A taxpayer has been unsuccessful before the AAT in seeking to be released from his tax debts under s340-5 of Sch 1 to the TAA.
The chronology of returns and three hardship applications is as follows [taken from paras 7 – 13 of the AAT’s reasons].
- In November 2006 Mr Moriarty applied for, and was released from, taxation liabilities in the amount of $35,239.90 relating to the year ended 30 June 2004.
- On 18 January 2012 Mr Moriarty lodged his income tax returns for the years ended 30 June 2007, 2008, 2009 and 2010. On 27 January 2012 notices of assessment were issued. On 21 February 2012 he applied for release for the liabilities that arose from those lodgements. On 10 October 2012 the application was refused by the Commissioner of Taxation (“the Commissioner”).
- Between 19 and 23 February 2015 Mr Moriarty lodged his income tax returns for the years ended 30 June 2012, 2013 and 2014. On 23 February 2015, after lodgement of the outstanding income tax returns, Mr Moriarty made a second application for release for income tax liabilities totalling $391,229.76 for the recently lodged and previously denied years (viz: the years ended 30 June 2007, 2008, 2009 and 2010, and for 2012, 2013 and 2014). This involved liabilities of $242,246.19 for Primary tax and $195,435.36 for GIC. On 15 May 2015 the second application for release was refused.
- On 30 June 2015 Mr Moriarty objected to that decision. In the objection he contended that he had an outstanding compliance history that was not properly considered and that his current circumstances were a result of a catastrophic financial event in 2005. He also contended that he was still experiencing hardship and unable to meet even basic living necessities. On 19 August 2015 the Commissioner disallowed the objection in full.
- On 16 October 2015 Mr Moriarty lodged an application for review with the Tribunal.
The following are factual details relating to the case [taken from paras 16 to 21 of the AAT’s reasons]
- Mr Moriarty is 55 years of age. He is divorced with no dependants. He has been employed since January 2015 as a salesperson with a real estate agency based at the Sunshine Coast. He was initially paid a salary and received a commission or bonus for sales. Since September 2015 he has worked for commission only which he says is to his advantage. He also conducts auctions for outside agents typically for a fee of $550. His total income for the period November 2014 to January 2016 (15 months) was $92,412.01. A summary of his 2016 tax return discloses income in excess of $100,000 for the financial year.
- 1 The Commissioner points to what is said to be Mr Moriarty’s unusually high level of discretionary spending, including on holidays, dining out, and entertainment, which could be reduced. Unsurprisingly, Mr Moriarty does not agree with the Commissioner’s description, pointing out, amongst other things, that he has only taken two holidays in seven years.
- 1 The Commissioner also points out that until relatively recently Mr Moriarty had been paying $730 per week on rent for a five bedroom home for himself alone. Mr Moriarty said that reflected the rental market at the time. For the last few months, he said, he has been living with a friend, where he does not pay any rent, only contributing about $250 per week towards the household expenses. He said he was planning to move into a two-bedroom furnished apartment where the rent was $480 per week.
- 2 Mr Moriarty does not have any assets except an eleven year old Toyota Camry motor vehicle for which he says he would be lucky to get $4,000. He has a number of debts but none, he says, that he cannot manage, except of course his tax liability. It is clear that Mr Moriarty’s idea of management does not involve repayment. Other creditors, it seems, have given up, for the time being at least.
- 2 I agree with the Commissioner’s description of Mr Moriarty’s discretionary spending. I also think that what he was previously paying by way of rent was unreasonable. The Commissioner concedes, however, that even if Mr Moriarty were to curb excessive expenditure, he could still not satisfy his taxation liability within a reasonable timeframe. The Commissioner acknowledges that if Mr Moriarty were required to meet that liability he would most likely be placed in serious hardship.
The Commissioner submitted that the taxpayer borrowed to buy property rather than address his tax liabilities [per paras 24 & 25]
- The Commissioner submits that Mr Moriarty disposed of assets whilst knowing he had outstanding income tax lodgements for the 2007 to 2011 income years and without making proper provision for the taxation liabilities that were likely to arise as a result of those lodgements.
- The Commissioner points out that after Mr Moriarty was granted release from his tax liabilities in November 2006, he borrowed funds and purchased the first of two properties in March 2007 for $230,000 which he sold in March 2011 for $601,000 [barely any profit after borrowing $350k to build a house]. The second property was purchased in January 2011 for $492,000 and subsequently sold for $397,500 in May 2013 [for a loss].
The AAT agreed with the Commissioner in the following terms [at para 29]
- In my opinion, Mr Moriarty misses the point with his claim that there was no money in any of the real property transactions that could have been used to meet his tax liabilities. I agree with the Commissioner’s submission that Mr Moriarty, apparently with insufficient cash or other assets to address his tax liabilities, and in the context of having recently obtained a release, gave priority to obtaining finance to purchase a property, to borrow more money to carry out improvements to that property when its value rose, and to continue his borrowing against a second property.
The Commissioner also relied the taxpayer taking funds from his SMSF – illegally before a ‘cashing event’ [per para 31]
- The Commissioner also relies on Mr Moriarty illegally accessing his superannuation benefits in both the years ended 30 June 2007 and 2008. In those financial years he accessed $16,497 and $147,600. Mr Moriarty contends that these funds were accessed after his family could not receive any benefits from Centrelink and that the funds were used to provide for the family. This may be true but it also appears to overlap the time when he and his former wife purchased and developed the land at Newport with borrowed funds. Whatever the circumstances, Mr Moriarty accessed these funds apparently without thought to his outstanding taxation lodgements and subsequent liabilities that would arise. Mr Moriarty has only ever repaid $88,238 to the self-managed super fund.
The taxpayer said without the release he would likely be bankrupted. The AAT responded as follows [in paras 34 & 35].
- Mr Moriarty says that if he is not released from liability, then he is likely, eventually, to be made bankrupt. He says this will affect his ability to earn an income. The Commissioner submits that the implications of bankruptcy will not prevent Mr Moriarty from obtaining employment in the real estate industry.
- I am not satisfied that bankruptcy, if it were to occur, would prevent Mr Moriarty working, as he does, as an employed real estate salesperson in Queensland, although it may well prevent him from operating as an auctioneer.
In all the circumstances, the AAT was not prepared to exercise the discretion in favour of granting a release
(Re Moriarty and FCT [2016] AATA 796, AAT, File No: 2015/5424, Molloy DP, 11 October 2016.)
[Austlii report of the decision] [LTN 198, 13/10/16]