Deputy Federal Commissioner of Taxation v. Akers

Members:
Nathan J

Tribunal:
Supreme Court of Victoria

Decision date: Judgment handed down 16 February 1989.

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Nathan J.

The defendant taxpayer was a partner in a steel scaffolding business for the tax years 1982 and 1983. He was also the director of a company which conducted the same steel scaffolding business in the tax year 1986. The Commissioner has levied personal assessments in respect of those tax years and judgment has been obtained.

The matter comes before me now as an appeal from a decision of the Master granting a stay of execution of that judgment and its attendant assessment of interest. The Commissioner appears as the applicant, and has the carriage of this matter.

Mr Akers, the respondent/taxpayer, swears in his affidavit material that the partnership paid numerous sub-contractors in cash, variously referred to as ``Tom'', ``Dick'' and ``Harry'', or similar names, and that these men, like ``Snowy from the local pub'', can no longer be found.

It is the matter of the outgoings of the partnership and company which formed the basis of the appeal against the assessments. The respondent's partner, a Mr Cahill, has also objected to his personal assessments; his objections are subject to a pending appeal. Mr Akers also has an appeal before the Administrative Appeals Tribunal against the decision of the Commissioner refusing him leave to file notices of objection out of time.

The Commissioner contends that sec. 201 of the Income Tax Assessment Act 1936 (Cth) (``the Act''), establishes a ``pay first, argue later'' regimen. The Commissioner also contends the Master failed to give proper consideration to that statutory provision, and thus exercised his discretion incorrectly.

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Accordingly, the respondent should be obliged to pay forthwith.

Section 201(1) has a venerable history, being the subject of decision in
D.F.C. of T. v. Australian Machinery and Investment Co. Pty. Ltd. 8 A.T.D. 133. In that case, the precursor of the present provision was considered by the High Court on appeal from the Supreme Court of Western Australia. The Chief Justice (Latham C.J.) said:

``My brothers Rich, Dixon and Williams and myself are of opinion that the contention that there is no jurisdiction to grant a stay in these proceedings by reasons of the provisions of the Income Tax Assessment Act, s. 201 and the associated sections should not be accepted. We are of opinion that there is jurisdiction to grant a stay in such proceedings but that in considering any application for a stay the policy of the Act as stated in s. 201 is a matter to which great weight should be attached.''

That basic proposition has been strenuously adhered to in subsequent authority. I refer to
Snow v. D.F.C. of T. 87 ATC 4078; (1987) 70 A.L.R. 672, where French J. examined previous authority and set out (ATC pp. 4093-4094; A.L.R. p. 693) criteria which should guide a court in exercising its discretion as to whether to grant a stay. More recently in
Held v. D.F.C. of T. 88 ATC 4315, the Full Court of this State, in a judgment delivered on 15 April 1988, which affirmed a judgment of King J., said [ATC p. 4321], after referring to and approving Snow's case:

``All that we would add is that it must never be forgotten that the power to grant a stay is a discretionary power which cannot be circumscribed by hard and fast rules.

To the extent that it is relevant to take into account the applicant's prospects of success before the Administrative Appeals Tribunal King J. said that he was not able to form even a tentative view... We cannot go further.

The applicant's case for a stay must therefore depend upon whether he has shown that he would suffer extreme personal hardship if execution were levied.''

Of that hardship King J. had said, in the judgment under appeal, reported in (1988) 19 A.T.R. 852 at p. 857:

``Hardship to a defendant is a factor which must be taken into account in the exercise of the discretion under consideration. However normally a defendant's inability to pay exists against the background of a readiness to pay and a need for time to organise funds. That is not the position of the taxpayer in this case. He says that he cannot pay, and he is asking the court to delay the enforcement of his duty to pay until it is tested, whether or not there is any such duty. It seems to me that this is equivalent to making the determination of a dispute as to whether there is such a duty a condition precedent to payment, a consideration inconsistent with the policy of s. 201.''

Matters of hardship to the taxpayer were canvassed in
D.F.C. of T. (N.S.W.) v. Mackey 82 ATC 4571; (1982) 45 A.L.R. 284. Moffitt P. said [ATC p. 4573; A.L.R. p. 286]:

``Accepting that there is an overall discretion to grant a stay of proceedings and that great weight should be given to sec. 201, and the policy of the legislation implicit in it, I would say two things. The first is that there should not be substituted for the discretion of the Court to grant a stay some general formula dictating the decision to come to, the formula being extracted from judicial pronouncements in other cases, often cases involving quite different considerations or, for example, a stay of a different remedy...''

See also Hutley J.A. at ATC p. 4575; A.L.R. p. 289:

``The Commissioner starts off with rights under sec. 201 and the taxpayer is seeking on special bases to have a special discretion exercised in his favour. It is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so. It is an open-ended discretion.

But there are only two cases where it is clear the Court should exercise that discretion. First, the comparatively rare case where the Commissioner abuses his position, for example by assessing and endeavouring to collect tax in defiance of a decision of the High Court or other superior Court precisely in point. Second, in cases of extreme personal hardship to a taxpayer called upon to pay. The obligation to pay which has

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ATC 4727

been cast upon him by law is not a hardship of itself and the mitigation of the effect of inflation and the burden of interest is a matter for the legislature, not for the Court.''

At single instance the issue was considered in
Cywinski v. D.F.C. of T. (Vic.) 88 ATC 4800 per Fullagar J.:

``It is my opinion that, in view of sec. 201 of the Income Tax Assessment Act, the burden does lie upon the taxpayer to establish some real and substantial grounds for granting a stay.

Secondly, I think that a taxpayer has to show that the case is somehow out of the ordinary run and, if one uses the word `exceptional' in that sense, I think the use of the word exceptional is unexceptionable.''

From these authorities the following general propositions emerge:

• (1) The Court's inherent jurisdiction to grant a stay is not vitiated by the terms of sec. 201, but that discretion must be exercised in a way which gives the policy directions of the ``pay first, argue later'', provision effect. The discretion is dependent entirely upon the facts of a given situation, and they can never be defined. The discretion is circumscribed by sec. 201. The onus is upon the applicant to establish the discretion should be exercised in his favour.
• (2) The Court should not go into the issues in dispute, but should apprise itself of such facts as will enable it to determine the nature of the dispute. It should not speculate upon the outcome.
• (3) The obligation to pay tax, does not of itself impose an extreme personal hardship.
• (4) The possibility that the taxpayer may be bankrupted is not of itself an extreme personal hardship.

With these criteria in mind, I turn to the facts. The taxpayer simply swears he cannot pay and that he is now an employee. He says his financial reserves were exhausted due to the breakdown of his marriage (presumably some settlement in favour of his departing spouse). There is no material before me relating to the partnership business or the company. I know nothing of its asset position, whether it was sold, or whether there was a dissolution of partnership and distribution of funds. I simply do not have material as to why payment now would impose any hardship, extreme or otherwise, upon the taxpayer. He does indicate the possibility of bankruptcy, but I have no material as to whether he would continue in employment, or he would be forced to leave a family home, or have insufficient funds to properly maintain himself or his family.

Mr Dean for the taxpayer contended that I should exercise my discretion in his favour because the former partner is contesting his assessments and there is a possibility that inconsistent assessments between them may ensue. I consider that possibility relatively remote, and even if it were to come to pass, the taxpayer will not be pre-empted because he will be able to obtain recovery of any excess tax paid. I cannot assume that because Cahill contests his assessments on whatever basis and in respect of his own personal income, about which I know nothing, that there will be an attendant inconsistency with the assessments levied against the respondent. Of course, there is an obligation to tax equals equally, but I cannot see that principle being disturbed on the basis of the material before me.

It was argued that the 1986 assessment levied personally could only relate to income derived by the company of which the taxpayer was, presumably, a shareholder, therefore, that assessment should be categorised as bad or invalid on its face. I cannot agree with such a contention. I know nothing of the company structure or of the taxpayer's entitlement to drawings or dividends. There is simply no material upon which I could conclude that the 1986 assessment is invalid.

It follows the onus settled upon the taxpayer has not been discharged. The Master's decision to grant a stay was misconceived, and the appeal on this ground is upheld.

I turn to a second ground of appeal which contested the Master's decision to calculate interest, for the entire period as at the rate at the date of judgment and not at the various quarterly rates during which the claim for interest accrued.

I am satisfied that the Master's method of calculation was not appropriate. The very purpose of assessing the rate of interest at periods of quarterly rest is to reflect the current and variable value of money as well as the

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realities of the market place. Interest in the market place does accrue at variable rates and this reality should be reflected in the Courts' awards of interest payments. The appeal on this ground will also be upheld.

I will order that the taxpayer pay the Commissioner's costs of this appeal.

(Discussion ensued.)

MR DEAN: I make an application under the Appeal Costs Act.

HIS HONOUR: I will grant to the taxpayer a certificate under the terms of the Appeal Costs Act.