Ahern v. Deputy Federal Commissioner of Taxation.Judges:
I propose to give judgment now as I have reached a firm view as to the result of this case and have been assisted in taking this course by the succinct arguments of counsel.
The Deputy Commissioner of Taxation assessed John Waymouth Ahern, the applicant, to income tax for the years ended 30 June 1974 to 1982. The tax and additional tax for late payment totalled $3,847,358.89.
The applicant is an accountant and a member of the firm of Ahern, Betar and Cranstoun, chartered accountants of Brisbane. The matrix of facts underlying the applicant's liability to tax is complicated and extensive. It ranges over matters as diverse as settlements and gifts received by trusts as a result of transactions of companies with whom the applicant, or members of his family or business, or professional associates of the applicant are connected; dividends received by companies from other companies; and fees received from unit trusts. In all of these cases the Deputy Commissioner asserts that the amounts received constitute income derived by the applicant.
In addition, the Deputy Commissioner claims that certain arrangements were either shams (a word described by Lord Diplock in
Snook v. London & West Riding Investments Ltd. (1967) 2 Q.B. 786 at p. 802 as ``this popular and pejorative word'') or void as against the Commissioner by virtue of sec. 260 of the Income Tax Assessment Act 1936 (``the Assessment Act''), leaving income derived by the applicant.
The curial history of this matter, like the facts, is lengthy and intricate; but presently relevant matters may be briefly stated.
The applicant made various written requests from 16 July 1984 to 17 December 1984 for extensions of time to pay the tax outstanding, and accompanied those requests with copies of balance sheets setting out information about his financial position. The applicant lodged objections against the assessments and amended assessments over the period October to December 1984. The Deputy Commissioner disallowed the objections, and on 27 June 1985 he referred the applicant's objections for the 1976 and 1978 years to the Taxation Board of Review pursuant to the applicant's request made under sec. 188 of the Assessment Act.
On 28 October 1985, the Deputy Commissioner again at the applicant's request, forwarded his objections to assessments and amended assessments for the years 1974 to 1982 to the Supreme Court of Queensland. A little over four months elapsed between the date of the request and the forwarding of the objections to the Supreme Court, the requests having been lodged with the Deputy Commissioner on 26 June 1985. Those appeals are now pending before the Supreme Court and directions have been given for their future conduct.
A great deal of correspondence has passed between the applicant and the Deputy Commissioner including requests for particulars, the particulars themselves, a request for a statement of reasons pursuant to subsec. 13(1) of the Administrative Decisions (Judicial Review) Act 1977 (``the Judicial Review Act''), and the statement itself. The correspondence reveals that the relationship between the applicant and the Deputy Commissioner is not a very happy one.
The applicant seeks a review by this Court, pursuant to the Judicial Review Act, of two decisions which the Deputy Commissioner is said to have made. The first decision of the Deputy Commissioner is his refusal of 11 October 1985 to extend time for payment of the tax for the years 1974 to 1982 until the final determination of the applicant's appeals against the assessments or amended assessments. The second decision of the Deputy Commissioner is to sue the applicant to recover the tax. There is some dispute as to whether this decision has yet
ATC 4026been made by the Deputy Commissioner, but I am satisfied that on 11 October 1985 he decided to sue the applicant to recover the tax unless, within seven days thereafter, he paid the tax or made arrangements to secure its payment to the satisfaction of the Deputy Commissioner.
When this application for judicial review was commenced, the applicant challenged a third decision of the Deputy Commissioner, namely, his alleged failure to forward the objections of the applicant to the Supreme Court of Queensland. The objections were forwarded to the Supreme Court on 28 October 1985, but they had not been sent when these proceedings were commenced on 23 October 1985. The applicant does not seek any relief in relation to this third decision but relies on it as part of the decision-making process which led to the two decisions to which I have referred and on the question of costs. In their submissions before this Court counsel for the parties generally did not distinguish between the two decisions under challenge, so I will adopt the same course.
The applicant asserted that the making of the decisions was an improper exercise of the power conferred upon the Deputy Commissioner by the Assessment Act, by reason of the fact that the Deputy Commissioner is said:
- (a) to have failed to take relevant considerations into account in the exercise of his powers;
- (b) to have exercised the powers in a manner so unreasonable that no reasonable person could have so exercised the powers;
- (c) to have taken irrelevant considerations into account in the exercise of his powers;
- (d) to have exercised his discretionary powers without regard to the merits of the particular case and in accordance with inflexible rules or policies; and
- (e) to have otherwise improperly exercised his powers.
The relevant decisions of the Deputy Commissioner were made on 11 October 1985. In his letter to the applicant of that date, the Deputy Commissioner said:
``The requests for extension of time did not make any offer of payment, nor did they demonstrate your potential to pay at any future time. In respect of your present financial position, I have caused enquiries to be made regarding your ability to pay the outstanding tax and I am not satisfied that the statement of financial position supplied in support of your requests disclosed all of the assets which are legally available to meet your taxation liability.
Your requests have been fully examined on the basis of the above findings and in the light of all relevant income tax rulings. I have decided that there are insufficient grounds to defer collection of the outstanding amounts and your requests for extension of time to pay the tax outstanding in respect of all of the above years are refused.
The full amount as set out above is now due and payment is required forthwith if legal action for recovery is to be avoided. However, no action will be taken to institute legal proceedings for a period of 7 days from date hereof to enable you to make payment or to enter into arrangements to secure the debt to the satisfaction of the Commissioner.''
In his statement of reasons, furnished pursuant to subsec. 13(2) of the Judicial Review Act, the Deputy Commissioner said:
``21. The reasons for the decision of 11 October 1985 were:
- (i) The amount of assessed tax outstanding and additional tax accrued under section 207 as at 10 October 1985 was $3,847,358.89.
- (ii) The evidence put forward by you at the time of one or other of your applications for an extension of time was not considered to reflect all assets to which you had recourse or all funds which were legally available to you.
- (iii) The evidence put forward by you at the time of one or other of your applications for an extension of time was not considered to show that you would be able to pay your outstanding tax liability if an extension of time were granted.
Consequently, the applications were not ones which were considered to warrant favourable consideration pursuant to the guidelines laid down by the Commissioner
ATC 4027of Taxation as set out in Taxation Ruling No. IT 2091 dated 6 September 1984, Taxation Ruling No. IT 2101 dated 6 September 1984 and Taxation Ruling No. IT 2156 dated 6 May 1985. Copies of these Taxation Rulings are attached hereto and are marked `ATTACHMENT Q', `ATTACHMENT R' and `ATTACHMENT S'. Further, no reason was apparent why, in the exercise of the discretion there should be a departure from the guidelines in order to grant the extension sought.''
Evidence was given before me by affidavit and viva voce. The applicant did not give evidence. Mr Scanlan, the Deputy Commissioner of Taxation having responsibility for the State of Queensland, swore an affidavit and was cross-examined.
As one would expect, the decision of the Deputy Commissioner refusing the extension of time for payment of the tax was the culmination of the process within his office of sifting and collating material, the forming of opinions by officers of the department leading to a discussion between the Deputy Commissioner and some of his senior officers, and, finally to the decision taken by the Deputy Commissioner himself. He examined the Taxation Rulings of the Taxation Office and asked himself the question whether the application of the rulings would lead to a refusal of the request for the extension. Having answered that question in the affirmative, he looked at the other relevant circumstances of the case for the purpose of ascertaining if he should nevertheless grant the extension. He found that those circumstances did not dissuade him from refusing the application.
Taxation Rulings IT 2091, IT 2101 and IT 2156 were the particular rulings upon which reliance was placed by the Deputy Commissioner. Much of the rulings are relevant (although Ruling IT 2101 appears to have been relevantly superseded by Ruling IT 2156); but the following is a sufficient extract for present purposes from the rulings.
First, Taxation Ruling IT 2091:
Extensions of time to pay under section 206 and remissions under subsection 207(1A) of additional tax payable under subsection 207(1) of the Income Tax Assessment Act 1936.
3. It is regarded as one of the basic responsibilities of the Commissioner of Taxation to ensure that, as far as practicable, income tax will be collected within the financial year in which the liability falls due for payment. Section 218 is available for use in exceptional circumstances and much reliance must be placed on the penalty provisions incorporated in the taxing acts to obtain the payment of tax on time.
5. It follows that in most instances the purpose of granting an extension of time will be solely to provide the taxpayer with some arrangement to pay on the understanding that legal action will be deferred over the period of the extension. That is, an extension of time provides the Commissioner with an alternative to legal action to recover overdue debts from taxpayers who are unable to pay by the due date but who have the ability or potential to pay at some time in the future.
7. The guidelines to be followed in considering requests for extension of time to pay tax and remission of additional (penalty) tax for late payment (including the case of taxpayers in particular circumstances, e.g., recipients of unemployment benefits, age pensions and other Government assistance) are set out in para. 11 to 61 below. A summary of them is contained in para. 9 and 10.
8. In providing these guidelines there is no intention of laying down any conditions which may restrict a Deputy Commissioner in the exercise of the discretion.
9. In brief, the position in relation to the granting of extensions of time to pay is as follows:
- (i) Extensions of time for payment should be seen as an alternative to legal action in respect of a taxpayer who is
ATC 4028clearly unable to pay the debt when it falls due but has the ability or potential to pay at some time in the future.
- (ii) Taxpayers who suffer serious financial hardship as a result of drought, flood, bushfire or other natural disaster may be granted an extended due date with penalty accruing from that extended due date.
- (iii) With the exception of taxpayers so affected by natural disasters, all extensions of time are to be granted subject to additional tax from the original due date. That is, use of an extended due date to alter the date from which penalty is calculated is restricted to natural disaster situations.
- (v) Where an extension of time is granted, all recovery action should be held in abeyance and only recommence if the taxpayer defaults on the terms of the payment arrangement.
INCOME TAX: EXTENSIONS OF TIME TO PAY
11. Taxpayers requesting an extension of time to pay can be classified into three basic groups:
- (i) those seeking accommodation near the time of the due date, normally on the basis of short-term liquidity problems;
- (ii) those seeking arrangements to pay over a longer period of time, often beyond 15 June, because of more serious financial difficulties, with the application generally motivated by legal action instituted by the Taxation Office. This category would include cases where remission of additional tax might be appropriate (see para. 44 to 61 below); and
- (iii) those whose inability to pay is caused by bushfire, flood, drought or some other natural disaster.
18. Applications for longer term payment arrangements (i.e., greater than 3 months or beyond 15 June) should be examined more closely and a full assessment of the taxpayer's financial position undertaken. Where an extension of time is warranted it should also be subject to additional tax at the full statutory rate of 20 per cent per annum measured from the original due date.
19. In dealing with these applications, three basic points need to be considered. Firstly, the taxpayer must clearly demonstrate that he or she does not have the means necessary to discharge the liability when it falls due.
22. Secondly, where a taxpayer has demonstrated an inability to pay by the due date, an extension should then only be granted where the taxpayer can further demonstrate that he or she will, within the period for which an extension may be granted, have the ability or potential to pay the debt. This could be demonstrated by, for instance, future claims to cash, improved seasonal trading conditions, etc.
26. As indicated earlier, the purpose of granting an extension of time is to provide the Commissioner with an alternative to legal action. It is only a viable alternative where the taxpayer can demonstrate that he or she has the ability or potential to pay the debt by instalments or some other reasonable arrangement. If it is reasonably clear that the taxpayer will not or cannot pay the debt then it is inappropriate for the Commissioner to grant payment concessions and legal action for recovery should proceed.
29. The third point to be considered is the period for which the extension may be granted. No hard and fast rules can be laid down and much will depend upon the individual circumstances of each taxpayer. Nevertheless, payment arrangements normally should not be granted beyond the expected due date of the taxpayer's next tax liability (in the case of company debts this date would be the due date of the next company instalment). That is, the current debt is to be extinguished before further debts accrue. Furthermore, the extension
ATC 4029should usually be on the basis of a progressive reduction of the debt.
Guidelines to be applied in some particular circumstances
- (iv) Disputed assessment cases
41. Where a taxpayer has lodged an objection or appeal against an assessment and the Commissioner accepts that the taxpayer does have a genuine difference of opinion about his or her taxation liability, a special basis for granting an extension of time to pay, in addition to the other arrangements set out in this ruling, is available.
42. Specifically, an offer by the taxpayer to pay 50 per cent of the tax attributable to the matters at issue (plus the full amount of tax that would remain payable irrespective of the result of the dispute) subject to the balance attracting additional tax for late payment from the original due date, will be accepted as sufficient to defer legal action. Where the objection is determined against the taxpayer, that arrangement would reasonably be allowed to continue in those cases where a reference or appeal is involved.
43. Full details of the general policy applicable to the collection and recovery of tax in cases of disputed income tax assessments are provided in Taxation Ruling IT 2101.''
Second, Taxation Ruling IT 2156:
4. In the past, in disputed assessment cases, the Commissioner frequently accepted arrangements which allowed payment of 50 per cent of the tax attributable to the matter in dispute to remain in abeyance until the question of liability had been resolved and involved full remission of the additional tax for late payment...
5. The tightening of the rules for remission of additional tax for late payment effected by the amendments to sec. 207 creates a situation in which there is no room for remission simply because there is a dispute about the extent of the taxpayer's liability. This was made clear in the Treasurer's Second Reading Speech on the amending legislation, and is further borne out by the provisions of the Taxation (Interest on Overpayments) Act which allow for interest to be paid on refunds of overpayments where assessments are reduced as a result of the allowance of objections or appeals.
6. The policy set out in this ruling has been developed having regard to the amendments to sec. 207 mentioned above, and bearing in mind the views expressed in relation to sec. 201 in
D.F.C. of T. v. Mackey, 82 ATC 4571...
The Mackey decision
7. In the Mackey case (supra), the Court considered the operation of sec. 201 where, in a contrived tax avoidance situation, the liability assessed was disputed by the taxpayer.
8. The decision confirmed that the Court has an overriding discretion to stay proceedings or execution, but also indicated that it should not exercise the discretion, other than in quite exceptional circumstances, in cases in which the taxpayer has been a party to a contrivance to avoid tax. In essence, therefore, the Court's view was that the fact that the assessment was disputed was not a sufficient consideration to override the Commissioner's right under sec. 201 to have the tax assessed paid.
12. The collection and recovery policy to be applied in relation to disputed assessments depends initially on whether the dispute is in respect of an artificial scheme of tax avoidance, or is a genuine dispute.
Artificial scheme cases
14. In respect of artificial scheme cases in dispute, there are no arrangements for extensions of time to pay beyond those general rules contained in Taxation Ruling IT 2091.
15. Generally, but subject to para. 38 hereunder, legal recovery action is not to be
ATC 4030taken until an objection has been determined.
16. Once an objection is wholly or partly disallowed, the taxpayer will be notified that any amount outstanding is to be paid promptly, or legal action for recovery may commence without further notice. On no account is any 50/50 arrangement (see para. 21 below) to be entered into in such a case.
17. If the taxpayer does not pay the amount of tax required within the stipulated time and the general guidelines contained in Taxation Ruling IT 2091 do not apply, legal recovery action should commence, except where there is a decision on the substantive issue against the Commissioner. Legal recovery action should be taken for the total debt.
19. It is considered that the amendments to sec. 207 to tighten the rules for remission of additional tax for late payment leave no room for any remission to be granted in an artificial scheme case simply because there is a dispute.
Changed approach to recovery action against artificial scheme taxpayers
38. Where a decision has been taken by a taxpayer to contest the disallowance of an objection, past practice has been to withhold legal action to recover tax outstanding until the relevant documents have been lodged with the designated tribunal. In line with the policy stated earlier, the transmission of formal documents to a tribunal is no longer to serve as a prerequisite to instituting legal recovery proceedings against a taxpayer. Rather, in artificial avoidance cases in particular, it will suffice if a test case involving the same issues is before a Board of Review or Court.
39. Finally, it remains the rule in all disputed assessment cases that winding-up applications and bankruptcy petitions should be issued only after approval has been received from Head Office.''
I have carefully read all parts of the rulings of the Commissioner, but those extracted seem to me to have most bearing on the questions in dispute.
The applicant challenges the decisions on various bases. I propose to state only the principal submissions; but before doing so, it is helpful to state the more important principles governing cases of this kind.
- Income tax assessed shall be due and payable by the taxpayer on the date specified in the notice of assessment as the date upon which tax is due and payable: subsec. 204(1).
- When it becomes due and payable income tax shall be a debt due to the Crown and payable to the Commissioner: subsec. 208(1).
- Any tax unpaid may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name: subsec. 209(1).
- The Commissioner may sue for recovery of any tax unpaid immediately after the expiry of the time when it becomes due and payable: subsec. 207(2).
- The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending: subsec. 201(1).
- The production of a notice of assessment shall be conclusive evidence of the due making of the assessment and, except in proceedings on appeal against the assessment, that the amount and all the particulars of the assessment are correct: subsec. 177(1).
- The Commissioner may in any case grant such extension of time for payment of tax, or permit payment of tax to be made by such instalments and within such time as he considers the circumstances warrant; and in such case the tax shall be due and payable accordingly: subsec. 206(1).
Section 206 with which this case is primarily concerned is silent as to the specific matters which the Commissioner must consider when exercising his powers under sec. 206 and as to the criteria which govern the exercise of those powers. I agree with the remarks of Deane J. in
Sean Investments Pty. Ltd. v. MacKellar (1981) 38 A.L.R. 363 at p. 375:
``In a case such as the present, where relevant considerations are not specified, it is largely for the decision-maker, in the light of matters placed before him by the parties, to determine which matters he regards as relevant and the comparative importance to be accorded to matters which he so regards. The ground of failure to take into account a relevant consideration will only be made good if it is shown that the decision-maker has failed to take into account a consideration which he was, in the circumstances, bound to take into account for there to be a valid exercise of the power to decide.''
It is worth remembering also that, under the Judicial Review Act this Court's function is not to decide the merits of the case. In
Hamblin v. Duffy & Ors (1981) 34 A.L.R. 333, I said at p. 335:
``Judicial review by this court under the Judicial Review Act does not enable the court to substitute its own decision for that of the person or body whose action is challenged. The question for the court generally is whether the action is lawful in the sense that it is within the power conferred on the relevant Minister, official or statutory body; or that the prescribed procedures have been followed; or that the general rules of law, including adherence to the principles of natural justice, have been observed. The court is empowered to enjoin action or to quash a decision it finds unlawful and to direct action to be taken in accordance with law. It may also compel action by a person or body who has not acted, but who ought to have done so.''
Borkovic v. Minister for Immigration and Ethnic Affairs (1981) 39 A.L.R. 186 per Fox J. at p. 188.
I agree with the remarks of Griffiths L.J. in
R. v. Chief Registrar (1984) 2 All E.R. 27 at p. 42:
``The Court must take a broad view of the decision and not allow itself to be bogged down in minutiae, or led into the error of taking over the role of a fact finding tribunal.''
The Court's task is to decide whether any one or more of the grounds for review have been established under sec. 5 of the Judicial Review Act which, for present purposes, means the ground that the Deputy Commissioner failed to take relevant considerations into account - para. 5(2)(b); took irrelevant considerations into account - para. 5(2)(a); exercised his power in accordance with a rule or policy without regard to the merits of the particular case - para. 5(2)(f); exercised the power so unreasonably that no reasonable person could have so exercised it - para. 5(2)(g) and otherwise improperly exercised the power conferred by the Assessment Act - para. 5(2)(j).
The decision of the Deputy Commissioner refusing the applicant an extension of time to pay tax involved the culling and assessment of many and diverse facts and the weighing of a large number of complex considerations. It will nearly always be possible for an applicant for judicial review to point to some fact or matter which should arguably have been taken into account or left out of account or involved a somewhat rigorous application of some departmental rule or policy. Even if this be so, the Court generally should not interfere unless it is plain that these matters materially influence the decision and, in the case of the application of a rule or policy, that it was applied without regard to the circumstances of the particular case. It is not for the Court to specify matters which should always be considered or to stipulate factors which should be given more emphasis than others. The Court's function is not to substitute its own opinion or judgment on matters which the legislature has left to the judgment of the Commissioner of Taxation, but to decide whether, in reaching his decision, he acted in accordance with law, in particular the provisions of the Assessment Act. Once a matter may relevantly be taken into account by the Commissioner, it is not for the Court to determine whether he gave too much or too little weight to it; that is entirely a question for him.
Elliott v. Southwark London Borough Council (1976) 1 W.L.R. 499 at p. 507; Sean Investments (supra) per Deane J. at p. 375;
Barina Corp. Ltd. v. D.F.C. of T. 85 ATC 4186 at p. 4193.
Counsel for the applicant nominated six matters as constituting a failure by the Deputy Commissioner to take relevant considerations
ATC 4032into account when making his decisions, namely:
- (i) that he had not forwarded the applicant's objections to the Supreme Court of Queensland either forthwith on being requested to do so by the applicant or within a reasonable time thereafter or within the time provided by sec. 196A of the Income Tax Assessment Act 1936 and O. 65 r. 7 of the High Court Rules or at all;
- (ii) that the applicant did not derive the income assessed to him;
- (iii) that he had not supplied particulars of the assessment to the applicant;
- (iv) that the applicant had invoked the appellate procedure available to him under the Income Tax Assessment Act 1936;
- (v) that the additional income assessed to the applicant forming the major part of the assessments against him had been included in the returns lodged by taxpayers other than the applicant as their income, and in several cases accepted as such by the respondent; and
- (vi) that the assets which in the Commissioner's opinion the applicant had recourse to or were legally available to him were insufficient to meet those assessments.
As to (i), in my opinion the Commissioner should forward objections by taxpayers to Supreme Courts or decisions to Boards of Review as soon as possible after receiving requests to do so: see Barina Corp. Ltd. v. D.F.C. of T. (supra) per Wilcox J. at p. 4189. But sec. 188 and 189 are a recognition by the legislature of the problems that confront the Commissioner in administering a large and important Government department. Section 188 casts the primary duty upon the Commissioner, upon receipt of the request, to forward the objection to the Supreme Court; but sec. 189 provides that, if within 60 days after receiving the request accompanied by the fee of $2, the Commissioner does not refer the decision or forward the objection the taxpayer may at any time thereafter give him notice in writing to do so and the Commissioner shall within 60 days after receiving the notice refer the decision or forward the objection to a Board or Court accordingly. There is a proviso which is not relevant for present purposes. In this case, the Commissioner referred the objections to the Supreme Court of Queensland two days after the expiration of the time provided by sec. 189. Also, Mr Scanlan gave evidence that, at the time of making his decisions under review, he took into account the fact that he had not forwarded the applicant's objections to the Supreme Court, but that he believed they were almost ready for transmission at the time he made his decisions. Further, I am not persuaded that any delay of which the applicant complains was a relevant consideration for the Deputy Commissioner to have in mind when exercising his powers under sec. 206. However, as he took this matter into account, it is not a matter of which the applicant can complain because, to the extent to which it was considered, it would be essentially of benefit to the applicant. I therefore reject the submission.
As to (ii), there is no substance in this argument. Whether the applicant derived the income in question is the substantial point at issue to be determined by a Supreme Court. Also, Mr Scanlan swore that he took into account the fact that the applicant alleged that he did not derive the income assessed to him. This evidence was not challenged. This ground of attack therefore fails.
As to (iii), there is no obligation upon the Commissioner to furnish particulars of his assessment or of the grounds for disallowing objections at any time relevant for present purposes:
Robinson v. D.F.C. of T. 84 ATC 4277. In Robinson's case, I reviewed the circumstances in which particulars may be sought from the Commissioner, but none supports the argument of the applicant that the Commissioner was bound to supply them here before deciding to refuse an extension of time under sec. 206 or to sue for recovery of tax; nor was I referred to any decided cases which support the applicant's proposition.
As I pointed out in Robinson, there are appropriate cases where the Commissioner should, as a matter of fairness, provide particulars of his assessments to taxpayers, but the applicant cannot call those in aid in this case. Nor am I persuaded that the fact that particulars have not been furnished is a consideration relevant to the Deputy Commissioner's decision under sec. 206.
As to (iv), whether this is a relevant matter for the Deputy Commissioner to take into account, when considering an application for
ATC 4033extension of time, is open to some question and must depend on the circumstances of the particular case -
Thurecht & Ors v. D.F.C. of T. 84 ATC 4480. Mr Scanlan said in evidence that he did take this matter into account. The weight he gave it must be a matter for him.
As to (v), the evidence is sparse as to whether the income in question was returned by taxpayers other than the applicant but, even if it was, it was not a matter which the Deputy Commissioner was bound to take into account.
As to (vi), the Deputy Commissioner examined the material put forward by the applicant relating to his assets and liabilities which showed, if accepted at face value, a substantial deficiency. The material before the Deputy Commissioner was not only sparse, but he believed that it probably did not present a full and true statement of the applicant's financial position. Nor was the application for extension of time accompanied by any concrete proposal to pay the tax. There was no real prospect of the liability to tax being paid in full. The substantial excess of liabilities over assets revealed by the applicant's own documents supports that conclusion. The Deputy Commissioner regarded the sufficiency of assets as irrelevant in that sense. The Deputy Commissioner took the rulings into account but ultimately made his decision with these other circumstances in mind. He thought that they did not establish a cogent case for granting the extension. I am not persuaded that the Deputy Commissioner erred as alleged by the applicant.
Counsel for the applicant submitted that the Deputy Commissioner exercised the power of refusal of the extension in a manner which was so unreasonable that no reasonable person could have so exercised the power in that a reasonable person would not:
- (i) insist on payment of tax whilst delaying or denying to the applicant the opportunity to dispute his liability; and
- (ii) adopt a policy which required him to commence recovery proceedings in instances of taxpayers against whom he had adversely determined objections (including the applicant) where:
- (A) the objections had substantial prospects of success;
- (B) the taxpayer could not meet the disputed liability; and
- (C) the commencement of recovery proceedings could cause irreparable damage to the taxpayer.
Counsel for the applicant submitted that the Deputy Commissioner relied primarily on the Commissioner's rulings and that they were fundamentally misconceived in that they divided taxpayers into those apparently using artificial schemes and others who were in ``genuine dispute'' with the Commissioner. The Deputy Commissioner decided that the applicant fell into the former category and it is said that he, without more, refused the extension of time and decided to sue. Counsel for the applicant also submitted that the rulings give undue emphasis to the decision of the New South Wales Court of Appeal in D.F.C. of T. v. Mackey 82 ATC 4571 in the context of an application for extension of time.
The rulings do not purport to bind Deputy Commissioners in their consideration of applications for extension of time or decisions otherwise relating to enforcement procedures. They set out rules for guidance of officers of the Taxation Department but, as the rulings themselves make clear, they are not to be a fetter on a Deputy Commissioner's exercise of discretion. The classification of taxpayers into those using artificial schemes and others in genuine dispute is not, in my view, impermissible. Sheppard J. expressed a somewhat similar view in Thurecht's case (supra) at p. 4500. Nor do the rulings give undue or inaccurate emphasis to Mackey's case in relation to enforcement proceedings. Mr Scanlan gave evidence as to the extent to which he relied upon Mackey's case and nothing that he said suggests that he gave it incorrect or undue emphasis. It appears that he did take it into account to some extent but the weight which he gave it seems to me to be a matter entirely for him.
The Deputy Commissioner's decision refusing the application for extension and to sue did not deny the applicant an opportunity to dispute his tax liability or delay him in furthering that opportunity. There is no assumption that a taxpayer shall receive extensions of time merely because he has invoked the appellate procedures under the
ATC 4034Assessment Act. Indeed, the Act expressly provides to the contrary.
The other matters on which the applicant relied in support of his submissions on this branch of the case go to matters of weight which it is for the Deputy Commissioner to determine.
Counsel for the applicant submitted that the Deputy Commissioner took irrelevant considerations into account in the exercise of his powers namely:
- (i) that the applicant would not be able to pay the income tax assessed if an extension of time were granted: and
- (ii) that he took into consideration his view that there were assets to which the applicant had recourse or funds which were legally available to him that were not included in the balance sheets provided by the taxpayer in connection with the applications for extensions of time information concerning which had subsequently been provided by the applicant to the respondent when:
- (B) in the circumstances, the existence of such funds was not a relevant consideration to be taken into account
As to (i), this submission fails. The question of the applicant's ability to pay the income tax assessed if an extension of time were granted is plainly a relevant consideration.
As to (ii), the Deputy Commissioner was not satisfied that the financial position of the applicant as placed before him by the applicant was accurate. He thought that the applicant had recourse to other assets that were not disclosed. Obviously the Deputy Commissioner is not confined to the material which the taxpayer places before him when dealing with the financial position of a taxpayer as a relevant consideration for the purposes of sec. 206. The Deputy Commissioner may have all manner of means available to him to test the accuracy and completeness of the material which a taxpayer places before him. The weight that he gives to the material in his possession is of course a matter for him.
Counsel for the applicant submitted that the Deputy Commissioner exercised his discretionary powers without regard to the merits of the particular case in accordance with the following rules or policies in that:
- (i) he applied his policy of refusing an extension of time if an applicant is unable to show that he would be able to pay the outstanding tax if an extension of time were granted to a case where the taxpayer had appealed against the relevant assessments; and
- (ii) he applied his general policy against granting extensions of time to taxpayers who had engaged in artificial or contrived schemes to a case where (on the respondent's view) the applicant had engaged in such a scheme, but where any such engagement by the applicant was not with a view to reducing the applicant's own taxable income.
As to (i) and (ii) Mr Scanlan said in his affidavit:
``I say that I exercised my discretionary power with regard to the merits of the application for extension of time and that I also took into account the Commissioner's rulings and policies but was not fettered in any way in the exercise of my discretion and that I consulted at length with my Senior staff and having done so I reached my said decision.''
He said in the witness box:
``Well, I think I could best describe my approach as saying that I would look at the rulings and see whether, on a strict observance of the ruling, it was a case in which an extension should be refused, and, if that were the case, then I would look to other circumstances to see if there were any reason why to see if I should depart from the ruling, and that is where I say I was free in the exercise of the discretion conferred upon me. This is made clear in - particularly in Ruling 2091 that the ruling is not there to affect the exercise of the discretion conferred on Deputy Commissioners by delegation.''
I see nothing objectionable in this approach. The Deputy Commissioner did have regard to the circumstances of the applicant's case and did not inflexibly apply the Commissioner's rulings. Also the evidence before me does not enable me to say that the material which the Deputy Commissioner had before him when
ATC 4035making his decisions was incapable of supporting the conclusion that any involvement of the applicant in any scheme was with a view to reducing his own taxable income.
Counsel for the applicant submitted that the making of the decisions was otherwise an improper exercise of the power conferred by the Assessment Act in that:
- (i) the respondent applied to the applicant's application his rules or policies relating to applicants who had engaged in artificial or contrived tax avoidance schemes when the applicant had not entered into any such scheme in respect of his own affairs; and
- (ii) the respondent adopted and applied policies not justified by the terms of sec. 206 or any provision of the Income Tax Assessment Act 1936, namely the policy not to grant an extension of time for payment when the applicant fails to show that he would be able to pay the tax assessed if an extension of time were granted.
As to (i), I said earlier that I am not satisfied that the Commissioner's rulings relating to the division of certain taxpayers into those involved in artificial schemes and others ``in genuine dispute'' is impermissible. The Deputy Commissioner did not inflexibly apply those rulings but determined the case with reference to the particular circumstances of the applicant. Also, it has not been established that the material before the Deputy Commissioner was incapable of bearing the construction that the applicant had entered into artificial schemes within the meaning of the rulings.
As to (ii), I dealt earlier with the question of the Deputy Commissioner's consideration of the financial material relating to the applicant that was before him and to the question of the applicant's ability to pay tax. I need not repeat what I said.
None of the grounds of challenge to the Deputy Commissioner's decisions pursuant to sec. 206 and to sue the applicant for recovery of the tax have been established.
The applicant's request for extension of time to pay his tax until the determination of the appeals against the disallowance of his objections is part of a long and complex series of events relating to his liability to tax over almost a decade. The application for extension was considered at various levels in the Deputy Commissioner's office and finally by the Deputy Commissioner himself with the advice of senior officers. The Deputy Commissioner took the department's rulings into account; but he made his decisions after considering those rulings and the circumstances relating to the particular case of the applicant which he regarded as relevant. He also invited the applicant to discuss the position generally with him and to make arrangements to pay or secure payment of the tax.
It would be wrong for the courts to approach a case of this kind with too fine an eye for minutiae or in pursuit of snippets of possible error on matters of little consequence. The harsh consequences to taxpayers that flow from the statutory scheme that tax remains payable notwithstanding the institution of appeals against assessments calls for real care, fairness and, in deserving cases, clemency by the Commissioner when considering requests for extension of time to pay tax. However, I am not moved by any of the arguments that the Deputy Commissioner fell into error on this occasion. I should say, of course, that the applicant's prospects of success in his tax appeals is not a matter which arose as an issue for me to decide and I have, of course, no view on that question one way or the other.
The application should be dismissed. I have taken into consideration on the question of costs the fact that the Deputy Commissioner did not forward the applicant's objections to the Supreme Court until after the commencement of these proceedings. Nevertheless, in my opinion, the applicant should pay the Deputy Commissioner's costs of the proceedings which will include the costs of the motion heard in late October 1985 by Sheppard J. when the applicant sought a stay of proceedings. The stay of proceedings which his Honour granted operated ``until further order''. That will cease to operate upon the dismissal of this application. No order is strictly required for this purpose; but to remove any doubt about the matter I shall order that the stay of proceedings granted by the Court on 29 October 1985 be discharged.
The orders of the Court are as follows:
- 1. that the application be dismissed;
- 2. that the stay of proceedings granted by the Court on 29 October 1985 be discharged;
- 3. that the applicant pay the respondent's costs of these proceedings; and
- 4. that exhibits may be handed out upon the expiration of 21 days from the date of this order unless in the meantime a notice of appeal has been filed from the Court's judgment.