DFC of T v BALNAVES

Judges:
Mansfield J

Court:
Federal Court

Judgment date: 30 October 1998

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Mansfield J

Application for sequestration order in respect of the estate of Peter John Balnaves (``Mr Balnaves'').

The petition was first presented on 30 July 1997 by William Thomas Burton in respect of a judgment debt, and relied upon the fact that execution under process of a Court against Mr Balnaves had been returned unsatisfied on 30 January 1997 as the act of bankruptcy. Those matters have been duly proved. It is not contested that Mr Balnaves committed the act of bankruptcy on which the petition is based on 30 January 1997.

On 27 July 1998 the Deputy Commissioner of Taxation (``the Commissioner'') was substituted as the petitioning creditor, and the Court ordered that the petition lapse two years from 30 July 1997. I am satisfied that the Commissioner has established the formal matters required by the Bankruptcy Act 1966 (``the Act'') and the Bankruptcy Rules have been complied with.

The issue is whether there is, and was at 30 January 1997, owing by Mr Balnaves to the Commissioner a debt of the amount and nature specified in s 44 of the Act. The debt in issue is for tax instalment deductions made in the conduct of an accounting practice Balnaves Cooper & Co (``the practice'') for the period from 1 July 1996. The evidence clearly establishes that tax instalment deductions were made in respect of employees of the practice from 1 July 1996, and were not duly paid to the Commissioner as required by s 221F of the Income Tax Assessment Act 1936 (``the Tax Act''). They were clearly owing to the Commissioner. For the period July to December 1996, those deductions totalled $10,022.91 and additional amounts for late payment had been added under s 221F(12)(b)(ii)(A) and (B) of the Tax Act.

Mr Balnaves' contention is that it is not proved that he is the person who was responsible for paying those tax instalment deductions to the Commissioner, and so is not a debtor in respect of them. Alternatively, he contends that if he became responsible for paying those amounts, then that responsibility arose only when he was obliged to pay those amounts to the Commissioner under s 221F(5) of the Tax Act, and by 30 January 1997 his liability to have paid the tax instalment deductions did not amount to, or exceed, $2,000 so the qualifying amount specified in s 44(1)(a) of the Act is not met.

The basis of Mr Balnaves' position is that the practice was conducted at all material times by ``The Balnaves Family Trust'' (``the Trust''), and it is the Trust which is responsible for the debt to the Commissioner. Alternatively, he says that Cummings Corporation Pty Ltd (in liq) (``Cummings'') is responsible for the debt. Cummings was for a time trustee of the Trust, and the registered group employer. Although Cummings ceased to be the trustee of the Trust on 1 December 1995, and Mr Balnaves was then appointed its trustee, he says that because Cummings continued to be the registered group employer it remained liable for the tax instalment deductions after 1 December 1995, at least until 12 November 1996. On 12 November 1996, Cummings was wound up. It did not trade, nor act in any respect for the Trust, thereafter. Mr Balnaves says that if he, as trustee, then became responsible for the payment of the tax instalment deductions to the Commissioner, for the period 12 November 1996 to 30 January 1997, that responsibility did not amount to $2,000. Principally, however, he asserts that the liability was not of himself as the trustee but of the Trust. As trustee, he has the usual right of indemnity under the Trust deed against the assets of the Trust.

In my judgment, the affairs of the Trust were conducted by Mr Balnaves as its trustee from 1 December 1995. There is no evidence of any other arrangement. Mr Balnaves was a director of Cummings. Upon its winding up, on 8 April

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1997 he provided information under his hand to its liquidator. That information included that Cummings' assets as trustee were transferred in December 1995, that it did not owe any tax instalment deductions to the Commissioner, and that it held no records relating to the affairs of the Trust, including any salary or wages records. The Report as to Affairs, also signed by Mr Balnaves on 8 April 1997, is to the same effect.

The consequence of that finding is that Mr Balnaves as trustee was the legal owner of the assets of the Trust, and is personally responsible for debts that he incurred in carrying out the affairs of the Trust:
Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 324;
Octavo Investments Pty Ltd v Knight & Anor (1980) CLC ¶40-602 at 34,015; (1979) 144 CLR 360 at 367. The Trust itself has no legal personality, but is

``... no more than a collection of duties, disabilities, rights and powers in relation to some specific property imposed upon or accorded to an existing legal person, the trustee''

(Ford and Lee, Principles of the Law of Trusts, LBC 1996, par 1560).

It cannot, as Mr Balnaves contends, be directly liable to the Commissioner.

Consequently, in my judgment, Mr Balnaves was liable to the Commissioner in respect of the tax instalment deductions made for the period in issue, that is from 1 July 1996.

It is unnecessary for me to advert to other issues raised in evidence and submissions, but for the sake of completeness I shall do so briefly.

The conclusion I have reached is independent of the fact that the Commissioner has a judgment against Mr Balnaves for $15,829.38 in respect of the tax instalment deductions. That judgment was entered in default of appearance on 2 April 1998, and covered the deductions payable up to that date. An application to set that judgment aside was refused on 12 June 1998. One reason for the refusal to set the judgment aside was that Mr Balnaves had signed a declaration acknowledging that he was the employer for the relevant period. I am entitled to go behind that judgment, but I do not do so. I have decided the question of Mr Balnaves' liability to the Commissioner independently of that judgment. The judgment however provides further support for my conclusion.

The declaration referred to is an Application for Registration as a Group Employer, signed by Mr Balnaves, and received by the Commissioner in March 1997. It described Mr Balnaves as an employer from 1 July 1996 of the persons in respect of whom the tax instalment deductions were made, as employees of the practice. It did not include details of the employees, their salaries, or the anticipated tax deductions. I accept Mr Balnaves' evidence that it was prepared in anticipation of an application to be registered as a group employer, and was sent to the Commissioner in error and before it had been completed. The missing information was conveyed by his secretary in response to a telephone inquiry from an officer of the Commissioner. Those circumstances do not affect my conclusion that Mr Balnaves is liable for the relevant tax instalment deductions to the Commissioner, I have placed no weight on the document. I have also placed no weight on the fact that the two copy group certificates issued for the financial year 1996/1997 for the two employees whose tax instalment deductions should have been paid to the Commissioner are in the name of Cummings as employer. They were signed by Mr Balnaves after 1 July 1997 for Cummings. They cover the whole of that year. As Cummings was being wound up, Mr Balnaves had no right to sign them; that was the liquidator's responsibility. Cummings did not employ those persons during the whole of that year, and on my findings during any part of that year.

Even if Mr Balnaves' obligations to pay the tax instalment deductions arose only from 12 November 1996 when Cummings was wound up, I would conclude that the debt due by 30 January 1997 exceeded $2,000. The tax instalment deduction sheets show that deductions made between 12 November 1996 and 31 December 1996 totalled $1,909.40, and to 30 January 1997 totalled a further $1,121.60. It is only if deductions made in January may not be taken into account that the threshold amount is not reached. Section 44(1)(b)(ii) requires that the debt be ``payable either immediately or at a certain future time''. The obligation to make the tax instalment deduction arises at the time of the payment of salary or wages: s 221C(1A) of the Tax Act. Mr Balnaves was obliged to pay to the Commissioner those deductions under s

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221F(5). In my view those amounts became payable at a certain future time. Consequently, deductions made up to 30 January 1997 are to be taken into account in quantifying the debt, and it thus exceeds $2,000. It is not a case where the amount of the tax indebtedness was uncertain, or required some further act such as the issue of a notice of assessment, to make it payable under s 44(1)(b)(ii) of the Act: cp
Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256.

Mr Balnaves also referred to a claim proposed to be brought by or on behalf of the Trust against the Commissioner arising from an earlier transaction. The evidence did not explain in detail the nature of that claim. It was not put forward as a basis for showing that there was no indebtedness in respect of the tax instalment deductions. There are apparently reasons why that claim has not been fully pursued yet. It may be pursued in the future by the then trustee of the Trust on behalf of the Trust, notwithstanding the order I propose to make. It does not cause me to decline the order sought.

Finally, I note that I invited Mr Balnaves to apply to adjourn the petition to enable him to seek indemnity from the Trust in respect of the present claim of the Commissioner for tax instalment deductions. He would then be able to meet the claim. He declined that invitation.

Accordingly I order that a sequestration order be made against the estate of Peter John Balnaves. I also order that the Commissioner's costs, including reserved costs, be taxed and paid from the estate of Mr Balnaves in accordance with the Act. I note the date of the act of bankruptcy to be 30 January 1997.