A taxpayer has failed in his bid to be released from outstanding income tax liabilities on grounds of serious hardship.

  • The taxpayer’s income tax related liabilities (including interest and penalties) totalled just over $40,000.
  • His GST debts (including related interest charges and penalties) totalled almost $34,000, but the Commissioner’s power (under s 340-10 in Sch 1 TAA) to release a taxpayer from tax liabilities does not extend to GST debts.
  • The taxpayer’s other debts (including a loan from his mother) totalled $55,000 (only $36,000 if one creditor would agree to accept a reduced amount).
  • His assets were investments of id=”mce_marker”4,430 and a vehicle valued at $9,000.
  • His projected taxable income for 2013-14, based on his earnings for the first 6 months of the financial year, was $68,560.

The taxpayer argued that the s 340-10 discretion should be exercised in his favour because his difficulties arose when he had significant health problems and, should the income tax related liabilities not be waived, he would “go backwards again, mentally and financially”.

The AAT decided that s 340-10 did not apply. If the taxpayer’s taxable income for 2013-14 was $68,560 as projected, he would be able to meet his day to day expenses and contribute to the payment of his debts, the Tribunal said. There would be no serious hardship. If, however, his taxable income for 2013-14 was much less than the projected amount so the taxpayer would suffer serious hardship, that would not be the result of being required to satisfy his income tax related liabilities. Any serious hardship would be because his income would not match or exceed his outgoings.

(AAT Case [2014] AATA 102, Re Thomas and DCT, AAT, Ref No 2013/2024, Forgie DP, 27 February 2014.)

(FJM Note:    With all due respect to the Deputy President Without, and having the benefit of having read her reasons for this decision, this does still appear to be a very odd decision. There are very few people on $68k who could pay off $40k in income tax in three years after meeting their living expenses. A more defendable basis might have been to say that there are other debts that will cause hardship, so there is no point in releasing the income tax.)

[LTN 41, 3/3/14]