A taxpayer has failed to obtain a stay of proceedings, or alternatively a stay of execution of the judgment should judgment be entered, where the Deputy Commissioner was seeking summary judgment for a tax debt of almost $8.5m.
The taxpayer argued that if a stay was not granted, it was virtually inevitable that he would be made bankrupt which would seriously compromise his ability to challenge the relevant assessments and also defend likely criminal proceedings. The only information before the Court was an affidavit (sworn 3 months after the Court’s deadline) concerning the taxpayer’s assets in Australia. It did not address his overall financial position.
After setting out the principles guiding the exercise of the Court’s power to grant a stay of proceedings or execution of judgment [see extract below], Davies J held that the lack of relevant financial information supporting the taxpayer’s claim that bankruptcy was virtually inevitable if the Deputy Commissioner obtained summary judgment was sufficient reason to dismiss the application for a stay. The fact that the taxpayer intended to contest his tax liability through Pt IVC proceedings, and the fact that the Deputy Commissioner had obtained freezing orders against the taxpayer, were not weighty enough considerations in favour of granting a stay.
Her Honour noted the well known law that a tax debt is due and payable immediately, and that production of a notice of assessment is conclusive proof the validity of the assessment and that amounts due and other particulars are correct, except under the objection and appeal provisions in Part IVC of the TAA – see relevant provisions below, in the extract from her Honour’s judgement.
(DCT v Whiteman  FCA 951, Federal Court, Davies J, 18 August 2017.)
[Austlii – judgement; FJM; LTN 162, 25/08/17; TM August]
Extract from Judgement
Application for summary judgment (conclusive evidence save for Part IVC objection etc s350-10 TAA1)
- The DCT has sued Mr Whiteman for recovery of unpaid tax-related liabilities. Pursuant to s 255-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“TAA1”) an amount of a “tax related liability” that is due and payable is a debt due to the Commonwealth and payable to the Commissioner. Section 255-1 identifies a tax related liability as a pecuniary liability to the Commonwealth arising directly under a taxation law. Section 250-10 contains a table of tax related liabilities which, relevantly, includes liabilities for income tax (Item 37), general interest charge (Item 70), shortfall interest charge on income tax (Item 37AA) and administrative penalties (Item 140).
- The unpaid tax-related liabilities claimed by the DCT are for:
(a) income tax for the years ended 30 June 2010 to 30 June 2016 inclusive plus general interest charges calculated upon the tax payable under the assessments and amended assessments of income tax for those years;
(b) administrative penalties imposed pursuant to s 284-75 of Schedule 1 to the TAA in relation to Mr Whiteman’s income tax liabilities for the years ended 30 June 2010 to 30 June 2016 plus general interest charges; and
(c) shortfall interest charges in respect of additional amounts of income tax Mr Whiteman is liable to pay as a result of amended assessments issued for the years of income ended 30 June 2010, 30 June 2011 and 30 June 2012 plus general interest charges.
- The DCT has produced copies of the notices of assessment of income tax and of assessment of administrative penalties liability. By virtue of s 350-10 of Schedule 1 to the TAA the production of the copies of the assessments is conclusive evidence in the proceedings that the assessments were properly made and the amounts and particulars of the assessments are correct (ss(1), item 2). The effect of s 350-10 is that Mr Whiteman cannot, in these recovery proceedings, contest his liability to pay the tax as assessed.
Application for a stay
- The principles guiding the exercise of the Court’s power to grant a stay of execution of judgment in tax recovery proceedings were extracted from authorities by the Full Federal Court in Southgate Investment Funds Limited v Deputy Commissioner of Taxation  FCAFC 10; (2013) 211 FCR 274 as follows:
It is appropriate if we say something further regarding the criteria which may apply in determining whether or not execution of a judgment debt should be stayed. We agree with the observations of Hutley JA in Mackey at 289 that the discretion to grant a stay of the execution of a judgment debt based upon a taxation assessment involves “an open-ended discretion” and that it “is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so”. Bearing in mind those salutary words and without wishing to be prescriptive or exhaustive, we consider that it is possible, however, to extract from the caselaw the following general principles which guide the exercise of that discretion:
(a) the power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances;
(b) great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a Part IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of Part IVC proceedings [under the TAA];
(c) the merits of pending Part IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation;
(d) in cases where a judge is unable to form even a tentative view of the strength of Part IVC proceedings, it is unlikely that the judge’s discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer’s prospects of success in having the assessment overturned;
(e) it is too narrow a view of the discretion to grant a stay of proceedings or execution merely because Part IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the Court;
(f) that is not to say, however, that the outcome of Part IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high;
(g) in cases where the Court considers that it is in a position to assess the merits of pending Part IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case;
(h) similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point;
(i) due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that:
(i) the mere obligation to pay income tax of itself does not impose extreme hardship; and
(ii) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant Part IVC proceedings;
(j) irrespective of the merits of pending Part IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and
(k) other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of Part IVC proceedings.
- These principles are equally applicable to Mr Whiteman’s application for a stay of the proceeding. The principles reflect and give weight to the scheme of the taxation legislation under which tax liabilities may be sued for, and recovered by the DCT, as debts due to the Commonwealth and payable to the Commissioner of Taxation, notwithstanding that the imposition of the tax liabilities may be contested by the taxpayer in Part IVC proceedings in the Administrative Appeals Tribunal or Federal Court. The pendency of Part IVC proceedings in either the Administrative Appeals Tribunal or Federal Court does not, in the meantime, interfere with, or affect, the tax decision under challenge in such proceedings and the tax imposed may be recovered as if no review or appeal were pending: s 255-5 of schedule 1 to the TAA; ss 14ZZM and 14ZZR of the TAA. As the High Court observed in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd  HCA 41 at , harsh though the operation of these provisions may be, the provisions implement a longstanding legislative policy to protect the interests of the revenue: see also Deputy Commissioner of Taxation v Australian Machinery and Investment Co. Pty. Ltd  WALawRp 8; (1945) 20 ALJR 326; 47 WALR 9; 8 ATD 133.
Denlay – a case relied on where a stay was upheld
14. Heavy reliance was placed on Deputy Commissioner of Taxation v Denlay  QCA 217; 80 ATR 109. In that case, the Court of Appeal dismissed an appeal from the grant of a stay of execution in a tax recovery case pending the hearing of the taxpayers’ Part IVC appeal in the Federal Court challenging their substantive liability to the tax imposed on which the DCT had sued for recovery. One of the considerations given weight by the trial judge was the taxpayers’ likelihood of bankruptcy if the judgment was enforced because the taxpayers did not have sufficient resources to satisfy the judgment debt and, if made bankrupt, they would not be capable of prosecuting their appeal. The Court of Appeal held that the exercise of discretion had not miscarried.
15. The exercise of discretion must, in each case, be dependent upon the factual situation of the particular case. In Deputy Commissioner of Taxation v Denlay, the DCT had sought summary judgment a year after proceedings against the taxpayers were commenced and at a time when the taxpayers’ appeals in the Federal Court were progressing to a hearing and a hearing date had been given. There was evidence from the taxpayers supporting their claim that they did not have the capacity or resources to satisfy the judgment if enforced against them. The trial judge accepted that the bankruptcy of the taxpayers was “highly likely” if the DCT enforced judgment and accepted that the “fact of bankruptcy [had] the potential to defeat a meritorious appeal”.