In the matter of Oakdale Queensland Pty Limited; In the matter of HLHG Pty Limited; In the matter of ABN 163 546 852 Pty Ltd; In the matter of ABN 163 772 601 Pty Ltd

1. [1]

   The Court has before it originating processes filed by four separate taxpayers, in which the plaintiffs seek orders under s 459J of the Corporations Act 2001 (Cth) (the Act) to set aside statutory demands served upon them by the defendant, the Deputy Commissioner of Taxation, under s 459E of the Act.

2. [2]

   The four proceedings were heard at the same time, although the evidence in each is separate. On material issues the evidence in each of the proceedings, although naturally different in detail, was the same in substance. Substantially the same arguments were put by both the plaintiffs and the defendant in each case, and it will generally be convenient to deal with the evidence and the issues without regard to the individual circumstances of each case.

The creditor’s statutory demands

1. [3]

   Each of the four statutory demands provided materially as follows:

2. [4]

   The following features should be noted about these statutory demands:

   1. (1)

      The statutory demands claim a single, identified amount for the whole of the debt as described in the “Description of the debt”.

   2. (2)

      The debt claimed is described in both the body of the statutory demand and in the Schedule as a “debt” (singular).

   3. (3)

      The debt is described as a “Running Balance Account deficit debt” that is payable by the company pursuant to s 8AAZH of the Taxation Administration Act 1953 (Cth) (the TAA 1953).

   4. (4)

      The debt is described as being “in respect of amounts due under the BAS provisions as defined in the subsection 995-1(1) of” the ITAA).

   5. (5)

      The square brackets around the part of the Schedule commencing “[BAS provisions include…] are actually contained in the Schedule (the other square brackets are intended in the conventional way to denote words substituted for the actual words contained in the Schedule). The words “[BAS provisions include, generally”…] are followed by a list of types of provisions that fall within the rubric of BAS provisions.

3. [5]

   Each statutory demand was served with an affidavit sworn by an officer of the Australian Taxation Office, which materially said:

Statutory provisions

1. [6]

   Section 459J of the Act provides:

2. [7]

   It is therefore necessary for the plaintiffs to establish two matters: first, that there is a defect in the statutory demand served on that plaintiff; and secondly, that the defect is such that a substantial injustice will be caused unless the demand is set aside. The effect of subsection (2) is that the occurrence of substantial injustice is an essential prerequisite for the statutory demand to be set aside because it contains a defect.

3. [8]

   As in each statutory demand the debt specified is a Running Balance Account deficit debt, it will be convenient to note the following terms of the the TAA 1953, which concern such debts (for brevity, notes have been omitted):

4. [9]

   The plaintiffs accepted that the statutory demands were claims for a single debt. That clearly flows from the terms of s 8AAZH(1) of the TAA 1953, which provides that if there is an RBA deficit debt on an RBA at the end of the day, the tax debtor is liable to pay the Commonwealth the amount of the debt. The amount is due and payable at the end of the day. Ferguson J in In the matter of Australia DIS Pty Ltd [2012] VSC 331 at [14] held that these circumstances give rise to a single debt. I respectfully agree with her Honour’s reasons and conclusion.

5. [10]

   The balance of the provisions in the TAA 1953 have the effect that, in parallel with the continuing existence of the primary tax and other taxation liabilities, the Commissioner is empowered to establish one or more systems of accounts for primary tax debts, which are to be known as Running Balance Accounts (or RBAs). An RBA may be established for any entity, on any basis that the Commissioner determines. Separate RBA’s may be established for different types of primary tax debts. Separate RBA’s may be established for different businesses or undertakings conducted by the same entity, different parts of the same businesses or undertakings, or different periods. If an RBA has been established for a particular type of tax debt, the Commissioner may allocate a primary tax debt to that RBA. If two or more RBA’s have been established for a single type of primary tax debt, the Commissioner may allocate any primary tax debt that arises of that type, to any of the RBAs, or may allocate a single debt between a number of RBAs. General interest charges that accrue in relation to primary tax debts that have been allocated to a RBA will accrue in the relevant RBA.

6. [11]

   An individual taxpayer may therefore be liable to the Commonwealth for primary tax liabilities and one or more RBA deficit debts at the same time. If the taxpayer is a trustee in more than one capacity, if the Commissioner wishes to establish RBAs in relation to the individual trusts, there must be a separate RBA for each trust.

7. [12]

   Accordingly, apart from the requirement that an individual taxpayer be treated as a separate entity in respect of each trust of which the taxpayer is trustee, there is no theoretical limit to the number of RBAs that the Commissioner may establish in relation to the primary tax debts of an individual taxpayer, and unless the Commissioner chooses only to allocate primary tax debts of a given type to an RBA established for that type of debt, there may be any number of RBAs to which have been allocated different types of primary tax debts, which have been mixed as to different businesses or undertakings, or parts of those businesses or undertakings, and as between different periods.

8. [13]

   In theory, therefore, given that s 8AAZH(1) of the TAA 1953 has the effect that, if there is a deficit in an RBA at the end of the day, there will be a single debt payable to the Commonwealth, a statutory demand based upon that single debt could be utterly uninformative as to the actual composition of the debt. In that situation the stipulation by the defendant of a single figure, as the debt owing, could entirely bemuse the taxpayer.

9. [14]

   In reality the prospect may be more theoretical than real, but in more extreme cases this result could occur even where the taxpayer has kept proper records of its taxation affairs. That is so because the allocation by the Commissioner of primary tax debts into different RBAs could confound the ability of the taxpayer to reconstruct the composition of a particular RBA deficit debt, which is claimed in a statutory demand.

Make up of RBA deficit debts

1. [15]

   Neither the statutory demand that the defendant served on each plaintiff, nor the affidavit supporting the debt, provided any information as to the items in the RBA of which the final balance was composed. The statutory demand simply claimed the amount of the balance.

2. [16]

   In essence the plaintiffs’ position was that the bare claim in the statutory demands for the balance of the RBA did not give them sufficient information to enable them to understand whether they were liable for the debt claimed, and that this was a defect that could easily have been cured by the defendant annexing to the statutory demand a copy of a statement produced in accordance with s 8AAZG.

3. [17]

   In the Oakdale Queensland Pty Ltd and the HLHG Pty Ltd applications the directors who swore the affidavits in support of the originating processes gave identical evidence on the issue of the lack of clarity in the statutory demands, as follows:

4. [18]

   The affidavits in support of the originating processes filed by the other two plaintiffs do not contain this evidence, or any other evidence to explain why the deponents were unable to understand the claims made in the statutory demands.

5. [19]

   In each case the defendant tendered evidence that explained how the relevant balances in the RBAs established by the Commissioner in respect of each plaintiff was determined, and included a full statement. The evidence establishes that many items in each RBA reflected self-assessed liabilities and credits of the plaintiffs that were established by business activity statements and instalment activity statements, referred to as BAS forms, which were lodged by the plaintiff with the defendant. Other items recorded penalties for late lodgement, for which in each case the defendant sent a penalty notice to the plaintiff. Other items recorded payments made by the plaintiffs. The final component of the RBA deficit debt comprised general interest charges that were charged on balances in favour of the Commissioner. The plaintiffs were not informed of the allocation of these charges to the RBA when they were incurred.

6. [20]

   It is sufficient to record the following information derived from the statements tendered by the defendant in relation to the RBA deficit debt for each plaintiff concerning the components that make up the debt (I have calculated the sub-totals for each category of entry):

7. [21]

   The point that the defendant makes in relation to this evidence is that it undermines the claims made by the plaintiffs that the failure by the defendant to itemise the components of the RBA deficit debt had the consequence that the plaintiffs were unable, upon receipt of the statutory demands, to understand how the balance in the RBA was derived, or to form a view as to whether they were liable to the defendant to pay the amount claimed. Each plaintiff must have known the total of its self-assessed liabilities and credits, and the amount of tax payments that it made. It knew of the amount of the administrative penalties, because the defendant delivered penalty notices for each penalty incurred. The only amounts for which the plaintiffs did not have information were the general interest charges, and the plaintiffs should have been able to estimate, at least as an approximation, the accrual of interest.

8. [22]

   Accordingly, if the amounts claimed in each of the statutory demands is as follows, the only amounts for which the plaintiffs did not have their own source of information were the totals for general interest charges, which are in parentheses: Oakdale Queens land Pty Ltd $1,063,944 ($48,024.19); HLHG Pty Ltd $473,260.17 ($26,066.58); ACN 163 772 601 Pty Ltd $438,059.79 ($21,293.97); and ACN 163 772 601 Pty Ltd $438,059.97 ($21,293.97). The general interest charges range from about 4.5% to 5.5% of the total RBA deficit debts.

The plaintiffs’ case as to defects in the statutory demands

1. [23]

   The plaintiffs submitted that the question of whether or not there is a defect in a statutory demand must be determined as at the date the demand is issued. I agree.

2. [24]

   The plaintiffs claimed that it is a required incidence of a statutory demand issued under s 459E of the Act “that there be a proper description of the debt the subject of the demand”, so that the taxpayer is able properly to identify the specific components making up the balance of the debt.

3. [25]

   They identified the defects in each of the statutory demands as follows (I have made a number of adjustments to the language used):

Must the statutory demand identify the components of the debt?

1. [26]

   The plaintiffs’ claim that there must be a proper description of the debt seems to raise the same issue as in par (3) of their identification of the alleged defects in the statutory demands. The argument appears to be that, in cases where at law there is a single debt, which in fact has arisen as the accumulation of the effect of a number of different transactions, the description of the debt in the statutory demand is defective if insufficient information is conveyed to the taxpayer to properly identify the specific components making up the balance of the RBA deficit debt.

2. [27]

   The plaintiffs therefore submit that the absence of an elaboration of the make-up of the single debt in the statutory demand constitutes a defect, and is not solely a matter that causes substantial injustice. The issue of substantial injustice does not arise under s 459J of the Act unless the existence of a defect is first established.

3. [28]

   This submission runs directly contrary to the conclusion reached by Ferguson J in Australia DIS at [14] where, after stating her conclusion that an RBA deficit debt is a single debt, her Honour said:

4. [29]

   Ferguson J, earlier at [10], referred with evident approval to the decision of Commissioner Zilko SC in H’Var Steel Services Pty Ltd v Deputy Commissioner of Taxation (2004) 184 FLR 354. The Commissioner held that the Deputy Commissioner of Taxation did not have to specify the separate primary tax debts and general interest charges to show how the single debt was arrived at.

5. [30]

   In Global Network v Commissioner of Taxation [2004] NSWSC 474, Master Macready (as His Honour then was) appears to have held at [20] - [21] that a statutory demand based upon a RBA deficit debt was defective on the ground that it involved a misdescription of the debt, if the amount was not broken up into its components. Ferguson J at [14] declined to follow Global Network, and preferred the conclusion in H’Var Steel. In the later case of Old Kiama Wharf Co Pty Ltd v Deputy Commissioner of Taxation [2005] NSWSC 929; (2005) 55 ACSR 223 at [32] Macready AJ himself noted the decision in H’Var Steel, and seems implicitly to have accepted the correctness of that decision, although his Honour distinguished H’Var Steel on the facts.

6. [31]

   Neither Ferguson J nor Commissioner Zilko SC gave reasons as to why it was not necessary for the defendant to show how the single debt was arrived at.

7. [32]

   It is not necessary to engage in a precise analysis of how taxpayers accrue debts under the taxation legislation. However, in general terms, separate debts will accrue whenever the taxpayer becomes liable to the Commissioner to pay tax in respect of a particular tax period. When an administrative penalty is imposed on a taxpayer, that will give rise to a separate debt owed by the taxpayer. The effect of s 8AAZC is that the Commissioner may establish RBAs, and s 8AAZD authorizes the Commissioner to allocate primary tax debts to one or more RBAs. However, s 8AAZH has the effect that, if there is a deficit debt in an RBA at the end of any day, a liability arises against the taxpayer to pay the amount of that deficit debt to the Commissioner. The effect is that, by force of the statute, while the primary tax debts retain their separate character, at the one time they are also amalgamated into a single debt, being the RBA deficit debt. The defendant has a right to serve a statutory demand to require payment of that single debt.

8. [33]

   The question is whether, if the defendant moves to recover the single debt by service of a statutory demand, the operation of s 8AAZH has the consequential effect that the defendant is not required to itemise the component primary tax debts that make up the RBA deficit debt, in the same way as he would be required to do if the statutory demand was based on the component primary tax debts.

9. [34]

   The underlying principles concerning this question were considered by Austin J in LSI Australia v LSI Holdings; LSI Australia v LSI Consulting [2007] NSWSC 1406. His Honour was concerned with two statutory demands which described the debts in the following terms (as set out in [26] and [28]):

10. [35]

    Concerning the sufficiency of these descriptions of the debts upon which the statutory demands were based, his Honour said (after setting out the definition of “defect” in s 9 of the Act):

11. [36]

    In Re YCH Logistics (Australia) Pty Ltd [2013] NSWSC 1874, Brereton J had the following to say on the same subject:

12. [37]

    The question therefore is, in cases where the defendant bases a statutory demand on an RBA deficit debt, what is required for there to be a sufficiently clear and accurate description of the debt claimed so as to identify to a reasonable person in the shoes of a director of the debtor company the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to its amount, or any offsetting claim?

13. [38]

    The statutory effect of s 8AAZH is that the taxpayer becomes indebted to the Commissioner for a separate debt each day when there is a deficit in any RBA maintained by the Commissioner, and that is so whether or not the taxpayer has any basis to challenge the validity or the amount of any primary tax debt that has been allocated to the RBA. The existence of any genuine dispute concerning the validity or the amount of all, or any, of the primary tax debts, will not give rise to a genuine dispute concerning the existence or amount of the RBA deficit debt. The only question can be whether there is any scope for the taxpayer to have a genuine dispute as to whether there is an RBA maintained by the Commissioner for the taxpayer, and whether the amount claimed in the statutory demand is the deficit in the RBA on the date asserted by the defendant in the statutory demand. That leaves little scope for any genuine dispute to arise. That is all the more so as the statutory demand in each case was accompanied by an affidavit that described, but did not identify, the components of the RBA deficit debt, and verified that the deponent had inspected the Commissioner’s computer records to determine the amount of the debt.

14. [39]

    The essential reason why it is not necessary that the statutory demand identify the primary taxation debts that have been allocated to the relevant RBA is that a genuine dispute on the part of the taxpayer concerning the validity or amount of the component debts will be irrelevant, and knowledge on the part of the taxpayer concerning those components will not be material to consideration by the taxpayer as to whether there can be a genuine dispute as to whether the amount claimed in the statutory demand is the amount of the deficit on a particular day in the relevant RBA.

Must the statutory demand include the RBA account number?

1. [40]

   The plaintiffs put an argument that the statutory demands were defective because they did not disclose the account number by which the Commissioner identifies the relevant RBA. My inspection of the statements that have been put into evidence has not led me to understand that RBAs have a special account number. I do not understand the submission made by counsel for the plaintiff (T 25.27) in which he tried to identify a particular account number. Counsel appears to have been referring to the two digit number that appears in the ABN on the statement, that is set out before the particular plaintiff’s ACN is stated on the statement as part of the plaintiff’s ABN. I do not follow. My inability to comprehend the argument is not assisted by the fact that, in the case of two of the plaintiffs, only the name of the plaintiff, and not its ABN, is set out in the statement.

2. [41]

   In any event, the reason given as to why it would be of benefit to the plaintiff to know the identification number of the account, is that that would allow the tax agents for the plaintiffs to look at the particular account via a portal established by the Commissioner. There was no evidence about this, but in any event, the absence of the account number (assuming one exists) being identified in the statutory demand could not be a defect. If it is not necessary for the defendant to set out in the statutory demand the primary tax debts that have been allocated to the RBA, it cannot be necessary for the defendant to identify some account number which would facilitate a representative of the taxpayer being able to inspect the RBA electronically.

3. [42]

   The plaintiffs have wholly failed to make out this argument.

Are the references to the BAS provisions confusing?

1. [43]

   The third argument put by the plaintiffs was that the part of the description of the debt in the Schedule to the statutory demands which said: “[BAS provisions include, generally: the goods and services tax provisions, the PAYE instalment provisions, the fringe benefits tax instalment provisions and the deferred company instalment provisions]” made the statutory demand confusing and unintelligible, because not all of those provisions were relevant to the situation of each of the plaintiffs.

2. [44]

   This argument must be rejected. In my view it is reasonably clear as a matter of the proper interpretation of the wording of the Schedule that the suggestion was not being made that all of the provisions referred to would be relevant to the position of the plaintiffs. The part of the Schedule of which the plaintiffs complain begins “BAS provisions include, generally…” The use of the word “generally” in this context conveys the meaning that what follows describes all of the types of provision that fall within the rubric of BAS provisions; and does not mean that all of those provisions apply to the particular plaintiff.

Will substantial injustice be caused?

1. [45]

   As I have rejected the plaintiffs’ claims that the statutory demands are defective, it is not necessary for me to decide these applications on the basis of whether or not any defect will cause substantial injustice unless the statutory demand is set aside.

2. [46]

   However, had it been necessary for me to decide this issue in the present case, I would have found that it is clear that none of the supposed defects for which the plaintiffs contended in this matter would give rise to any significant injustice, let alone a substantial injustice, if the statutory demands were not set aside.

3. [47]

   The plaintiffs in this case did not in any serious way attempt to demonstrate by their evidence that they have suffered substantial injustice. In the case of two plaintiffs, they tendered the evidence that I have set out above, which constituted a bare assertion that the deponents were confused by the terms of the statutory demands. The other two plaintiffs provided no evidence on the issue. Importantly, none of the plaintiffs attempted to explain why injustice had arisen by reason of the terms of the statutory demands, having regard to the information already known to the plaintiffs concerning their relevant taxation affairs.

4. [48]

   As I have explained above, and as the defendant submitted, the lion’s share of the RBA deficit debt was composed of liabilities that arose by reason of self-assessments made by the plaintiffs that were returned to the Commissioner. The greater part of the balance of the RBA deficit debt was composed of administrative penalties for which penalty notices were served on the plaintiffs, and their own payments. The only portion of the RBA deficit debts that was not known to the plaintiffs, was the precise amount of the general interest charges. The plaintiffs should have been able to calculate from their own records all but about 5% of the amount claimed in the statutory demands, and it should not have been beyond the plaintiffs to make a reasonable estimate of the amount of the general interest charges. I was able to calculate the components of the RBA deficit debt in each case in minutes; albeit that I have the benefit of the statements prepared by the defendant, which the plaintiffs did not have. One would expect the plaintiffs to have entered their own self-assessments, the penalty notices received, and their payments in an appropriate ledger account, so that they would know almost instantly what their approximate liability to the Commissioner was. If the plaintiff did not have such a ledger account, it may have taken a little more time to do the calculation using the primary records.

Requirements of statutory demands in more complex cases

1. [49]

   In the analysis of the provisions of the TAA 1953 that concern RBA deficit debts that I have set out above, I have discussed the circumstances in which the existence of a number of RBAs established for a single taxpayer, and the manner in which the Commissioner may allocate primary tax debts to and between RBAs, could lead to the situation where, if the defendant based a statutory demand upon a particular RBA deficit debt, the taxpayer could not sufficiently work out from its own records whether or not the particular RBA deficit debt could genuinely be disputed. The plaintiffs in the present case attempted to found their principal argument on this possibility. However, that argument failed because, in the circumstances of this case, there appears to have been only one relevant RBA to which was allocated BAS primary tax debts, that were self-assessed by the plaintiffs, administrative penalties that were notified to the plaintiffs, the plaintiffs’ own instalment payments, and general interest charges.

2. [50]

   This is not the occasion for the Court to make any definitive observations as to what might be required in other situations where reliance by the defendant in formulating a statutory demand is based upon a single RBA deficit debt in circumstances which might genuinely confuse the taxpayer.

3. [51]

   In the circumstances I will do no more than to refer to the observation made by McClelland CJ in Eq in Valos Holdings Pty Ltd v Al-Ali (unreported, Supreme Court of NSW, McClelland CJ in Eq, 23 September 1996), where his Honour said, in response to an argument that the statutory demand in question was defective in form because it did not “specify the debt” within the meaning of s 459E(2)(e) of the Act:

4. [52]

   It may well be that in the more complex situations that could possibly arise in relation to statutory demands based on RBA deficit debts the proper specification of the debts in the statutory demands may require more information than was necessary in the present cases.

Orders

1. [53]

   In each of the cases before me I make the following orders:

   1. (1)

      Order that the originating process is dismissed.

   2. (2)

      Order the plaintiff must pay the defendant’s costs.

   3. (3)

      Order that the exhibits may be returned in accordance with the Rules.