The Federal Court has held that the ATO engaged in “oppressive conduct” in seeking to enforce payment under alternative assessments, where it was contended that tax on the income included in the assessments had already been paid by an associated third party.
The taxable facts were these.
- A trust distributed 97% of its net income for the 2015 income year (just over $18.5m) to a partnership comprising SEP Ltd (a 99% share) and Mr H (a 1% share). The ATO assessed those taxpayers on their respective shares of the partnership’s net income and the assessed tax was paid.
- In due course, the ATO issued an amended 2015 assessment to Mr H on the basis that withdrawals he made from the partnership’s bank account totalling $13.25m were for his personal use and should be assessed as Div 7A dividends paid by SEP Ltd (presumably, without franking credits, despite SEP having franking credits after paying tax on its trust distribution income).
- The trustee of the trust was also assessed for 2015 on the basis that no beneficiary (including the partnership) was presently entitled to the trust’s income.
- The ATO considered these assessments were alternative assessments, but not alternatives to the SEP Ltd assessment.
The collection facts were these.
- Between late May 2020 and late July 2021 (before Pt IVC challenges to the alternative assessments were determined), the ATO pressed Mr H and the trust for payment of the assessed tax or to at least enter into a “50-50 arrangement”.
- Mr H and the trust, however, contended that the ATO should take into account that the payments which formed the basis of the disputed assessments were part of the same distribution of just over $18m made by the trust, which had been included in the earlier assessments issued to SEP Ltd and Mr H and on which tax had been paid.
The Court:
- held that, in light of the fact that the Pt IVC challenges to the alternative assessments had not been determined, it was appropriate to make declarations as to the “oppressive” character of the ATO’s conduct between late May 2020 and late July 2021 in seeking to recover unpaid tax from both Mr H and the trust.
- also set aside a decision by the ATO to refuse to exercise the discretion under s 255-10 in Sch 1 to the TAA to defer payment of the assessed tax, as the decision-maker had failed to take into account relevant considerations.
(Hyder v FCT [2022] FCA 264, Federal Court, Greenwood J, 22 March 2022) [LTN 57, 25/3/22]
Catchwords
TAXATION – consideration of an application under s 39B(1) of the Judiciary Act 1903 (Cth) for the grant of the constitutional writ of prohibition and injunctions in relation to a claim of invalidity in the issuing of amended assessments for the 2015 and 2016 income years to one taxpayer (Mr Hyder) and the issuing of an alternative assessment to the Trustee of the particular Trust for the 2015 income year
TAXATION– consideration of the jurisprudence in relation to the statutory scheme under the Income Tax Assessment Act 1936 (Cth) and the Taxation Administration Act 1953 (Cth) by which a taxpayer is provided with an opportunity in Part IVC proceedings to challenge the validity of an assessment (in this case, alternative assessments to Mr Hyder and the Trustee)
TAXATION – consideration of the relationship between proceedings under s 39B of the Judiciary Act 1903 (Cth) and Part IVC proceedings under the Taxation Administration Act 1953 (Cth)
TAXATION – consideration of the exercise of the Court’s original jurisdiction arising under s 39B(1A)(c) and the relationship between proceedings in reliance on that source of the Federal Court’s original jurisdiction and Part IVC proceedings
TAXATION – consideration of the conduct of the Commissioner in seeking to enforce recovery of debts due under both alternative assessments (and related SIC and penalties) prior to the final resolution of a genuine dispute about the correctness of the alternative assessments in the context of the sequence of exchanges between the parties and the observations of their Honours Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Deputy Commissioner of Taxation v Moorebank Pty Ltd [1988] HCA 29; (1988) 165 CLR 55 at 67 – consideration of whether the conduct of the Commissioner is properly characterised as an example of oppressive conduct
TAXATION – consideration of whether declarations ought to be made concerning the conduct of the Commissioner
TAXATION – consideration of whether the decision‑maker in reaching a decision on 26 February 2021 in the exercise of a discretion conferred by s 255‑10(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) engaged in error of law
[Tax Month – March 2022 – Previous Month, 17.3.22]