The impact of this case on ATO policy is discussed in Decision Impact Statement: Commissioner of Taxation v Milne (Published 5 October 2006).

FC of T v MILNE

Judges:
Conti J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2006] FCA 1005

Judgment date: 4 August 2006

Conti J

Context to the present application by way of appeal from the Tribunal

1. This is an application for review by way of appeal from the decision of the Small Taxation Claims Tribunal, a division of the Administrative Appeals Tribunal ("the Tribunal") which was constituted by Senior Member Robin Hunt, being a decision made on 4 July 2005 whereby the Tribunal set aside the objection decision of the Commissioner and remitted those Tribunal proceedings to the Commissioner with the direction that the discretion of the Commissioner be exercised by way of the grant of appropriate relief in favour of the respondent ("Mr Milne") under section 340-5 of the Taxation Administration Act 1953 (Cth) ("the Administration Act"). It appears that at one stage Mr Milne's estranged wife Lynette Milne was an additional applicant in the Tribunal proceedings, but subsequently she ceased to be so, at least by the time for the provision of written submissions to the Tribunal.

2. The grounds of the Commissioner's appeal to the Federal Court were in the following terms:

(i) The Tribunal erred in law and applied the wrong test in holding that Mr Milne would suffer "serious hardship" within the meaning of subsection 340-5(3) of Schedule 1 to the Administration Act if he was not released from that part of his tax debt which was eligible for release;
(ii) The Tribunal erred in law by failing to take relevant considerations into account in the exercise of its power, namely:
- (a) that Mr Milne had an excess of assets over liabilities;
- (b) that upon the sale of Mr Milne's assets, he would have sufficient funds to discharge all of his debts including that part of his tax debt which was eligible for release;
- (c) that upon the sale of Mr Milne's assets, his likely income would exceed his liabilities;
- (d) that Mr Milne's assets included the sum of approximately $48,000 in cash;
- (e) that absent the sale of Mr Milne's assets, he would likely be made bankrupt and other creditors paid in preference to the applicant;
- (f) that the Tribunal had power to order a partial release of that part of Mr Milne's tax debt which was eligible for release;
  
  ATC 4505
- (g) that at the end of Mr Milne's working life (ie approximately three years hence), he would be required to sell his assets to discharge his liabilities in any event;
- (h) that Mr Milne's expenditure exceeded his income solely by reason of the fact that he was continuing to service loans secured against his unsold assets.
(iii) the Tribunal erred in law in taking irrelevant considerations into account in the exercise of its power, namely:
- (a) that because Mr Milne had been earning a high level of income in the past from practice as a solicitor, and was still earning income in a higher bracket and had been able to acquire assets and to live reasonably well throughout his adverse business fortunes, it would not be fair to release him in the absence of "special factors";
- (b) that the "special factors" in Mr Milne's case were his battle to continue to work despite poor health and the need to support his dependent son until he finished his schooling;
- (c) that Mr Milne's problems were beyond his control;
- (d) that absent a release, Mr Milne would be made bankrupt, would lose his practising certificate as a solicitor, and would not have the means to earn a living.
(iv) the Tribunal should have held that:
- (a) because Mr Milne was continuing to earn income in a higher bracket, was continuing to live reasonably well, and was continuing to use and enjoy assets acquired by him at the expense of the discharge of his taxation liabilities:
  - (aa) Mr Milne would not suffer "serious hardship";
  - (bb) it was unreasonable to exercise the Tribunal's discretion in favour of Mr Milne;
- (b) the sale of Mr Milne's assets would enable him to continue to support his dependent son until he finished his schooling;
- (c) that Mr Milne's problems were within his control in that they were caused by the maintenance of existing assets at the expense of his taxation liabilities;
- (d) that whether or not Mr Milne was released, he would likely face bankruptcy absent the sale of his assets;
(v) the exercise of the Tribunal's power to release Mr Milne was unreasonable; and
(vi) the Tribunal's finding that Mr Milne would suffer "serious hardship" within the meaning of subs 340-5(3) of Schedule 1 to the Administration Act if he was not released from that part of his tax debt which was eligible for release, was not open as a matter of law on the basis of the evidence and materials before the Tribunal;

3. Part 4-50 of Schedule 1 to the Administration Act, headed Release from particular liabilities, provides by way of Division 340, in turn headed Commissioner's power to provide release from particular liabilities, so far as presently material, as follows:

"340-5 Release from particular liabilities in cases of serious hardship.

Apply for release

(1) You may apply to the Commissioner to release you, in whole or in part, from a liability of yours if section 340-10 applies to the liability.

…

(3) The Commissioner may release you, in whole or in part, from the liability if you are a person specified in the column headed 'Person' of the following table and the condition specified in the column headed 'Conditions' of the table is satisfied:

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Person and condition
Person and condition
Item Person Condition

1 an individual you would suffer serious hardship if you were required to satisfy the liability

…

(4) If the Commissioner:

(a) refuses to release you in whole from the liability; or

(b) releases you in part from the liability;

nothing in this section prevents you from making a further application or applications under subsection (1) in relation to the liability.

…

340-15 Commissioner may take action to give effect to a release decision

(1) If the Commissioner decides to release you from a liability to which section 340-10 applies, the Commissioner may take such action as is necessary to give effect to the decision."

Person and condition
Item	Person	Condition

1	an individual	you would suffer serious hardship if you were required to satisfy the liability

The reference above to the condition of "serious hardship… if required to satisfy the liability" may thus be observed.

4. As to whether facts as found fall within the ordinary meaning of the words used in a statute, the same normally involves an issue of law. Thus for instance in
NSW Associated Blue-Metal Quarries Limited v Federal Commissioner of Taxation (1956) 94 CLR 509 at 512, Kitto J observed as follows:

"The next question must be whether the material before the Court reasonably admits of different conclusions as to whether the appellant's operations fall within the ordinary meaning of the words as so determined; and that is a question of law… If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact…."

5. On 11 December 2000, Mr Milne made application for release of his income taxation liability for the fiscal years ended 30 June 1991 to 30 June 1999 (inclusive). He was examined by the Tribunal and a report of that examination was forwarded to the Taxation Relief Board ("the Board") on 16 October 2001. Subsequently on 25 October 2001, the Board granted Mr Milne partial relief from his then income taxation indebtedness to the Commissioner. There was no evidence that such taxation indebtedness was incurred in consequence of Mr Milne's engagement in taxation avoidance or in any taxation scheme of any kind. The total amount of income tax indebtedness the subject of the Board's consideration was $89,547.10, and the extent of the relief so granted was $37,532.48. The Board's reasons for decision were as follows:

"The Board considered that the applicant could make a genuine attempt to repay a part of the debt by instalments without being deprived of the necessities mentioned above (food, clothing, medical supplies, accommodation, education for children and other basic requirements).

In reaching this decision, the Board noted that two separate statements contained in the AAT report pointed to the capacity of the applicant to pay up to $50,000 toward the debt."

6. Subsequently on 24 October 2003, Mr Milne made a further application for release from his income tax liability, by that time amounting to $96,062.62, relating to the fiscal years 30 June 1993 to 30 June 2002 (inclusive). The context to that further application included the prior service of a bankruptcy notice in February 2003 and of a creditor's petition on 18 June 2003, in each case at the instance of the Commissioner. The application for release was rejected by the Commissioner on 23 February 2004, and Mr Milne applied to the Tribunal, on 25 February 2004 for review of that second decision, pursuant to Part IVC of the Administration Act headed Taxation objections, reviews and appeals. By the time of the hearing by the Tribunal of that review application on 9 May 2005, according to the Commissioner's evidence, the tax debt had increased to

ATC 4507

$187,430.25, whereof the amount eligible for release amounted to $149,876.68. Moreover the Commissioner indicated to the Tribunal that a further $15,895 would become due for payment on 12 May 2005, and that there might well be future unspecified taxation debts.

7. The application for review was heard by the Tribunal on 9 May 2005 and on 4 July 2005 the Tribunal determined that the Commissioner's decision should be set aside and the matter be remitted to the Commissioner with the direction that discretion be exercised by way of grant of relief in favour of Mr Milne pursuant to section 340-5 of the Administration Act. Of course no order was made as to costs. Hence the Commissioner's present application to this Court is for judicial review of the Tribunal's decision of 4 July 2005 by way of appeal under the Administration Act.

8. A statement of assets and liabilities of Mr Milne in evidence, which he prepared and verified as at 4 November 2004, disclosed the following situation:

Assets
Residence comprising 31 Harley Crescent Eastwood in the State of New South Wales owned by himself and his wife in equal shares, the value of his half share being	$375,000.00
Cottage comprising "Hillside" Brindabella in the State of New South Wales also owned by himself and his wife in equal shares, the value of his half share being	$130,000.00
1982 Toyota Landcruiser motor vehicle	$2,000.00
2001 Honda CR-V motor vehicle (held indirectly by a family company whereof Mr Milne and Mrs Milne were equal shareholders)	$10,500.00
204 shares in AMP Society (obtained from the demutualisation in favour of policy holders)	$1,200.00
Household furniture and effects	$5,000.00
	$523,700.00

(In addition, Mr Milne asserted that he maintained a cheque account with National Australia Bank into which he deposited his income derived as a solicitor, the amount in credit varying from $10.00 to "a few thousand depending upon whether I have had drawings for that particular fortnight").

Liabilities
Mortgage indebtedness in favour of Banksia Mortgages Limited secured upon the Eastwood and Brindabella properties (which replaced his former indebtedness to the National Bank and Citibank)	$750,000.00
Hire purchase debt due to Honda Finance	$13,742.00
American Express (average variable debt)	$14,000.00
David Jones (average variable)	$7,000.00
Loreto Normanhurst - judgment debt for unpaid school fees	$6,500.00
	$791,242.00

9. However the Commissioner prepared a corresponding schedule which reflected merely one month earlier the joint assets and liabilities of Mr Milne and Mrs Milne, which stated as follows:

Assets
Real Estate - 31 Harley Crescent Eastwood - Jointly owned	$750,000.00
Real Estate - 'Hillside', Brindabella - Jointly owned	$260,000.00
2001 Honda CR-V (sole asset of Milsal Pty Limited)	$21,000.00
1982 Toyota Landcruiser	$2,000.00
204 AMP shares	$1,200.00
Household furniture and effects	$50,000.00
	$1,084,200.00
Liabilities
Mortgage to National Australia Bank secured over Eastwood and Brindabella	$528,000.00
Overdraft - National Australia Bank - secured over Eastwood and Brindabella	$72,500.00
Hire purchase - Honda	$12,400.00
Visacard - Citibank (account closed)	$17,500.00
Mastercard - NAB (account closed)	$16,500.00
American Express	$14,000.00
David Jones	$7,000.00
Loreto Normanhurst	$6,500.00
	$674,400.00

10. Upon the footing of that latter material, the Commissioner submitted that "… whatever calculation is used, it is clear that [Mr Milne] had sufficient assets to discharge his tax liability without bankruptcy". The evident problem with that analysis is that both items of realty and the Honda motor vehicle were jointly owned at all material times by Mr and Mrs Milne, and for what it may ultimately matter, they have been living seemingly at all material times in a state of marital separation, with all the implications thereby involved. Moreover of course, Mr Milne is doubtless jointly and severally liable to those mortgages and there is no evidence moreover as to his wife's financial capacity to meet one half of those liabilities in the event of any shortfall on any sale of those assets or otherwise.

The Tribunal's reasons for decision

11. In the reasons for decision of the Tribunal below, there was recorded a detailed outline of the evidentiary material, including non-contentious as well as contentious circumstances. That material may be summarised as follows:

(i) though Mr Milne was previously granted a partial release by the Taxation Relief Board in 2001, he continued to experience financial difficulties, the same arising largely in relation to fiscal outstandings in respect of the 1993 fiscal year and following;
(ii) Mr Milne's financial difficulties stemmed from two major factors, the first being the extent of fraudulent misappropriation of funds by his former partner of their legal practice, in relation to which Mr Milne found it necessary to borrow in the course of the 1988-1989 financial year in excess of $300,000 in order "to cover his share of the loss", to use the Tribunal's description, and the second being his borrowing of $190,000 in order to finance his acquisition in 1991 of a partnership interest in another firm of solicitors;
(iii) Mr Milne suffered a compounding of his continuing financial difficulties by departing from the latter firm of solicitors in March 1996 "without any return of the working capital of the partnership"; that absence of any working capital return occurred apparently because "[h]is share of the taxable income of the partnership exceeded his drawings"; since then however he has continued in legal practice as a sole practitioner pursuant to an arrangement whereby he has shared certain office and other administrative outgoings; and
(iv) Mr Milne has suffered from poor and deteriorating health, apparently originating in 1996, involving a number of heart attacks, a quadruple coronary artery by-pass operation, and moreover as a consequence of osteoarthritis, he underwent a total replacement of both hips and corrective spinal surgery; additionally he has been diagnosed with Parkinson's disease; those obviously serious illnesses and disabilities have occasioned not just substantial medical expense, but also substantial loss of income, not only by reason of his absence from work as a consequence of such illnesses and disabilities but also by reason of the need to bear the entirety of the ongoing of his sole legal practice at all times during his absences occasioned by those unfortunate circumstances.

12. I interpolate to observe that given the stark reality of those circumstances and their implications, it is apparent that any bankruptcy of Mr Milne at any prospective time thereof would yield no or at least only an insignificant dividend available for the Commissioner of Taxation as a preferential unsecured creditor in any bankruptcy of Mr Milne. In any event it was the Commissioner's case that Mr Milne would not be deprived of an ongoing capacity to earn income as a solicitor, irrespective of

ATC 4509

bankruptcy, though subject to prevailing Law Society conditions, including the condition of impermissibility to conduct a trust account. It was also said by senior counsel for the Commissioner that a condition of continuation in practice as a bankrupt would be "… whether in all the circumstances… the act of bankruptcy [was] such… that the person wasn't fit and proper to continue practice".

13. As to Mr Milne's consequential financial situation, in terms of assets and liabilities, as found by the Tribunal, I would reproduce below certain of its more critical findings, rather than endeavour to summarise the same:

"13. As to his assets, Mr Milne agreed with the Commissioner's estimate that his and his estranged wife's total assets listed on 30 September 2004 amounted to a value of $1,084,200. The assets included the family home, a holiday house at Brindabella, two vehicles, a small parcel of shares and household effects. Mr Milne said he now had only one vehicle whereas previous information supplied showed he had two vehicles at an earlier time. Liabilities included a mortgage of the family home, an overdraft and credit cards. The mortgage of the family home was in both Mr and Mrs Milne's names. At the time of the objection decision under review, Mr Milne's wife was contributing to the household expenses. However, Mr Milne gave evidence that his wife, although earning some income, no longer contributed to the household expenses since the separation. Mr Milne said that he no longer paid school fees as his son was no longer attending the same school. He also no longer paid a vehicle hire purchase.

14. Concerning his assets, Mr Milne provided information that he and his estranged wife had formerly listed the family home for sale but it was no longer on the market. He produced a letter from an estate agent stating that there was no interest from potential purchasers in the holiday property at Brindabella. Further, a licensed valuer furnished a report that the former valuation of the Brindabella property was now excessive. Mr Milne claimed the value attributed by the Commissioner was overstated. The valuer's report, dated 7 April 2005, was before the Tribunal and explained what the valuer saw as the reality in the present market and that the property was now worth even less than previously reported. Mr Milne told the Tribunal this was due to the drought and the Canberra bushfires. He was unable to realise the property and its value had diminished. It had been valued at $260,000 but was not currently marketable. The licensed valuer suggested a revised figure of $235,000 and suggested it would take at least six months to find a buyer at this price, especially in winter. In addition, Mr Milne pointed out the family assets were jointly owned with his estranged wife."

The severity of those Canberra bushfires was of course the subject of extensive reporting by the media of this country. It appears that the Tribunal's decision below was made three months after the Brindabella property valuation was completed.

The Australian Taxation Office Receivables Policy and Income Tax Ruling No IT 2440

14. The Tribunal pointed out that the statutory notion of serious hardship is not defined in the Administration Act. The Commissioner has however formulated and published the Australian Taxation Office Receivables Policy ("the Receivables Policy"), which provides at par 24.4.1 as follows:

"The term serious hardship is not defined in the law and must be given its ordinary meaning. In determining the existence of serious hardship, the Board applies several tests that follow a conceptual position that the term serious hardship has connotations of unduly burdensome consequences, the magnitude of which would be likely to lead to persons being deprived of necessities according to normal community standards. Thus, serious hardship would seem to exist where payment of tax liability would result in the debtor being left without the means to achieve reasonable acquisition of food, clothing, medical supplies, accommodation, education for children and other basic requirements."

The references to accommodation and education for children may be observed. It is not stated explicitly, nor need be construed implicitly, that the statutory notion there of accommodation must necessarily be realty

ATC 4510

individually or jointly owned by a taxpayer. It is moreover not an irrelevant matter that to change unwillingly from freehold accommodation, particularly when held and occupied for a considerable period of time, to tenanted accommodation, might well have disadvantageous consequences to a taxpayer, particularly a taxpayer having one or more family dependants or partial dependants.

15. Thereafter the Tribunal referred to par 11 of Taxation Ruling No IT 2440 ("TR 2440"), in so far as it contains what the Tribunal described as "… three tests for considering a taxpayer's ability to meet a taxation liability from current income…", which are as follows:

"(i) What is the debtor's capacity to pay, as measured by the income and outgoings stated in the application or supporting documents i.e. what net income remains after deducting total outgoings from total income?

(ii) Does the Commissioner accept that the income and outgoings stated are accurate and that the outgoings are necessary, or is there scope to increase the net income available or to reduce outgoings to meet the tax debt without serious detriment to living standards?

(iii) Is there a margin by which available income exceeds reasonable outgoings, and is it sufficient to allow the liability to be met within an acceptable time scale?"

The foregoing reference to the notion "… without serious detriment to living standards" may be observed. That notion would be objective in operation.

16. The Commissioner drew attention to par 6 of TR 2440, to which I add reference to pars 7, 8 and 9, each reading as follows:

"6. The several tests applied by the Relief Board follow from a conceptual position that the term serious hardship has connotations of unduly burdensome consequences, the magnitude of which would be likely to lead to persons being deprived of necessities according to normal community standards. Thus, serious hardship would be seen to exist where payment of a tax liability would result in the taxpayer being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements.

7. On the other hand, elements of hardship may be regarded as marginal or minor rather than serious if the consequences of payment of tax are seen, for example, as limitation of social activities or entertainment, or loss of access to goods or services of a more luxurious nature or standard.

8. As a first step in considering an application for relief, the Relief Board must determine the person or persons to be included in its assessment of hardship factors. Although hardship will be largely personal to the taxpayer, or the dependant of a deceased taxpayer, it is not limited to the immediate state of that person. Rather, the prospect of inability to provide food, clothing, etc. for family members or others for whom the person has responsibility will also constitute a hardship faced by the person.

9. Conversely, although a taxpayer's immediate situation may suggest inability to meet the combined total of the tax debt and family expenditures, that factor will not indicate hardship if the income or asset positions of other members of the family are such as to suggest that the taxpayer cannot reasonably be regarded as responsible for all relevant outgoings. For example, the separate earnings, allowances or benefits received by other family members will be relevant to an assessment of the taxpayer's overall financial circumstances."

The reference in [9] above to hardship being largely personal to the taxpayer may be observed.

17. The Tribunal next referred to the "two stage process" identified and discussed by Member Trowse in
Re Filsell and Commissioner of Taxation [2004] AATA 1012 in the following context of his consideration of the implications of s 340-5(3) of the Administration Act:

"In the Tribunal's opinion, the language of the legislation requires a two stage approach. First, the decision-maker must decide whether the settlement of the liability will result in serious hardship. If that decision is favourable to the applicant, the

ATC 4511
discretion offered by sub-section 340-5(3) then falls for consideration. In reaching the decision to release in whole or part, the question to be addressed is whether, in all the circumstances, it is just and proper to provide the requested relief. Matters pertaining to the incidence and consequence of the tax and the effect of its exaction upon the affairs of the person will bear upon the issue of whether the relief is just and proper. Support for the two stage approach is to be found in the decision of the High Court in Rex v Trebilco; ex parte F.S. Falkiner & Sons Ltd (1936) 56 CLR 20."

I have of course extracted s 340-5(3) of the Administration Act earlier in these reasons. I would respectfully seek to apply that principled approach.

18. As to the notion of serious hardship above addressed in Filsell, the Tribunal below drew attention to
Re Wilson and Minister for Territories (1985) 7 ALD 225, where Deputy President Hall discussed (at 229) the meaning of the similar notion of undue hardship, in the context of exercise of the statutory discretion of the Minister to discharge a liability for payment of rates on the ground of undue hardship, being a meaning said by Deputy President Hall to connote something more severe than substantial hardship. The Tribunal below also discussed Deputy President Hall's view that undue hardship means "hardship that is excessive in the circumstances", and that "foreseeability and control" constitute "relevant considerations" to the determination of hardship. Understandably Deputy President Hall further observed that neither expression undue hardship nor substantial hardship is susceptible to "precise quantification". The rationalisation of authorities undertaken in Re Wilson has provided assistance to later administrative decisions concerning this and analogous legislative provisions.

19. In relation to the notion of control over a taxpayer's circumstances, inherent implicitly in relation to the application of the tests the subject of TR 2440, the Tribunal below referred to "Mr Milne's evidence… that a series of business catastrophes left him with debts which he could not control", and in particular that "[h]is financial position was adversely affected by the fraud of a former partner", and thereafter by "poor financial performance of his next partnership venture and then by his chamber practice's expenses outweighing his ability to earn due to absences through ill health", each being eventualities in relation to which the Tribunal observed that Mr Milne "was unable to control". Those are material findings, since they tend to demonstrate the absence of any moral wrongdoing on Mr Milne's part in relation to his present state of financial misfortune. In that regard, counsel for the Commissioner acknowledged that there was no suggestion of professional or social misbehaviour such as gambling or anything of that situation. Incidentally, the reference to "chamber practice" was to an association (though not partnership) of lawyers where expenses are shared but not profits.

20. Further as to those circumstances concerning Mr Milne's financial position to which the Tribunal drew attention, it appears to have accepted at least implicitly the following factors in summary put forward and relied upon by Mr Milne:

(i) Mr Milne's "financial position was adversely affected by the fraud of a former partner";
(ii) business catastrophes (inclusive of that fraud of his former partner in professional practice) had left Mr Milne with debts he could not manage, or at least substantially so;
(iii) Mr Milne's financial position was further adversely affected by what the Tribunal described as "poor financial performance of his next partnership venture and then by his chamber practice's expenses outweighing his ability to earn due to absences through ill health", each being further eventualities Mr Milne "was unable to control".

21. The Tribunal further pointed to the following factors as consequential to the circumstances which I have already recorded:

(i) whether or not Mr Milne could be criticised "for leaving the later partnership was not put to him in the context of foreseeing tax consequences";
(ii) the inference was open to be drawn that Mr Milne "took action to improve his circumstances as he derived less income

ATC 4512
from the partnership than the share taken into account for taxation purposes";
(iii) Mr Milne's "most recent efforts to remain in practice have been dogged by his continuing and serious health problems";
(iv) Mr Milne's financial problems had "largely come about through his attempts to remain afloat rather than excessive expenditure or lack of precaution", yet he had "taken steps to reduce his expenditures such as by removing his son from his former private school".

As to factor (ii) above, it is of course the case that income and outgoings for fiscal purposes do not necessarily coincide with those incurred otherwise according to the general law. It could not be gainsaid that those factors which I have extracted above and in the preceding paragraph of these reasons were relevant to the issue concerning Mr Milne's hardship, the existence and extent whereof the Tribunal was required to resolve.

22. As to the factor of fairness to other taxpayers identified in Re Wilson, being a factor which I would acknowledge to be relevant to the Tribunal's approach in principle to decision-making, the Tribunal recorded also that Mr Milne had earned a high level of income in the past, and was "still earning income in a higher bracket". Moreover the Tribunal found that Mr Milne had been "… able to acquire assets and to live reasonably well throughout his adverse business fortunes", though the notions of high and higher are of course relative concepts, and need to be applied with care having regard to all conceivably relevant circumstances. In any event the Tribunal accepted in favour of the Commissioner the proposition that "… releasing Mr Milne would not be fair in the absence of special factors", consistently with the previous Tribunal decisions of
Ferguson and Commissioner of Taxation [2004] AATA 779 and
Spicer and Commissioner of Taxation [2002] AATA 960, the Tribunal exemplifying Ferguson as a case involving insufficient hardship for the availability of taxation relief. In the present case moreover, the Tribunal emphasised as a so-called "special factor" in favour of Mr Milne for the grant of serious hardship relief his "battle to continue work despite his very poor health and the need to support his dependant son until he finishes his schooling and obtains his HSC".

23. Further to the statutory notion of serious hardship addressed in decisions referrable to the not dissimilarly framed provisions of the precursor s 265 of the Income Tax Assessment Act 1936 (Cth), reliance was placed by the Tribunal upon this Court's decisions in
Powell v Evreniades (1989) 21 FCR 252, where Hill J made the following observations at 258-260 in the context of the then Tax Relief Board's statutory discretion to release the trustee of a deceased person's estate wholly or in part from a taxation liability in the case of "serious hardship":

"… The Court will not subject [a statement pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth)] to a fine analysis with a view to finding through a microscopic study of it some error of law….

There is no definition in s 265 of what is meant by 'serious hardship' nor would one expect there to be. Each of the words in the phrase is an ordinary English word having a well understood meaning… The context in which the words appear makes it clear that the Relief Board is to consider whether the exaction of the full amount of tax would involve the dependants of a deceased taxpayer in financial difficulty which in all the circumstances can be said to be serious… it is obvious enough that what will constitute either will depend upon the circumstances of a given case.

It is inappropriate to endeavour in the abstract to state tests of what will and what will not constitute serious hardship within the context of s 265. Clearly there would be severe financial hardship if the dependants of a deceased person were left destitute without any means of support. That is not to say that in any particular case something less than that will not constitute serious hardship.

… it was open to the Board to conclude that the exaction of the full amount of tax would cause serious hardship, just as it was also open to the Board to conclude that exaction of the whole tax would not leave this applicant and her daughter in a situation that

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could properly be described as one of serious hardship. The circumstances of the present case, while clearly very close to the end of the spectrum representing destitution still come within that range of spectrum in which the decision could not be described as unreasonable in the Wednesbury sense… that is to say unless consideration of some extraneous or irrelevant factor intervened to vitiate the decision….

… I can see no error of law in the way to which the Board so proceeded."

Understandably counsel for Mr Milne invoked, as largely here applicable, those observations of his Honour. As I have already implied, that precursor s 265 was expressed to require regard to be paid to the serious hardship which might otherwise affect a taxpayer in the event of an absence of intervention by way of release (or partial release) of income tax liability. That precursor provision operated directly in favour of the dependants of a deceased taxpayer as well as a taxpayer, but for present purposes, the dictum of his Honour in Powell nevertheless provides a significant measure of assistance in relation to the operation of the present s 340-5.

24. Further in his reasons for judgment in Powell at 263, Hill J referred to the dictum of Windeyer J in
Giris Pty Ltd v Commissioner of Taxation (1969) 119 CLR 365 at 384 concerning the need "… to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it [and to] exclude from… consideration any matter which it would be unlawful… to take as a criterion… [subject to the qualification where] the statute seems to allow great latitude to the Commissioner in forming his opinion". Moreover his Honour referred to what was said by Dixon J (as he then was) in
R v Trebilco;
Ex parte FS Falkiner & Sons Ltd (1936) 56 CLR 20 at 32 as to certain statutory "considerations by which an exercise of discretion is to be guided… [t]he nature of those considerations [to] be gathered from the scope and object of the provision". Additionally his Honour referred further to dictum of Mason J (as he then was) in
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 40, where his Honour described the statutory discretion there addressed, albeit not related to fiscal exaction, as "… similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard", and where his Honour thereafter proceeded to emphasise that "[b]y analogy, where the ground of review is that a relevant consideration has not been taken into account and the discretion is unconfined by the terms of the statute, the court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject matter, scope and purpose of the Act." Those factors have aspects of materiality in relation to the issue or issues here falling for consideration.

25. Subsequently in
Van Grieken v Veilands (1991) 21 ATR 1639, Gummow J cited the principled approach outlined by Hill J in Powell with at least implicit approval, observing that his Honour had further pointed out (at 626 of Powell) that the decision-maker was entitled to "consider not only such matters as go to the issue of serious hardship, but also other matters which, in the discretion of the Board, may be relevant".

26. Returning to the text of TR 2440, the Tribunal member (of course Deputy President Hunt) concluded that the notion of serious hardship appearing in subs 340-5(3) of the Administration Act, in the light of the illustrations therein given and the statutory policy otherwise at least implicitly evident, "may mean less than extreme financial hardship but should be hardship of a significant kind in terms of normal community standards", and that par 6 of that TR 2440 provided "appropriate guidance as to the kind of matters which amount to serious hardship warranting a release from a tax debt". The Tribunal member considered that "Mr Milne's outgoings already exceed his income, according to the information he has provided, [and] he is at the worst level of financial hardship", and moreover that "should he lose his right to practise as a solicitor, not only he but his two children will suffer severe deprivation", emphasising in that latter regard to education of children being "one of the basic requirements set out in TR 2440". The Tribunal member further observed that should Mr Milne be bankrupted, he and his children (two of which are apparently dependant on him

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financially or at least substantially so) would lose not only his income but the house where they all lived together. Each of those considerations were matters which the Tribunal was in my opinion entitled reasonably to take into account.

27. Nevertheless the Tribunal member acknowledged that "even where there is serious hardship, other options should be considered before deciding that the discretion should be exercised in favour of the taxpayer", and that "[o]ne option might be deferral or payment by instalments", being an option which the Commissioner notified the Tribunal would be acceptable. Moreover the Commissioner pointed to patience on the Commissioner's part in relation to the collection of Mr Milne's taxation indebtedness when agreeing to the settlement in September 2002, and recorded that Mr Milne did not put any further offer of compromise after the rejection by the Commissioner of the offer made to Mr Milne in December 2003. The Tribunal recorded in that regard however that it was "… told… that this had involved his borrowing further in order to obtain a lump sum to contribute to his tax debt", and that "[h]e had proposed to pay the remainder by instalments", but that at the hearing the Commissioner "did not suggest any level of appropriate payment by instalments and pressed the Tribunal to make a finding that Mr Milne had not demonstrated serious hardship".

28. Under the heading Final Analysis, the Tribunal undertook a comprehensive summary of what it considered to be the critical circumstances placed before it. The care and precision with which that summary was articulated by the Tribunal warrant recitation of a number of aspects thereof below, rather than a summary merely as to their purport and effect.

29. The Tribunal hence further recorded that there were "some deficiencies in expenses claimed by Mr Milne but I was left in no doubt as to the extent of Mr Milne's major expenses such as the mortgage payments necessarily made to prevent the mortgagor from foreclosing on the mortgage, thus putting the family out of their home", and moreover that "[w]hile there were some deficiencies in Mr Milne's evidence and some expenses stated such as clothing and general household expenses that were on the generous side, I am satisfied that the information is as clear as Mr Milne is capable of giving the Tribunal in this situation". The Tribunal further observed that "the quantum of tax due under the judgment debt obtained by the Commissioner is continually subject to change", but that the portion of the debt which was in focus before the Tribunal as a potentially releasable debt amounted to $149,876.68, as was apparently verified by the Commissioner, and further that Mr Milne had "considerable non-releasable tax debts and continuing tax liabilities arising from his continuing earnings", and that "[he] must make efforts to pay these debts as well as keep himself and his children in the necessities of life". The Tribunal accepted Mr Milne's evidence, in my view significantly, that he had "tried to arrange his affairs to the best of his ability under adversity", and had "behaved in a manner that is responsible and has not deliberately set out to ignore his tax obligations". The Tribunal found yet further favourably to Mr Milne that his "… problems are beyond his control when taking into account his partnership problems and ill health as well as the departure of his spouse, thus removing another possible source of assistance".

30. The Tribunal summarised its detailed considerations and findings to the effect that "… although bankruptcy does not normally constitute serious hardship, Mr Milne's case was different… because there are special circumstances in his case", the same being summarised as follows in summary:

(i) his age and serious health problems;
(ii) the few remaining years left in his working life;
(iii) the dependency of his two children;
(iv) the likely loss of his practising certificate in the event of bankruptcy, and thus of the means of earning a living.

Each of those factors need to be considered in the light of and subject to the qualification, upon which I have already made observations.

31. The senior Tribunal member pointed moreover to the reality of Mr Milne's diminishing prospects of being employed by "someone else", due to his age, ill health and the likely consequences thereof by way of periodic absences from work. The member pointed also to the implications of bankruptcy

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to Mr Milne's children, implicitly referring thereby to possible diminution in their opportunities for academic qualification with a view to future gainful engagement or employment. As the senior member I think rightly acknowledged, "bankruptcy is not designed to be a punishment but a way out of hopeless debt with the chance of the debtor re-establishing after a time, usually three years". Moreover as was emphasised further by the senior member, in particular in the light of Mr Milne's age, the ensuing three years represented a period of time critical in terms of his ability to provide financial assistance to his family.

32. In the result, the Tribunal concluded that the circumstances which I have largely recorded constituted serious hardship within subs 340-5(3) of the Administration Act, and that therefore its discretion should be exercised to "release Mr Milne from his taxation debt".

The Commissioner's contentions on the appeal

33. By way of threshold summary of the Commissioner's case on the appeal, the Commissioner contended that "the facts as found by the Tribunal admitted of one conclusion only, namely, that [Mr Milne] would not suffer serious hardship within the meaning of s 340-5(3) of the Act", and that the Tribunal misinterpreted or misconstrued that legislative notion. Reliance was also placed by the Commissioner on TR 2440, in relation in particular to the statutory meaning of serious hardship. It remains important to bear in mind of course the juridical principles of statutory interpretation entrenched in the general law, as the Commissioner's Receivables Policy guidelines I have already extracted implicitly acknowledge. It will be recalled that TR 2440 emphasised the need for considering the notion of "necessities according to normal community standards", including those of a basic kind inclusive of "… accommodation [and] education for children…".

34. I was next referred by the Commissioner to the assistance to be gained from government statements of policy, as outlined by Brennan J (then a member of the Tribunal) in
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 640, and in particular the following:

"There are powerful considerations in favour of a Minister adopting a guiding policy. It can serve to focus attention on the purpose which the exercise of the discretion is calculated to achieve, and thereby to assist the Minister and others to see more clearly, in each case, the desirability of exercising the power in one way or another. Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with the fairness and continuity of the administrative process."

I draw attention in particular to his Honour's reference to "the guidance given by an adopted policy". Of course the operations of that policy in relation to contemporary values may be a matter of difficulty when it comes to making a judgment in particular cases.

35. Upon the footing of what was described as "those guiding principles and rulings", the Commissioner contended that the Tribunal "misapplied or misinterpreted the statute in relation to the facts proved", since the present was not a case, so it was emphasised, where Mr Milne's "financial difficulty was such that either he or his dependants would be "… in significant need warranting action… to relieve their condition" (those words cited appearing at [24] of the Tribunal's decision). The difficulty with that observation of generality lies in its application, and in particular in relation to Mr Milne's family exigencies as well as those of his own personally, involving as they do the need for reasonable accommodation for himself and apparently for two or at least the youngest of his three children, and completion of the education of that youngest child.

36. The Commissioner contended that in dealing with the issue of serious hardship, the Tribunal fell into error, in that the Tribunal:

(i) failed to consider whether Mr Milne had sufficient equity in his assets to discharge all of his liabilities including the debt due to the Commissioner, without bankruptcy, and

ATC 4516
relied instead upon the statement of assets and liabilities provided by Mr Milne in September 2004, which however referred to his assets but not his liabilities; that material was said by the Commissioner to have demonstrated an excess of assets over liabilities of $409,800 and although Mr Milne subsequently provided an updated statement of assets and liabilities showing his financial position as of November 2004 (see in that regard what I have already reproduced in [8] above), nevertheless on the basis of that statement of assets and liabilities, there was available "equity" in the sum of $199,200 to discharge a tax debt of $149,876.68;
(ii) failed to take into account, adequately or at all, whether Mr Milne or his dependants would be deprived in reality of necessities according to normal community standards; in that regard it was said by the Commissioner that Mr Milne was in the position, at least for the foreseeable future, to earn significant income to provide for the necessities of life for one, or perhaps two, dependent children as well as himself; both the financial statement provided by Mr Milne to the Tribunal on 30 September 2004 and his updated financial information were further said to have demonstrated that just under one half of his estimated fortnightly expenses would be expended in mortgage payments; if the mortgage was to be discharged upon the sale of the properties at Eastwood and Brindabella, then on Mr Milne's own figures, there would be a fortnightly income surplus (even assuming the payment of a reasonable amount for rent on account of alternative accommodation, whatever that might be); and
(iii) concentrated exclusively on what income Mr Milne required to survive on the assumption that he retained all of his assets, yet (according to the Commissioner) there were a number of errors inherent in that approach, in that:
- (a) if Mr Milne's level of expenditure remained approximately the same, and whether or not he was required to pay the amount due to the Commissioner, then absent the sale of his assets, he would face bankruptcy, yet relief of his income tax liability would not alleviate that plight, but would give preference to other creditors;
- (b) no or no proper regard was paid by the Tribunal to the extent of Mr Milne's assets generally; and
- (c) on Mr Milne's own case, some time within the next three years or so, he would cease to work; in such an event, he would have no income, and in order to discharge other creditors he would be required to sell his assets in any event.

37. In the formulation of those three heads of submissions, the Commissioner observed that although it was difficult to calculate Mr Milne's actual income, on the evidence of the four business activity statements filed by Mr Milne for the 2004 income tax year, his annual net income was in the order of $90,000. I observe that the Commissioner did not seemingly point to any calculations which the Commissioner might have undertaken as to Mr Milne's corresponding annual outgoings, which were presumably substantial, if regard be paid to living expenses for himself and those of his youngest two children, as well as to repayment of interest bearing borrowings for which of course he was personally liable, albeit jointly and/or severally with his wife from whom he was separated. I would add the observation that maintenance of a financial capacity to service interest bearing borrowings is normally material to a borrower's preservation in his or her favour of the entire or substantially the entire value of a mortgaged security against what might otherwise eventuate by way of a "forced sale" by a mortgagee exercising power of sale or otherwise by an insolvency trustee.

38. In elaboration upon those three heads of contentions, the Commissioner submitted further as follow:

(i) Mr Milne held substantial assets, including a holiday house, and the evidence adduced before the Tribunal established that all of his liabilities could be met by the sale of those assets, notwithstanding that the holiday home was for the time being unsaleable; the Tribunal was said by the Commissioner in that context to have considered the question posed by subs 340-5(3) on the hypothesis that Mr Milne would be made bankrupt; thus at [24] of its

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reasons, the Tribunal stated that "(s)hould he be bankrupt…" and at [29] further stated that "(i)f he is made bankrupt…"; those hypotheses were said to have been contrary to the statement made on behalf of the Commissioner to the Tribunal that the Commissioner would not pursue the then current bankruptcy proceedings after 18 June 2005;
(ii) in any event, the fact that the Tribunal proceeded on that hypothesis indicated that it misunderstood what was meant by "serious hardship", at least partly because it assumed that the phrase referred only to revenue rather than revenue and capital; put another way, the Tribunal did not take proper account of the practical consequences of bankruptcy, in that the Tribunal did not understand, in order to determine whether there would be serious hardship, that all of the relevant circumstances, apart from those consequences, should be considered;
(iii) the first of those errors was "clear", in that although the Tribunal referred to the evidence regarding the value of Mr Milne's assets, it did not consider the same when determining whether there would be serious hardship; instead (at [24]), it found that Mr Milne was, at the time of decision-making "at the worst level of financial hardship"; this finding was based on the fact that Mr Milne's outgoings exceeded his income, being outgoings which included mortgage repayments that on any view of the evidence would not be necessary to consider if the assets secured by the mortgage were to be sold; and
(iv) the phrase serious hardship was used in the legislation in its ordinary English sense, and its context included the recovery or release of taxation liabilities in the immediate context of course of the Administration Act; that context was said to give the phrase a financial aspect, although such context was already inherent in the general concept of hardship, given the broad nature of that phraseology, and must encompass all of a given person's circumstances, including his or her capital assets as well as income, yet the Tribunal considered that the phrase only related to a person's income and his or her outgoings.

39. Moreover it was pointed out by the Commissioner that the value of a benefit received by a bankrupt fell within the operation of Subdivision D of Division 4B contained in Part VI of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), which was said to have two elements: first it requires a bankrupt who derives income during the bankruptcy to pay contributions to his or her bankrupt's estate; secondly, it permits the bankrupt to seek to have contributions reduced in the case of hardship (in that regard I was referred to the circumstances considered by a Full Court (French, Cooper and Carr JJ) in
Bond v The Trustee of the Property of Alan Bond, A Bankrupt (1994) 52 FCR 304 at 325, 327 and 332.

40. The implications of all that were said by the Commissioner to be as follows:

(i) Division 4B of Part VI of the Bankruptcy Act 1966 (Cth) came into force on 1 July 1992 by virtue of the Bankruptcy Amendment Act 1991 (Cth), and the objects of Division 4B of Part VI appear in s 139J as follows:
- "(a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and
- (b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate;"
(ii) in general terms, that Division provides for the trustee to assess the amount of a bankrupt's income in each successive year of the bankruptcy, and may establish a liability on the part of the bankrupt, pursuant to an income tax assessment, to make a contribution out of an excess of income assessed over a specified threshold;
(iii) the threshold amount is defined in terms of the maximum basic rate of pension payable under the Social Security Act 1991 (Cth);
(iv) the liability of a bankrupt to pay a contribution pursuant to his or her trustee's assessment is imposed by s 139P(1) of the Bankruptcy Act, which provides:

"Subject to s 139Q, if the income that a bankrupt is likely to derive during a contribution assessment period as

ATC 4518
assessed by the trustee under an original assessment exceeds the actual income threshold amount applicable in relation to the bankrupt when that assessment is made, the bankrupt is liable to pay to the trustee a contribution in respect of that period."
(v) section 139P(2) of the Bankruptcy Act provides for voluntary contributions where the assessed income falls below the threshold amount; s 139Q thereof imposes a liability to pay a contribution in respect of a contribution assessment period, where the trustee has made a subsequent assessment which exceeds the actual income threshold amount;
(vi) the contribution payable by a bankrupt pursuant to that assessment process is defined in s 139S of the Bankruptcy Act as follows:

"The contribution that a bankrupt is liable to pay in respect of a contribution assessment period is the amount worked out in accordance with the formula:

Assessed income−Actual income threshold amount

2

where:

'Assessed income' means the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period;

'Actual income threshold amount' means the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made.";
(vii) the foregoing concept of "actual income threshold amount" is further defined in s 139K on a sliding scale, increased according to the number of dependents that the bankrupt has and the extent of their dependency; "the base income threshold amount" is defined in s 139K for a particular time as the amount that "at that time, is specified in column 3, item 2, Table B, point 1064-B1, Pension Rate Calculator A, in the Social Security Act 1991, multiplied by 3.5";
(viii) in the present case, because Mr Milne has more than two dependents, the base income threshold amount is increased by 27% (s 139K(c)); and
(ix) once Mr Milne became bankrupt, he would be liable to contribute 50% of the difference between his actual income (as assessed by the trustee) and the base income threshold amount so increased by 27%; according to the Commissioner's calculations, upon the basis of an assessable annual income of $90,000.00 and two dependent children, the formula in s 139K of the Bankruptcy Act required an annual contribution of $29,958.56 or a fortnightly contribution of $1,152.25 (being less than half of Mr Milne's fortnightly mortgage payments).

41. Significantly therefore, so the Commissioner submitted, Division 4B of the Bankruptcy Act contains within it a mechanism to determine a higher income threshold in cases of hardship; pursuant to s 139T(1) of the Bankruptcy Act, where the trustee has made an assessment of a contribution that a bankrupt is liable to pay and that bankrupt considers that if required to make any such contribution, he or she would suffer hardship (emphasised by the Commissioner incidentally to be "not serious hardship") for any reason or reasons set out in subs 139T(2), then the bankrupt may apply to the trustee for the making of a determination. The reasons which might be operative in the favour of Mr Milne, if made bankrupt, were said to be found within sub-paragraphs (a)-(e) of s 139T(2), which read as follows:

"(a) the bankrupt or the dependent of a bankrupt suffers from an illness or disability that requires on-going medical attention and the supply of medicines, and the bankrupt is required to meet a substantial proportion of the costs of that medical attention or those medicines from his or her income.

(b) the bankrupt is required to make payments from his or her income to meet the cost of child day care to enable the bankrupt to continue in employment or other work;

(c) the bankrupt is living in rented accommodation that is not provided by, or by an authority of, the Commonwealth, a

ATC 4519
State or a Territory, or by a local government authority, and the bankrupt is required to pay the cost of that accommodation wholly or mainly from his or her income:

(d) the bankrupt incurs substantial expense in travelling to and from the bankrupt's place of employment or other work, whether by public transport or otherwise;

(e) the spouse of the bankrupt, or another person residing with the bankrupt, who ordinarily contributes to the cost of maintaining the bankrupt's household has become unable to contribute to those costs because of unemployment, illness or injury."

42. In summary, it was contended by the Commissioner that the Tribunal failed to consider all of the so-called "true effects" which bankruptcy would have had on Mr Milne.

Does any special rule apply in relation to a solicitor?

43. The foregoing heading was framed by the Commissioner for the purpose of further submissions in support of the present appeal. At the level of generality, the Commissioner asserted that bankruptcy did not mean that a solicitor must lose his or her right to practice. Pursuant to s 65 of the Legal Profession Act 2004 (NSW) ("the LP Act"), bankruptcy and acts of bankruptcy give rise to a show cause event which is to be investigated by the Council of the Law Society of New South Wales. Section 68(1) of the LP Act further provides as follows:

"On becoming aware of the happening of a show cause event in relation to an applicant or holder, the appropriate Council must investigate and determine within the required period whether the applicant or holder is a fit and proper person to hold a local practising certificate."

The Council of the Law Society of New South Wales was said by the Commissioner to have issued guidelines operative from 1 July 1997 which made clear that the fact of bankruptcy should not extinguish a person's right to practice; those guidelines, which were tendered in evidence, include the following:

"3. Mode of practice

3.1 In the opinion of the Law Society, the fact of bankruptcy should not extinguish a person's right to a livelihood.

3.2 It is considered that solicitors, although bankrupt, should be entitled to practise on their own account, in partnership, or as employees on the condition that, while bankrupt, they will not nor attempt to:

• operate any trust account or controlled money account or receive any money from any other person in circumstances to which s 61 of the [Legal Profession Act 2004 (NSW)] applies;

• commence or continue to act as a trustee of any real or personal property;

• accept appointment to, or continue to act in the office of executor or administrator of a deceased person's estate, or as trustee of any real or personal property, or as donee under any power of attorney or other instrument under whose authority a power of appointment or disposition of property can be exercised; nor

• engage in any activity from which a bankrupt is disqualified under any Federal or New South Wales law."

Of course an exercise by a solicitor of that right to practice needs to be considered in the particular context of a sole practitioner such as Mr Milne, with the attendant likely incidents of any such continuation of practice.

44. The test to be applied when determining fitness to hold a practising certificate, in the context of course of bankruptcy, was said by the Commissioner to be "robust", the question not being whether the indebtedness which led to the bankruptcy was brought about by or associated with dishonest conduct by the applicant for a certificate, but whether the circumstances in which the act of bankruptcy was committed were such as to persuade the Council that at the time of its determination, the person is not a fit and proper person to hold a practising certificate (I was referred in that context generally to
New South Wales Bar Association v Murphy (2002) 55 NSWLR 23). There was no material adduced in evidence indicative of any shortcoming in Mr Milne's fitness and propriety to practice as a lawyer.

45.

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The Commissioner submitted moreover that the Tribunal failed to consider and take into account the provisions relevantly of the LP Act. It was asserted in that regard that on a proper understanding of the meaning of serious hardship, a person such as Mr Milne, who had the capacity to meet his tax liability out of currently held assets, could never satisfy the Commissioner that his circumstances gave rise to the exercise of any discretion in favour of release from tax liability. For that reason alone, it was said by the Commissioner that the Tribunal's decision ought to be set aside, there being no utility in ordering that the matter be remitted to the Tribunal for proper or further consideration. Bearing in mind that the realty here involved in both instances was held jointly with his estranged wife, it would be a formidable exercise to determine what funds, if any, might ultimately be available for payment of the subject outstanding income taxes, and for the satisfaction of the secured creditors of Mr Milne and his wife to the extent of any shortfall on any mortgagee sale, and of her half share in the "equity" of any remaining net proceeds in relation to the sale of their jointly held realty.

Further contentions of the Commissioner

46. The Tribunal's finding as to likely "serious hardship" was broadly contended by the Commissioner to be based on an hypothesis that caused the Tribunal to ignore matters that were relevant to the task required of it by s 340-5 of the Administration Act, those matters being the operation of the Bankruptcy Act, and also of the LP Act. The context, scope and object of s 340-5 of the Administration Act was said by the Commissioner to have required the Tribunal to consider the matters that would, or could, affect the financial circumstances of Mr Milne in the light of his then current tax liability. Accordingly, so the Commissioner's submissions continued, for the Tribunal to fail to take into consideration matters, such as the operation relevantly of those statutory provisions, constituted a further error of law, either by way of statutory misconstruction, or failure to take into account relevant considerations due to statutory misconstruction or otherwise. In that latter regard, I was referred to
Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24, in particular in relation to what appears in the reasons for judgment of Mason J (as he then was) at 39, under the heading Failure To Take Into Account a Relevant Consideration. Of course in circumstances where the Tribunal, at least inherently or implicitly in the particular context the subject necessarily of consideration by the decision-maker, took into account relevant considerations and correspondingly took no account of irrelevant considerations, so much would normally suffice to satisfy the requirements of administrative obligations.

47. The power under s 340-5(3) was contended by the Commissioner in any event to require two matters in particular to be considered and determined: first, whether there would be serious hardship to Mr Milne in the circumstances postulated, and secondly, whether in all the circumstances otherwise prevailing, the Commissioner ought to have exercised the statutory discretion to release Mr Milne's subject taxation liability. In considering the first of those issues, it was contended by the Commissioner that the Tribunal addressed what it considered to be the so-called test of foreseeability and control, presumably thereby referring to the circumstances in which Mr Milne came to have incurred the subject tax liabilities in the first place. The second consideration was described in terms as to whether the release of Mr Milne, if granted, would be fair to "others", whatever the implications of that broad description. The Tribunal was said by the Commissioner to have considered that in circumstances where a person had earnt a high level of income in the past, and was continuing to earn a high income, special factors were necessary in order to establish "serious hardship". The description "high income" is in any event somewhat unspecific to be necessarily helpful. The Tribunal found that Mr Milne's "battle to continue his professional work", despite ill-health, and his need to support his dependent son until he finished school, were "special factors".

48. The approaches of the Tribunal's reasoning leading to its decision-making were attacked by the Commissioner as wrong, in that it was said to have "misunderstood the meaning of serious hardship as a so-called backward looking matter, rather than a matter that turned on an objective analysis of the future". On a proper understanding of that

ATC 4521

statutory term, questions as to special factors were said not to arise. In particular, the Commissioner asserted that a taxpayer's "struggle to continue working" was simply irrelevant, but for what it may ultimately matter, I do not think that somewhat simplistic description sufficiently reflects the complexity of circumstances that the Tribunal explicitly and implicitly took into account in relation to Mr Milne.

49. Addressing a further basis advanced by the Commissioner for the present administrative review sought, it was contended that on a proper understanding of the two-tiered test in subs 340-5(3) of the Administration Act, no reasonable Tribunal could have exercised the statutory discretion to release Mr Milne from his taxation liability. Reference was made by the Commissioner in that regard to the grant of administrative relief made available in
Parramatta City Council v Pestell (1972) 128 CLR 305, which related to a local Council's imposition of a rate because of the special benefit flowing from the Council's execution of a particular work or service on public property, and which the High Court affirmed to be invalid. It was argued by the Commissioner conversely that the factual circumstances of a high income earner having substantial assets, sufficient in value to meet all current liabilities, could not reasonably fall within the statutory notion of serious hardship. It is normally a formidable task to establish that the decision of an administrative decision-maker satisfies that test of invalidity. The Commissioner advanced the further case that the exercise of the Tribunal's power to release Mr Milne was unreasonable, in that on the evidence placed before it, no reasonable person could have come to the conclusions reached by the Tribunal in its decision the subject of appeal. I was referred again to Peko-Wallsend where at 41, Mason J discussed the scope of the principle of Wednesbury unreasonableness. I would make a similar observation upon that submission to that which I have made in relation to satisfaction of the test in Pestell.

50. In the context of the foregoing principles concerning administrative relief and avenues to administrative relief invoked by the Commissioner, it was thus contended that the existence of sufficient evidence had been placed before the Tribunal as to the following matters relevantly affecting the financial circumstances of Mr Milne:

(i) he had an excess of assets over liabilities;
(ii) upon any sale of his assets, he would have had sufficient funds to discharge all his debts, including the tax liability for which release was obtained;
(iii) upon the sale of his assets, Mr Milne's income would have been likely to exceed his outgoings;
(iv) Mr Milne's assets included cash in the sum of $47,000;
(v) if Mr Milne was to be made bankrupt, the trustee in bankruptcy would be likely to sell all of his assets;
(vi) at the end of three years, Mr Milne would be required to sell any remaining assets to discharge his outstanding liabilities in any event; and
(vii) the Tribunal had power to order a partial release of the tax liability otherwise eligible for release.

51. It was contended by the Commissioner that the Tribunal did not take any of those matters into consideration when exercising its statutory jurisdiction to the extent complained of, and accordingly it did not properly exercise the powers the subject thereof. The Commissioner contended further as to an error in law on the part of the Tribunal by way of taking into account irrelevant considerations in the exercise of its powers and authority, being considerations which I have already recorded and need not reiterate. In summary, the Commissioner submitted that the Tribunal's decision complained of was vitiated by the numerous errors of law, cumulatively or in the alternative, to which I have referred, and should be set aside.

Conclusions

52. The circumstances in which Mr Milne was placed at the time of the conclusion of the hearing of the evidence by the Tribunal on 9 May 2005 may have since undergone material change, so such being often an incident to administrative review which is the subject of subsequent appeal, in particular where the circumstances prevailing at the time of decision-making have continued to evolve. I must of course resolve the issues of law here

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arising by reference to the evidence placed before the decision-maker. The Tribunal reached the conclusion of course in favour of Mr Milne of serious hardship within the scope of operation of that subs 340-5(3) expression. The issue arising for the Court's consideration on the appeal is whether that conclusion should be vitiated upon the basis of an application by the Tribunal of what the Commissioner contends to have been the wrong statutory test. The circumstances relevantly of Mr Milne's professional, business and domestic affairs at the material times were not without complication, involving as they did substantially hypothecated real estate assets held in the joint ownership of himself and his wife who had by then separated in terms of their marital relationship, and a serious threat to Mr Milne's capacity to continue to earn professional income as a specialist family law solicitor by reason of his serious ill-health. Such personalty as he owned was of relatively insignificant value, at least when compared to the jointly held realty which was however heavily hypothecated. That realty to the extent comprising the jointly owned former matrimonial home continues to be occupied by Mr Milne and the two late teenage dependant children of the marriage, or presently at least the youngest child, the evidence being perhaps somewhat unclear in that regard. The other jointly owned realty of Mr and Mrs Milne (located at Brindabella in country New South Wales), for reasons I have briefly mentioned, was at the time of the Tribunal decision-making unsaleable.

53. It was reasonably open to the Tribunal, on the basis of the complexity of the evidence placed before it, to arrive at the determination which it did as to the subjection of Mr Milne to a condition of serious hardship within the scope of operation of subs 340-5(3) of the Administration Act, in the absence of the release or waiver by the Commissioner of Mr Milne's fiscal indebtedness the subject of the proceedings, at least to a substantial or significant extent. I have reached therefore the conclusion that the present application of the Commissioner for administrative review of the Tribunal's decision-making has not been established upon any viable juridical basis, and that the same must therefore be dismissed. That conclusion accommodates in my opinion relevant principles of administrative law which are in line with the authorities.

54. In reaching that conclusion, I have been unable to accept that the Tribunal was bound to adopt and implement the approach to administrative review advocated by the Commissioner, inclusively by way of appraisal of any comparison of the value of Mr Milne's assets with the amount of his liabilities at any relevant point of time, having regard to the reality of the extent of the financial hardship which would be likely to attend an exaction of the amount required to satisfy Mr Milne's outstanding taxation indebtedness, inclusive of accrued statutory interest changes, which, if not leaving Mr Milne "destitute without any means of support", would have constituted nevertheless serious hardship, in accordance with the text of the Commissioner's policy guidelines framed by TR 2440 and in the light of the approach undertaken specifically and by way of practical exemplification in Re Filsell and Re Wilson.

55. In reaching that conclusion, there is sufficient evidence, to the extent postulated by the Tribunal, as to Mr Milne's adoption of a perceived parental obligation to financially support his dependent son until he obtained his higher school certificate, the expression need taking its context from Mr Milne's personal and otherwise domestic circumstances established by the Tribunal, as well as from his professional circumstances as a sole legal practitioner specialising in family law. It may be reasonably inferred that Mr Milne prospered financially in his earlier professional years as a successful lawyer in the sphere of that specialty, but it was reasonably open to the Tribunal nevertheless to have anchored its decision-making largely upon his circumstances of misfortune sustained in more recent times, and in particular by reason of his former legal practitioner partner's misappropriation of funds, and of his own deteriorating health involving both severe illnesses and physical disabilities. Those circumstances need of course to be balanced, as the Tribunal's reasoning has exemplified, with the factors which the Commissioner's submissions have sought to distil, and which I have sought to summarise in these reasons. It may be readily acknowledged moreover, as the Commissioner emphasised, that there is no

ATC 4523

special rule in relation to the ongoing entitlement of a solicitor to continue the practice of his profession notwithstanding bankruptcy, though the reality of so doing effectively and to maximum advantage, especially in the context of a sole practitioner (as of course in the case of Mr Milne), is a matter of some practical significance to the requisite extent of the careful consideration accorded by the Tribunal's reasons for decision.

56. In my opinion submissions propounded by the Commissioner, which I have sought to outline in detail discretely or in the aggregate, do not vitiate the conclusions of the Tribunal according to law. The Tribunal's conclusions were reasonably open for adoption, being sufficiently founded upon evidentiary material bearing upon the critical statutory issue of serious hardship, including in particular the fraudulent conduct of Mr Milne's former partner in legal practice and its adverse effect upon Mr Milne financially and probably to at least an intangible extent professionally, and the unsaleable character of the Brindabella property for the time being for the reasons I have earlier indicated. It is of course necessary in that regard that the Commissioner's challenge to the factual findings of the Tribunal should establish a viable footing according to principles of administrative law, and the present appeal does not of course operate by way of a re-hearing. As I have foreshadowed, I am unable to accept that the Commissioner has distilled administrative error in the juridical sense referrable to the reasoning and findings of the Tribunal, being reasoning and findings which were rationally open for adoption in my opinion according to principles of administrative law, and in particular in the light of the relevant evidentiary material placed before the Tribunal. That material was consistent essentially with the conclusion that any enforced exaction of the outstanding income tax indebtedness of Mr Milne would cause serious hardship within the scope of that notion established for instance in Powell and subsequently in Van Grieken, and as continues in operation in the terms of operation of s 340-5 of the Administration Act.

57. I am accordingly of the opinion that the Commissioner has not exposed a viable factor of relevance which the Tribunal omitted to take into account, or of irrelevance which it did take into account, in either case such as to have vitiated according to administrative law the conclusion which the Tribunal reached in what was indeed a complexity of circumstances.

58. The appeal should therefore be dismissed.

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