Dedes, John v Commissioner of Taxation

[2010] AATA 567

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(Decision by: Senior Member R W Dunne)

John Dedes
vCommissioner of Taxation

Tribunal:

Member:
Senior Member R W Dunne

Subject References:
Higher Education Loan Programme ('HELP')
Student Financial Supplement Scheme ('SFSS')
amendment of assessment to reduce HELP and SFSS debts
deferment of HELP and SFSS assessments
serious hardship
special reasons
exercise of discretion to amend assessment or to defer making assessment
decision under review affirmed.

Case References:
Re The Taxpayer and Commissioner of Taxation - (2004) 57 ATR 1200
Commissioner of Taxation v Ryan - (2000) 201 CLR 109
Re Szekely and Commissioner of Taxation - [2001] AATA 704
Powell v Evreniades and Ors - (1989) 17 ALD 420
Re Bak and Commissioner of Taxation - [2008] AATA 630
Re Comptom and Commissioner of Taxation - [1999] AATA 351
Re Beadle and Director-General of Social Security - (1984) 6 ALD 1
Angelakos v Secretary, Department of Employment and Workplace Relations - [2007] FCA 25
Re Ivovic and Director-General of Social Services - [1981] AATA 57

Hearing date:
Decision date: 30 July 2010

Adelaide

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Decision by:
Senior Member R W Dunne

REASONS FOR DECISION

INTRODUCTION

1. In this case, the applicant (Mr John Dedes) has applied to this Tribunal for review of a decision of the Commissioner of Taxation ("Commissioner") made on 22 December 2009 pursuant to the Higher Education Support Act 2003 ( "HESA"). That decision follows an earlier decision of the Commissioner on 9 October 2009 refusing to amend the applicant's assessment for the year ended 30 June 2009 to excise the Higher Education Loan Programme ("HELP") and the Student Financial Supplement Scheme ("SFSS") repayment amounts included in the assessment. The decision also follows an earlier decision of the Commissioner on 9 October 2009 refusing to defer the making of an assessment for the year ended 30 June 2010 to include HELP and SFSS repayment amounts in the assessment.

2. At the hearing, Mr Dedes represented himself and Mr Peter Goggins (from the ATO Legal Services Branch) appeared for the Commissioner. The Tribunal received into evidence the T documents (Exhibit R1) lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, together with the applicant's documents (Exhibit A1).

ISSUES

3. The issues for the Tribunal are:

(a)

Should the Tribunal exercise the discretion in s 154-50 of the HESA to amend the applicant's assessment for the year ended 30 June 2009 to excise the HELP and SFSS repayment amounts included in the assessment?

(b)

Should the Tribunal exercise the discretion in s 154-45 of the HESA to defer the making of the applicant's assessment for the year ended 30 June 2010 to include HELP and SFSS repayment amounts in the assessment?

LEGISLATION

4. The applicant's application for review arises for consideration under the HESA. Under the HESA the Commissioner may make an assessment of the amount required to be paid under Sub-division 154-A and Sub-division 154-B in respect of an accumulated HELP debt (s 154-35). The amount of the assessed debt is recoverable as if it were income tax assessed to be payable by a taxpayer under applicable parts of the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953 ( s 154-60 of the HESA). Under the HESA, the Commissioner may defer the making of an assessment under s 154-45 or, if an assessment has been made, may amend the assessment so that no amount is payable in certain circumstances (s 154-50). Relevantly in the present case, ss 154-35, 154-45, 154-50 and 154-60 of the HESA read:

" 154-35 Commissioner may make assessments

The * Commissioner may, from any information in the Commissioner's possession, whether from a * return or otherwise, make an assessment of:

(a)

the person's * accumulated HELP debt on 1 June immediately before the making of the assessment; and

(b)

the amount required to be paid in respect of that debt under section 154-1.

...

154-45 Commissioner may defer making assessments

(1)

A person may apply in writing to the * Commissioner for deferral of the making of an assessment in respect of the person under section 154-35.

...

(3)

The * income year specified in the application must be:

(a)

the income year in which the person makes the application; or

(b)

the immediately preceding income year; or

(c)

the immediately succeeding income year.

(4)

The * Commissioner may, on application by a person under this section, defer making an assessment in respect of the person under section 154-35 if the Commissioner is of the opinion that:

(a)

if the assessment were made, payment of the assessed amount would cause serious hardship to the person; or

(b)

there are other special reasons that make it fair and reasonable to defer making the assessment.

(5)

The * Commissioner may defer making the assessment for any period that he or she thinks appropriate.

...

154-50 Commissioner may amend assessments

(1)

A person may apply in writing to the * Commissioner for an amendment of an assessment made in respect of the person under section 154-35 so that:

(a)

the amount payable under the assessment is reduced; or

(b)

no amount is payable under the assessment.

...

(3)

The * Commissioner may, on application by a person under this section, amend an assessment made in respect of the person under section 154-35 so that:

(a)

the amount payable under the assessment is reduced; or

(b)

no amount is payable under the assessment;

if the Commissioner is of the opinion that:

(c)

payment of the assessed amount has caused or would cause serious hardship to the person; or

(d)

there are other special reasons that make it fair and reasonable to make the amendment.

...

154-60 Returns, assessments, collection and recovery

Subject to this Part:

(a)

Part IV, and Division 1 of Part VI, of the Income Tax Assessment Act 1936; and

(b)

Part 4-15 in Schedule 1 to the Taxation Administration Act 1953;

apply, so far as they are capable of application, in relation to a * compulsory repayment amount of a person as if it were * income tax assessed to be payable by a taxpayer by an assessment made under Part IV of the Income Tax Assessment Act 1936. "

5. Similar provisions to those contained in the HESA exist in the Student Assistance Act 1973 and the Social Security Act 1991 with respect to deferring or amending assessments for SFSS repayment amounts.

BACKGROUND AND EVIDENCE

6. Mr Dedes is 50 years of age. He commenced employment with the Australian Valuation Office ("AVO") as a valuer in training on 1 July 2004. In that capacity, he was involved in making "drive-by" asset valuations for Centrelink, the Department of Defence and the Department of Veterans' Affairs in the greater Adelaide area. The valuations were of conservative assets and did not involve more detailed property valuations. As a result of his tertiary studies, he had accumulated significant HELP and SFSS debts respectively of $17,409 and $19,201, according to his 30 June 2009 notice of assessment. He had applied for and been granted deferment of his HELP and SFSS repayment amounts for the 2004/2005 and the 2005/2006 financial years. He had also applied for deferment of his HELP and SFSS repayment amounts for the 2006/2007 financial year. That application was not successful.

7. By reference to the applicant's documents (Exhibit A1) it appears that, pursuant to orders made in the Federal Magistrates Court in July 2008 in proceedings involving his then wife, Mr Dedes became entitled to the sum of $581,570 from the proceeds of the net value of the relationship. He was divorced from his wife with effect from 20 June 2009. In September 2008, he purchased a property situated at 10 Myers Lane, Adelaide for $576,500, which was subject to a mortgage of $47,530. The mortgage repayment was approximately $260 per month. On 23 March 2009, following his return from a holiday in China on four weeks stress leave, he was served with a formal direction and forced to depart the AVO on leave without pay. His only income from 30 March 2009 was a Centrelink sickness allowance of approximately $462 per fortnight.

8. Although he disagreed with the date indicated by the Commissioner, it appears that, on 8 September 2009, Mr Dedes applied for an amendment to his assessment for the year ended 30 June 2009 to excise the HELP and SFSS repayment amounts included in the assessment. He also applied for deferment of the HELP and SFSS repayment amounts that would (or might) be included in his assessment for year ended 30 June 2010. When the Commissioner refused the applications, Mr Dedes requested a review of the decision. On 22 December 2009, the decision was confirmed. Including the HELP and SFSS repayment amounts, Mr Dedes' assessment for the year ended 30 June 2009 issued for an amount payable of $2,886.70. However, by letter dated 24 November 2009, the Commissioner advised Mr Dedes that a decision had been made not to pursue the debt at that time, but this did not mean that he would not have to pay the debt at some stage in the future.

9. In his evidence, Mr Dedes said that he suffered from a number of medical and dental conditions. He had a history of obstructive sleep apnoea and anxiety, although he said his anxiety and stress had passed. There were a number of costs that had arisen in relation to his medical conditions that he would need to pay. He required a breathing machine to help with his sleep apnoea, at a cost of $2,800. He had dental problems which would cost $2,550 to correct and he needed $1,000 for new spectacles to remedy his vision impairment. Apart from these costs, he had normal living expenses, mortgage costs and other regular expenses that he had to bear. He had sold his motor vehicle after returning from China, but he received some assistance from his mother and brother with his expenses and medical treatment costs. At the time of the hearing, he was still on leave without pay, but anticipated that he would hear from the AVO about his future employment arrangements within the following month.

CONSIDERATION

Should the applicant's assessment for the year ended 30 June 2009 be amended to excise the HELP and SFSS repayment amounts included in the assessment?

10. Sections 154-45 and 154-50 of the HESA allow the Commissioner (and the Tribunal, upon review) the exercise of the discretion to defer HELP and SFSS repayment amounts, or amend an assessment if HELP and SFSS repayment amounts have already been raised, if the Commissioner (or the Tribunal) is of the opinion that payment of the relevant amounts would cause serious hardship or there are other special reasons that make it fair and reasonable to defer making the assessment or to make the amendment. Mr Dedes has applied for and contends that the amendment discretion in s 154-50 should be exercised in his favour in relation to the year ended 30 June 2009. On my reading of the T documents, he has also applied for the exercise of the deferment discretion in s 154-45 in relation to the year ended 30 June 2010.

11. In Re The Taxpayer and Commissioner of Taxation ( 2004) 57 ATR 1200, Mr S Webb, Member, considered the term "serious hardship" and the term "special reasons" as they appeared in the Higher Education Funding Act 1988. That Act contained provisions which were similar to, but were replaced by, the provisions in the HESA. In paragraphs 12 to 15 of his reasons, he said:

" 12. The term 'serious hardship' is not defined in the HEFA or related tax legislation. In Powell v Evreniades and Others (1989) 21 FCR 252 Hill J concluded that the term should be given its ordinary meaning and drew a distinction between hardship which is serious and hardship which is extreme, accepting that destitution would constitute 'serious hardship' (FCR 260).

13. The Australian Taxation Office - Receivables Policy - 24. Release from Payment of Some Taxation Debts states at paragraph 24.4.1:

' the term serious hardship has connotations of unduly burdensome consequence, 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 debtor being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements.'

14. In Re Ferguson and Ferguson v Commissioner of Taxation [2004] AATA 779 the Tribunal (differently constituted) found that Taxation Ruling No. IT 2440 - Income Tax: Individuals: Release from Payment of Tax on Grounds of Serious Hardship: Guidelines for Determining the Existence of Serious Hardship provided 'appropriate guidance' at 24.6.14 and concluded that 'serious hardship' under the TAA 'is less severe than extreme financial hardship but, nevertheless, hardship of a significant kind in terms of normal community standards' (paragraph 35).

15. The term 'special reasons' is not defined in the HEFA or related tax legislation. That term has been likened to the term 'special circumstances' as it appears in social security legislation (see Re Compton and Federal Commissioner of Taxation [1999] AATA 351; 99 ATC 2287 at 2293-4) and has been taken to refer to circumstances that 'may fairly be described as unusual, uncommon or exceptional' ( Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 4) or where '...strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate' ( Re Ivovic and Director-General of Social Services [1981] AATA 57; (1981) 3 ALN N95 at 97). "

12. I note that the current "ATO Receivables Policy - Chapter 24 RELEASE FROM PAYMENT OF SOME TAXATION LIABILITIES" ("Current Policy") is expressed in terms similar to those referred to in paragraph 24.4.1 of the ATO Receivables Policy - 24 in Re The Taxpayer, above. It relevantly reads:

" 21. The term 'serious hardship' is not defined at law and must be given its ordinary meaning. The Tax Office determines whether serious hardship exists by applying several tests which are designed to ascertain whether payment of the tax would produce unduly burdensome consequences for the person such that they would be deprived of necessities according to normal community standards.

22. Thus, serious hardship would be seen to exist where payment of a tax liability would result in the person being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements. 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. "

13. According to the Current Policy, the Commissioner looks at a person's capacity to pay a tax liability using an income/outgoing test and also considers an assets/liabilities test. The Current Policy requires the Commissioner to make a decision reasonably and responsibly - in other words, balancing the taxpayer's circumstances with the obligation to pay legitimate taxation. The latter point has a long line of legal authority. As the High Court said in Commissioner of Taxation v Ryan ( 2000) 201 CLR 109 at 124 per Gleeson CJ, Gummow and Hayne JJ:

" This may well cause hardship, or at least inconvenience ... [b]ut hardship or inconvenience is seldom, if ever, sufficient reason for not complying with a statutory obligation. "

14. Mr Dedes' notice of assessment for the year ended 30 June 2009 issued on 28 July 2009. Included in the assessment was a HELP repayment amount of $2,624.45 and a SFSS repayment amount of $1,574.67, totalling $4,199.12. Mr Dedes is seeking amendment to the 2008/2009 assessment to reduce the HELP and SFSS repayment amounts to nil by reason of serious hardship or special reasons. As Mr S Webb, Member, did in Re The Taxpayer ( supra), it is necessary to consider Mr Dedes' factual circumstances to determine whether, as a matter of probability to the reasonable satisfaction standard, there are grounds to amend his 2008/2009 assessment under the terms of s 154-50 of the HESA, so that no amount of tax is payable.

SERIOUS HARDSHIP

15. Plainly, hardship is to be assessed in relation to the HELP and the SFSS assessed amounts, whether in fact payment has been made or has yet to be made. When does payment of the assessed amounts occur? Clearly, payment is effected when a PAYG credit is applied against a HELP and SFSS assessment debt or repayment amount of a person, even though a taxation deficit in equivalent amount may result. It follows that the time at which hardship is to be assessed in Mr Dedes' 2008/2009 assessment is the time of effective payment from PAYG credit of the HELP and SFSS repayment amounts (see Re Szekely and Commissioner of Taxation [ 2001] AATA 704 at paragraph 4). In Mr Dedes' case, that time is the date on which his assessment for the year ended 30 June 2009 issued, namely 28 July 2009.

16. Having examined all the evidence, including the T documents, the supplementary T documents and the applicant's documents, I make the following factual findings concerning Mr Dedes' financial circumstances in respect of the 2008/2009 financial year.

17. In September 2008, Mr Dedes purchased the residence in which he presently resides at 10 Myers Lane, Adelaide. The purchase price of the residence was $576,500, of which $47,530 was by way of a mortgage.

18. The applicant's documents (Exhibit A1) include two statements of his income and expenses. The first statement is dated 8 September 2009 and includes the following income and main expenditure items per fortnight:

I note that Mr Dedes provided no explanation as to how the shortfall of $416.56 was funded.

19. In the second statement of income and expenses, dated 30 April 2010, the following fortnightly details are shown:

20. Mr Dedes was unable to give me an accurate figure for his income and expenses at 28 July 2009, the date of issue of his assessment for the year ended 30 June 2009. The details provided in the statement dated 30 September 2009 were the closest to that date, but were quite different to the details provided in the statement dated 30 April 2010. The largest differences were for food ($420) and for sport, alcohol and gambling ($119), neither of which item amounts appeared in the 30 April 2010 statement.

21. In letters to the Tribunal dated 17 March 2010, 26 April 2010 and 30 April 2010 (included in Exhibit A1), Mr Dedes set out the medical and dental costs that he faced and which, I understand, he anticipated would have been funded from the 2008/2009 HELP and SFSS repayment amounts. In the letters, he said:

"...

•

The work related circumstances and unfortunate financial circumstances I was pushed into were unforseen from 23/3/2009.

•

All financial decisions I made prior to 23/3/2009 were reasonable under full employment criteria.

•

I did not over commit myself prior to 23/3/2009 financial and under full employment scenarios; however after 23/3/2009 I am definitely over committed financially under severe financial hardship criteria.

•

In the past under family living criteria the ATO granted to my family a similar claim for Medical reasons. The difference now is that the similar claim is as a single person.

•

An example of some of the financial medical needs I have to better my health and wellbeing for the impacts to my genetic disability of my jaw which part contributes to my insomnia and sleep apnoea. I need approximately $2,550 to try fixing a Dental problem, $2,800 for sleep apnoea medical equipment needed and $1,000 for optometrist needs.

..."

22. Also in his letters dated 17 March 2010, 26 April 2010 and 30 April 2010, Mr Dedes provided details of the HELP repayment amount ($2,979.68) and the SFSS repayment amount ($1,625.28) he was seeking to have refunded to him as a result of the amendment to his 2008/2009 assessment. It was not clear how these amounts were arrived at, but I am satisfied that the correct amounts he sought were those detailed in paragraph 14 above.

23. In Powell v Evreniades and Ors ( 1989) 17 ALD 420 at 422, Hill J said that, in considering the application of the term "serious hardship" there is a continuum of hardship ranging from "slight" to "severe" and that this needs to be determined by taking account of the circumstances in each case. In doing this, one might look to whether there is scope for a person to organise their affairs, consolidate their debt and adjust lifestyle so that their obligations can be met without being in a position of "serious hardship" : Re Bak and Commissioner of Taxation [ 2008] AATA 630 per Mr B J McCabe, Senior Member, at paragraph 16.

24. I have considered the applicant's circumstances and it appears that he has had some health problems for several years. He had been suffering from anxiety and stress, but he said that he no longer suffered from those conditions. In further correspondence that he forwarded to the Tribunal after the hearing, I note that his employment with the AVO was terminated with effect from 17 June 2010. However, earlier in the hearing he said that he had received 12 weeks retention pay of $9,000 (gross) from the AVO, backdated to the period 16 March 2010 to 12 June 2010.

25. On the evidence presented, I am not satisfied that the applicant is destitute or experiencing hardship to the extent shown by the authorities to be "serious hardship". Although his financial position may be straitened, there is no evidence that he will be left without reasonable acquisitions of food and clothing, medical supplies or other basic requirements. He has medical and dental requirements that may need to be provided for. However, he received the retention pay prior to the termination of his employment and, in reading the termination letter from the AVO dated 17 June 2010 which he forwarded to the Tribunal on 2 July 2010, it appears that he would have also received payment in lieu of 5 weeks notice of termination, together with severance benefit and payments in lieu of leave.

26. He also owns his residence at Myers Lane which, on his evidence, would now have a market value of approximately $600,000. He said he believed he had the right to live in his residence with a small mortgage and that the re-alignment of his financial affairs should not involve a sale of the residence. In my view, there is the capacity for him to re-align his financial arrangements by disposing of his present residence and downsizing to a cheaper residence that would be adequate for his personal and present needs. The excess funds could then be used to provide him with the medical and dental equipment that he requires. In doing so, and having regard to the moneys he received from the AVO in June 2010, I am satisfied that Mr Dedes will not suffer unduly burdensome consequences depriving him of the necessities of life. In the circumstances, I find that he has not established "serious hardship" under the HESA, particularly s 154-50.

SPECIAL REASONS

27. The term "special reasons" has been seen as similar in meaning to the term "special circumstances" used in Social Security legislation: see Re Comptom and Commissioner of Taxation [ 1999] AATA 351. Cases which demonstrate "special circumstances" must show something which is "unusual, uncommon or exceptional" (see Re Beadle and Director-General of Social Security ( 1984) 6 ALD 1 at 4). In Angelakos v Secretary, Department of Employment and Workplace Relations [ 2007] FCA 25, Besanko J considered the use of the word "exceptional" involved overstatement. He said there was less risk of overstatement if the words "unusual" or "uncommon" were emphasised. It is also expected that such "special circumstances" or "special reasons" cases would need to demonstrate that the enforcement of a debt would be "unjust, unreasonable or otherwise inappropriate" (see Re Ivovic and Director-General of Social Services [ 1981] AATA 57 at paragraph 49).

28. To prove "special reasons", Mr Dedes' position must be different from the ordinary run of cases, but does not have to be unique. In his case, the evidence clearly shows that he is not destitute. As already mentioned, he should have funds available following the termination of his employment with the AVO and, with his valuation experience, he should have potential for re-employment. I note that, when he was married, he was granted deferment of his HELP and SFSS repayment amounts for the 2004/2005 and 2005/2006 financial years, but was refused deferment for the 2006/2007 financial year. He is no longer married and, as far as I am aware, has no dependants. I am satisfied that there are no special reasons which would justify amendment to his 2008/2009 assessment to excise the HELP and SFSS repayment amounts that are included in it.

Should the making of the applicant's assessment for the year ended 30 June 2010 to include HELP and SFSS repayment amounts in the assessment be deferred?

29. I have outlined in some detail the reasons why I consider Mr Dedes has not established "serious hardship" or proved "special reasons" under s 154-50 of the HESA. In my opinion, for those same reasons, I consider he is (or has been) unable to establish "serious hardship" or prove "special reasons" under s 154-45 of the HESA to defer the making of an assessment for the year ended 30 June 2010 to include HELP and SFSS repayment amounts in the assessment.

30. In any event, under Sub-division 154-A of the HESA, Mr Dedes will not have to pay a HELP or SFSS repayment amount unless his "repayment income" reaches the "minimum repayment income" (s 154-1). Under s 154-5, "repayment income" is the sum of the taxpayer's taxable income, total net investment loss from financial investments and rental properties, reportable fringe benefits, exempt foreign employment income and reportable superannuation contributions. Under s 154-10, "minimum repayment income" for the 2009/2010 financial year is $43,151. On the evidence before me, from the AVO and Centrelink, it appears that Mr Dedes' minimum repayment income for the year ended 30 June 2010 will be less than $43,151, in which case he will not be liable for HELP or SFSS repayment amounts.

31. After the hearing, on 10 June 2010, Mr Dedes forwarded to the Tribunal a copy of a letter he had received from the Commissioner dated 4 June 2010. From the contents of the letter, it appears he had applied for a new deferment of the HELP and SFSS repayment amounts raised in his assessments for the years ended 30 June 2007, 30 June 2008 and 30 June 2009. As these applications have already been considered or are not before the Tribunal for review, it is not necessary for me to comment upon them.

SUMMARY

32. For the reasons I have outlined above, Mr Dedes has not relevantly established "serious hardship" or proved "special reasons" under either s 154-45 or s 154-50 of the HESA in relation to the HELP and SFSS repayment amounts in (or that might be included in) the 2008/2009 and the 2009/2010 assessments.