Robertson Jnr v Deputy Commissioner of Taxation of the Commonwealth of Australia

Federal Court of Australia (Full Court)|2004-03-08|Before: Carr J, Lehane JJ, Hill J, Lehane J, Whitlam J, Stone JJ

INTRODUCTION 1 The principal issue to be determined on this appeal is very narrow. It is whether the learned primary judge (Carr J) erred in concluding that the appellant did not come within the limited class of bankrupts who, on the authority of McCallum v Commissioner of Taxation (1997) 75 FCR 458, may be 'dissatisfied' within the meaning of s 14ZZ of the Taxation Administration Act 1953 (Cth) ('the TA Act') with an objection decision made by the Commissioner of Taxation ('the Commissioner'). The appellant, by his counsel, expressly disavowed any challenge to the majority decision in McCallum v Commissioner of Taxation. 2 In McCallum v Commissioner of Taxation a taxpayer, Mr McCallum, duly objected to an assessment made by the Commissioner. Prior to the objection being disallowed Mr McCallum was made bankrupt. After the objection was disallowed Mr McCallum, in reliance on s 14ZZ of the TA Act, applied to the Administrative Appeals Tribunal ('the Tribunal') for review of the Commissioner's decision to disallow the objection. The Full Federal Court (Whitlam and Lehane JJ, Hill J dissenting) held that the principle laid down in Cummings v Claremont Petroleum NL (1996) 185 CLR 124, namely that a bankrupt has no standing to appeal against a judgment that creates or evidences a provable debt in the bankruptcy, was applicable in respect of the right under s 14ZZ of the TA Act to seek review of the Commissioner's objection decision. Lehane J, with whom Whitlam J agreed, concluded that Mr McCallum was 'likely to lack standing to apply to the AAT for a review of the objection decision' (see Lehane J at 475). Lehane J explained the use of the word 'likely' in the following way: 'I use the phrase "is likely to" deliberately: he will not have standing merely because, for example, a successful challenge to the objection decision may result in a surplus in his bankrupt estate or because of any effect that the assessments and the objection decision may have upon his reputation. It is conceivable, however, that there may be some other footing in which he could claim standing: for example, it may be that an objection decision in relation to a particular assessment will have consequences in relation to tax payable, perhaps in years following discharge from bankruptcy, for which Mr McCallum will be personally liable.' 3 In this case the appellant objected to certain notices of assessment in fact issued by the Deputy Commissioner but deemed to have been issued by the Commissioner (see s 8(2) of the TA Act). The Commissioner disallowed the objections and obtained summary judgment against the appellant pursuant to the assessments. The appellant applied to the Tribunal for review of the Commissioner's objection decisions but became bankrupt on his own petition before the Tribunal conducted the reviews for which the applicant had applied. The Commissioner thereafter challenged the jurisdiction of the Tribunal to review the objection decisions. The Tribunal concluded that upon the appellant becoming bankrupt he lost his standing to maintain his application for review, that standing having vested in his trustee in bankruptcy. 4 The primary judge upheld the decision of the Tribunal that, following his bankruptcy, there was no basis upon which the appellant could maintain his status as a person dissatisfied with the Commissioner's objection decisions. 5 Before the publication of his Honour's judgment, the Court was notified that the appellant had been discharged from bankruptcy by the effluxion of the statutory three year period. It was not submitted to the primary judge, or to this Court, that the appellant's discharge from bankruptcy has any significance so far as his entitlement to obtain review of the Commissioner's objection decisions is concerned. Nor was it submitted to the primary judge or to this Court that the fact that the appellant, unlike Mr McCallum, made his application under s 14ZZ of the TA Act before he became a bankrupt rendered the circumstances of this case relevantly distinguishable from the circumstances considered by the Full Court in McCallum v Commissioner of Taxation. 6 In the circumstances, the appeal against his Honour's decision must, in our view, fail for the reasons set out below.

consideration 7 Section 14ZU of the TA Act governs the manner in which '[a] person' making a taxation objection must make the objection. Subsequent sections of the TA Act utilise the expression 'the person' as a shorthand reference to a particular person who has made a taxation objection. 8 Section 14ZZ of the TA Act provides: 'If the person is dissatisfied with the Commissioner's objection decision, the person may: (a) if the decision is both a reviewable objection decision and an appealable objection decision - either: (i) apply to the Tribunal for review of the decision; or (ii) appeal to the Federal Court against the decision; or (b) if the decision is a reviewable objection decision (other than an appealable objection decision) - apply to the Tribunal for review of the decision; or (c) if the decision is an appealable objection decision (other than a reviewable objection decision) - appeal to the Federal Court against the decision.' 9 As is mentioned above, the appellant did not mount a challenge to the correctness of the majority decision in McCallum v Commissioner of Taxation nor seek to distinguish it. The principal submission advanced by the appellant was that he has standing to seek review of the Commissioner's objection decisions because the objection decisions may have ramifications for him after his discharge from bankruptcy. The submission was sought to be supported by reference to Part IIB of the TA Act which authorises the Commissioner to establish running balance accounts ('RBAs') for primary tax debts. 10 Part IIB of the TA Act is constituted by s 8AAZA - s 8AAZN. Division 1 of Part IIB of the TA Act contains the following relevant definitions: 'primary tax debt means any amount due to the Commonwealth directly under a taxation law (other than, except in Division 4, the Product Grants and Benefits Administration Act 2000), including any such amount that is not yet payable.' 'RBA deficit debt, in relation to an RBA of an entity, means a balance in favour of the Commissioner, based on: (a) primary tax debts that have been allocated to the RBA and that are currently payable; and (b) payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that have been allocated to the RBA.' 'RBA surplus, in relation to an RBA of an entity, means a balance in favour of the entity, based on: (a) primary tax debts that have been allocated to the RBA; and (b) payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that have been allocated to the RBA.' 11 Section 8AAZH(1) of the TA Act provides, in effect, that a taxpayer is liable to pay to the Commissioner any RBA deficit debt in relation to his or her RBA. Conversely, s 8AAZLF(1) of the TA Act places a qualified obligation on the Commissioner to refund to a taxpayer the RBA surplus in relation to his or her RBA. The appellant placed weight on the inclusion in par (a) of the definition of 'RBA deficit debt' of the phrase 'that are currently payable' and the absence of a similar phrase in par (a) of the definition of 'RBA surplus'. The appellant argued that the definition of 'RBA surplus' had the effect that: '… the tax debt is taken into account in determining surplus, not if it is payable but if it has been allocated.'

Consequently, so the appellant argued, a primary tax debt allocated to a RBA before the taxpayer's bankruptcy, whilst no longer payable by the taxpayer, could have adverse consequences for the taxpayer following his discharge from bankruptcy by negating an entitlement that he might otherwise have to a refund of an RBA surplus.

12 In our view, the above argument, which it appears was not put to the primary judge in quite the same way that it was put to this Court, is without merit. It gives no weight to the inclusion in the definition of 'RBA surplus' of the defined expression 'primary tax debt'. A 'primary tax debt' for the purposes of Part IIB of the TA Act is an amount 'due to the Commonwealth' (see [10] above). A primary tax debt which was allocated to a RBA at a time when the taxpayer was under a legal obligation to pay it would, should that obligation come to end for any reason, immediately cease to fall within the statutory definition of a 'primary tax debt'. 13 In our view, the reason for the inclusion of the phrase 'that are currently payable' in the definition of a 'RBA deficit debt' but not in the definition of an 'RBA surplus' is as follows. If the reference to 'primary tax debts' in the definition of 'RBA surplus' were qualified by the phrase 'that are currently payable', s 8AAZLF(1) would require the Commissioner to make payments to a taxpayer notwithstanding that the taxpayer owed an amount, which was not yet payable to the Commonwealth, directly under a tax law. It may be assumed that the legislature wished to avoid this result. By contrast, the calculation of an 'RBA deficit debt' by reference only to primary tax debts 'that are currently payable' ensures that s 8AAZH(1) does not operate to bring forward the date by which an amount due to the Commonwealth directly under a taxation law is payable. 14 Section 153(1) of the Bankruptcy Act 1966 (Cth) ('the Bankruptcy Act'), subject to certain exceptions not here relevant, provides that where a bankrupt is discharged from bankruptcy, the discharge operates to release him or her from all debts provable in the bankruptcy. For this reason the primary tax debt that was provable in the appellant's bankruptcy ceased, upon the appellant's discharge from bankruptcy, to be an amount 'due to the Commonwealth'. It is thus no longer a 'primary tax debt'. It can no longer lawfully be taken into account for the purposes of calculating any RBA surplus in any RBA that the Commissioner has or may establish for him. It will not have any adverse consequences touching on any entitlement that the appellant might otherwise have to receive payment of an RBA surplus. 15 We reject the argument that the definition of 'RBA surplus' should be construed as though it referred to, in effect, amounts that have been allocated to the RBA or 'primary tax debts that have been allocated to the RBA'. To so construe the definition would undermine the intended operation of s 153 of the Bankruptcy Act and would advance no legitimate legislative purpose. 16 It was further argued by the appellant, albeit faintly, that the primary judge should have concluded that the Tribunal denied the appellant procedural fairness by failing 'to permit or encourage' the appellant to lead oral evidence concerning certain legal advice that he had received before he presented to the Official Receiver his own petition. It was submitted that: 'The reason that the advice received is relevant is that it's part of the circumstances which led him to bring on the debtor's petition which was, we would say, misconceived and ought to be able to be annulled for that reason.' 17 Section 153B of the Bankruptcy Act provides: '(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy. (2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.'

It is conceded that no application has been made by the appellant for an order under s 153B of the Bankruptcy Act.

18 Even if it be assumed that evidence as to the legal advice received by the appellant before he presented his own petition could be relevant to an application for an order under s 153B of the Bankruptcy Act, that evidence could have no relevance to the question whether, while the sequestration order remains effective, the appellant is a person 'dissatisfied' with the Commissioner's objection decisions. Nor, in our view, could the fact that the appellant, as appears to be the case, now has a better appreciation of the disadvantages of bankruptcy than he did at the time when he presented his own petition, be relevant to that question. 19 In any event, we are in agreement with Carr J, for the reasons that his Honour gave, that the Tribunal gave the appellant ample opportunity to put his case before it. 20 By his written submissions, the appellant alternatively contended that, as he would be entitled to have his bankruptcy annulled if he were entirely successful in the review of the Commissioner's objection decision, he was a person 'dissatisfied' with the objection decision. It may be that this contention was not intended to be pressed following the appellant's disavowal of any intention to challenge the majority decision in McCallum v Commissioner of Taxation and his failure to distinguish that decision. In McCallum v Commissioner of Taxation Lehane J, with whom Whitlam J agreed, at 475 stated: '… he will not have standing merely because, for example, a successful challenge to the objection decision may result in a surplus in his bankrupt estate ….' 21 The above statement of Lehane J followed from his Honour's conclusion that the principle laid down in Cummings v Claremont Petroleum NL was applicable to the determination of whether a bankrupt has standing to apply to the Tribunal for review of an objection decision under s 14ZZ of the TA Act. In Cummings v Claremont Petroleum NL at 137-138 the majority of the High Court (Brennan CJ, Gaudron and McHugh JJ), after citing a passage from an unreported decision of Hoffmann LJ, said: 'So far as a judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectively agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of bankruptcy that the bankrupt is divested of both his interest in his property and liability for his provable debts. Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against the judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid.' (footnotes omitted) 22 McCallum v Commissioner of Taxation is, unless successfully challenged, authority for the proposition that the principle laid down in Cummings v Claremont Petroleum NL is applicable to the determination of whether a bankrupt has standing to apply to the Tribunal for review of an objection decision. As is mentioned above, the appellant did not challenge the authority of McCallum v Commissioner of Taxation. Nor did he contend that the fact that he had made his application to the Tribunal before he became bankrupt rendered McCallum v Commissioner of Taxation distinguishable. It follows inexorably, in our view, that the contention that he was entitled to maintain his application to the Tribunal under s 14ZZ because, absent any liability to the Commissioner, his estate would have been more than adequate to pay his remaining creditors must fail.

conclusion 23 The appeal will be dismissed with costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Solicitor for the Respondent: Australian Government Solicitor

Commissioner of Taxation Bankruptcy Act 1966(Cth)s 153(1)

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