FEDERAL COURT OF AUSTRALIA

Grapsas v Commissioner of Taxation [2011] FCA 1465

THE COURT ORDERS THAT:

1.    The respondent be granted dispensation in relation to compliance with r 13.01(3) of the Federal Court Rules 2011.

2.    The application filed by Mr Grapsas on 4 November 2011 be set aside.

3.    The applicant pay the respondent’s costs of the application, such costs to be taxed in default of agreement.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

INTRODUCTION

1    Mr Konstantino Grapsas, (Mr Grapsas) carried on a bakery business between the years of income 30 June 2003 and 30 June 2005 (collectively, the Income Years). At all relevant times, Mr Grapsas was an Australian resident taxpayer. Unfortunately Mr Grapsas failed to lodge income tax returns for the Income Years within the required time.

2    After conducting an audit of Mr Grapsas’ tax affairs, on 21 March 2007 the respondent (the Commissioner), issued notices of assessment for the Income Years stipulating certain amounts of income.

(collectively, the Assessments).

3    On 14 August 2008, a sequestration order was made against Mr Grapsas’ estate. The date of bankruptcy was 30 April 2008. On 1 March 2011, Mr Grapsas lodged a purported notice of objection against the Assessments. On 13 April 2011, the Commissioner wrote to Mr Grapsas and told him that his purported notice of objection dated 1 March 2011 was not a valid objection because at that stage he was a bankrupt individual and therefore did not have standing to object to the Assessments.

4    On 9 May 2011, Mr Grapsas applied to the Administrative Appeals Tribunal (the AAT) for review of the Assessments. By a letter dated 7 July 2011, the trustee of the bankrupt estate of Mr Grapsas advised that he would not object himself to the Assessments. On 8 July 2011, the AAT decided that it did not have jurisdiction to determine the application lodged by Mr Grapsas. There were no written reasons for decision.

5    On 20 September 2011, Mr Grapsas was discharged from bankruptcy. That event, in my view is important. It is important because from that date Mr Grapsas was divested of liability for the debt arising from the Assessments pursuant to s 153(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act).

6    This proceeding has a long history. Unsurprisingly, Mr Grapsas is dissatisfied with the history of the matter and in particular the basis upon which the Commissioner determined the amounts to be included in the Assessments. As a result, Mr Grapsas now seeks to appeal the Commissioner’s decision that his purported notice of objection to the Assessments is invalid and contends that the taxable income referred to at [2] above was not properly included in his assessable income. Mr Grapsas advised the Court from the bar table that a reason for him taking this course of action is because he has incurred a debt for child support for the Income Years based upon those Assessments.

7    The Commissioner filed a notice for service in relation to this proceeding on 10 November 2011. Two weeks later, on 25 November 2011, the Commissioner made application pursuant to r 13.01 of the Federal Court Rules 2011 (the Rules) for an order setting aside the application filed by Mr Grapsas giving rise to this proceeding. Alternatively, the Commissioner sought an order that the Court enter judgment for the Commissioner against Mr Grapsas pursuant to s 31A of the Federal Court Act 1976 (Cth) (the Act).

Rule 13.01 of the Rules

8    I will deal firstly with the application for relief under r 13.01 of the Rules. The Commissioner contended that the Commissioner is entitled to an order setting aside the original application filed by Mr Grapsas because Mr Grapsas is not entitled to appeal to the Federal Court under s 14ZZ of the Taxation Administration Act 1953 (Cth) (the TAA). The Commissioner relied upon four principal grounds:

1.    Mr Grapsas is out of time to appeal under s 14ZZ of the TAA. The Commissioner submitted that the appeal, which is the subject of this proceeding, was filed after the 60 day time limit provided for in s 14ZZ of the TAA and further that there is no ability in this Court to extend the time for the filing of that appeal.

2.    Mr Grapsas had already applied to the AAT for review under s 14ZZ of the TAA in respect of the same Assessments and thereby exhausted his rights of appeal under s 14ZZ of the TAA. The Commissioner referred to CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 at 404 and Punin v Deputy Commissioner of Taxation (2000) 44 ATR 233 at [67].

3.    Mr Grapsas has no standing to appeal to this Court under s 14ZZ of the TAA because there was no objection decision.

4.    Even if there was a taxation decision which granted the Federal Court jurisdiction, Mr Grapsas was unable to establish that the amounts of taxable income as ascertained under the Assessments for the Income Years was greater than his actual taxable income: George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 201; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; The Commissioner of Taxation of the Commonwealth of Australia v Australia and New Zealand Savings Bank Limited (1994) 181 CLR 466 and McCormack v The Commissioner of Taxation of the Commonwealth of Australia (1979) 143 CLR 284. The contention was therefore that Mr Grapsas had no standing to appeal to this Court because he was not dissatisfied with an objection decision: McCallum v Commissioner of Taxation (1997) 75 FCR 458.

9    As I have said at the outset the central issue for determination this morning is whether or not the Federal Court has jurisdiction to entertain Mr Grapsas’ application and that in turn raises the direct question of whether or not Mr Grapsas is entitled to bring the application seeking to review the Commissioner’s decision concerning the Assessments. In my view, the Commissioner’s contentions should be accepted.

10    First, unfortunately Mr Grapsas’ application is out of time and the Court does not have the power to extend the time within which Mr Grapsas would be entitled to complain about the Commissioner’s decision in relation to his document concerning the Assessments.

11    Secondly, Mr Grapsas is bound by the decision he made to seek review in the AAT rather than the Federal Court: see, for example, CTC at 404 and Punin at [67]. There may be some question about whether or not, given the manner in which I understand the AAT dealt with Mr Grapsas’ application, that it might be contended that he had not made a choice sufficient to constitute an application for review to the AAT under s 14ZZ of the TAA. Given the reasons that I have formed about the other matters relied upon by the Commissioner it is unnecessary to finally determine that question.

12    I then turn to the third basis upon which the Commissioner contended that the Court lacks jurisdiction and that is that Mr Grapsas has no standing to appeal to this Court because there was no objection decision under s 14ZZ of the TAA. There are, in my view, two aspects to this matter. First, “objection decision” is defined in s 14ZQ of the TAA to have the meaning given by s 14ZY of the TAA. Section 14ZY(2) of the TAA in turn directs attention to a decision in that Part and that decision is a decision by the Commissioner in respect of a taxation objection that has been lodged with the Commissioner within the required period (see, in particular, s 14ZY(1) of the TAA). As will be self evident, Mr Grapsas is unfortunately unable to satisfy a number of these elements. Mr Grapsas lodged the document of 1 March 2011 within the required period. However, the Commissioner did not decide whether to allow or disallow an objection by Mr Grapsas. There was good reason for that. Mr Grapsas lacked the necessary standing in March 2011 to lodge any objection because he was, at that time, an undischarged bankrupt. The relevant provision which provides that he lacked the necessary standing is s 134(1)(j) of the Bankruptcy Act. Put simply, an essential first step to this Court having jurisdiction is that there be an objection decision. In the present case, the Commissioner did not make one and therefore this Court does not have jurisdiction to entertain an objection to something which does not exist.

13    Next, Mr Grapsas, in my view, lacks standing to bring proceedings in this Court under Pt IVC of the TAA because he is not dissatisfied in the manner required by ss 14ZL and 14ZZ of the TAA and s 175 of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act). Section 175 of the 1936 Act is important because it directs the manner in which a taxpayer can object against an assessment and stipulates the essential pre-requisites about a taxpayer’s ability to complain about an assessment. In this case, Mr Grapsas cannot meet the requirement that he be dissatisfied with an assessment. There is no doubt that he is unhappy with the fact that the Assessments were issued and the amounts contained in them but in order for this Court to have jurisdiction, the taxpayer must be dissatisfied at the time he lodged his objections. The difficulty for Mr Grapsas is that at the time he lodged the document of 1 March 2011, he was an undischarged bankrupt and he therefore could not be dissatisfied. Why? Because his standing to object to the Assessments at that time was vested in his trustee in bankruptcy and his trustee said he would not object to the Assessments: see McCallum.

14    Two further matters should be noted. The right to object is determined at the time of objection: McCallum at 464. As I have said, at the time of the objection, unfortunately Mr Grapsas was an undischarged bankrupt who, upon becoming bankrupt, had lost his standing. Mr Grapsas was not discharged from bankruptcy until 20 September 2011. That discharge was important because it provides another basis for the Commissioner contending, in my view correctly, that Mr Grapsas cannot be dissatisfied because upon him being released and discharged from bankruptcy Mr Grapsas was released from all of his provable debts including the amounts in the Assessments in the Income Years: s 153(1) of the Bankruptcy Act.

15    That brings me to a procedural issue. As I have said, the Commissioner seeks an order that the originating application be set aside under r 13.01(1) of the Rules. Under r 13.01(3), a respondent applying for an order under r 13.01(1) seeking the setting aside of the originating application must file the application and supporting affidavit at the same time that they file their notice of address for service. As earlier set out in these reasons for decision, the Commissioner did not do that. Instead there was a two-week period between the filing of the notice for service on 10 November 2011 and the service of the application under r 13.01 on 25 November 2011.

16    Despite that lack of compliance with r 13.01(3), the Commissioner seeks an order that I dispense with compliance with that subrule. There is no doubt that there is an overriding power in the Court to dispense with Rules of the Court: r 1.34 of the Rules. The Court does so in its discretion and the discretion is broad. The circumstances in which that discretion may be exercised are not limited. It may be exercised where there is no apparent injustice and the alleged error can be one of procedure. In my view, that is the position here and the Commissioner should be entitled to dispensation with compliance with r 13.01(3) of the Rules.

17    For those reasons, I would grant the Commissioner the relief it seeks and set aside the originating application filed by Mr Grapsas in this Court on 4 November 2011.

Section 31A of the Act

18    It’s strictly unnecessary for me to address the Commissioner’s alternative claim under s 31A of the Act. The Court is entitled to give judgment for the Commissioner against Mr Grapsas in relation to a whole proceeding or part of a proceeding if the Court is satisfied that Mr Grapsas has no reasonable prospect of successfully prosecuting the proceeding or part of it: see , for example, Spencer v Commonwealth of Australia (2010) 241 CLR 118 at [53] to [56].

19    For each of the reasons given in relation to the application under r 13.01 of the Rules, I consider it is open to the Court to conclude that Mr Grapsas has no reasonable prospect of successfully prosecuting these proceedings. Accordingly, if it had been necessary, I would have granted the Commissioner relief under s 31A of the Act.

ORDERS

20    Against that background, the orders of the Court will be:

1.    The Commissioner be granted dispensation in relation to compliance with r 13.01(3) of the Rules.

2.    The application filed by Mr Grapsas on 4 November 2011 be set aside.

21    Finally, there is the question of costs. The Commissioner seeks his costs of the application. In the circumstances, costs should follow the event. Mr Grapsas should pay the Commissioner’s costs of the application, such costs to be taxed in default of agreement.

Associate:

Dated:    15 December 2011