The Deputy Commissioner of Taxation v Muc

No 14 of 2003 at Newcastle became No 3816 of 2004 at Sydney No 416 of 2003 at Newcastle became No 3817 of 2004 at Sydney No 423 of 2003 at Newcastle became No 3818 of 2004 at Sydney

The plaintiff's claims relate to alleged primary liabilities for unpaid PAYG income tax ("ITI"), goods and services tax ("GST"), PAYG withholding tax ("ITW") and PAYE withholding tax ("PAYE withholding"), together with a general interest charge ("GIC").

The defendant denied liability and in the case of certain alleged liabilities for PAYE withholding tax (in proceedings numbered 3818), alleged that the claim is statute barred by reason of s 14 of the Limitation Act, 1969 (NSW).

In proceedings numbered 3816, the plaintiff sued for self-assessed liabilities on the basis of a deficit in the running balance account ("RBA deficit") established under s 8AAZC of the Taxation Administration Act 1953 ("the TAA53"), in respect of primary tax debts due for the period 1 July 2000 to 30 November 2002 under the BAS provisions as defined in s 955-1(1) of the Income Tax Assessment Act1936 ("the ITAA36") including administrative penalties under Part 4-25 of Schedule 1 of the TAA53, together with a GIC.

In proceedings numbered 3817, the plaintiff sued for self-assessed liabilities on the basis of a deficit in the running balance account ("RBA deficit") established under s 8AAZC of the TAA53, in respect of primary tax debts due for the period 1 October 2002 to 30 June 2003 under the BAS provisions as defined in s 955-1(1) of the ITAA36, together with a GIC.

In proceedings numbered 3818, the plaintiff sued on the basis of a debt due under s 221R(1) of the ITAA36 for deductions of income tax from the salaries and wages of employees for the period 1 July 1995 to 31 December 1997 made under s 221C(1A), required to be remitted to the Commissioner under s 221F(5), together with a GIC.

The plaintiff's claim, in summary, is as follows:

Periods Primary debt Nature of debt GIC Total claim 3816 1.7.00 - 30.11.02 $172,927.12 ITI, GST and ITW $152,015.16 $324,942.28 3817 1.10.02 - $ 60,206.00 ITI, GST and $ 34,853.60 $ 95,059.60 30.6.03 ITW 3818 1.7.95 - $ 99,864.16 PAYE $141,544.90 $241,409.06 30.6.98 withholding Totals $332,997.28 $328,413.66 $661,410.94

The plaintiff relied on the pleadings and various documents exhibited or tendered, and read affidavits by Bronwyn Parker, Barbara Acland, Respicio Lado (who were cross-examined), and Linda Jones.

The defendant relied on various documents exhibited or tendered, and read affidavits by Robert Benjamin Prior (who was also cross-examined).

Background to the claims in proceedings 3816 and 3817

The defendant was from time to time a principal of G H Healey & Co under which business name a number of legal practices were conducted at various locations.

The defendant, being an entity as defined by s 960-100 of the ITAA36 lodged Business Activity Statements ("BAS forms") with the Commissioner for the relevant quarters in the following periods:

· 1 July 2000 to 30 November 2002 (proceedings numbered 3816) · 1 November 2002 to 30 June 2003 (proceedings numbered 3817)

Those BAS forms disclosed that the defendant was liable for tax related liabilities, namely liabilities under the "BAS provisions", within the meaning of s 995-1 of the ITAA36, being:

(a) amounts withheld by the defendant under Pay as You Go Withholding provisions within Schedule 1, Part 2-5 of the ITAA36 and required to be paid to the Commissioner, (b) liabilities for GST under provisions of A New Tax System (Goods and Services Tax) Act 1999, and (c) amounts payable by the defendant under Pay as You Go Instalments provisions of A New Tax System Act 1999.

Several of the BAS forms were subsequently amended following representations by the defendant.

The Commissioner maintained a computer system known as the ATO Integrated System ("the AIS"), which was also used as a receivable management accounting record. For the purposes of s 8AAZC of the TAA53 the Commissioner used the AIS to create and maintain one or more Running Balance Accounts ("RBA's") for a taxpayer, recording all debits and credits, which were applied against the RBA balance. A separate Client Activity Centre ("the CAC") account was set up using the AIS for each entity upon being registered with the ATO, which was used exclusively to record that entity's liabilities under the BAS provisions. Liabilities and credits in relation to CAC were recorded on an entity's CAC account on the AIS, being the RBA in respect of the entity's BAS provisions for the purposes of s 8AAZC of the TAA53.

Pursuant to s 8AAZF and Division 1 of Part IIA of the TAA53 a GIC was payable by the relevant entity on the balance of the RBA at the end of each day that there was an RBA deficit, which was debited to the RBA. Administrative penalties under Part 4-25 of Schedule 1 of the TAA53 ("administrative penalties") were also liable to be debited to the RBA.

The plaintiff was and is empowered to recover an RBA deficit, including any GIC component and any administrative penalties, as a debt ("the RBA deficit debt").

The information on the BAS forms lodged by the defendant was recorded on the AIS for the purposes of s 8AAZD of the TAA53.

As a result of her failure to pay the liabilities disclosed in those BAS forms, an RBA was established in respect of the defendant. Her RBA was debited with a GIC on each day it was in deficit. Her RBA was also debited with certain administrative penalties.

The claims in proceedings numbered 3816 and 3817 relate to the recovery of the RBA deficit debt in respect of the defendant's RBA.

The amounts claimed are $324,942.28 and $95,059.60, a total of $420,001.88 as set out in the affidavits of Bronwyn Parker sworn on 21 July 2006 and supported by certificates under s 8AAZJ of the TAA53.

The plaintiff relied on that evidence as prima facie evidence of the RBA deficit debt pursuant to s 8AAZJ(1) of the TAA53.

The plaintiff having established a prima facie entitlement to recover the amounts claimed of $324,942.28 and $95,059.60, the defendant sought to discharge the onus of establishing she was not liable for these amounts.

She sought to discharge that onus by challenging the calculation in respect of each of the primary liabilities.

The defendant gave no evidence. She relied exclusively on the evidence of Mr Prior, an accountant engaged to assist and advise the defendant in relation to her tax problems. The evidence of Mr Prior was challenged on a number of grounds, including the alleged absence of expertise, independence and relevant facts to support any opinions expressed by him.

The challenge in respect of the PAYG withholding (or ITW) 28. The challenge in respect of the PAYG withholding (or ITW) was made on the basis that there had been an over-declaration of the amount payable.

Mr Prior's evidence was that the total amount of the PAYG withholding was incorrectly calculated and notified to the Commissioner by the defendant in her BAS forms. The proper amount should have been $380,906, and not $382,228, a difference of $1,382.00.

The evidence in support of the defendant's position appears at Tab HI of Mr Prior's report (Exhibit 1). The defendant submits that this evidence was not challenged and that the court should accept it.

The plaintiff submitted firstly that little or no weight should be given to Mr Prior's evidence by reason of his demonstrated partisanship and bias, and his lack of expertise in tax matters. (I return to this subject later in this judgment). Secondly, Mr Prior was unable to give an exact figure as to the correct amount of the PAYG withholding liability, and the best he could do was to make an estimate, and no weight should be given to this evidence, particularly as the defendant herself failed to give any evidence: Jones v Dunkel (1959) 101 CLR 298. In this regard, the plaintiff submitted that the defendant, an experienced solicitor, should have appreciated the need for careful record keeping in respect of her tax obligations.

The report of Mr Prior "was conceived in a 'horrific' accounting environment" infected by an inability to recreate transactions from original documentation. "It cannot be the case that in a self assessment environment a taxpayer should be relieved of her obligation to pay a debt which at the relevant time was notified to the Commissioner on approved forms (BAS), and supported by documentation provided by the Defendant's representatives, and which the taxpayer now says might be incorrect": Trautwein v FCT (1936) 56 CLR 63 at 87.

No attempt was made by the defendant to lodge amended BAS forms, notwithstanding there had been amendments made from time to time to the BAS data following representations by the defendant: see paragraph 9 of the affidavits of Bronwyn Parker sworn 6 July 2004 and 10 March 2004. The plaintiff submitted that the records it put in evidence constituted the 'best evidence' available.

The plaintiff went on to argue that the methodology by which Mr Prior arrived at his estimate relied upon data from the flawed Locus accounting system used by the defendant (T 208.51-54).

The defendant carries the onus of proving that the amount of the liability for which the plaintiff contends is wrong. But she is only required to do so on the balance of probabilities.

The methodology adopted by Mr Prior to reach his estimate of an over declaration of PAYG withholding tax is set out on page 73 of his report. The spreadsheets were in the report. His working papers were available for the plaintiff's consideration if required. Although he uses the word "estimate" in the report, the exercise was in fact one of analysis of data and arithmetical calculation: see page 28 of his report, which also makes it clear that data other than from the Locus system was relied upon. He was not cross-examined about his methodology or his spreadsheets. No evidence was called to suggest that the methodology was flawed or that any of Mr Prior's calculations were wrong, or that the underlying data on which the calculations were made was inaccurate.

In these circumstances I am satisfied, on the balance of probabilities, that the proper amount of PAYG withholding was correctly calculated by Mr Prior and should have been $380,906, and not $382,228.

The challenge in respect of the GST component of the RBA

The challenge in respect of the GST component of the RBA was made on the basis that there had been an incorrect calculation of the liability.

Mr Prior's evidence was that the defendant was entitled to a credit of $42,994 in respect of GST rather than the credit of $15,192 allowed by the Commissioner.

The methodology adopted by Mr Prior in respect of this component was somewhat different, as will be seen, as he did in this instance rely on the Locus data, and did not investigate available primary documentation (T 207.15-24).

The evidence in support of the defendant's position appears at Tab G of Mr Prior's report (Exhibit 1). The defendant submitted that Mr Prior "conducted an extensive forensic review and prepared revised accounts on the basis he states to be correct and in accordance with accounting principles". The plaintiff "was unable to suggest a single instance of error to Mr Prior" and his evidence as to the proper credit to be allowed for GST is to be accepted by the court.

The plaintiff submitted, however, that Mr Prior's estimate was not supported by any actual transaction documents, such as the actual tax invoices. The evidence was that although the primary records were available, all Mr Prior did was to 'sample test' the tax invoices 'at a very high level' (T 207.25-31).

The plaintiff submitted that the defendant did not identify and prove the facts upon which Mr Prior formulated his estimate, and that estimate cannot therefore be relied upon: Australian Securities and Investment Commission v Rich [2005] NSWCA 152 at [155].

I am satisfied that the evidence establishes that primary documents to establish the true position as to the proper calculation of the defendant's GST were available.

The failure to utilise the primary documentation, and to rely instead upon some high level sampling, is not in my view sufficient to discharge the onus of proving wrong a liability for GST which in the first instance was based upon the defendant's own self-assessment. The methodology adopted by Mr Prior was in this instance superficial and inadequate.

In these circumstances I cannot be satisfied, on the balance of probabilities, that the amount of GST calculated by Mr Prior was correct. I find, therefore, that the defendant was only entitled to a credit of $15,192 in respect of GST.

The plaintiff submitted that any material not on the RBA's raised by Mr Prior by way of a matter going to, or calling into question the correctness of the assessments of income tax for the 2000 to 2003 years must be rejected by reason that s 177(1) of the ITAA36 prevents a court from looking behind those assessments.

It is appropriate, in my view, to consider the application of s 177(1) to these claims, as a preliminary issue.

The effect of s 177(1) of the Income Tax Assessment Act

Parallel to the disputed RBA liability, income tax assessments for the relevant years proceeded and notices of assessment issued:

YE 30.6.01 (Annexure 'A' of affidavit of Barbara Acland of 2.12.05) YE 30.6.02 (Annexure 'B' of affidavit of Barbara Acland of 2.12.05) YE 30.6.03 ('I' in Exhibit J)

The defendant was allowed a credit for the full amount of ITI as against the assessment for each of the relevant years.

" The production of a notice of assessment, or of a document under the hand of the Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct."

The defendant submitted first that the notices of assessment are not conclusive evidence of the assessable income for the relevant periods and the court, in determining the amount of PAYG instalments on a running balance account, may determine for itself what the correct instalment rate under Subdivision 45-J of the TAA53 should have been.

The first argument advanced for the defendant for this proposition related to the general scheme for recovery of tax related liabilities under the TAA53:

Disputes as to the recovery of PAYG instalments are to be determined as simple debt proceedings. There is no procedure for disputing a PAYG instalment liability other than in proceedings such as these.

"These proceedings are, therefore, the defendant's only opportunity to review the correct calculation of her PAYG instalment rate."

In any proceedings by way of appeal or review of the defendant's income tax it would be irrelevant to know whether the interim PAYG instalments had been correctly calculated.

The defendant argued further that it is irrelevant that a taxpayer could apply for or use a different instalment rate before the relevant liability arises (see s 45-110(2) of the TAA53), because the taxpayer must be mindful of the penalties for using a wrong rate.

A taxpayer who calculates her own liability wrongly does not thereby deprive herself of a remedy.

The second argument advanced by the defendant related to specific provisions relating to the Commissioner's armoury in proceedings such as these. Specifically, the only 'head-start' given to the Commissioner is that he may establish a prima facie case by way of averments and certificates. The natural construction of the legislation is that the Commissioner can rely only on the provisions establishing a prima facie liability, but not on provisions as to conclusive proof, such as s 177.

Thirdly, the defendant submitted that the Commissioner should not be allowed to rely on s 177(1) by reason of the way the plaintiff's case was conducted, namely the late tender of the notices of assessment, intended to preclude further unfavourable evidence as to what the defendant's assessable income in the 2000 - 2003 years should have been. This is particularly so given that the effect of s 177 is evidentiary only: Deputy Commissioner of Taxation v Richard Walter Pty Limited (1955) 183 CLR 168.

The plaintiff, however, contended that what s 177(1) does is to put beyond investigation, by this court, in proceedings outside of Part IVC of the TAA53, the 'due making' of the assessment, the amount of that assessment and the 'particulars' of the assessment. Any evidence of Mr Prior advanced to say that the assessments in the 2000 to 2003 years are incorrect is not, therefore, to be accepted by the court: F J Bloeman Pty Ltd v Federal Commissioner for Taxation 35 ALR 104.

There already exists a statutory regime that specifically provides for the taxpayer to challenge an assessment made by the Commissioner. Indeed this taxpayer has already embarked on that route by lodging objections to the original assessments with a request under s 14ZW(2) of the TAA53 that an extension of time be granted in order to object.

The scheme of the tax legislation is to force a taxpayer who wishes to dispute the correctness of an assessment, to go to the AAT or the Federal Court under Part IVC of the TAA53. An implicit policy reason for this is the specialist expertise residing in those forums for dealing with the issue of substantive tax liability. Section 177 leaves the court 'with jurisdiction to decide whether an assessment has been duly made' only in cases where the appropriate documents have not been produced: Bloeman at 113.43. The statutory scheme rests on the premise of 'pay first, argue later': DFC of T v Akers 89 ATC 4725 at 4727.

In my view, the plaintiff's arguments are compelling. Once the provisional nature of the tax related liability under the PAYG system 'crystallises' by virtue of the issue of assessment notices, the taxpayer is estopped from challenging that part of any liability for an RBA deficit debt that has been the subject of the assessment.

Even if the appropriate documents were produced late in these proceedings that would not in my view preclude the plaintiff from relying on them. In any event, I was not satisfied that the timing of the production of the documents prejudiced the defendant procedurally in the way her defence was conducted.

The defendant is not, therefore, entitled to go behind the certification of taxable income and the tax payable as assessed in the notices of assessment. Thus, it is not open to this court to reconsider or re-calculate the amount income tax payable as that amount was conclusively proved by reason of s 177(1).

I find that the statutory calculation of the defendant's liability for the PAYG income tax claimed by the plaintiff (Exhibit J), is correct. The defendant is, therefore, liable to the plaintiff for the primary amount of PAYG income tax claimed by the plaintiff, in the sum of $119,734.

The challenge in respect of the PAYG income tax (or ITI)

Nevertheless, for the sake of completeness, I turn to consider the defendant's factual challenge to the calculation of her ITI in an amount of $119,734.00. It was sought to challenge the correctness of this amount in two ways.

The first basis for challenge to the ITI claimed was the assertion that the instalment rate used by the Commissioner was incorrect.

The defendant relied on the evidence of Mr Prior that, according to his calculations, the correct instalment rate should have been 0%: Tab PQ of Mr Prior's report (Exhibit 1), especially at page 128.

In my view the conclusive nature of the amount of primary tax claimed precludes an examination of the instalment rates applied. That is because, as was submitted in the written submissions of the defendant (at paragraph 22), in any review of the amount of income tax assessed, "it would be irrelevant …to know whether the interim PAYG instalments had been correctly calculated".

As the plaintiff pointed out, in its written submissions (paragraph 40), an instalment rate was only used in respect of the first three quarters of the relevant period, namely the September 2000 quarter, the December 2000 quarter and the March 2001 quarter. For subsequent quarters the defendant chose to make PAYG instalments on the basis of GDP-adjusted notional tax(s 45-130 of the TAA53). The plaintiff also relied on the rule in Browne v Dunn (1893) 6 R 67, in that it was not put to any of its witnesses that an incorrect rate was applied.

In any event the defendant did not satisfy me that on the balance of probabilities the Commissioner applied an incorrect instalment rate.

The evidence establishes that the rate applied was appropriately calculated, notified and applied by the Commissioner (Exhibit J). On the other hand, Mr Prior's evidence on the issue was superficial and unsatisfactory (T 219.22-31).

The second basis for challenge to the ITI claimed was the assertion that the calculations were incorrect having regard to the true position as to the plaintiff's income tax liability for the years 2000 to 2003. The defendant submitted that, upon analysis, she was not liable to pay any PAYG income tax for the years in issue. The defendant relied on the evidence of Mr Prior, in particular his reports (Exhibits 1 and 2).

The main report prepared by Mr Prior is a long, detailed and complicated document. It was prepared in difficult circumstances. I note for example the following:

" The ITI tax debits claimed under Statements of Claim 3816 and 3817, and under the original 2000 year tax return, arose due to the inappropriate adoption of cash instead of accruals accounting for tax purposes; and also due to insidious and systemic accounting and administrative malfunctions that were long running." (Summary, Page ii)

" It is probably impossible or at least impractical to recreate the financial statements of Ms Muc's practices from the 2000 financial year in the context of end stage litigation or at all." (Tab C, Page 24)

Accordingly, Mr Prior adopted a methodology that is detailed in Section D of the report (Tab D). As to net profit and taxable income, the methodology is described thus (Page 28):

" The accounting transaction methodology utilized by the Writer in this case involved: · Adoption of the locus accounts (history reports) on the basis of a comprehensive 'warts and all disclosure'. Despite these 'warts' there is a certain integrity about these accounts; being they are contemporaneous, detailed and the bank accounts routinely reconcile. · The use of an Add Back and Deduction approach to reported Locus profits. This is based on a line by line analysis of expenses. This extends to including related party transactions. (See year by year analysis.) · An examination of internal and external indicators of profitability, or non-profitability. This involved: - Considering overall practice cash balances at year end. - Considering the degree of fiscal drag as evidenced by late payments to creditors of the law practice practices. This extends to both external parties and to related parties. In order to provide transparency the Writer has prepared a comprehensive set of working papers. They provide a pathway into the Locus domain and are detailed in the Appendices."

Applying this methodology Mr Prior came to the following conclusions:

" A competent Financial Controller operating in a well managed business should: · Not have reported a net business profit of some $310,000 in respect of the 2000 financial year and subsequently have caused (or indirectly have caused) the payment of $98,369 in payments in order to meet the self-assessed liability. · Have reported a taxable income of up to $77,078 in respect of the 2000 financial year with a net tax liability of $6,182. (Had accrual tax reporting adopted prior to the 2000 financial year, a loss should have been reported in respect of the 2000 year.) · Have sought to vary the ITI uplift factor for BAS reporting purposes to nil from 1 July 2000. · Have reported losses in the 2001 to 2003 years inclusive. Thus no ITI credits would have been raised on the Notices of Assessment and no corresponding debits would have been posted to the Running Balance Accounts. (Page 126)

He went on to say that on this basis, an ITI credit of approximately $119,734 should be posted to the RBA that would have the effect of eliminating the existing tax debit of $119,734.

It is not productive for me to analyse in detail all the calculations he made.

Suffice it to say his calculations are set out in the report in great detail. I will, however, pause to observe that his analysis is supported, at least at a high level, by the adjusted Profit & Loss Statements he prepared (Tab L).

The evidence of Mr Prior, in its totality, if accepted, would in my view have been sufficient to discharge the onus of proof, on the balance of probabilities, that the plaintiff's primary liability for ITI was not $119,734 as was established by the plaintiff on a prima facie basis, but that it was in fact nil.

I need to consider, therefore, whether the evidence of Mr Prior should be accepted.

The plaintiff sought to attack the evidence of Mr Prior in a number of ways, to which I shall come. The one thing the plaintiff did not do, however, was call contrary evidence. There was no witness called by the plaintiff with any accounting qualifications, to dispute the methodology or calculations set out in Mr Prior's report. Not even the evidence of Mr Lado, to which I shall come, called the methodology or calculations in Mr Prior's report into question.

Instead, the plaintiff sought to contradict the evidence of Mr Prior by discrediting him and questioning the evidence upon which his conclusions were based.

The first attack on Mr Prior went to his expertise. It was suggested that because he was merely a forensic accountant he did not have the expertise to express an opinion about income tax issues. I disagree. That is a consideration that does not go to admissibility but only to the weight of his evidence. Besides, the crucial evidence from Mr Prior in this case went to accounting issues, not tax law.

What Mr Prior did was to gather together the best available data and analyse it. This involved a process of arithmetic analysis, the application of accounting principles to available data and the drawing of inferences from that material. His experience and expertise was more than sufficient for that exercise.

The second attack on Mr Prior went to his independence. It was submitted that he was "an advocate for the defendant and openly wore two hats". Because of his role as a forensic accountant engaged by the defendant as a consultant to help sort out her tax affairs, it was suggested he was aligned to the defendant and therefore biased or not independent.

" It would be curious if a taxpayer who wanted to deal with an ATO audit which was being conducted whilst proceedings were on foot about his or her running balance account liability was required to retain two independent experts: one to prepare a report for the Court and the other to prepare a report for the Commissioner" (Paragraph 44)

I agree with the defendant on this issue. The status of the witness goes to weight, not admissibility of the evidence. In this case I formed the view that Mr Prior attempted at all times to provide a fair, transparent and objective assessment of the material before him.

Mr Prior had a manner in the witness box that I found somewhat irritating, particularly his tendency to address the bench rather than simply answer questions put by counsel.

Nevertheless, I was not moved at any stage to have reservations as to his objective, professional approach, or his integrity.

The straightforward, practical and pragmatic approach of Mr Prior is encapsulated in the following extracts from his cross-examination:

" I have essentially two hats here your Honour. One, I was trying to - and always have been try to - settle this matter with the ATO. As for the campaign with Ms Acland, I get on extremely well at a professional level with Ms Acland, and I must say before I came into G. H. Healey & Co there was an unsatisfactory relationship with the Tax Office, and that to a large degree had been caused by the former financial controller. What I was doing there with Ms Acland was engaged in a campaign of engagement, of objectivity, of transparency, of cooperation, of frankness, and that is an approach I've adopted from day one. "(T 130.20-31)

" What I might say as well, your Honour, in terms of settlement with the ATO it was always my stated intention from day one to have an audit conducted in this matter by the ATO, and this report was always intended for dual purposes for proceedings in this court - which I'd hoped to avoid. But had that been the case, and had that had to follow, all well and good, and I fully complied with the expert code of conduct in terms of objectivity and independence…" (T 131.24-32)

I agree with the defendant's submissions on this issue (Paragraphs 41 and 42):

" Despite a lengthy attack upon his independence, Mr Prior never deviated from his starting position, namely that he had attempted to discern and present the defendant's true accounts for the relevant period…. Much was made of his role in attempting to resolve the defendant's dispute with the ATO. However, given the nature of his evidence it is difficult to see how his report can be criticised on this ground. His report does no more than examine, in considerable detail, the defendant's accounts for the relevant period so that they can be understood by the Commissioner and by the Court. If one accepts the proposition that both the Commissioner and the Court wish to determine the defendant's true liability, it is hard to see why the report should not be used for both purposes simultaneously."

Finally, the plaintiff submitted that the underlying facts upon which Mr Prior based his conclusions had not been proved.

But what Mr Prior did was to gather together the best evidence available. This was set out in copious detail in his report, supported by 13 folders of supporting material that the defendant offered to the plaintiff for inspection (T 120.55-58). The plaintiff did not require production of this material. In any event, the documents had already been provided to the plaintiff and considered by Mr Lado (T 57.1 and 58.1-3).

For the sake of completeness, I turn to deal with the evidence of Mr Lado. This witness was the auditor employed by the Commissioner with carriage of the process of reviewing and auditing the defendant's amended income tax returns for the 2000, 2001 and 2002 years of income. He swore an affidavit on 21 July 2006, to which were annexed various position papers, and was cross-examined.

Mr Lado had received Mr Prior's reports including the main report, which is Exhibit 1 (T 58.1-3), and the 13 folders of supporting documents (T67.35).

The thrust of Mr Lado's evidence was that having considered the material from Mr Prior, he did not dispute his analysis, but was awaiting source documents to verify the conclusions and if satisfied, the appropriate adjustments would be made (T 61.58 - 66.34).

Mr Lado was only concerned with the income tax issues (T67.38-39).

But for s 177(1) of the ITAA36 I would have been satisfied that the defendant's liability for income tax (ITI) in the relevant periods was nil. However, the defendant is precluded from agitating that issue in these proceedings and is required to pay now and argue later, in another place, her liability for that tax: DFC of T v Akers 89 ATC 4725 at 4727. In that sense she is indeed "hoist on her own petard" (Paragraph 8 of the defendant's written submissions).

I turn now to the plaintiff's claim in proceedings numbered 3818.

During the period 1 July 1995 to 30 June 1998 the defendant was an employer within the meaning of the ITAA36. PAYE deductions were deducted from the salaries or wages of the defendant's employees for the purposes of Division 2 of Part VI of the ITAA36, but some or all of these deductions were not remitted to the Commissioner by the due dates, as required by s 221F(5) of the ITAA36.

By reason of the failure to remit the PAYE deductions the defendant became liable to the Commissioner for the amount of those PAYE deductions together with a GIC under Item 93 of Schedule 2 of the A New Tax System (Pay as You Go) Act 1999.

The plaintiff was and is empowered to recover the amounts payable to the Commissioner in respect of the PAYE deductions, including the GIC, as a debt: s 221R(1) of the ITAA36. In an action for such recovery a certificate under s 221R(2) is prima facie evidence of the matters stated in the certificate. The plaintiff relies upon the certificates annexed to the affidavits of Linda Jones sworn on 10 March 2004 and 21 July 2006.

The amount claimed is $241,409.06 as set out in the affidavits of Linda Jones sworn on 21 July 2006.

The plaintiff relied on that evidence as prima facie evidence of the debt pursuant to s 221R(1) of the ITAA36.

The plaintiff having established a prima facie entitlement to recover the debt, the defendant sought to rely on s 14 of the Limitation Act 1969 (NSW) as to those liabilities from 1995 to 1997.

The applicability of the Limitation Act, 1969 (NSW) 110. I am required to decide whether a defence under s 14(1)(d) of the Limitation Act 1969 (NSW) is available to the defendant in these proceedings.

This court, in determining the claims in these proceedings, is exercising federal jurisdiction invested by s 39 of the Judiciary Act 1903 (Cth). The defendant says that by reason of s 64 of the Judiciary Act 1903 (Cth), s 14 of the Limitation Act 1969 (NSW)applies to the plaintiff's claim in respect of the PAYE deductions, including the GIC.

Section 64 of the Judiciary Act 1903 provides:

" In any suit to which the Commonwealth…is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject."

The plaintiff says first that even if s 14 of the Limitation Act 1969 (NSW) does apply, the plaintiff's claim was brought within time. Alternatively, the plaintiff says that s 14 of the Limitation Act 1969 (NSW) cannot be relied upon by the defendant because the relevant provisions of the Commonwealth legislative scheme have "effectively covered the field" and left no room for the intrusion of the State law.

It has been held that the Limitation Act 1969 (NSW)does not apply to the Commissioner when suing in a State court to recover an amount of an assessed tax liability: Deputy Commissioner of Taxation (NSW) v DTR Securities Pty Ltd; Deputy Commissioner of Taxation (NSW) v Moorebank Pty Limited (1988) 165 CLR 55 ("Moorebank"). The defendant submits that Moorebank does not apply to this case, principally because that case related to assessed tax liabilities, whereas this case relates to a simple debt for tax related liabilities.

In my view the reasoning in Moorebank applies equally to tax related liabilities. This is clear from the following passage:

" …the intrusion of State Limitation Acts provisions would significantly undermine the scheme for collection and recovery of tax which is contained in the Assessment Act.."

The application of State limitation provisions was said to be incompatible with the existence of the broad discretionary powers vested in the Commissioner in connection with the recovery of tax that has already become due and payable. Similar broad discretionary powers exist in the legislation in respect of tax related liabilities.

I am satisfied that Moorebank applies to tax related liabilities such as the plaintiff's liability in these proceedings for PAYE deductions and the related GIC.

It follows that the defendant cannot rely upon s 14 of the Limitation Act 1969 (NSW) to bar recovery of the debt owed by her to the plaintiff for those PAYE deductions and the related GIC.

I turn briefly to the plaintiff's second argument, namely that the plaintiff's claim was in any event brought within time.

The proceedings for recovery were commenced on 6 August 2003. The Limitation Act 1969 (NSW) defence could not on any basis apply to the last 5 quarters of the period in question.

As to the earlier quarters, the plaintiff says that the Commissioner only became aware of the PAYE liabilities when he conducted an audit in 2001 and 2002, and arrived "at a concluded figure for those liabilities which were posted in the plaintiff's accounting records on 1 July 2002" (Annexure 'B' to the affidavit of Linda Jones sworn 21 July 2006). The causes of action first accrued, therefore, on 1 July 2002, and proceedings for their recovery were commenced within 6 years of that date.

The plaintiff's awareness or otherwise of the accrual of the cause of action is, however, not relevant.

The plaintiff sued on the basis of a debt due under s 221R(1) of the ITAA36. The debt is the amount payable to the Commissioner. The amount became payable on the 7th day after the end of the quarter in which the deductions were made. Accordingly, the causes of action, other than for the final 5 quarters, first accrued to the plaintiff more than 6 years before 6 August 2003.

If the defendant had been entitled to rely on rely on s 14 of the Limitation Act 1969 (NSW), the plaintiff's claim for PAYE deductions in respect of the quarters preceding 6 August 1977 would have been statute barred and not, therefore, maintainable.

There might have been an argument that there was a separate cause of action, not statute-barred, in respect of the related GIC, but there was no argument or submissions on that question. I do not need to consider that issue as I have ruled that the defendant is not entitled, in any event, to rely s 14 of the Limitation Act 1969 (NSW).

I find that the defendant is liable to the plaintiff in proceedings numbered 3818 for an amount of $241,409.06.

Disposition 127. For these reasons I find in favour of plaintiff in a total amount to be calculated.

128. That calculation requires a reassessment of the GIC, having regard to my findings as to the correct amount of PAYG withholding (or ITW) in proceedings numbered 3816 and 3817.

129. I invite the parties to agree on short minutes of order to implement the findings in this judgment, prior to the entry of judgment.

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