FEDERAL COURT OF AUSTRALIA

Delta Ace Pty Ltd v Deputy Commissioner of Taxation [2014] FCA 178

THE COURT ORDERS THAT:

1.    The application be dismissed with costs.

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

REASONS FOR JUDGMENT

1    The plaintiff seeks an order under s 459G of the Corporations Act 2001 (Cth) (the Act) setting aside the statutory demand issued by the defendant under s 459E of the Act on 18 June 2013.

2    Strict rules govern the making of an application to set aside a statutory demand. By s 459G(2), an application may only be made within 21 days after the demand is served.

3    By s 459G(3), an application is made in accordance with the section only if, within those 21 days:

(1)    an affidavit supporting the application is filed with the Court; and

(2)    a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the company.

4    By s 459H(1), the section applies where on an application made under s 459G the Court is satisfied of either or both of the following:

(1)    That there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates.

(2)    That the company has an offsetting claim.

5    Here, it is the circumstance in (1) that is raised for consideration as there is no question concerning an offsetting claim.

6    By s 459H(6), the section however has effect subject to s 459J.

7    Section 459J provides as follows:

Setting aside demand on other grounds

(1)     On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a)     because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b)     there is some other reason why the demand should be set aside.

(2)     Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

8    The plaintiff seeks to set aside the demand on the basis that there is a genuine dispute between the company and the respondent about the existence of a debt to which the demand relates, but also because of a defect in the demand and additionally because there is some other reason why the demand should be set aside.

9    The defendant denies that there is any genuine dispute in respect of the debt the subject of the demand, disputes that there is any relevant defect and rejects the submission there is any other reason to set aside the demand.

10    In relation to at least some of the claims made in respect of there being a defect, the defendant says the plaintiff may not raise those matters as they were not raised in the affidavit supporting the application filed within the 21 day period specified by s 459G.

11    The issues to be determined therefore are: (1) whether there is a genuine dispute about the existence of the debt; (2) whether there is a defect in the demand, and (3) whether there is some other reason why the demand should be set aside.

background

12    The plaintiff’s application is supported by the affidavit of Isaac Meyer Ellison, director of the plaintiff, filed 11 July 2013, so within the 21 day period of the demand having been served.

13    Mr Ellison states, among other things:

    The plaintiff did not hold any land or conduct any business on its own behalf.

    The company as taxpayer had done a range of things as trustee.

    The Delta Ace Trust was settled by a deed of trust dated 20 January 2010 and the taxpayer was appointed as the trustee of the Delta Ace Trust on 20 January 2010 at the time of settlement of the trust and has always held such office.

    The company conducted certain dealings with respect to land as trustee of the Delta Act Trust. The plaintiff was audited by the defendant in respect of goods and services tax (GST) and income tax for relevant periods.

    The defendant notified the plaintiff of the outcome of the GST audit and income tax audit and issued notice of assessments of that amount of GST for relevant periods and notice of assessments and liability to pay penalty, although Mr Ellison stated the plaintiff had not received a copy of the notice of assessment of net amount of GST.

    On or about 17 December 2012, the plaintiff lodged an objection in relation to the net amount of GST which the defendant allowed in full and reduced the net amount of GST.

    On 20 June 2013, the plaintiff was served with the statutory demand dated 18 June 2013 for the total amount of a debt of $1,271,552.59.

    On 9 July 2013, the plaintiff posted to the defendant its quarterly GST instalment notices for the tax periods 1 July 2012 to 30 September 2012 and 1 January 2013 to 31 March 2013 and varied its GST instalment amount at label G21 to $19,260 and nil respectively, which had the effect of reducing the GST amount by $60,598.

    The plaintiff lodged an objection against the notices of assessments and penalty notices arising from the GST audit and income tax audit on 11 July 2013.

    The plaintiff does not dispute that the net amount of GST payable to the defendant for the relevant periods is $171,617 and has paid the amount of $153,035.31 to the defendant, leaving a balance payable of $18,581.69.

14    In summary, Mr Ellison, on behalf of the plaintiff, states that he believes the plaintiff has a true and genuine dispute with the defendant in relation to the debt claimed.

15    Mr Ellison states, at [31] of his affidavit, that the demand should be set aside because:

(1)    The taxpayer did not hold any land and did not conduct an enterprise at any time during the relevant periods on its own behalf.

(2)    Arising from the fact that the contracts for the purchase of the parcels of land evidences the ownership of the parcels of land and since the plaintiff did not advance any funds to the trustee for the purchase of the parcels of land, the plaintiff does not have an equitable interest in the parcels of land.

(3)    Any enterprise which was carried on by the plaintiff during the relevant periods was in its capacity as trustee of the trusts.

(4)    The trustee distributed the income to beneficiaries of the trusts each income tax year. Accordingly, the plaintiff did not earn any assessable income during the relevant periods and therefore there is no liability to income tax for the relevant periods or an administrative penalty arising from the alleged income tax liabilities.

16    The detailed steps taken by the defendant resulting in the relevant notices were addressed in the affidavit of Mr Amon-Ra Barton who is employed in the Debt business line of the Australian Taxation Office (ATO) in Brisbane, which was filed 18 September 2013. What follows is drawn from Mr Barton’s affidavit. There is no reason not to accept this account and I do so.

17    The demand claimed the following amounts comprising a total sum of $1,271,552.59:

(1)    $384,483 in respect of a Running Balance Account (RBA) deficit debt.

(2)    $631,380.64 in respect of an income tax debt.

(3)    $255,688.95 in respect of penalties for income tax shortfall.

18    In respect of the RBA deficit debt, the plaintiff was registered for an Australian Business Number (ABN) pursuant to Div 4, Pt 2 of A New Tax System (Australian Business Number) Act 1999 (Cth), being ABN 38 126 839 094.

19    From the records held on the computer database of the ATO, it may be seen that the plaintiff notified the Commissioner of Taxation (Commissioner) through the lodgement of annual GST returns, pursuant to Div 162, Pt 4-7 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act 1999) of the following GST amounts:

(1)    For the period 1 July 2010 to 30 June 2011, with a due date for payment of 4 June 2012, a nil GST return liability.

(2)    For the period 1 July 2011 to 30 June 2012, with a due date for payment of 3 June 2013, a GST return liability of $26,540.

20    Those same records show that the plaintiff notified the Commissioner on or about 8 July 2008 that pursuant to s 162-15 of the GST Act 1999, it elected to pay GST by instalments.

21    The records show that the plaintiff was liable to pay the Commissioner GST instalments pursuant to s 162-70 of the GST Act 1999 or by the deferred due date, pursuant to s 255-10, Sch 1 of the Taxation Administration Act 1953 (Cth) (TAA 1953) a total amount of $79,858 comprising:

(1)    For the period 1 July 2012 to 30 September 2012, with a due date for payment of 29 October 2012, the GST amount of $47,745.

(2)    For the period 1 January 2013 to 31 March 2013, with a due date for payment of 29 April 2013, the GST amount of $32,113.

22    The instalment notices in each case were issued by the Commissioner to the plaintiff’s postal address given to the ATO by the plaintiff that was the plaintiff’s preferred address for service at the time.

23    On or about 12 July 2013, the plaintiff lodged an activity statement purporting to vary the GST instalment amount in the instalment notice for the quarter 1 July 2012 to 30 September 2012 from $47,745 to $19,260 (September 2012 instalment variation).

24    The Commissioner notified the plaintiff that the variation was disallowed as the activity statement was received after the due date.

25    The defendant says the plaintiff lodged an activity statement purporting to vary the GST instalment amount in the instalment notice for the quarter 1 January 2013 to 31 March 2013 from $32,113 to nil (March 2013 instalment variation).

26    The Commissioner notified the plaintiff that the variation was disallowed as the activity statement was received after the due date.

27    In July 2012, the Commissioner commenced an audit of the plaintiff’s GST for the periods 1 January 2009 to 31 March 2012 and income tax for the years ending 30 June 2009 to 30 June 2012 inclusive (audit).

28    The Commissioner on 26 September 2012 extended the audit to include income tax for the years ending 30 June 2009 to 30 June 2012 and the plaintiff’s GST for the periods 1 April 2012 to 30 June 2012 (extended audit).

29    As a result of the extended audit, a notice of amended assessment for the year ended 30 June 2011 (2011 notice of amended assessment) with a net GST amount of $129,587 was issued on 26 February 2013. It too was sent to the plaintiff’s preferred address for service at the time.

30    As the result of the extended audit, a notice of amended assessment was also issued for the year ended 30 June 2012 (2012 notice of amended assessment) with a net GST amount of $100,450 being issued to the plaintiff on 26 February 2013. That notice was also sent to the plaintiff’s preferred address for service.

31    The Commissioner issued a notice of assessment of shortfall penalty in relation to the plaintiff’s activity statements (shortfall penalty notice of assessment) in the amount of $212,809.80. That notice was also sent to the plaintiff’s preferred address for service.

32    The Commissioner established a RBA in the name of the plaintiff pursuant to s 8AAZC of the TAA 1953 in respect of the primary tax debts due by the plaintiff under the business activity statements provisions, as defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth) and primary tax debts due by the plaintiff as administrative penalties under Pt 4-25, Sch 1 of the TAA 1953.

33    Pursuant to s 8AAZD and Div 3, Pt IIB of the TAA 1953, the Commissioner allocated to the plaintiff’s RBA its GST liability, administrative penalty liability and any associated payment and credit entitlements.

34    The balance of the plaintiff’s RBA was in favour of the Commissioner and was accordingly an RBA deficit debt as defined in s 8AAZA of the TAA 1953.

35    On the face of it, the plaintiff thus became liable to pay the Commissioner the amount of the RBA deficit debt pursuant to s 8AAZH of the TAA 1953.

36    Similarly, pursuant to s 8AAZF(1) and Pt IIA of the TAA 1953, the plaintiff became liable to pay the general interest charge for each day at the end of which there was an RBA deficit debt.

37    Thus, as at 18 June 2013 (being the date of the demand), on the face of it, an RBA deficit debt in the amount of $384,483 was a debt due and payable by the plaintiff to the Commonwealth of Australia, being the sum of:

(1)    $309,895.00 in respect of GST liability;

(2)    $212,809.80 in respect of penalty for GST shortfall; and

(3)    $14,813.51 in respect of general interest charge calculated up to and including 17 June 2013, pursuant to s 8AAZF(1) and Pt IIA of the TAA 1953,

less payments/credits in the sum of $153,035.31.

38    In respect of the income tax debt, a notice of assessment for the year ended 30 June 2009 (2009 notice of assessment) with a taxable income of $251,682 and a tax payable of $75,504.60 was issued to the plaintiff on 26 March 2013 with a due date for payment of 2 March 2010. The notice was sent to the plaintiff’s preferred address for service at the time.

39    A notice of assessment for the year ended 30 June 2010 (2010 notice of assessment) with a taxable income of $10,000 and a tax payable of $3,000 was issued to the plaintiff on 26 March 2013 with a due date for payment of 1 December 2010. This notice was also sent to the plaintiff’s preferred address for service at the time.

40    A notice of assessment for the year ended 30 June 2011 (2011 notice of assessment) with a taxable income of $710,885 and a tax payable of $213,265.50 was issued to the plaintiff on 26 March 2013 with a due for payment of 1 December 2011. The notice was also sent to the plaintiff’s preferred address for service at the time.

41    A further notice of assessment for the year ended 30 June 2012 (2012 notice of assessment) with a taxable income of $838,317 and a tax payable of $251,495.10 was issued to the plaintiff on 26 March 2013 with a due date for payment of 3 December 2012. The notice was also sent to the plaintiff’s preferred address for service at the time.

42    A notice of assessment of penalty for failing to provide a document for the year ended 30 June 2009 (2009 penalty notice of assessment) in the amount of $56,628.45 was issued to the plaintiff on 26 March 2013 with a due date for payment of 15 April 2013. That notice was also sent to the plaintiff’s preferred address for service at the time.

43    A further notice of assessment of penalty for failing to provide a document for the year ended 30 June 2010 (2010 penalty notice of assessment) in the amount of $2,700 was issued to the plaintiff on 26 March 2013 with a due date for payment of 15 April 2013. It too was sent to the plaintiff’s preferred address for service at the time.

44    A notice of assessment of penalty for failing to provide a document for the year ended 30 June 2011 (2011 penalty notice of assessment) in the amount of $191,938.95 was issued to the plaintiff on 26 March 2013 with a due date for payment of 15 April 2013. It too was sent to the plaintiff’s preferred address for service at the time.

45    As at 18 June 2013, being the date of the demand, on the face of it, an income tax debt in the amount of $887,069.59 was a debt due and payable by the plaintiff to the Commonwealth of Australia, being the sum of:

(1)    $543,265.20 in respect of income tax liability for the years ended 30 June 2009, 30 June 2010, 30 June 2011 and 30 June 2012;

(2)    $251,267.40 in respect of administrative penalty liability for the years ended 30 June 2009, 30 June 2010 and 30 June 2011;

(3)    $92,536.99 in respect of a general interest charge calculated up to and including 17 June 2013 pursuant to s 5-15 of the Income Tax Assessment Act 1997 (Cth), Div 5 of the Income Tax (Transitional Provisions) Act 1997 (Cth), and Pt IIA and s 298-25, Sch 1 of the TAA 1953.

46    In respect of outstanding debt, on the face of it, as at 16 September 2013, an RBA deficit debt in the amount of $461,126.30 was a debt due and payable by the plaintiff to the Commonwealth of Australia, being the sum of:

(1)    $384,483 as claimed in the demand;

(2)    $66,323.00 with respect to further RBA deficit debt liability not claimed in the demand; and

(3)    $10,320.30 in respect of a general interest charge calculated from 18 June 2013 to 15 September 2013 (inclusive) pursuant to s 8AAZF(1) and Pt IIA of the TAA 1953.

47    As at 16 September 2013, on the face of it, an income tax debt in the amount of $908,848.03 was a debt due and payable by the plaintiff to the Commonwealth of Australia, being the sum of:

(1)    $887,069.59 as claimed in the demand; and

(2)    $21,780.32 in respect of a general interest charge calculated from 18 June 2013 to 15 September 2013 (inclusive) pursuant to s 5-15 of the Income Tax Assessment Act 1997, Div 5 of the Income Tax (Transitional Provisions) Act 1997, and Pt IIA and s 298-25, Sch 1 of the TAA 1953,

less credits/payments in the sum of $1.88.

Is there a genuine dispute about the existence of the debt, any defect or other reason to set aside the demand?

48    In summary, the plaintiff submits that the demand issued by the defendant to the plaintiff in its own capacity ought to be set aside either because:

(1)    there is a genuine dispute as to the existence of the debt for the purposes of s 459H(1)(a) arising from the evidence;

(2)    the notices of assessment are materially misleading and this is sufficient reason to set aside the demand pursuant to s 459J(1)(b);

(3)    the issuance of the demand was oppressive or unfair in the circumstances pursuant to s 459J(1)(b); or

(4)    the evidence as to the invalidity of each of the notices of assessment for income tax is a sufficient reason to set aside the creditor’s statutory demand pursuant to s 459J(1)(b) or alternatively as a defect pursuant to s 459H(1)(a).

49    At the hearing, the plaintiff sought to refine its submissions to the following effect:

    the demand contains a defect by reason of an error and/or misdescription of the entity, pursuant to s 9 of the Act;

    due to the defect, the wrong entity is named as debtor in the statutory demand; and

    because of the defect, which is not trivial but rather fundamental in its drafting, substantial injustice will be caused unless the demand is set aside pursuant to s 459J(1)(a).

50    Since the proceeding was commenced, the defendant has determined an objection against the notices of assessment and penalty notices arising from the GST and income tax audits. As a result, the plaintiff acknowledges that a limb of its earlier argument has been made redundant and so it no longer presses the submissions contained in [8], [9] and [32]-[44] of its outline of submissions filed 3 October 2013.

51    There are, however, a number of difficulties with the plaintiff’s contentions.

52    By s 459H(5)(a), if the Court is satisfied that there is a genuine dispute between the company and the defendant about the existence of a debt, then a nil amount should be considered the “admitted amount”.

53    The plaintiff, raises the question of there being a genuine dispute about the existence or amount of a debt to which the demand relates. It attempts to do so by contending that there will be a genuine dispute if the relevant notices of assessment that the defendant alleges gave rise to the debt were not issued “according to law” because the alleged debt in such circumstances will not be “due and payable”.

54    Section 459H, as noted above, is, by subs (6) subject to the operation of s 459J.

55    By s 459J(1), on an application under s 459G, the Court may by order set aside the demand if it is satisfied that, (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b), there is some other reason why the demand should be set aside.

56    The plaintiff submits that the notices were not issued validly because relevant notices of assessment were not directed to an entity described as a trustee for certain trusts. The plaintiff also says the notices were materially misleading and so should be set aside under s 459J(1)(b) or because each of the notices was defective or for other reasons. In particular, the plaintiff submits that the conduct of the Commissioner or defendant was oppressive or unfair in the circumstances and so that is an additional reason why the demand should be set aside under s 459J(1)(b).

57    Indeed, in the course of oral argument, counsel for the plaintiff agreed that the nub of the plaintiff’s argument in support of the application was that, in circumstances where it had lodged an objection to the notices of assessment, it was inappropriate for the defendant to have issued the demand. As a result, the principal contention of the plaintiff was that the Court should order the setting aside of the demand under s 459J(1).

58    In my view, the submission that the use by the defendant of the statutory demand procedure is inherently oppressive or unfair and should lead to the setting aside of the demand under s 459J(1)(b), can be immediately and readily dealt with. In my view there is nothing oppressive or unfair in the defendant utilising a time honoured statutory procedure in relation to the alleged failure of a company to meet a debt. This proceeding should not be used as some sort of judicial review proceeding in relation to the decision of the Commissioner or the defendant to issue a statutory demand.

59    In Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 (Broadbeach Properties), the plurality dealt with the topic of tax debts which are “disputed” at [51] and following. At [52], their Honours discussed the particular nature of a statutory “debt”.

60    Their Honours, at [54], accepted the Commissioner’s criticism of the reasoning of the Queensland Court of Appeal which would have enabled the fact that a tax debt may be disputed as a basis for finding there was a genuine dispute as to the existence of the debt. Their Honours said that there were distinctions clearly drawn in the legislative scheme between, on the one hand, the existence of a debt which is due and payable and, on the other, the issues in and outcome of a Pt IVC proceeding (for disputing an assessment). The point was again made by their Honours at [61].

61    To the extent therefore that earlier authorities such as Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379 suggest a different course, they carry no real force.

62    As noted, the plaintiff further submits that the demand should be set aside under s 459J(1)(a) on the following basis:

(1)    the demand contains a defect by reason of an error and/or misdescription of an entity pursuant to s 9 of the Act;

(2)    due to the defect, the wrong entity is named as debtor in the statutory demand; and

(3)    because of this defect, which is not trivial, substantial injustice will be caused unless the demand is set aside pursuant to s 459J(1)(a).

63    In considering this submission, it is useful to note what the plurality said in Broadbeach Properties at [57] and [58]:

Nothing turns upon the attribution to a s 459G application of the character of a proceeding in which, as Keane JA said, a tax debt may be disputed by the applicant taxpayer. Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment and of the GST declarations conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct [footnote omitted]. That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner.

The matter was explained, with respect correctly, by Williams J in Bluehaven Transport Pty Ltd v Deputy Commissioner of Taxation [footnote omitted]. The use by the Commissioner of the statutory demand procedure in aid of a winding up application is in the course of recovery of the relevant indebtedness to the Commonwealth by a permissible legal avenue. The phrase ‘may be recovered’ in ss 14ZZM and 14ZZR of the Administration Act applies to the statutory demand procedure. That state of affairs places the existence and amounts of the ‘tax debts’ outside the area for a ‘genuine dispute’ for the purposes of s 459H(1) of the Corporations Act.

64    The relevant point is that the operation of the provisions of the taxation laws, as their Honours noted, creates the debts and provides for their recovery by the Commissioner and cannot be sidestepped, as their Honours put it, by an application under s 459G to set aside the statutory demand by the Commissioner.

65    In this case, the plaintiff does not actually dispute the issuing of relevant notices, and, in any event, to the extent that it does, I accept the evidence put on by the defendant which establishes that relevant notices were issued and regularly sent to the preferred address for service of the plaintiff at material times.

66    There can be no serious question, in the circumstances, that the statutory debt alleged exists and is in the amount alleged and is relevantly due and payable by the plaintiff to the Commissioner.

67    As to the argument of the plaintiff that the notices of assessment are misleading or defective because they are not addressed to the plaintiff in its capacity as a trustee of a trust, I do not accept that there is any such requirement arising from s 960-100(3) of the Income Tax Assessment Act 1997.

68    Section 960-100 deals with “entities”. By s 960-100(3), it is provided that a “legal person” can have a number of different capacities in which the person does things. It is added that “in each of those capacities, the person is taken to be a different entity”. An example is then provided, namely, that in addition to his or her personal capacity, an individual may be:

    sole trustee of one or more trusts; and

    one of a number of trustees of a further trust.

It is then stated that in his or her personal capacity he or she is one entity. As trustee of each trust, he or she is a different entity. The trustees of the further trust are, it is stated, a different entity again, of which the individual is a member.

69    By subs (1) an “entity” means any of a number including a body corporate and a trust.

70    It should also be noted that by subs (4) it is provided that if a “provision” refers to an entity of a particular kind, “it refers to the entity in its capacity as that kind of entity, not to that entity in any other capacity”. Again an example is provided:

A provision that refers to a company does not cover a company in a capacity as trustee, unless it also refers to a trustee.

71    Here the plaintiff submits that because the notices of assessment were issued to the plaintiff in its own capacity and not in its capacity as trustee of trusts, then there can be no liability in its capacity as a trustee of trusts.

72    The primary question that arises from the relevant provisions cited, however, is whether a “provision”, that is to say a provision of the Income Tax Assessment Act 1997, refers to the entity in any particular capacity. The plaintiff is unable to point to any such provision.

73    The plaintiff’s point in substance is that the Commissioner should have known it was dealing with the taxpayer as trustee.

74    The circumstances here, however, involved the taxpayer dealing in its own name and individual capacity with the Commissioner. It never sought to identify itself as an entity of another type, especially trustee, at material times.

75    The plaintiff, as an individual entity, also lodged the September 2012 and March 2013 instalment variations. No suggestion was made it did so as trustee.

76    Thus, there was never any reason for the Commissioner to direct any official action to the plaintiff in its individual capacity.

77    Certainly, there was no reason why the Commissioner should have formed the view the plaintiff did not itself earn income.

78    Again, having regard to the relevant history of the matter where the plaintiff lodged initial documentation and later relevant documentation purporting to vary the GST instalment amounts by the September 2012 instalment variation and the March 2013 instalment variation, the relevant taxpayer appeared as the plaintiff.

79    It was as a result of that conduct that the Commissioner commenced the audit and extended audit in relation to the plaintiff’s GST and income tax for the period 30 June 2009 to 30 June 2012 in respect of income tax and for the period 1 January 2009 to 30 June 2012 in respect of GST.

80    In those circumstances it cannot now realistically be suggested by the entity that dealt with the Commissioner as the entity liable for revenue obligations, that the Commissioner should have directed relevant notices to the some other entity following the extended audit.

81    There is no “defect” as alleged in the demand.

82    Finally, nor am I satisfied there is any basis for an order under s 459J(1)(a) or (b) to set aside the demand.

83    In making these findings, I am satisfied that the defect and related oppression arguments sufficiently arose out of the materials filed in the 21 day period to be properly considered.

order

84    The application should be dismissed with costs.

Associate:

Dated:    5 March 2014