The Federal Court has granted a taxpayer’s application for a stay of the execution of summary judgment previously granted in favour of the Commissioner in FCTv Bosanac [2016] FCA 448 for $9.3m.
In doing so, it found that there were special circumstances to grant a stay on the basis of “extreme personal hardship”. In particular, the Court found that without the grant of a stay there would be a strong possibility that the taxpayer would be made bankrupt and be left without funds to “pursue the complex, protracted and expensive appeal” – particularly in the context that the Commissioner had not given an undertaking that he would not proceed to bankruptcy pending the hearing of appeals.
Furthermore, the Court also noted evidence of a chartered accountant who specialised in the relevant area of income tax law subject to the dispute that the total primary tax liability for the taxpayer would only be in the region of $1.65m to $2.5m. In this regard, the Court also noted that the taxpayer’s wife who was originally subject to a judgment debt for $5.7m had had her debt reduced by the Commissioner by some $300,000 even before her appeal had been heard – and in accordance with the accountant’s previous advice to her. Nevertheless, the Court emphasised that it was not making a finding as to prospects of success of the taxpayer’s appeal, but simply observing that there was accounting evidence in support of his prospects.
(FCT v Bosanac (No 2) [2016] FCA 945, Federal Court, McKerracher J, 12 August 2016.)
[LTN 156, 15/8/16]
Catchwords from No. 2 case
TAXATION – applications for a stay of execution of judgment – relevant principles in relation to the power to order a stay on the application of a taxpayer – whether a stay may be granted on the basis of extreme personal hardship – whether the capacity to pursue an appeal if bankrupted could be significantly impeded and result in the requisite hardship – belated application for discharge of freezing orders
RELEVANT PRINCIPLES
5. It is well accepted that the power to order a stay should be exercised sparingly and the onus is on the applicant (taxpayer) to justify it: Snow v Deputy Federal Commissioner of Taxation (WA) (1987) 14 FCR 119 (at 139) per French J, as the Chief Justice then was. A stay may be granted in the case of extreme personal hardships: Snow (at 139).
- As discussed in Bosanac No 1, the statutory regime confers a benefit on the Commissioner in relation to the provision of evidence on which a judgment might be based. Section 14ZU under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953) sets out how a person may make a taxation objection. Pursuant to s 14ZY TAA 1953, the Commissioner is required to decide whether to allow (wholly or in part) or disallow an objection and to serve written notice of the objection decision. Pursuant to s 14ZZ(1)(a) TAA 1953, a person who is dissatisfied with a commissioner’s objection decision may seek review of the decision, either to the Administrative Appeals Tribunal (AAT) or to this Court. In either case, if the objection decision is allowed, either wholly or in part, the Commissioner will issue an amended assessment pursuant to s 170 of the Income Tax Assessment Act 1936 (Cth) and s 14ZZL TAA 1953.
- The Commissioner objects to any stay until the end of the review process on the basis that, amongst other things, it cannot be known whether there is any basis or need to seek review of the decision, and it is not necessary to order a stay to take into account a review process that may never occur.
- It is common ground that the positions are different in relation to Mrs Bosanac compared with Mr Bosanac. In relation to Mrs Bosanac, the objection decision has been delivered and amended assessments issued. The evidence is that, nonetheless, Mrs Bosanac filed an application for review of the decision before the AAT on 30 June 2016.
- I am now informed by affidavit of 8 July 2016 that Mr Bosanac’s solicitors have been working strenuously to achieve the deadline for filing pursuant to s 14ZZN TAA 1953 requiring the appeal to be lodged by 29 July 2016 (although this date was later corrected to 1 August 2016 by email). I have since been informed that the appeal has been lodged.
- The argument for Mr Bosanac focusses on the possibility of bankruptcy resulting in practical inability to pursue the complex, protracted and expensive appeal. Part of my reasoning involves the fact that this is by no means a straightforward matter and those objectives are reasonably accurate.
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