Deputy Commissioner of Taxation v Harding

1. [1]

   JOHNSON J: The Plaintiff, the Deputy Commissioner of Taxation, seeks judgment against the Defendant, Gregory Harding, in relation to unpaid income tax, administrative penalties and interest charges.

The Plaintiff’s Claim - A Narrowing Dispute

1. [2]

   By Amended Statement of Claim filed on 28 November 2016, the Plaintiff claimed an amount of $1,061,635.54 from the Defendant.

2. [3]

   By the time the parties had prepared written submissions in advance of the final hearing on 8 June 2017, there had been a very substantial narrowing of the issues in dispute in the proceedings. In written submissions prepared by Mr Raffell, counsel for the Defendant, on 6 June 2017, the Court was informed that the Defendant did not oppose judgment being entered against him in the sum of $952,464.99, with a dispute remaining with respect to the balance of the Plaintiff’s claim.

3. [4]

   As the hearing progressed, the quantum in dispute narrowed even further. In the end, it was submitted for the Defendant that the Plaintiff had not demonstrated an entitlement to a sum of $9,549.20 (together with such interest and other payments as was sought arising from the alleged non-payment of that amount).

4. [5]

   Given the relatively small sum which remained in dispute at the conclusion of the hearing, the Court will move as directly as possible to determine that dispute.

Evidence at the Final Hearing

1. [6]

   Ms Ensor of counsel appeared for the Plaintiff at the hearing of this matter. As mentioned earlier, Mr Raffell appeared for the Defendant.

2. [7]

   The Plaintiff relied upon the following affidavits in support of its claim:

3. [8]

   In addition, the Plaintiff relied upon a calculation sheet with respect to general interest charges as at 5 June 2017 (Exhibit B).

4. [9]

   A Statement of Agreed Facts was also tendered (Exhibit A, Tab 10).

5. [10]

   The Defendant relied upon his own affidavits sworn on 20 February 2017 and 7 June 2017.

6. [11]

   Neither Mr Sharma nor the Defendant were cross-examined on their affidavits. There was no oral evidence adduced at the hearing.

The Statutory Scheme for Income Tax, Interest Charges, Administrative Penalties and Recovery

1. [12]

   The statutory scheme giving rise to the Plaintiff’s claim is not in dispute and is summarised below.

2. [13]

   The Commissioner must make an assessment of a taxpayer’s taxable income and the tax payable and serve a written notice of assessment on the taxpayer: s.174 Income Tax Assessment Act 1936 (Cth) (“ITA Act”). Income tax is then due and payable generally 21 days after the date on which the taxpayer is required to lodge their return with the Commissioner, or the Commissioner furnishes a notice of assessment. Where the Commissioner amends an assessment, any extra tax resulting is again due and payable 21 days after the date on which the Commissioner gives the taxpayer notice of the amended assessment.

3. [14]

   A taxpayer is liable to pay a shortfall interest charge (“SIC”) on an additional amount of income tax that they are liable to pay because the Commissioner amends their assessment for an income year: Sch.1, s.280-100(1) Taxation Administration Act 1953 (Cth) (“TA Act”). A taxpayer is liable to pay SIC for the period from when the income tax should have been paid to the day preceding the issue of the notice of an amended assessment. The Commissioner must give written notice to a taxpayer of their liability to pay SIC. Such a notice is prima facie evidence of the matters stated in it: Sch.1, s.280-110(3) TA Act. SIC becomes due for payment 21 days after the notice is given to the taxpayer.

4. [15]

   Where income tax or SIC is not paid by the relevant due date, the taxpayer becomes liable to pay a general interest charge (“GIC”) daily on the unpaid amount of the income tax or SIC and any unpaid GIC: s.5-15 ITA Act.

5. [16]

   A taxpayer is liable to pay an administrative penalty, inter alia, if:

6. [17]

   The Commissioner must make an assessment of the amount of the penalty: Sch.1, s.298-30(1) TA Act. The Commissioner must give written notice to a taxpayer of their liability to pay the penalty and of the reasons why the taxpayer is liable to pay the penalty. The penalty becomes due for payment on the day specified in a notice, which must be at least 14 days after the notice is given to the taxpayer.

7. [18]

   If any of the penalty remains unpaid after it is due, the taxpayer is liable to pay GIC daily on the unpaid amount of the penalty and any unpaid GIC: Sch.1, s.298-25 TA Act.

8. [19]

   Each of income tax, SIC, GIC and administrative penalties are tax-related liabilities: Sch.1, s.250-10(2) TA Act. These liabilities may be recovered by the Deputy Commissioner as a debt due to the Commonwealth and payable to the Commissioner: s.3AA(2), Sch.1, ss.255-1 and 255-5 TA Act.

9. [20]

   In these proceedings, a statement or averment about a matter in the Plaintiff’s complaint, claim or declaration is prima facie evidence of the matter: Sch.1, s.255-50 TA Act. Further, the production of a notice of assessment is conclusive evidence of its due making and, other than on an appeal against an assessment, that the amount and all the particulars of the assessment are correct: Sch.1, s.350-10(1) TA Act; Anglo American Investments Pty Limited v Deputy Commissioner of Taxation [2017] NSWCA 17 at [40]ff.

10. [21]

    Accordingly, the taxpayer is precluded from challenging the accuracy of the assessments in recovery proceedings: Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at 166-167 [64]-[67]; [2008] HCA 32; Bell Group NV (In Liq) v Western Australia (2016) 103 ATR 178 at 191 [54]; [2016] HCA 21. The accuracy of assessments can only be challenged in proceedings by way of appeal under Part IVC of the TA Act. A pending appeal of this nature does not affect the obligation to pay tax or the Commissioner’s ability to bring recovery proceedings: ss.14ZZM, 14ZZR TA Act.

The Plaintiff’s Claim Against the Defendant

1. [22]

   The statutory scheme as summarised at [13]-[21] above is not in dispute and provides the legislative framework for the Plaintiff’s claim against the Defendant.

2. [23]

   I mentioned earlier in this judgment (at [7]-[10]), the affidavits relied upon by the parties at the hearing. I mentioned, as well, the Agreed Statement of Facts. It is not necessary to reproduce the contents of that Statement in this judgment. It is sufficient to observe that it provides a clear foundation for the great bulk of the Plaintiff’s claim against the Defendant.

3. [24]

   The amount specified in paragraphs 1-3 of the Statement of Agreed Facts remain unpaid: affidavit of Saurabh Sharma affirmed 5 June 2017, paragraphs 8-9.

4. [25]

   On 5 June 2017, the Commissioner certified that the Defendant has a tax-related liability owing to the Commissioner in the sum of $1,081,921.27: affidavit of Saurabh Sharma affirmed 5 June 2017, paragraphs 10-11, Annexure B. That certificate is prima facie evidence of the Defendant’s liability: Sch.1, s.255.45(1) TA Act.

Amounts in Dispute

1. [26]

   At the commencement of the hearing on 8 June 2017, the only matters which the Defendant appeared to raise in opposition to the Plaintiff’s claim were:

2. [27]

   It was submitted for the Plaintiff that both of these amounts have been fully credited to the Defendant and are not sought to be recovered in these proceedings.

3. [28]

   After Ms Ensor had taken the Court to various parts of the documentary evidence, Mr Raffell indicated that the Defendant did not press the argument with respect to the agreed reduction in administrative penalties of $31,979.50 (at [26](b)) (T23-24, 8 June 2017).

4. [29]

   This left as the sole issue in dispute the debate concerning the sum of $9,549.20 (at [26](a)).

5. [30]

   The evidence concerning this sum indicates that the Defendant did pay this amount to the Plaintiff. As at September 2015, the Commissioner had established two accounts for the Defendant:

6. [31]

   Each of these accounts had separate numbers. The income tax-related liability account had a payment reference number (“PRN”) ending “… 421”. The running balance account had a PRN ending “… 559”.

7. [32]

   On 7 September 2015, the Defendant paid $9,549.20, through Bendigo e-banking. The transfer record stated, as the “BPAY Reference Account”, the PRN ending “… 559”. The same document stated, as the “Payment Description”, the PRN ending “… 421”. The Court was informed that the “BPAY Reference/Account” field is transmitted with the payment, with the “Payment Description” field being a private field which is not transmitted, but is retained as a personal reference field to allow the sender to note the purpose of the payment.

8. [33]

   In accordance with the Defendant’s apparent transmitted instructions (which referred to the PRN ending “… 559”), the Commissioner allocated the sum of $9,549.20 to reduce indebtedness on the running balance account. The documents which reveal this state of affairs appear at pages 32-37 of Mr Sharma’s affidavit affirmed on 5 June 2017 and page 5 of the Defendant’s affidavit sworn on 20 February 2017.

9. [34]

   It was the evidence of the Defendant that, as at September 2015, he was unaware that the Australian Taxation Office (“ATO”) maintained separate tax accounts for him. In his affidavit of 7 June 2017, the Defendant said that, when he made the payment of $9,549.20 on 7 September 2015, he intended to pay the sum to reduce his indebtedness for the PRN ending “… 421” and not some other liability which he had which was affected by the second account which the ATO had opened up.

10. [35]

    These documents suggest that the Defendant intended to pay the sum of $9,549.20 to reduce his indebtedness under his income tax account, but that the transmitted PRN saw the sum being used to reduce his indebtedness on another account, being the running balance account.

11. [36]

    Ms Ensor pointed to the fact that an ATO notice dated 20 July 2015 had informed the Defendant that there were two PRNs which related to him (see pages 36-37 of the affidavit of Saurabh Sharma affirmed 5 June 2017). I infer that it was this document which led the Defendant to insert both numbers on the Bendigo e-banking transfer dated 7 September 2015.

12. [37]

    Mr Raffell submitted that the ATO should have realised that the payment that was being made on 7 September 2015 related to the Defendant’s income tax liability, so that the amount should have been credited for that purpose and not to the running balance account. Mr Raffell submitted that the Plaintiff should have applied its own policy concerning payment and credit allocation under the Law Administration Practice Statement PS LA 2011/20 (“PS LA 2011/20 “) (affidavit of Mr Sharma affirmed 5 June 2017, pages 22-31). He referred to the general policy contained in paragraph 5 of PS LA 2011/20 which relevantly provides (page 23):

13. [38]

    Mr Raffell submitted that the Court should approach this matter upon the basis that the Defendant has paid this sum with respect to his income tax liability and that it was irrelevant that the sum had been applied by the Plaintiff towards a different form of indebtedness of the Defendant to the ATO. He submitted that the present claim by the Plaintiff related to the Defendant’s income tax liability only and not any alleged liability with respect to the running balance account.

14. [39]

    Ms Ensor submitted that the Plaintiff had received the sum from the Defendant and had allocated it in accordance with the PRN which had been communicated to the Plaintiff by the Defendant. The fact that this account number related to the running balance account (and not the income tax-related liability account) meant that the ATO effectively followed its own policy by following the taxpayer’s direction as he used a PRN for the running balance account.

15. [40]

    Ms Ensor submitted that the Plaintiff was entitled to rely upon the certificate and averment provisions in support of the claim. It was argued that the present proceedings were not an appropriate forum for a type of indirect challenge based upon the suggested failure of the ATO to apply this sum to one account instead of another under the relevant policy. It was submitted that the sum in dispute should be included in the Plaintiff’s claim in this case.

16. [41]

    It is necessary to keep in mind that the Defendant had two separate lines of liability to the Plaintiff as at September 2015, one related to his income tax-related liability and the other related to a running balance account, although it may not have been clear to the Defendant that the ATO was dividing his liability in that way. That said, it was clear to the Defendant that there were two different PRNs and he referred to both of them on his 7 September 2015 transfer document. I accept that the Defendant thought that, in making this payment, he was directing the money towards his income tax-related liability. However, he inserted a number which was transmitted to the ATO which was the relevant number for his running balance account. The payment was allocated by the ATO in accordance with that direction.

17. [42]

    The present claim by the Plaintiff is concerned solely with the Defendant’s income tax-related liability. The certificate and other documentary evidence has prima facie evidentiary effect for the purpose of these proceedings. That evidence indicates that the Plaintiff has not allocated the relevant sum to reduce the Defendant’s income tax-related liability which is the subject matter of these proceedings.

18. [43]

    It is relevant that the Defendant had a separate line of liability to the Plaintiff. The relevant sum was received on 7 September 2015 and allocated to reduce the Defendant’s liability under that separate channel. The Defendant has received the benefit of that liability being reduced by that amount in his dealings with the Plaintiff for a different purpose.

19. [44]

    If the Defendant’s argument was to be accepted in this case, he would receive a type of windfall where he would not be required to pay this sum to the Plaintiff under the present claim. In practical terms, if this argument was accepted, then the Defendant would effectively obtain a double reduction of his level of indebtedness by the making of one payment in September 2015, which happened to have been directed to one channel of his liability and not the other.

20. [45]

    I do not consider that the Defendant’s position is assisted by reference to PS LA 2011/20. On the face of it, the ATO applied the sum paid on 7 September 2015 in accordance with the Defendant’s direction by reference to the PRN which he provided. It has not been suggested that the Defendant did not have liability in at least that sum under the running balance account.

21. [46]

    There is force in the Plaintiff’s submission that if the Defendant wished to challenge, on administrative law grounds, the approach of the Plaintiff in allocating the payment to one account and not the other, then the appropriate pathway was by way of proceedings seeking administrative law review.

22. [47]

    I am not persuaded in this case that the Defendant has demonstrated a viable defence to the Plaintiff’s claim for payment of the sum of $9,549.20 as part of the judgment debt in these proceedings.

Conclusion

1. [48]

   Accordingly, I am satisfied that the Plaintiff is entitled to judgment in the full amount of the claim brought against the Defendant.

2. [49]

   As noted earlier, the Court was informed that judgment was sought in the amount of $1,081,921.27 together with orders for further GIC as detailed in paragraph 25 of the Amended Statement of Claim.

3. [50]

   I will allow the parties an opportunity to bring in Short Minutes to reflect the quantum of the judgment having regard to my finding that the Plaintiff is entitled to the full claim made.

4. [51]

   The Plaintiff has succeeded entirely in the claim against the Defendant. It is appropriate that costs should follow the event. The Short Minutes of Order should include an order that the Defendant pay the Plaintiff’s costs of the proceedings.