SUPREME COURT OF WESTERN AUSTRALIA - COURT OF APPEAL

H ' Var Steel Services Pty Ltd v Deputy Commissioner of Taxation

[2005] WASCA 71

Wheeler, Roberts - Smith and Pullin JJA

13 April 2005 - Perth

Wheeler JA. This is an appeal from a decision of a Commissioner of this court dismissing an application by the plaintiff (appellant) to set aside a statutory demand. The circumstances giving rise to the application, and the grounds upon which it was made, are set out in the Commissioner ' s decision which is H ' Var Steel Services Pty Ltd v DCT (2004) 57 ATR 297 ; 184 FLR 354 ; 211 ALR 327 , and I do not repeat them.

2 The grounds of the appeal are that the Commissioner erred in law in holding that s 8AAZH of the Taxation Administration Act 1953 (Cth) (the TAA) was a valid law of the Commonwealth, and that he should have held either that it was a law imposing taxation and contained in a statute which dealt with more than one subject of taxation (therefore by operation of s 55 of the Constitution being invalid) or that it constituted an acquisition of property other than on just terms, contravening s 51(xxxi) of the Constitution. In relation to the latter of those 2 contentions, the ground further alleges that the learned Commissioner erred in law in holding that the Commissioner of Taxation may pursue a primary taxation liability or the liability described in s 8AAZH of the TAA, but not both. This construction is, it appears, an important proposition in respect of both grounds.

3 The grounds just mentioned are contained in a minute of amended notice of appeal, leave to substitute them being given at the hearing of the appeal on 8 March. The appellant had before the Commissioner, and in its grounds of appeal as originally framed, contended that s 8AAZH was a law imposing taxation contained in a statute which dealt with matters other than taxation. However, the decision of the High Court in Permanent Trustee Australia Ltd v Commissioner of State Revenue (2004) 57 ATR 232 ; 79 ALJR 146 ; 2004 ATC 4996 ; 211 ALR 18 , delivered on 12 November 2004, made the contention as to the statute being one dealing with matters other than taxation unarguable.

4 In my view, the argument based upon s 55 of the Constitution must fail, for essentially the reasons given by the learned Commissioner (at ATR 240 [22] - [24]; ALJR 151 [22]-[24]; ATC 5000-5001 [22]-[24]; ALR 24-25 [22]-[24]) inclusive. That is, s 8AAZH of the TAA does not impose taxation at all, and therefore does not attract the operation of s 55 of the Constitution.

5 Save for one matter, the general scheme of s 8AAZH of the TAA and related provisions is not in dispute. The TAA is an Act which provides, inter alia, for the administration of a variety of Acts relating to taxation. Those other Acts generally do impose taxation. The TAA is an example of the practice of splitting an Act imposing taxation from an assessment or administration Act, described in Permanent Trustee Australia Ltd (at ATR 249-250 [62] - [63] and 252 [72]; ALJR 158 [62]-[63] and 160 [72]; ATC 5007 [62]-[63] and 5009 [72]; ALR 34-35 [62]-[63] and 37 [72]).

6 Under Pt IIB, Div 2 of the TAA, the Commissioner of Taxation (the Commissioner) may establish a running balance account (RBA) for an entity and may allocate a "primary tax debt" to an RBA. A primary tax debt is defined to mean any amount due to the Commonwealth directly under a taxation law. A taxation law is the TAA itself, any other Act of which the Commissioner has the general administration, the A New Tax System (Australian Business Number) Act 1999 (Cth) and regulations under any of those Acts.

7 Section 8AAZH(1) provides:

If there is an RBA deficit debt on an RBA at the end of a day, the tax debtor is liable to pay to the Commonwealth the amount of the debt. The amount is due and payable at the end of that day.

An RBA deficit debt means a balance in favour of the Commissioner based on primary tax debts allocated to the RBA and currently payable. Additionally, if there is an RBA deficit debt at the end of the day, then the general interest charge (GIC) is payable on that RBA deficit debt and is added to the balance of the RBA. The GIC is a charge which accrues upon a failure to pay tax due, by way of penalty. It is imposed by s 3 of the General Interest Charge (Imposition) Act 1999 (Cth).

8 It appears that in the case of this appellant, the RBA in respect of it included amounts in respect of PAYG tax collected by the appellant on behalf of employees, which it was required to remit, GST collected by it and amounts of GIC.

9 The finding of the Commissioner which the appellant particularly attacks is his observation, in respect of s 8AAZH and the related sections in Pt IIB, Div 2 , that he did not "accept that these provisions create a debt separate and distinct from its component parts such that s 8AAZH imposes taxation …" (emphasis supplied). The appellant ' s counsel developed at some length the proposition that s 8AAZH does create a debt separate from the underlying tax liabilities. He pointed out that s 8AAZJ contemplates proceedings for the recovery of an RBA deficit debt, which might be quite distinct from proceedings for recovery of the primary tax debt.

10 In my view, however, the question of whether the debt is a separate debt from the primary tax debt is a red herring. The proposition which the appellant must make good in order to succeed is that, even assuming that there is a debt separate from the primary tax debt, the provisions creating that debt impose taxation. The difficulty with such a proposition is that, whether or not the debt should be regarded as "separate" from the primary tax liability, it is plainly not an independent debt; it owes its existence to, and is designed to facilitate the collection of, a primary tax debt which is imposed by some other law.

11 For a law to be characterised as one imposing taxation, it must create a liability to tax, as distinct from merely prescribing who is to pay a tax or providing for the assessment, collection and recovery of a tax which is imposed by other provisions. This distinction is a long - standing one in relation to s 55 of the Constitution: see, for example, Re Dymond (1959) 101 CLR 11 at 19 - 21; 12 ATD 1 at 3; [1959] ALR 772 at 775 per Fullagar J, with whom Dixon CJ, Kitto and Windeyer JJ agreed and Permanent Trustee Australia Ltd (at ATR 251 [68]; ALJR 159 [68]; ATC 5008 [68]; ALR 36-37 [68]) per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ.

12 The creation of more than one source of obligation to pay a tax has been a feature of a variety of different laws relating to taxation in the past. The way in which the distinction between a law imposing taxation and a law dealing with the imposition of taxation is applied in such a case, has been discussed on a number of occasions. The principle is succinctly enunciated by Kitto J in Moore v Commonwealth (1951) 82 CLR 547 at 581; 9 ATD 283 at 298; 24 ALJ 576 at 583; [1951] ALR 258 at 274, which was a case dealing with a type of provisional tax. His Honour said (at CLR 581 - 582; ATD 298; ALJ 583-584; ALR 274):

Separate obligations to pay money to the Commonwealth may, no doubt, be so created that each of them is a tax, notwithstanding that a payment in respect of one is to operate as pro tanto satisfying the other, and even notwithstanding that any excess of one over the other is to be refunded. But it is not true to say that there are necessarily 2 taxes wherever the parliament imposes upon a person 2 obligations to pay money to the Commonwealth for its general purposes otherwise than for services rendered. One obligation may be a tax while the other may be an auxiliary obligation created to facilitate collection of the tax.

13 There are a number of aspects of the RBA deficit debt which, in my view, lead to the conclusion that it is no more than an auxiliary obligation created to facilitate collection of the variety of taxes with which the TAA is concerned. Importantly, there is an identity of amount between it and the primary tax debt which exists in respect of taxes and penalties thereon already imposed by other legislation. It is only when the primary tax debt has been quantified that an amount can be allocated to an RBA. While a primary tax debt is defined to mean any amount due to the Commonwealth directly under a taxation law and to include amounts not yet payable, the RBA deficit debt includes only primary tax debts which have been allocated to the RBA and are currently payable (offset by any payments made or credits allocated to the account) (s 8AAZA ).

14 The appellant submits that there will, however, be circumstances in which payment by the taxpayer of the primary tax debt will not necessarily extinguish the RBA deficit debt, necessarily leading to the conclusion that the RBA deficit debt is more than merely a device to facilitate collection of the primary tax debts. It is submitted that where the Commissioner has obtained judgment against the tax debtor for the primary tax debts, or for the RBA deficit debt, the existing debt merges with the judgment and it is submitted that the judgment debt therefore becomes a "secondary tax debt" under the definition section of the TAA and is therefore a non - RBA debt, with the result that no section of the TAA provides for extinguishment of both debts when payment is made of a judgment debt.

15 I would read the TAA differently, however. Section 8AAZL(1)(a) sets out how the Commissioner must treat a payment in respect of a "tax debt" of an entity. Tax debt is defined by s 8AAZB to mean a primary tax debt or a secondary tax debt. Secondary tax debt is defined to mean an amount that is not a primary tax debt but is due to the Commonwealth in connection with a primary tax debt, and that definition would appear to be capable of encompassing a judgment. Sections 8AAZLA and 8AAZLB provide how payments in respect of judgments (assuming judgments to be secondary tax debts) must be allocated. In summary, the amount is to be allocated to the RBA of the entity, or may be applied against a non - RBA tax debt of the entity; if the non - RBA tax debt is a tax debt which has been allocated to an RBA, the Commissioner must also allocate that amount to that RBA.

16 Because the sections to which I have referred appear to leave open the possibility that a payment may be allocated other than to the RBA of the payer (for example, if the payer is a member of an RBA group it may be allocated to an RBA of another member of the group), it is theoretically possible that either the RBA debt or the primary tax debt might continue to exist, notwithstanding that the other had been paid, where that payment had been allocated to a debt owed by another entity which was a member of the payer ' s group. The result is that the primary tax debt and the RBA are not completely interdependent.

17 However, in my view this circumstance merely emphasises the fact that the RBA is designed as a way of facilitating the collection of a variety of different types of taxes which owe their existence to a variety of other pieces of tax legislation. What is important is that both RBA and non - RBA primary tax debts would be extinguished, in an equal amount, by payment under a judgment, wherever a primary tax debt has been allocated to an RBA. The fact that the TAA is ancillary to the administration of a number of other pieces of tax legislation does not make it any the less an ancillary and administrative piece of legislation.

18 It is my view therefore that the learned Commissioner was correct in forming the view that s 8AAZH was not a law imposing taxation. The question of whether it deals with more than one subject of taxation therefore falls away.

19 In relation to the argument that it effects an acquisition of property other than on just terms, it is necessary in my view only to point to the fact that it provides for the collection of pre - existing debts which owe their existence to other legislation. It purports to require payment of no more than amounts of tax and penalty which the taxpayer would owe by virtue of that other legislation. It therefore does not effect an acquisition of property, and the question of just terms does not arise.

20 I would therefore dismiss the appeal.