should be granted it is also relevant to take into account the fact that winding-up proceedings are pending in the Federal Court and Ms Lee has filed an affidavit in those proceedings which purports to comply with item 3 in s 268-40(1). It will be a matter for the Federal Court to determine whether that affidavit complies with the relevant requirements, including those set out in s 268-90(2). It may be noted that s 268-90(2) applies to an affidavit filed in respect of either item 2 or item 3 in s 268-40(1).

Did Ms Lee's affidavit comply with the relevant requirements?

1. The issue is whether Ms Lee's affidavit verified the facts sufficient to prove the underlying liability never existed as referred to in s 268-40(4), while also noting the requirements in s 268-90 that certain facts need to be verified.
2. It is notable that Ms Lee asserted in her affidavit that, based on her own knowledge and her review of the books and records of Priority Matters, the company did not pay any employee wages in any of the relevant financial years. The affidavit did not address the additional issues whether Priority Matters paid any employees "salary, commission, bonuses or allowances", which are matters that are also subject to the PAYG withholding obligation imposed by s 12-35 (see s 12-35 and [12] above).
3. Ms Lee attempted to rectify this omission in her affidavit dated 29 March 2021 in the proceeding below by filing and serving a further affidavit dated 18 August 2021. In that affidavit Ms Lee said that she had used the term "wages" in her earlier affidavit as meaning payments an employer makes to an employee. She added that she now understood that the term "wages" has a narrower meaning in taxation legislation. Ms Lee said that her use of the term "wages" in her earlier affidavit was "intended to cover all types of remuneration paid to employees, however described". Significantly, however, Priority Matters acknowledged in the present proceeding that this later affidavit could not be taken into account in determining whether there was compliance with ss 268-40 and 268-90. Presumably this was because the affidavit was filed well outside the 14 day time period stipulated in the Table in s 268-40 and no extension of time had been sought to rely upon it. Priority Matters did, however, assert that it was nevertheless entitled to rely on the affidavit to explain what "wages" in Ms Lee's first affidavit meant.
4. In assessing whether Ms Lee's affidavit complies with the relevant statutory requirements it is well to bear in mind the following important statements of the plurality (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165]: Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC.
5. There are helpful discussions regarding the particular issue of whether an affidavit or statutory declaration "verifies facts sufficient to prove that the underlying liability never existed" in Transtar at [65]ff per Robertson J and in Deputy Commissioner of Taxation v Armstrong Scalisi Holdings Pty Ltd (2019) 109 ATR 606; [2019] NSWSC 129 at [215]ff per Ward CJ in Eq (as her Honour then was). Some relevant principles may be summarised as follows.
6. First, the ordinary meaning of "verifies" is "proved to be true", although it may also mean "to state to be true" with reference to a statutory declaration or affidavit.
7. Secondly, the expression "facts sufficient to prove" suggests that the affidavit must deal with the facts necessary to establish the statutory criterion, ie that the relevant underlying liability never existed. Depending on the complexity of the subject-matter, the evidence will often need to be substantiated beyond the level of mere assertions about the contents of records which are not produced or mere conclusions about complex or mixed questions of fact and law.
8. Thirdly, the affidavit must be admissible according to the rules of evidence and the facts must be sufficient to prove the matter on the balance of probabilities in a civil case.
9. Fourthly, in order to bring about the statutory revocation referred to in s 268-40(4), it is not necessary that the company file all the evidence as if the matter were a full scale trial on the estimate. Depending upon the circumstances, however, it may be necessary to do more than simply assert in an affidavit, without reference to primary facts or to primary documents which must have existed, that no amounts were withheld or that the company had no employees or paid no amount as salary or wages.
10. Fifthly, if affidavit material deals with these kinds of matters in a "rolled up and conclusory way", there is a risk that the Court will find that it does not verify facts sufficient to prove that there was never any underlying liability.
11. Sixthly, an affidavit need not in every case contain the entirety of relevant material in order to comply with ss 268-40 and 268-90, but a merely formal statement or denial without substantiation will not always answer the requirement that an affidavit "verifies facts sufficient to prove" in a matter of any complexity.
12. Before applying those principles in assessing Ms Lee's affidavit it is appropriate to mention a further relevant matter. It relates to the primary judge's reasons at [62] which, for convenience, are now set out: On an application to set aside a statutory demand, the quality and detail of the evidence relied upon by an applicant does not need to be, and likely will not be, to a level required in a fully contested hearing of the principal dispute; the hearsay rule does not apply with the same strictness: Britten-Norman at [37]. It is true that Ms Lee's affidavits are somewhat cursory and unaccompanied by any accounting or banking records of the company which may have corroborated Ms Lee's assertion that, at the relevant time, the company did not have employees, pay wages or maintain a bank account. That said, it is not always easy to prove a negative being, in this case, that Priority Matters did not have employees and did not pay wages. For the purposes of an application to set aside a statutory demand, I consider that Ms Lee's affidavits evidence an issue deserving of a hearing which is arguable and not fanciful. Accordingly, if it were necessary to decide, I would have concluded that there is a genuine dispute that Ms Lee's affidavit complies with sections 268-40(4) and 268-90(2).
13. The applicant candidly acknowledged before us that this passage from her Honour's reasons for judgment may have been affected by a submission it made below to the effect that "there were simply no employees that were engaged whatsoever … in any period the subject of the estimates" (see also [21] and [22] above). That submission was not supported by Ms Lee's affidavit.
14. I do not consider that Ms Lee's affidavit satisfied the relevant requirements in ss 268-40 and 268-90. Significantly, as has been emphasised, the affidavit focused only on the issue of whether Priority Matters had paid wages during the relevant period and was entirely silent on the question whether it paid any individual as an employee "salary, commission, bonuses or allowances", which also fell within s 12-35. This is a significant omission. Neither the notice of estimate dated 6 August 2015 (which Ms Lee said she had never received) nor the statutory demand dated 1 March 2021 were confined in their terms to "wages". The notice referred to "pay as you go (PAYG) withholding amounts withheld by you under Division 12 in Schedule 1 to the TAA 1953 and not remitted to the Commissioner as required by subsection 16-70(1) in Schedule 1 to the TAA 1953" while the statutory demand referred to amounts due under inter alia "the PAYG withholding provisions … and estimates due under Division 268 in Schedule 1 to the Taxation Administration Act 1953 …".
15. Ms Lee's second affidavit (see [33] above), filed outside the relevant period, was incapable of changing what Ms Lee had said (or omitted to say) in her first affidavit.
16. This is a sufficient basis to find that Ms Lee's affidavit was non-compliant with the relevant statutory requirements.
17. The following observations may also be made in respect of the first affidavit. Some paragraphs in that affidavit were conclusionary or argumentative and inadmissible (in particular, Ms Lee's assertion that no amounts were required to be paid by Priority Matters under Div 13 and Div 14 of Sch 1 to the Taxation Administration Act during some of the relevant financial years). That is not to say, however, that other parts of her affidavit were not admissible.
18. Another observation relates to Ms Lee's statement in her first affidavit that there were other companies (in the group) which were "relevant", of which either she or her husband or both were directors. Assuming that the assertion of relevance was admissible (which is doubtful), Ms Lee did not offer any explanation as to why the other companies were relevant and, in particular, whether those other companies had any PAYG withholding obligation in relation to Priority Matters' employees.
19. The fundamental deficiency in Ms Lee's affidavit described at [44] above is fatal to Priority Matters' application for leave to appeal in respect of the proposed first ground of appeal. That ground is directed to the proper construction of item 2 and, in particular, whether the proceedings brought by Priority Matters to have the statutory demand set aside were "proceedings that relate to the recovery of the unpaid amount of the estimate". This issue of construction is a complex and challenging one. The issue is one which should be addressed in a case where it is necessary to do so. That is not the case here, given that the issue effectively becomes moot because Ms Lee's affidavit does not comply with the relevant statutory requirements.
20. Neither does the proposed second ground of appeal warrant a grant of leave to appeal. It does not raise any issue of general principle or public importance. Moreover, the commencement of the winding-up proceedings in the Federal Court by the Deputy Commissioner has effectively overtaken Priority Matters' contentions regarding the risk that any creditor could take advantage of the act of insolvency and commence such a proceeding.
21. In the particular circumstances of this case I am also not satisfied that Priority Matters would suffer a significant injustice if leave were not to be granted. Again, that is because winding-up proceedings have now been commenced in the Federal Court and Priority Matters has availed itself of an opportunity to file another affidavit by Ms Lee which purports to comply with the requirements applicable to an item 3 affidavit. Thus Priority Matters will have an opportunity to persuade the Federal Court that that affidavit complies with the relevant requirements.
22. I do not accept Priority Matters' submission that there would be a clear injustice if leave were not granted. Part of its argument was that it was unjust for it potentially to have to face a winding-up application based upon a statutory demand which relied upon an estimate. This contention has been overtaken by events because that is the position that confronts Priority Matters now that winding-up proceedings have been commenced.
23. Priority Matters did not adduce any evidence which supported any claim that commencement of the winding-up proceedings put it in breach of, for example, financial covenants.
24. It is also open to Priority Matters to seek an expedited hearing of the winding-up application in the Federal Court so as to mitigate any adverse consequences caused by the commencement of those proceedings.
25. In short, the basis for Priority Matters' dissatisfaction with the judgment and orders below has effectively been overtaken by subsequent events.

Conclusion

1. For these reasons, the summons seeking leave to appeal filed on 9 May 2022 should be dismissed, with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 October 2022