Income Tax - administrative review - decision of Taxation Relief Board - s. 265 Income Tax Assessment Act 1936 - meaning of "entail serious hardship" - natural justice.

Administrative Decisions (Judicial Review Act) 1977, ss. 5 (1) (a),(e),(f),(h); 5 (2) (a),(b); 5 (3); 13

Income Tax Assessment Act 1936, s. 265

R. v Trebilco; Ex parte F.S. Falkiner and Sons Limited [1936] HCA 63; (1936) 56 CLR 20

Furtado v City of London Brewery Company (1914) 1 KB 709

Powell v Evreniades (1989) 21 FCR 252

Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321

Broussard v Minister for Immigration, Local Government and Ethnic Affairs (1989) 21 FCR 472

Counsel and solicitors Mr S.J. McMillan instructed by

Counsel and solicitors Miss Rhonda Henderson instructed by for the respondents: the Australian Government Solicitor

Exhibit A may be returned to the solicitors for the respondents.

NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

By Application filed 11 December 1990, the applicant seeks an order of review under the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act") of, inter alia, a decision of the Taxation Relief Board ("the Board") made 9 May 1990 and communicated to the applicant 14 May 1990, whereby the applicant was refused relief from his liability to pay income tax in the sum of $19,660.99 in respect of the years of income 1978-1985 inclusive.

2. The applicant is a finance broker and consultant. The respondents were at all material times members of the Board. This body is established pursuant to s. 265 of the Income Tax Assessment Act 1936 ("the Act"). Section 265 has been amended from time to time, most recently in 1986. So far as is presently relevant, it provides:

"265 (1) In any case where it is shown to the satisfaction of a

Board consisting of the Commissioner, the Secretary to

the Department of Finance and the Comptroller-General

of Customs or of such substitutes for all or any of

them as the Minister appoints from time to time that -

(a) a taxpayer has suffered such a loss or is in

such circumstances; or

(b) owing to the death of a person, who, if he had

lived, would have been liable to pay tax, the

dependants of that person are in such circumstances,

that the exaction of the full amount of tax will

entail serious hardship, the Board may release the

taxpayer or the trustee of the estate of the deceased

person (as the case may be) wholly or in part from his

liability, and the Commissioner may make such entries

and alterations in the assessments as are necessary

for that purpose.

(2) The Commissioner or his substitute shall be Chairman

of the Board, and the decision of the majority shall

prevail.

(3) Where an application is made for release in respect of

an amount of tax if that amount is not less than

$10,000, the Board shall, and if that amount is less

than $10,000, the Board may refer the application to

the Tribunal and notify the applicant in writing of

its having done so.

(4) The President of the Tribunal shall designate the

Registrar or a Deputy Registrar of the Tribunal to be

a designated person

(a) for the purposes of dealing with the

application; or

(b) for the purposes of dealing with applications

under this section included in a specified class

of applications.

(5) The applicant may appear before the designated person

or the designated person may require the applicant to

appear before him, either in person or by a

representative, and the designated person may examine

the applicant or his representative upon oath or

affirmation concerning any statements which the

applicant has, or desires to have, placed before the

Board constituted by this section.

(6) The designated person shall be assisted in his

examination of the applicant by an officer employed in

the Australian Taxation Office who is a qualified

accountant.

(7) The designated person may permit the taxpayer to be

assisted at the examination by such persons as the

designated person considers the circumstances justify.

(8) A record shall be made of the information elicited by

the designated person during his examination.

(9) The designated person shall -

(a) submit a report to the Board constituted under

this section upon the facts disclosed by his

examination, together with the record referred

to in sub-section (8); and

(b) draw the attention of that Board to facts that,

in his opinion, have a particular bearing upon

the application.

. . .

(11) In any case where the amount of the liability does not

exceed $500, the powers conferred by sub-section (1)

on the Board specified in that sub-section may be

exercised by the Commissioner.

. . ."

3. On 14 May 1990, the Chairman of the Board wrote to the applicant a letter which included the following paragraphs:

"The Board has examined all the information which has been

supplied and was not satisfied that serious hardship would

result. In reaching its decision the Board took into

account the following:

. you have significant equity in your current home,

which you propose to sell in December 1990;

. you have an excess of income over expenditure in the

current circumstances, and this will be even larger

when you sell your current home and buy a smaller one

or a unit.

Accordingly the Board cannot grant you relief from your tax

liability."

4. A Statement of Reasons was then sought under s. 13 of the ADJR Act, and this was supplied under cover of a letter dated 7 November 1990 from the Chairman of the Board, addressed to the applicant c/- his solicitors. The Statement of Reasons in relation to the decision of the Board communicated by its letter of 14 May 1990 was as follows:

"1. The findings on material questions of fact were:

(a) The taxation liability which could be considered for

relief was $19660.99 for 1978 to 1985 income years

inclusive.

(b) Mr Van Grieken ('the applicant') is 61 years of age.

(c) The applicant's occupation is finance consultant in

his own company, Lease Mortgage Finance Consultants

Pty. Ltd.

(d) The Directors of the company are Norma Van Grieken,

Gregory Van Grieken and Tony Van Grieken. The Company

operates from the applicant's home address.

(e) The applicant's net income is $742.00 per fortnight

based on the 1989 income tax return. Mrs Van

Grieken's net income is $676.00 per fortnight.

Fortnightly board is paid by the sons of $120.00.

Total fortnightly income for Mr and Mrs Van Grieken is

$1538.00.

(f) The applicant was expecting to receive an additional

$5000.00 in 1990.

(g) Total family expenditure is stated as $1512.00 per

fortnight. This includes :-

Food and household supplies $300.00

Laundry and cleaning $15.00

Repairs and Maintenance of house $30.00

Rates/phone/electricity $85.00

A further $155.00 per fortnight is paid by the company

as a one sixth business component for the home office

expenses.

(h) Applicant has a house at 9 Tarra Crescent, Dee Why

valued at $275000.00 jointly owned with his wife.

(i) In December 1987 an interest only loan of $157,000.00

was taken out privately, through Noel Raymond Pty Ltd.

This loan was for three years at a fixed interest rate

of 14.5%. This loan consolidated previous loans

listed in the application form of October 1985.

(j) All previous loans, accrued interest on late

repayments and legal costs were paid except the

taxation liability as a result of the consolidation of

loans in December 1987.

(k) The applicant intends when the $157000.00 loan expires

in December 1990 to either refinance or sell the house

and buy a small unit.

(l) The applicant intends to purchase a two bedroom unit

or house as his son still lives at home and pays

board. The son is not listed as a dependant.

(m) The applicant's wife has a bank account with a balance

of $3100.00.

(n) The applicant's wife has a car valued at $1750.00.

(o) The applicant has the use of a company car. He is the

director of the company, which purchased during the

year ended 30 June 1989, a Toyota Camry now valued at

$25000.00 on which $22000.00 is owed. Private use is

20% of full running costs.

(p) During the year ended 30 June 1989 the company

acquired motor vehicles valued at $41998.00, a Camry

and a Laser.

(q) A provision of $100 per fortnight is made for

repayment of credit card bills. The credit cards are

used to purchase household items and pay bills which

would have been included in domestic expenditure.

(r) Furniture and personal effects with an auction value

of $10000.00 are owned by the applicant and his wife.

(s) The applicant incurs expenditure of $60.00 per

fortnight for entertainment, cigarettes and drink.

2. The evidence or other materials on which the findings were

based:

(i) The application for release lodged by the

applicant dated 25 October 1985 and attachment

listing financial position and supplementary

statutory declaration by the applicant.

(ii) Letter dated 28 May 1986 from the Deputy

Commissioner of Taxation, Sydney, referring the

application for release together with

attachments providing assessment details.

(iii) Advice from Chatswood Office that the applicant now

came into their area.

(iv) Report of the examination held on 12 December

1989 by the District Registrar of the

Administrative Appeals Tribunal with form

completed by the applicant.

(v) Reply from Hamilton Picello and Partners dated 23

March 1990 to questions asked by Chatswood Office.

(vi) Letter dated 16 May 1990 from the applicant

requesting case be reconsidered.

(vii) Letter dated 27 August 1990 from the applicant

requesting case be reconsidered again.

(viii) Lease Mortgage Finance Consultants Pty Ltd

return for year ended 30 June 1989."

5. The reference in sub-para. 2 (v) to the letter from Hamilton Picello and Partners dated 23 March 1990, is to a letter from that firm, as the applicant's accountants, giving various information as to the company Lease Mortgage Finance Consultants Pty Limited and referring to the lodgment of the applicant's return for the year ended 30 June 1989. This letter responded to a request by a Deputy Commissioner, written with reference to the application for relief from liability, and seeking, inter alia, details of the lodgment of the 1989 return. This was plainly for use by the Board in dealing with the application.

6. The reference in sub-para. 2 (iv) to the report of the examination held 12 December 1989 is to a letter from the Deputy Registrar of the Administrative Appeals Tribunal dated 2 January 1990 to the Chairman of the Board. I was informed by counsel that the Deputy Registrar was a designated person within the meaning of sub-s. 265 (4) of the Act, and that his report was furnished pursuant to sub-s. 265 (9).

7. I now return to the text of the Statement of Reasons:

"3. The Board was not satisfied that payment of the full amount

of tax would cause serious hardship.

The factors which led the Board to the finding are as

follows:

(a) The applicant has significant equity in his home.

(b) The applicant will have available funds to meet his

taxation liability in December 1990.

(c) When the applicant took out a consolidation loan in

December 1987 he paid out all his debts without making

provision to pay his taxation debt.

(d) The applicant's income is in the form of Director's

fees from a company effectively under the applicant's

control. The amount available to the director as fees

is effectively reduced as a result of the acquisition

of two motor vehicles as it involves commitment to

payments over time by the company.

(e) The applicant had an excess of income over expenditure

and with a reduction in discretionary expenditure

could meet his tax liability."

It will be noted that the factors which are there stated as leading the Board to its findings are more extensive than those mentioned in the letter of 14 May 1990. The Chairman had there referred to the significant equity of the applicant in his house which he proposed to sell, and to an excess of income over expenditure.

8. After receipt of the letter of 14 May 1990, the applicant had written to the Chairman on 16 May 1990 stating that the excess of income over expenditure was only $26.00 per fortnight, and after selling the house and paying out the mortgage, there would be a net figure of $113,000.00, so that he would be thought lucky to purchase an old one bedroom home unit for that sum in Sydney. In response, the Chairman wrote on 17 August 1990 stating that the Board had recently reconsidered the application and continuing:

"The Board has examined the additional information which you

have supplied and has concluded that you may suffer some

difficulty at present, however, as funds will be available

when your current residence is sold, the Board was not

satisfied that you would be caused serious hardship.

Accordingly the Board cannot grant you relief from your tax

liability."

This produced a further letter from the applicant, dated 27 August 1990, in which he further disputed the proposition that funds would be available when the house was sold.

9. The result was a letter dated 25 September 1990 from the Chairman to the applicant, the material part of which reads as follows:

"The Taxation Relief Board ('the Board') considered your

application on 9 May 1990. You requested that your

application be reconsidered. This was done on 10 August

1990 but the Board's decision has not changed. On 27 August

1990 you requested that your application be considered a

third time.

Relief can only be granted if the Board is satisfied that

serious hardship will be caused by payment of the tax. You

own your current home in which you have significant equity.

You were aware of your tax liability when tax assessments

issued from 1981 to 1985 and did not pay the debts. In

December 1987 you took out a private consolidation loan to

clear your debts but did not include your tax debt.

On your figures you have an excess of income over

expenditure. You are proposing to sell your house in

December and buy a smaller house or unit. You are currently

paying interest on a loan of $157,000. If you sell your

house you would not have to meet these repayments. You will

have the capacity to pay your tax debt. The Board cannot

grant you relief."

10. The Board also furnished Statement of Reasons under s. 13 of the ADJR Act in respect of what were described as the decisions of 17 August and 25 September 1990. In each case, the substance of the Statement of Reasons is that there had been no change in circumstances to alter the original decision communicated by letter dated 14 May 1990.

11. In his Application to this Court, the applicant treats what has transpired as involving three decisions, dated 9 May 1990, 10 August 1990 and 25 September 1990. In each case the grounds relied upon are (1) breaches of the rules of natural justice, (2) the taking into account of irrelevant considerations, (3) absence of evidence to support the various findings, (4) failure to take into account relevant considerations, and (5) unreasonableness. It became apparent at the hearing that the applicant placed strongest reliance upon the first of these grounds, breaches of the rules of natural justice.

12. The phrase in s. 265 "entail serious hardship" has a lengthy legislative history. It appeared in s. 95 of the Income Tax Assessment Act 1922, and s. 64 of the Income Tax Assessment Act 1915. Under both those provisions, applications were to be made to a Board consisting of the Commissioner, the Secretary to the Treasury and the Comptroller-General of Customs. Like provision was made by s. 66 of the Land Tax Assessment Act 1910, which was considered by the High Court in R. v Trebilco; Ex parte F.S. Falkiner and Sons Limited [1936] HCA 63; (1936) 56 CLR 20. Earlier British provisions were considered by the Court of Appeal in Furtado v City of London Brewery Company (1914) 1 KB 709. Those provisions, like the Australian legislation, assume the existence of the tax liability and provide for relief on special grounds beyond those considered in the process of assessment.

13. In Powell v Evreniades (1989) 21 FCR 252 at 259, Hill J. said that it was inappropriate to endeavour in the abstract to state tests of what would and what would not constitute serious hardship within the meaning of s. 265. His Honour also held (supra at 262-263) that the Board may consider not only such matters as go to the issue of serious hardship, but also other matters which, in the discretion of the Board, may be relevant, "those other matters being merely proscribed by the general principle that the discretion must be exercised bona fide and for the purposes for which it was conferred, there being jurisdiction in this Court to intervene if in the overall exercise of the discretion the Board does take into account considerations which, having regard to the purposes served by s 265, can be seen to be irrelevant".

14. Further, the parties in the present proceeding accepted what Hill J. said in that case as to the applicability of the requirements of procedural fairness or natural justice. His Honour's remarks appear supra at 267-268. His Honour said that (a) the discretion as to whether there is serious hardship turns upon a factual criterion which is quite specific so that there is scant reason for the principles of natural justice not applying and (b) where the Commissioner, not being a party to the application directly, produces material for the consideration of the Board and the Board accepts it, it not having been dealt with by the applicant in his application, there is a strong case for saying that procedural fairness required the applicant be given an opportunity of responding to the matter.

15. I turn to consider the various grounds upon which the applicant sought an order for review under the ADJR Act.

16. It was said in para. 3 of the Application that the decision of May 1990 "involved an error of law in that there was no evidence to support" the findings set out in the particulars to that paragraph. These identified some or all of the findings in sub-paras. (f), (g), (i), (j) and (l) of para. 1 of the Statement of Reasons in relation to the May 1990 decision. There is some ambiguity in the terms in which the Application is expressed as to whether reliance is placed upon one or other or both of paras. (f) and (h) of sub-s. 5 (1) of the ADJR Act, the former dealing with error of law and the latter with absence of evidence or other material to justify the making of the decision, a ground which has to be read in association with sub-s. 5 (3). This in turn raises questions as to the adverse effect for the applicant of the reasoning in the judgments in Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321.

17. Counsel for the respondents submitted that there was no need for the Court to embark upon a consideration of the High Court decision, although its effect favoured her case. She made what she described as a "blanket submission" that each of the findings for which it was said there was no evidence had its source either in the written application lodged by the applicant and dated 25 October 1985, and the supporting documentation (referred to in sub-para. 2 (i) of the Statement of Reasons) or in the report of the examination held on 12 December 1989 by the District Registrar of the Administrative Appeals Tribunal (referred to in sub-para. 2 (iv)). That, indeed, appears to be the case. Further, in his reply, counsel for the applicant did not seek to traverse that submission.

18. In his address in chief, counsel for the applicant had challenged certain findings of fact in the Statement of Reasons in addition to those particularised in the Application. Thus, he pointed to what was said to be an inconsistency between sub-paras. 1 (k) and (l), but material was on the record to support both statements. He also pointed to the statement of $60 in sub-para. (s) which should have been $30, as the amount spent by the applicant per fortnight for entertainment, cigarettes and drink. The effect of the error was to overstate the amount of funds left to the taxpayer. But, in any event, and particularly in the circumstances of this case, such an error could not found a ground of review of the description sought to be made under the ADJR Act.

19. Next, in apparent reliance upon paras. 5 (1) (e) and 5 (2) (b) of the ADJR Act, it was asserted in para. 4 of the Application that the making of the decision was an improper exercise of the power of the Board because the Board had failed to take into account relevant considerations. Those considerations were said to be that the applicant had no assets from which the liability could be repaid, and that he was incapable of making any payment which would reduce the amount of tax to be paid. No doubt, the presence of resources from which payment may be made by the applicant is something to be taken into account in determining whether the exaction of the full amount of the tax would entail serious hardship. But, as the particulars indicate, what essentially is sought in para. 4 of the Application is to re-agitate the findings of the Board on material questions of fact, that also being the objective of para. 3 of the Application. That is a matter with which I have dealt above. No ground is made out in reliance upon para. 4 of the Application. It adds nothing to para. 3.

20. The same vice is found in para. 5 of the Application. This seeks to use the proposition that the applicant had no assets from which the liability could be repaid, and was incapable of making any payment which would reduce the amount of tax, to support the proposition that the decision was so unreasonable that no reasonable person could have so exercised the discretionary power given by s. 265 of the Act.

21. It was also asserted (para. 2 of the Application) that the decision was an improper exercise of power, because the Board had, in the sense of para. 5 (1) (e) and para. 5 (2) (a) of the ADJR Act, taken into account irrelevant considerations. Particulars were given of various sub-paragraphs in para. (1) of the Statement of Reasons. Some of these referred to the rearrangement of the taxpayer's financial affairs in 1987, and to his intentions as to the sale of his house and acquisition of other accommodation. Other particulars related to the financial relationship between the taxpayer and a son living at home, the taxpayer's wife, and a company of which he is director and which carries on its operations from the taxpayer's house. But the determination of whether the exaction of the full amount of the tax would entail serious hardship properly involves a consideration of the financial affairs of the taxpayer, including his financial relations with the other members of his household, and with any family company. I accept the submissions to that effect by counsel for the respondents.

22. There remains for consideration the complaint in para. 1 of the Application that in various ways the Board did not extend to the applicant procedural fairness, so that there were breaches of the rules of natural justice in connection with the making of its decision: ADJR Act, para. 5 (1) (a).

23. I have referred to the letter dated 23 March 1990 from the applicant's accountants, which is identified in sub-para. 2 (v) of the Statement of Reasons. As indicated, that responded to a written request for information by a Deputy Commissioner, made with the evident purpose of passing the information on to the Board. The Deputy Commissioner's letter had stated "The Relief Board are about to make a decision on Mr Griekens (sic) case but need clarification on the following matters . . .". Counsel for the applicant pointed to this as indicative of the situation whereby there were various communings between the Board and persons charged with the administration of the Act, communications of which the applicant was unaware at the time, although, in substance, the Commissioner was the adverse party to the applicant's claim for relief under s. 265. It was submitted that such communications denied the applicant procedural fairness.

24. Counsel for the respondents pointed to the terms of sub-s. 265 (2) which provided that the Commissioner or his substitute shall be Chairman of the Board, and to the existence of some circumstances (those indicated in sub-s. 265 (11)) in which the powers conferred on the Board may be exercised by the Commissioner alone. She also pointed to the nature of an application under s. 265 as one which assumed the existence of the tax liability, and did not provide further for the liability to be called into question. Finally, counsel submitted that it was to be inferred from the structure of s. 265 that in a case such as the present, save for the use made of the facilities of the Administrative Appeals Tribunal for the examination of the applicant on oath or affirmation, the day to day carriage of the application would be conducted by officers employed in the Australian Taxation Office. It would be, she submitted, an unreasonable construction of s. 265 to read it as requiring the Board, subject to the role of the Tribunal, not only to make the decisions there referred to, but themselves to perform all the administrative tasks leading up to the placing of applications before the Board for decision.

25. I accept those submissions. The obligations of the Board to extend procedural fairness to applicants for relief has to be measured against that background. In those circumstances, in my view, it is plain that there was no breach of the rules of natural justice by the communications of which the applicant complains in the present case.

26. In addition to the matters to which I have already referred, the taxpayer also complained of a written communication by a Deputy Commissioner which appears to have been received by the Commissioner on 28 May 1986. The Deputy Commissioner stated that he enclosed five copies of a statement of case relating to an application for relief made by the applicant, and requested that the case be treated expeditiously as bankruptcy proceedings were pending. The first page of the enclosures is a summary of the amounts from which the applicant sought relief, and it was not suggested that those figures were inaccurate. On the second page, there was a statement of the sources of taxable income of the taxpayer from the years 1981 - 1985, and a summary of the recovery actions taken or attempted against him. None of this material is inaccurate, and all of it would have been known to the taxpayer. Under the heading "Remarks", there is a summary of a telephone conversation with the taxpayer on 9 April 1986 in which he had made various complaints and also said that he would like the 1985 tax debt to be considered with his application which had been made 25 October 1985 and did not go past the 1984 tax year.

27. Then complaint was made of letters dated 7 July 1987 and 8 October 1987, in which a Deputy Commissioner reported to the Commissioner upon further communications with the applicant, which had the effect of revising upwards the amount in respect of which relief was sought.

28. Finally, there was an objection to reliance by the Board upon information in the applicant's 1989 return after the correspondence with the applicant's accountants, in May 1990, to which I have earlier referred when dealing with sub-para. 2 (v) of the Statement of Reasons. Plainly, in deciding whether relief should be given under s. 265, the Board is entitled to look to the most recent information properly available to it as indicative of the current situation of the taxpayer. In any event, the effect of the correspondence with the applicant's accountant was quite fairly to place him on notice that the Board was likely to put the applicant's 1989 return to such a use.

29. It will be seen from this review of the material, to the use of which by the Board objection was taken, that it was essentially factual, emanated from the applicant and was informative rather than prejudicial in nature. This is not a case where the decision maker was obliged by the requirements of procedural fairness to draw to the attention of the applicant any particular use to which it was proposed to put the material, before going ahead to make the decision; cf. the authorities discussed in Broussard v Minister for Immigration, Local Government and Ethnic Affairs (1989) 21 FCR 472 at 480-482. Accordingly, the complaints of a want of procedural fairness fail.

30. As I have indicated earlier in these reasons, after the receipt of the letter of 14 May 1990, the applicant entered into correspondence with the Chairman of the Board, in effect requesting reconsideration of the decision of the Board in the light of what was said to be a misunderstanding of relevant facts. The Board's file, No. R86/796, is in evidence as Exhibit A. It shows notations by the Chairman upon letters written by the applicant and there follows the letters from the Chairman to the applicant dated 17 August 1990 and 25 September 1990, the material portions of which I have set out earlier in these reasons. There was a faint attempt in argument to suggest for the applicant that because the notations on the correspondence on the file were not by all members of the Board with the carriage of the matter, no decision of the Board had in fact been made. In my view, no such case has been made out from the exiguous materials relied upon for it.

31. The Application treats these later steps as involving two further decisions under the Act, and seeks review under the ADJR Act in respect of them. The grounds relied upon largely repeat those urged in the attack upon the first decision. The failure of that attack brings with it the defeat of the attack upon the other decisions.

32. The result is that the application in its entirety is dismissed. The applicant must pay the costs of the respondents.

33. Exhibit A may be returned to the solicitors for the respondents.