Doery v FC of T
Members:D Benk SM
Tribunal:
MEDIA NEUTRAL CITATION:
[2024] AATA 1493
D Benk (Senior Member)
INTRODUCTION
1. On 29 July 2022, Mark Doery (the Applicant) asked the Respondent to release him from his taxation liabilities, which then totalled $301.085.34,[1]
2. Following an internal review process, the Respondent determined that the debts were fully recoverable.
3. The Applicant now asks the Tribunal to review the Commissioner's decision to not release him from that debt on the grounds of 'serious hardship'.
4. The matter was subject to five separate conciliation/pre hearing conferences at which time directions were issued to both parties to provide additional material in support of their contentions. Little was produced by the Applicant who at hearing testified, "I will put my hand on the good book, I lost some documents between moving houses and all the documents are in hard copy. To the best of my knowledge I don't even know if I have any documents and even if I did, I don't know where to look." He admits to not having approached his accountant for copies of the documents but did testify that he did try and find some of the documents but was unsuccessful.
5. At the hearing, the Applicant was self-represented. Mr Preesan Pillay, advocate for the Australian Taxation Office appeared for the Respondent.
THE EVIDENCE
6. The following documentary evidence was tendered and marked as exhibits:
- • Exhibit 1: the T documents lodged pursuant to section 37(1AB) of the Administrative Appeals Tribunal Act 1975 (Cth) ('T docs')
- • Exhibit 2: supplementary T docs
- • Exhibit 3: documents provided by the Applicant including W & D Statements from 30 June 2017 to 30 June 2018 with covering email dated 23 October 2023 and signed loan offer dated 14 September 2016.
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- • Exhibit 4: Respondent's Statement of Facts, Issues and Contentions
- • Exhibit 5: property searches filed by the Respondent for:
- ○ 1/163A Cuthberts Rd
- ○ 2/163A Cuthberts Rd
- ○ 3/163A Cuthberts Rd
- ○ 7/198 Howe St
LEGISLATION AND POLICY
7. Where a taxpayer is dissatisfied with an assessment, they may object against it in accordance with the requirements set out in Part IVC of the Taxation Administration Act 1953 (Cth) ('TAA'). The Respondent must then decide whether to allow, wholly or in part, or disallow, the taxpayer's objection.[2]
8. A taxpayer dissatisfied with the Respondent's objection decision may apply to the Tribunal for a review of the decision or appeal to the Federal Court against it.[3]
9. Part 4-50 of Schedule 1 to the TAA provides for the release from particular taxation liabilities. Division 340 of Schedule 1 to the TAA grants the Respondent powers to release an individual or a trustee of the estate of a deceased person from income tax liabilities they have incurred if satisfying the liability would cause serious hardship.[4]
10. Division 340 of Schedule 1 to the TAA is titled, "Commissioner's power in cases of hardship". Section 340-1 outlines "What this Division is about" and states:
The Commissioner may release you from a particular liability that you have incurred if you are an individual, or a trustee of the estate of a deceased person, and satisfying the liability would cause serious hardship.
11. Section 340-5 of Schedule 1 to the TAA provides:
340-5 Release from particular liabilities in cases of serious hardship
Applying for release
- 1) You may apply to the Commissioner to release you, in whole or in part, from a liability of yours if section 340-10 applies to the liability.
- 2) The application must be in the approved form.
- 3) The Commissioner may release you, in whole or in part, from the liability if you are an entity specified in the column headed "Entity" of the following table and the condition specified in the column headed "Condition" of the table is satisfied.
Entity and condition Item Entity Condition 1 an individual you would suffer serious hardship if you were required to satisfy the liability 2 a trustee of the estate of a deceased individual the dependants of the deceased individual would suffer serious hardship if you were required to satisfy the liability Effect of the Commissioner's decision
- (4) If the Commissioner:
- (a) refuses to release you in whole from the liability; or
- (b) releases you in part from the liability;
nothing in this section prevents you from making a further application or applications under subsection (1) in relation to the liability.
Notification of the Commissioner's decision
- (5) The Commissioner must notify you in writing of the Commissioner's decision within 28 days after making the decision.
- (6) A failure to comply with subsection (5) does not affect the validity of the Commissioner's decision.
Objections against the Commissioner's decision
- (7) If you are dissatisfied with the Commissioner's decision, you may
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object against the decision in the manner set out in Part IVC.
12. Section 340-10 of Schedule 1 to the TAA outlines the taxation liabilities to which section 340-5(3) applies.
340-10 Liabilities to which this section applies
- (1) This section applies to a liability if it is a liability of the following kind:
- …
- (e) a *PAYG instalment.
- (2) This section also applies to a liability if it is a liability that is specified in the column headed "Liabilities" of the following table and the liability is a liability under a provision or provisions of an Act specified in the column headed "Provision(s)" of the table:
Liabilities and provision(s) Item Liabilities Provision(s) … 2 administrative penalty in relation to fringe benefits tax or *tax Part 4-25 in this Schedule 3 general interest charge (a) former section 163AA, former section 170AA, former subsection 204(3) or former subsection 221AZMAA(1), 221AZP(1), 221YD(3) or 221YDB(3) of the Income Tax Assessment Act 1936; or (aa) section 5-15 in the Income Tax Assessment Act 1997; or (b) section 45-80 or 45-620 or subsection 45-230(2), 45-232(2), 45-235(2) or 45-235(3) in this Schedule
13. Relevantly to this review, taxation liabilities include income tax payable under section 4-1 of the Income Tax Assessment Act 1997 (Cth) ('ITAA'), General Interest Charges ('GIC'), additional tax and certain administrative penalties.[5]
14. Section 340-25 of Schedule 1 to the TAA explains the effect if a release is granted with respect to Pay As You Go Instalments ('PAYGI'). It states:
340-25 Extinguishing your liability to pay a PAYG instalment if you are released
- (1) This section applies if the Commissioner releases you from a liability to pay a *PAYG instalment.
- (2) If your liability to pay the instalment is released in whole, you are taken, for the purposes of Division 45 of Part 2-10, not to be liable to pay the instalment.
Note: This means that for the purposes of section 45-30 you are not entitled to a credit for the instalment.
- (3) If your liability to pay the instalment is released in part, you are taken, for the purposes of Division 45 of Part 2-10, to be liable to pay the instalment to the extent to which your liability has not been released.
Note: This means that for the purposes of section 45-30 you are entitled to a credit for the instalment to the extent to which your liability to pay the instalment has not been released.
Practice Statement Law Administration 2011/17
15. In addition to the law found above, the Respondent has issued Practice Statement Law Administration 2011/17: Debt relief, waiver and write off ('PSLA 2011/17') which
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provides guidance to decision makers in relation to making decisions pursuant to applications made under section 340-5 of Schedule 1 to the TAA. Relevantly it provides as follows:8. Definition of serious hardship
'Serious hardship' is given its ordinary meaning.
We consider serious hardship to exist where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education.
We have tests to apply in helping you decide whether serious hardship exists. The object of the tests is to determine whether the consequences of paying the tax would be so burdensome that the person would be deprived of what are considered necessities according to normal community standards.
These tests are:
- • the income/outgoings test
- • the assets/liabilities test
- • other relevant factors.
9. Income/outgoings test
The purpose of the income/outgoings test is to assess a taxpayer's capacity to meet their tax liability from their current income. We take into account household income and expenditure along with the taxpayer's ability to provide the necessities for family members or others for whom they have responsibility. In addition, the following are relevant considerations:
- • the taxpayer's capacity to pay in a reasonable timeframe on the basis of their income and outgoings
- • scope for the taxpayer to increase their income
- • whether all expenditure could be considered reasonable and consideration of any discretionary components
- • whether the taxpayer has made attempts to defer or reschedule other financial commitments.
10. Assets/liabilities tests
The purpose of the asset/liabilities test is to assess a taxpayer's equity in, or access to, assets which may be indicative of their capacity to pay.
Consideration is given to any property owned wholly or jointly by the taxpayer and their partner, privately or within a business structure.
There are several types of assets which are regarded as normal and reasonable possessions. These would not be expected to be surrendered in order to pay a tax debt, provided they are of a reasonable nature and include:
- • ownership of, or interest in, a residential property which is the taxpayer's home
- • a motor vehicle
- • furniture and household goods
- • tools of trade
- • cash on hand or bank balances sufficient to meet immediate day-to-day living expenses
- • funds put aside by aged persons to cover funeral expenses.
All other significant assets need to be scrutinised to determine capacity to pay (either by sale or used as security for a loan). These assets include other real estate, multiple or luxury motor vehicles or boats, life insurance or annuity entitlements, shares and other investments, and collections for trading, investment or hobby purposes.
11. Other relevant factors
We are not bound to grant release even if a taxpayer can demonstrate serious hardship may be caused by payment of their liability. However we are obliged to act reasonably and not arbitrarily.
When deciding whether release should be granted, you should take into consideration the facts of the case and have regard to the taxpayer's particular circumstances.
Examples of the factors we may consider in arriving at a decision include:
- • release would not alleviate hardship, such as where the person has other liabilities or creditors
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- • whether it was reasonable for the taxpayer to acquire assets ahead of meeting their tax liabilities
- • whether a taxpayer has made plans to address their tax liabilities prior to disposing of funds or assets
- • whether a taxpayer has paid other debts (either business or private) in preference to their tax debt
- • whether the taxpayer has pursued debts owed to them or provided reasons as to why they have not
- • whether serious hardship is likely only to be short term[9]
- • whether there was an event that led to a change in the taxpayer's compliance
- • the taxpayer's past compliance history, including lodgment of returns, payment of tax debts and the outcome of any audit or enforcement activity taken to enforce compliance
- • whether the taxpayer has made plans to pay future debts
- • how the taxpayer has structured their affairs and whether they have placed themselves in a position of hardship (for example, placing all assets in trusts or related entities over which they have control)
The above factors are not intended to be an exhaustive list of relevant factors but rather are examples of the types of considerations it would be appropriate to have regard to in exercising this discretion.
ISSUES FOR DETERMINATION
16. The issue to be decided is whether the Applicant's Tax Liabilities should be released in part or in full, pursuant to subsection 340-5(3) of Schedule 1 to the TAA. To determine this, I must consider:
- (a) would the Applicant suffer serious hardship if he were required to pay the Tax Liabilities; and
- (b) if so, should the discretion to release him in full or in part for the Tax Liabilities be exercised?
EVIDENCE BEFORE THE TRIBUNAL
17. The Applicant is a 55-year-old man who was a sole trader in the construction industry. He is currently unemployed and in receipt of Centrelink benefits on account of mental health issues. He has not worked for many years. He is not actively having treatment at this time. He currently lives in shared accommodation and has no other income apart from welfare benefits. He has no assets. The evidence reveals that his expenses are such that he has $15 per week in surplus.
18. The Applicant did not at any stage in the proceedings contest the amount of the taxation liabilities claimed by the Respondent. He testified that his taxation returns were completed by an accountant. He was unhappy with his first accountant and then sourced another. He testified he was informed that he would have a tax debt but also admitted that he knew that he had an obligation to pay taxes on the sale of properties that he bought and developed. The Applicant also admitted that he lodged his taxation returns late testifying that time had got away from him. He was overwhelmed with health and financial issues. He indicated an appreciation between eligible debts and ineligible debts, maintaining that he understood that the GST could not be released under the hardship provisions but requested that the balance of the tax debt attract such relief.
19. The Respondent confirmed that the tax debt the subject of this application consisted of the following:
| Type of liability | Period/s | Debt amount ($) | Eligible debt ($) |
| Income Tax | 30 Jun 2021
30 Jun 2018 30 Jun 2017 |
191,932.87 | 1,135.90
178,122.75 12,674.22 ATC 13081 |
| Eligible GIC | 50,556.45 | 50.556.45 | |
| Ineligible debt (GST) | 31/12/2017 | 48,543.00 | 0.00 |
| Ineligible GIC | 10,053.02 | 0.00 | |
| Total | 301,085.34 | 242,489.32 |
20. The Respondent submitted historically taxation returns were lodged late and recorded the following delays:
| Income year | Original due date | Lodged date | Debt payable to ATO | Late by |
| 2021 | 1/11/2021 | 7/12/2021 | $1,135.90 | Late by 36 days |
| 2020 | 2/11/2020 | 18/08/2020 | $0 | On time |
| 2019 | 31/1012019 | 18/0812020 | $0 | Late by 292 days |
| 2018 | 31/10/2018 | 7/12/2021 | $178,122.75 | Late by 1,133 days |
| 2017 | 15/05/2018 | 12/03/2019 | $12,674.22 | Late by 301 days |
| 2016 | 31/10/2016 | 27/04/2017 | $0 | Late by 178 days |
| 2015 | 16/05/2016 | 27/04/2017 | $6,709.55 | Late by 346 days |
21. As regards the lodgement of activity statements, these were also reportedly lodged late and the delays summarised by the Respondent were as follows:
| Start Date | End date | Original due date | Extended due date | Lodged date | Late by |
| 7/01/2019 | 30/09/2019 | 28/10/2019 | 25/11/2019 | 16/10/2019 | Late by 40 days |
| 4/01/2019 | 30/06/2019 | 29/07/2019 | 29/07/2019 | 8/05/2019 | Late by 82 days |
| 7/01/2017 | 30/09/2017 | 30/10/2017 | 30/10/2017 | 10/10/2017 | Late by 20 days |
| 7/01/2016 | 30/09/2016 | 28/10/2016 | 28/10/2016 | 11/03/2016 | Late by 231 days |
| 4/01/2016 | 30/06/2016 | 28/07/2016 | 28/07/2016 | 7/06/2016 | Late by 51 days |
22. The Applicant does not dispute the above data. His application is for debt release. To be abundantly clear, he made no submissions relating to the accuracy of the liabilities calculated and nor did he dispute his delays.
23. In cross-examination, the Applicant was referred to the property searches provided by the Respondent. He was asked about the sale values of each of the properties and admitted he could only provide a guestimate. The Respondent queried why the Applicant had purchased a block of land for cash in the 2018 financial year when he knew that he had taxation obligations. The Applicant testified he thought that he paid $135,000 for the property and didn't put funds away to meet his taxation and GST liabilities as he wanted to develop the property for profit and essentially was chasing his tail. If he paid his taxes, he could not have purchased the property. His evidence was that he had to spend money to make money. He was just trying to get ahead but admits that it did not work out as planned.
24.
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The Respondent queried why the Applicant did not provide bank account statements and other primary documents to verify both the purchase and sale of the properties, or pattern of spending, and submitted ultimately that the Applicant's disclosure was opaque. In response to such cross examination, he stated:… it might be poor book keeping, but it is what it is, forgive me, I apologise…
I have not contacted my former accountant to get information… I suppose I should have…but some days I am just lucky to get through the day… the person I was a few years ago is not the person I am today….
…there are a lot of things that I should have done but haven't, but as I stated, my health took a turn for the worst.
25. In response to questioning about the requirement to pay taxes and timely lodgement, the Applicant testified:
….yes. I am liable for everything, I had an expectation that I would have to pay taxes. My health deteriorated in late 2017 and onwards and I will say it again, I was lucky to get out of bed some days… it was not a good period in my life…. I was not on top of my game and major decisions were pushed to the backburner.
26. When asked about the proceeds of sale, the Applicant testified he used much of it for living expenses especially during Covid and medical expenses. He sought treatment in Thailand on multiple trips where "I saw monks in a village and paid a donation and they prayed for me….I don't know what the other treatment was because I don't speak Thai and they don't speak English." As regards current treatment, a specialist referral is pending for treatment of a skin lesion but other treatments were said to be financially prohibitive.
27. In response to questions relating to bankruptcy, the Applicant said that this is a stigma he wishes to avoid. He is in the rental market and fears that he will lose access to stable accommodation if declared bankrupt. He queried "what does the tax office get out of making me bankrupt?"
28. As regards liabilities, the Applicant confirmed the information provided to the Respondent remained largely accurate. However, he has discharged his car loan and child support is paid via a private agreement. Rental and fixed household expenses are shared with a house mate.
29. The Respondent put to the Applicant that his overseas excursions and purchase of a vehicle were not indicative of somebody who is experiencing serious hardship. Further, the Respondent put to the Applicant that his failure to provide documents to support his case casted doubt on the veracity of his testimony, particularly since this matter has been on foot since at least 2022 and the Respondent had sent two letters requesting further particulars.
30. In response, the Applicant testified that he has been "down and out". He has had many dark days and was just existing and not living. There were many times that he wanted to "end it all" but managed to get through those days, however, he is still incapacitated by virtue of his mental health and has no means to meet the large debt which is only adding to his emotional and mental health difficulties.
31. In relation to the medical situation, the T docs contain:
- (a) a letter from the Wyndham Clinic which confirmed the Applicant was an inpatient of the mental health unit between 14 March to 30 March 2018. No diagnosis or prognosis is offered.[6]
Section 37 T Documents 38. - (b) Centrelink medical certificates providing a diagnosis of 'anxiety and depression'.[7]
Section 37 T Documents 45 to 61.
32. To the extent that it overlapped, the evidence at hearing was consistent with the Applicant's written statement to the Respondent, which relevantly states (unedited):
This is a brief chronological piece for my last few years pertaining to my work and health history.
I commenced as a sole trader in July 2012 with the construction, renovation of houses and subdivision of land as my going concern.
During this time I was registered for GST and went about my business to the best of my abilities.
In late 2014 and into 2015 I had a spousal relationship breakdown that weighed heavily on me in a monetary and personal health sense.
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But I continued to focus and carry out my business activities as best I could.Upon reflection I can say this was the beginning of my problems that culminated in the final situation that I was faced with.
By late 2016 I had taken on a bigger project (development) than I had previously completed.
Building delays and cost overruns due in part to the engaged builder were starting to slow progress in 2017.
During this year as the delays continued I started to feel very upset and spent time away from my project to try and improve my mental health.
This included a trip overseas with the intention of attending a retreat to work on my mental health.
Another trip in early 2018 lead to the culmination of a total breakdown and crescendo downwards for my mental health.
I returned in mid-March 2018 and went directly from my inbound flight to a Mental Health Facility located in Hoppers Crossing.
Wyndham Vale Clinic.
I was a voluntary in patient at that facility that specialises in Mental Health concerns and patient recovery.
I can say my time there was well spent.
But to return to the real world for which I did the following and continuation of my assimilation back into the workforce was not successful at all.
I struggled for at least 2 years to be able to work and be a productive member of society.
I went about and attended many mental health recovery plans with Psycologists.
I visited my GP regularly and his opinion of my mental health was I was unfit for work for a great period of time,
*I have submitted my medical certificates for extra clarity of my situation.
I tried my best to get myself mentally stable again over the next 2 years but my struggles continued unfortunately.
When the Covid-19 pandemic came along in 2020 any gains I may have made were diminished again during this challenging time.
That brings us to the present day.
I am deeply distressed still that I have put myself in this position and also my outstanding obligations to the ATO that I honestly can't see that I can honour.
I wish I was in a better mental and monetary position to honour my commitments but unfortunately I am not.
I come to the ATO with complete understanding that any decision that is made regarding my situation will be in the best interest of the ATO.
But can I please say again that I cannot see myself being in a position to honour my commitments to the ATO.
CONSIDERATION AND REASONS
Tax liabilities eligible for release
33. The Applicant may only be released from a tax liability if it is a liability to which section 340-10 of Schedule 1 to the TAA applies.[8]
Two-stage process
34. Determination of whether a tax liability should be released in part or in full pursuant to subsection 340-5(3) of Schedule 1 to the TAA has been described as a two-stage process. In
GSJW and Commissioner of Taxation ('GSJW')[9]
The determination of whether the Applicant should be released from his eligible taxation liability involves a two-stage process. This process was described by Deputy President McDermott in
Lau and Commissioner of Taxation [2016] AATA 46 at paragraph [65]:65. The Tribunal in Re Filsell and Commissioner of Taxation provided that a two stage approach should be applied determining whether the discretion to release should be exercised:
In the Tribunal's opinion, the language of the legislation requires a two stage approach. First, the decision-maker must decide whether the settlement of the liability will result in serious hardship. If that decision is favourable
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to the Applicant, the discretion offered by sub-section 340-5(3) then falls for consideration. In reaching the decision to release in whole or part, the question to be addressed is whether, in all circumstances, it is just and proper to provide the requested relief. Matters pertaining to the incidence and consequence of the tax and the effect of its exaction upon the affairs of the person will bear upon the issue of whether the relief is just and proper…(Footnotes omitted)
The above approach from
Re Filsell and Commissioner of Taxation [2004] AATA 1012 was cited and applied by the Federal Court in
Commissioner of Taxation v Milne (2006) 153 FCR 52 at 61-62.
35. A finding of serious hardship is a jurisdictional pre-condition for the exercise of the power to release a taxpayer from their tax liabilities. In
Powell v Evreniades and Others ('Powell'),[11]
Once there is a finding that the exaction of the full amount of tax will not entail serious hardship it would have to follow that there was no power in the Board to release any tax at all.
Onus of proof
36. The onus lies on the Applicant to establish that he meets the jurisdictional pre-condition for release of the Tax Liabilities. In
Re Rasmussen and Commissioner of Taxation ('Rasmussen'),[12]
The individual who carries the burden of proof in relation to this decision must produce to the Tribunal evidence on which it can be satisfied, on the balance of probabilities, of the findings of fact that are relevant, first, to the ultimate finding that a person would suffer serious hardship if required to satisfy the liability and, if so, then to the exercise of the discretion.
37. The Deputy President further stated that if the Applicant does not produce enough evidence, the decision under review will stand.[14]
38. If the jurisdictional pre-condition for release is met, the Tribunal will then consider whether the discretion to release an Applicant from that liability should be exercised. It is a matter of discretion for the Tribunal and not a matter of right for an Applicant.[15]
Stage One - Would the Applicant suffer 'serious hardship' if he were required to pay the Tax Liabilities?
When is hardship assessed?
39. In Rasmussen, when dealing with a debt release application, Deputy President Forgie concluded that the question of whether an individual would suffer hardship is framed at the time at which it is being answered.[16]
What is 'serious hardship'?
40. As Deputy President Forgie noted in
Schweitzer and Commissioner of Taxation ('Schweitzer')[17]
There is no definition in section 265 of what is meant by "serious hardship" nor would one expect there to be. Each of the words in the phrase is an ordinary English word having a well understood meaning. The context in which the word appears makes it clear that the Relief Board is to consider whether the exaction of the full amount of tax would involve the dependants of a deceased taxpayer [the individuals concerned in that case] in a financial difficulty which in all the circumstances can be
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said to be serious. The financial difficulty will be such that the dependants will be in significant need warranting action by the Relief Board to relieve their condition.
41. In
Commissioner of Taxation and A Taxpayer,[19]
… ''serious hardship'' is itself the test that has to be applied to an Applicant's circumstances to decide if that Applicant is eligible for relief from a tax debt. There is no other test, although there may be issues about which factors, in the particular circumstances, are or are not relevant to this determination. It is because the assessment is based so squarely on the individual circumstances that Hill J in [Powell] thought it was inappropriate to try and identify, in the abstract, the circumstances that would give rise to serious hardship.
… In [Powell], Hill J gave such an example when he recognised that there would be ''severe financial hardship'' if persons were left ''destitute without any means of support''. The Taxation Ruling gives a similar example when it says that there would be serious hardship if a taxpayer were left ''without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements''. I do not see any inconsistency in these examples. Effect must be given to the qualification of ''reasonable'' in the Taxation Ruling and, consistently with the reasoning of Hill J, these examples do not exclude the possibility that something less than destitution will constitute serious hardship. Whether this is so depends on the particular circumstances of each case…
Implicitly, the Tribunal was assessing the respondent's individual circumstances by reference to normal community standards.
42. It is clear from the authorities that, in assessing whether 'serious hardship' is established, consideration must be given to whether the taxpayer, if required to pay the tax liabilities would experience financial difficulties which are serious, however not necessarily at the level of causing destitution.
43. In Schweitzer, Deputy President Forgie summarised a number of principles recognised in the authorities as relevant to the determination of whether an Applicant for release would experience 'serious hardship'.[21]
- • The relevant 'hardship' is financial hardship, not physical or social hardship: see Hill J in Powell;[22]
at 258.
Re Filsell and Commissioner of Taxation ('Filsell');[23][2004] AATA 1012 at [13]
Re Adams and Commissioner ('Adams').[24][2010] AATA 744 at [17] - • The resources of the household, and not just of the Applicant are to be considered in determining the relevant assets and income as against liabilities and expenditure:
Van Grieken v Veilands.[25](1991) 21 ATR 1639 Van Grieken vVeilands (1991) 22 ATR 630 at 632
Neimanis and the Commissioner of Taxation.[27][2012] AATA 814 - • The Tribunal is not limited to consideration of the financial situation at the time of the application but is entitled to consider the position of the Applicant at the time of the hearing and may also consider any evidence about probable future financial position.[28]
see Schweitzer at [101]-[103].
44. Another requirement that has been consistently recognised is that there must be a causal relationship between the requirement to satisfy the tax liability and the serious hardship. As Forgie DP explained in Rasmussen:[29]
Although I look at what is meant by the expression "serious hardship" in this section of my reasons, I must keep in mind that s 340-5(3) requires me to do more than decide whether Mr Rasmussen is in serious hardship or would be having regard to his circumstances. The issue that I must come back to and decide is whether he would suffer serious hardship "… if he were required to satisfy the liability". The need to focus on this becomes clear from the authorities which have considered the
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criteria that must be met under s 340-5(3) and the discretion that must be exercised.[emphasis in the original]
Policy guidelines
45. While policy guidelines are not binding law, there is an extensive body of case law that recognises the desirability for decision-makers to make consistent decisions, and that consistency in decision-making is facilitated by the existence of policy guidelines:
Re Drake and Minister for Immigration and Ethnic Affairs (No 2).[30]
M64/2015 v Minister for Immigration and Border Protection the High Court stated:[31]
Policy guidelines… promote values of consistency and rationality in decision-making, and the principle that administrative decision-makers should treat like cases alike. In particular, policies or guidelines may help to promote consistency in "high volume decision-making". Thus in Re Drake and Minister for Immigration and Ethnic Affairs (No 2), Brennan J, as President of the Administrative Appeals Tribunal, said that "[n]ot only is it lawful for the Minister to form a guiding policy; its promulgation is desirable" because the adoption of a guiding policy serves, among other things, to assure the integrity of administrative decision-making by "diminishing the importance of individual predilection" and "the inconsistencies which might otherwise appear in a series of decisions".
46. This approach has been endorsed by the Federal Court in the context of the statutory power to release a taxpayer from a taxation debt. In
Corlette v McKenzie,[32]
Burns and Commissioner of Taxation.[35]
PSLA 2011/17
47. In Rasmussen, the Tribunal adopted the tests set out in PSLA 2011/17 that assist in determining whether a tax debt should be released in full or in part. These tests are the income/outgoings test, the assets/liabilities test, and other relevant factors.
48. The tests are designed to determine if the consequence of paying the tax liabilities would be to deny the Applicant of necessities according to normal community standards.[36]
49. The Respondent submits that the Applicant must prove he does not have capacity to pay his tax liabilities under these tests. The Respondent argues that the Applicant's financial situation is opaque and despite repeated requests for documentation, none have been provided. It further submitted that the Applicant finds himself in this situation because of his own actions, namely his failure to prioritise the quarantining of sale proceeds to meet his taxation liabilities, instead engaging in spending without regard to his ultimate obligations.
Income/outgoings test
50. Factors relevant to a consideration of this test are listed in clause 9 of PSLA 2011/17 and include:
- • the Applicant's capacity to pay in a reasonable timeframe on the basis of his income and outgoings
- • the scope for the Applicant to increase his income
- • whether all the Applicant's expenditure could be considered reasonable, and consideration of any discretionary components
- • whether the Applicant has made attempts to defer or reschedule other financial commitments.
Income/outgoings
51. The limited information provided suggests the Applicant's sole source of income is welfare benefits. He has no other sources of income. He relies on the considerable household expenditure due to the cost of living crisis in support of his claim that he satisfies the income/outgoings test for the determination of serious hardship. The evidence suggests that there is a surplus of just $15 per fortnight once all expenses are met. The expenses in the T docs are modest. The Applicant is
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single and has no other means of support. Expenses (apart from accommodation) are not shared. He does have a house mate who contributes to the rent but all other aspects of their finances are separate. I so find. It is unclear whether the Applicant can return to work as there is a paucity of medical evidence with regards to prognosis.52. In assessing the income/outgoings of the Applicant for the purposes of clause 9 of PSLA 2011/17 I could not identify any discrepancy between the claimed expenses and income as declared in the Release Application submitted to the Respondent. The testimony at hearing confirmed there is a private arrangement in relation to child support and he has since discharged his car loan.[38]
53. I find on the evidence, the Applicant has no real surplus funds at this time to meet his taxation liability in a reasonable time without impacting upon his ability to provide reasonable accommodation, food, clothing, medical supplies and education for himself and his family.
54. For the reasons above, I find the income/outgoings test is satisfied and this weighs in favour of the Applicant being granted a release from his Tax Liabilities.
(b) Assets/liabilities test
55. Relevant to a consideration of this test are the assets held by the Applicant and his current liabilities.
56. The only assets declared are a 2009 BMW motor vehicle said to be valued at $15,000 and savings of approximately $2,000.[39]
57. During cross examination the Applicant had limited recall as to how he spent the sale proceeds following the disposal of various land holdings. There were multiple requests issued by the Respondent and the Applicant maintains documents are no longer available or if they are, he does not know where they would be. I find this response to be unsatisfactory and whilst not suggesting that the Applicant is attempting to conceal assets, I am not satisfied that his current situation represents the true financial picture and so cannot make any definitive findings as to whether this ground has been sufficiently satisfied to exercise the discretion.
Will the Applicant suffer serious hardship?
58. Authorities provide that serious hardship will exist where an Applicant is left without the means to acquire basic necessities for themselves or their dependants.[40]
59. Having regard to the evidence both oral and written, I find that the Applicant would suffer serious hardship if he were required to meet his taxation liabilities within the meaning of section 340-5 of Schedule 1. The evidence suggests his income is limited and he has no assets. The taxation liabilities are significant. Without doubt, there would be serious financial hardship if the debts were to be recovered.
60. However, the assessment does not stop here. What is now required is an assessment of whether the discretionary power to release the Applicant from his taxation liabilities should be enlivened.
Stage 2 - Should the discretion to release the Applicant from his Tax Liabilities be exercised?
61. If an Applicant proves that payment of the tax liability would cause them serious hardship, the decision as to whether to release the Applicant from their liability is discretionary.[44]
It would be extremely odd if a taxpayer who was the author of his or her misfortunes, through imprudent or extravagant expenditure, was entitled, as a matter of right, to a release of unpaid income tax.
62. Clause 11 of PSLA 2011/17 sets out other relevant factors which may be considered in deciding whether to exercise the discretion to grant a release from taxation liabilities. Of relevance is whether the taxpayer has a poor compliance history and whether the taxpayer has delayed lodgement of returns resulting in the accumulation of a large debt that they are unable to pay.
63. The Respondent submits that the Applicant's circumstances weigh
ATC 13088
against an exercise of the discretion. The Respondent submits that the following factors are relevant:- • the Applicant appears to have unreasonably acquired assets (including purchasing a block of land) ahead of meeting his Tax Liabilities;
- • the Applicant has disposed of funds or engaging in discretionary spending without giving consideration to his Tax Liabilities;
- • release would not alleviate the Applicant's hardship;
- • the Applicant has paid other debts in preference to the Tax Liabilities, such as a car loan etc; and
- • the Applicant has a poor compliance history.
Compliance
64. The Applicant admits he was late in lodging his returns. He does not dispute the delays summarised in paragraphs 20 and 21 of these reasons, ranging between 36 days to 1133 days. This is significant in this case as in the interim the Applicant continued to manage his finances with what can only be considered to be a total disregard for his taxation liabilities, despite acknowledging his obligation. He sought to rely on his medical condition and whilst this is not disputed, the medical evidence does not suggest that he did not have the capacity to manage a budget or arrange his financial affairs. The delays go against the application of the discretion.
Asset accumulation
65. The Applicant admits that he purchased a property for cash with the intention of flipping it once improvements had been made. This is a significant transaction and clearly demonstrates that he had a reasonable range of cognitive processing to manage the significant planning and administration associated with such a purchase. I find there is no cogent reason for not prioritising his taxation obligation prior to this purchase. The Applicant again maintained that he had 'dark days' and was not in the best headspace. However, during this period the Applicant also travelled overseas on multiple occasions. It's a trite statement, however, international travel is mentally taxing and this further demonstrates that the Applicant had appropriate insight in the management of his day to day activities. He also purchased a BMW. The purchase of these assets whilst not catering for his forecasted taxation liability also goes against the application of the discretion in this factual circumstance. I further find the Applicant unreasonably acquired assets ahead of meeting his taxation liabilities. Admittedly the costs of these assets would not cover the taxation liability. However, what is demonstrated is that the Applicant made no attempt to commence a payment plan or make any arrangement to discharge his liabilities.
Disposing of funds and discretionary spending
66. On this point, the Applicant was not an impressive witness. He was vague in the purchase and sale price of the properties and further admitted that he did not reach out to his conveyancer who could have easily provided this information. The Applicant failed to provide bank statements citing that house moves resulted in the loss of documents or an inability to find them. I do not accept this. The Applicant lodged an application for relief with the Respondent in 2022. He has had over 20 months to gather documents.
67. The Applicant maintains that his mental health has compromised his function both physical and cognitive. There is no evidence from a specialist relating to such impacts arising out of his diagnosis. The Applicant also maintained that it was necessary to source treatment overseas, and spent in excess of $30,000 to secure such treatment, which I learned was not mainstream treatment. There is no support from a medical practitioner to verify the need for the 'treatment' obtained overseas and there is no evidence that such treatment was unavailable in Australia. To be clear, I am not critical of the Applicant's choice of 'treatment' but am critical of the spending when he had taxation liabilities that should have been prioritised. That is not to say that he should have abandoned his treatment, however, there should have been some arrangement to accommodate both liabilities. These circumstances also go against the application of the discretion.
Favouring Other Creditors
68. The Respondent submits that the repayment of the loan account was more than the minimum required and that the Applicant favoured other creditors over his Tax
ATC 13089
Liabilities. Exhibit 3 confirms this. The Applicant testified that he had an obligation to the lender. That is certainly true but there was no requirement in the loan agreement that the full amount be discharged by a certain date. This appears to be a personal choice by the Applicant. Based on the evidence before it, I find the Applicant favoured the payment of debts owed to other creditors ahead of meeting his Tax Liabilities.
Release will not alleviate hardship
69. The Respondent submits that a release of the Applicant's Tax Liabilities will not alleviate any financial hardship suffered by the Applicant.
70. As outlined above, there is a claimed $15 surplus per week between the Applicant's declared income and his expenditure, which will continue irrespective of whether he is released from his Tax Liabilities. Accordingly, I find a release will not alleviate the Applicant's financial hardship.
71. To summarise, on the basis of the evidence before it, I find the other relevant factors do not support the grant of a release of the Applicant from his Tax Liabilities.
72. In summary, and to make the complex simple, the Applicant is the author of his own financial misfortune. He engaged in imprudent expenditure with no regard to his taxation obligations. Whilst his motivations appear to have been well intentioned, that is, he had to 'spend money to make money', he engaged in a pattern of spending which failed to prioritise his accumulated taxation liabilities. His failure to promptly file his returns and contact the Respondent to engage in some form of payment arrangement are all factors that have contributed to this liability. I have not ignored the mental health issues, however, the medical evidence does not suggest that the Applicant was incapable of making decisions or managing money and even if it did, his activities of daily living would indicate otherwise. The Applicant maintains that much of the funds were spent during Covid on basic living expenses but I cannot accept this given that he was in receipt of Centrelink benefits for the vast majority of that period. The absence of bank statements and a detailed picture of his spending did not assist the Applicant. I also cannot ignore that the Applicant was given ample opportunity to provide these documents, firstly with two written requests by the Respondent and also five conferences prior to this hearing where the need for such documents were emphasised. Further, there is no evidence that the Applicant incurred extraordinary expenses as a result of his mental health situation or otherwise. His claimed expenses (that have been disclosed and verified) are largely on par with other citizens who also had to endure the unforeseen consequences of the Pandemic.
73. For these reasons, there is no basis upon which it would be appropriate to exercise the discretionary power to release the Applicant from his Tax Liabilities.
CONCLUSION
74. On the basis of the evidence before it and applying the relevant authorities and policy guidance, I find that the Applicant has not established that the decision under review should not have been made or should have been made differently. Accordingly, I find the Applicant has not discharged his onus under section 14ZZK of the TAA.
DECISION
75. The decision under review is affirmed.
Footnotes
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