Decision impact statement
DCT v Broadbeach Properties Pty Ltd; DCT v MA Howard Racing Pty Ltd and DCT v Neutral Bay Pty Ltd ("Howard Group")
Venue: High Court
Venue Reference No: B10/2008,B11/2008 and B12/2008
Judge Name: Gummow ACJ, Kirby, Heydon, Crennan and Kiefel JJ
Judgment date: 3 September 2008
Appeals on foot:
n/a
Impacted Advice
Relevant Rulings/Determinations:- No ATO rulings considered.
Subject References:
Appeals
Applications to set aside Statutory Demands
Part IVC dispute
Précis
Outlines the Tax Office's response to this case which concerned, amongst other issues, the setting aside of Statutory Demands which had issued and where proceedings were subsequently brought pursuant to Part IVC of the Taxation Administration Act 1953
Brief summary of facts
1. The four companies in the "Howard Group" were subject to an audit. As a result of the audit the Deputy Commissioner (DCT) issued various GST and income tax assessments, declarations and penalty notices. In accordance with normal practice after assessing the risk to the revenue the DCT issued Statutory Demands to each of the companies in respect of these debts. At the time of issue of the Statutory Demands the companies stated that they either were or were intending to exercise their rights under Part IVC of the Taxation Administration Act 1953 (TAA) .
2. Each of the four entities comprising the group filed and served applications to set aside Statutory Demands for payment of the assessed liabilities issued by the DCT. The matters were heard by the Supreme Court on 21 and 22 September 2006 and on 14 December 2006 judgment was given in favour of the applicants and the Statutory Demands were set aside.
3. The DCT appealed to the Queensland Court of Appeal.
4. On 28 September 2007 the Court of Appeal dismissed the DCT's appeals. In so doing the Court of Appeal found that, notwithstanding the operation and effect of sections 105-100 of the TAA, 177 of the Income Tax Assessment Act 1936 (ITAA 36) and 14ZZR and 14ZZM of the TAA, the existence of a dispute pursuant to Part IVC of the TAA constituted a "genuine dispute" for the purposes of 459H of the Corporations Act 2001 (CA). The Court of Appeal declined to apply the decision of the Full Court of the Federal Court in the matter of Hoare Bros Pty Ltd v DCT (1996) 96 ATC 4163. The Court of Appeal also found that the trial judge had properly exercised his discretion pursuant to section 459J of the CA to set aside the DCT's demands on the basis of "other reason".
5. The DCT sought and obtained Special Leave to Appeal to the High Court of Australia from the Queensland Court of Appeal's judgment.
6. On 3 September 2008 the High Court published its judgment in which it allowed the DCT's appeals in full.
Findings of the Court
Genuine dispute (section 459H of the CA)
1. The long-standing legislative purpose of the conclusive evidence provisions (sections 177 of the ITAA 36, 105-100 and 298-30 of the TAA) is to protect the interests of the revenue.
2. "Special status" and characteristics attach to tax debts which do not pertain to debts in the sense of general law.
3. The production by the Commissioner of notices of assessment and GST declarations conclusively demonstrates that the amounts and particulars are correct. The provisions of the of the taxation laws creating these debts and providing for their recovery cannot be circumvented under 459G of the CA.
4. Section 14ZZM and 14ZZR apply to the Statutory Demand procedure precluding a "genuine dispute" under section 459H of the CA as to the existence and amount of tax debts.
Other reason (section 459J of the CA)
1. The material considerations in determining whether to set aside a statutory demand under section 459J of the CA must include the legislative policy manifested in section 14ZZM and 14ZZR of the TAA. Accordingly the Court found that the exercise of the discretion by the Queensland Court of Appeal under 459J of the CA had miscarried.
Tax Office view of Decision
The decision of the Queensland Court of Appeal was a concern to the Commissioner as the Court made a number of findings that were contrary to the Commissioner's understanding of the operation of the tax law provisions that make a notice of assessment conclusive evidence of a tax debt due, except in an appeal under Part IVC of the TAA.
The Court of Appeal, in coming to its judgment as to the operation of the Statutory Demand provisions of the CA, distinguished a 1996 decision of the Full Federal Court in Hoare Bros Pty Ltd v Commissioner of Taxation 62 FCR 3002 (Hoare Bros). Hoare Bros established that a pending Part IVC appeal did not establish a genuine dispute for the purposes of the Corporations Law. The Commissioner was concerned to get clarification from the High Court as to which court decision he needed to follow.
The Tax Office respectfully agrees with all aspects of the High Court's decision.
Administrative Treatment
The Commissioner recognises the seriousness of taking recovery action where the taxpayer is disputing their assessment. Action taken to recover disputed debts is based on the assessed risk to the revenue.
While it is not common for the Tax Office to take recovery action prior to the outcome of the dispute process, the Commissioner will take such action if the circumstances indicate an unacceptable level of risk to revenue, for instance, in cases where it is clear the taxpayer is disposing of assets.
Even where the level of risk necessitates action to secure payment of the disputed debt before resolution of a dispute, the Commissioner may offer a taxpayer a number of options as alternatives to the instigation of legal action for recovery of the debt. These options are outlined in the ATO Receivables Policy.
The Commissioner will continue to use statutory demands in appropriate cases in accordance with the ATO Receivables Policy.
Implications on Law Administration Practice Statements
None
Court citation:
[2008] HCA 41
2008 ATC 20-045
69 ATR 357
Legislative References:
Corporations Act 2001 (Cth)
459G
459H
459J
459P
459S
Income Tax Assessment Act 1936 (Cth)
177(1)
204
208
209
Taxation Administration Act 1953 (Cth)
105-100
255-5
298-30
14ZZR
14ZZM
Case References:
Hoare Bros v DCT
(1996) 62 FCR 302
96 ATC 4163
(1996) 32 ATR 148
Neutral Bay and Others v DCT
(2006) 205 FLR 470
[2007] QCA 312
65 ATR 270
Commissioner of Taxation v Futuris Corporation Ltd
[2008] HCA 32
2008 ATC 20-039
(2008) 247 ALR 605
Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd
(2008) 232 CLR 314
[2008] HCA 9
W.R. Carpenter Holdings Pty Ltd v Commissioner of Taxation
[2008] HCA 33
2008 ATC 20-040
(2008) 69 ATR 29
Deputy Commissioner of Taxation v Roma Industries Pty Ltd
(1976) 6 ATR 54
(1976) 76 ATC 4113
FJ Bloemen Pty Ltd v Federal Commissioner of Taxation
(1981) 147 CLR 360
(1981) 81 ATC 4280
(1981) 11 ATR 914
Clyne v Deputy Commissioner of Taxation
(1982) 56 ALJR 857
(1982) 82 ATC 4510
(1982) 13 ATR 481
Bluehaven Transport Pty Ltd v Commissioner of Taxation
(2000) 157 FLR 26
[2000] QSC 268
Kalis Nominees Pty Ltd v DCT
(1995) 31 ATR 188
(1995) 95 ATC 4519
Deputy Commissioner of Taxation v Niblett
(1965) 83 WN (Pt 1) (NSW) 405
(1965) 8 FLR 134