A taxpayer has been unsuccessful before the AAT in seeking to be released from his tax debts under s 340-5 of Sch 1 to the TAA.

The facts are summarized below and are set out in greater detail below in the extract from the Tribunal’s reasons.

  • In 2006, the taxpayer was diagnosed with Parkinson’s disease and was forced to retire early. In addition he and his wife had some ongoing responsibility for the schizophrenic son. There had been a lot of hardship (at least of a non-financial kind).
  • He received payments under an income protection policy for the years ended 30 June 2010, 2011, 2012 and 2013, but was unaware that the payments constituted assessable income until 2012.
  • In January 2014, the taxpayer lodged tax returns for each of the years and at 9 August 2016, the taxpayer’s total liability amounted to $130,416.
  • In May 2014, the taxpayer applied to be released from his tax debts, received an adverse decision, objected, was disallowed
  • In October 2014 the taxpayer made a second hardship application with the same result, though it was only the adverse decision from the second hardship application that formed the subject matter of the appeal.

The AAT affirmed the Commissioner’s decision to not release the taxpayer’s arrears of tax.

Serious hardship – The Tribunal found that paying the full amount of his tax would not cause the taxpayer to suffer serious hardship. A summary of the most telling points against the taxpayer are as follows.

  1. The taxpayer and his wife had, in addition to the house they lived in, a holiday house/investment property/shack [para 24]. The Tribunal did not mention the value of this property but the Commissioner contended they could sell it to meet (or help meet the tax liability) [para 42].
  2. In addition to this, the taxpayer’s wife had listed public company shares to the value of about $25k, which she was prepared to contribute to her husband’s tax under the payment plan suggested in the first hardship application [para 31].
  3. The taxpayer’s wife also had a tax refund of about $30k, which she was similarly prepared to contribute under the first hardship application [para 31].
  4. The combined value of the house and holiday home, jointly owned by the taxpayer and his wife, was $843,699.50, with liabilities to a bank of $225,000.00, leaving a balance of $618,699.50 (more than enough to pay the $130k in tax) [para 25].
  5. The taxpayer said neither of these properties could be sold or encumbered because of mortgages he’d given his wife to support a contract will arrangement where she could buy the properties for $1 [para 26]. However, the Tribunal was not persuaded that the wife would exercise her rights in the face of ATO recovery action [para 30].
  6. The taxpayer did not seem to understand that hardship effect (of recovery action) on the taxpayer is assessed in a way that includes his financial relations with other members of his household [para 15]. In essence, there’s a prima facie expectation that a spouse would help meet a taxpayer’s liability out of non-essential assets.

Discretion – even if it were the case of serious hardship, the AAT said it would not exercise the discretion to grant relief because the taxpayer did not make proper provisions to meet his tax liabilities and preferred to pay other debts. The Commissioner frequently cites various things, set out in PS LA 2011/17, as relevant to the exercise of the discretion – which, to a practitioner, often appear to be over stating their importance given the breadth and purpose of the discretion in s304-5. However, in this case, the Tribunal showed a better sense of materiality in the issues it considered and the weight it gave them. The matters considered, included the following.

  1. It appeared that the taxpayer had entered into the ‘contractual will arrangement’ (with supporting mortgages to his wife) between his first and second hardship applications, which gave a sense of bad faith and trying to defeat the Commissioner’s claim. But the Tribunal was not prepared to make such a serious finding and found, instead, that the taxpayer had not made proper provision for his tax [para 43].
  2. The degree to which the taxpayer’s wife pulled back from contributing her other non-essential assets (tax refund and share sale proceeds – totalling $55k) between his first and second hardship applications also gave an unpleasant hint of a bad faith element to the second application and the decision under appeal.
  3. The Commissioner pointed to the taxpayer having not lodged his tax returns on time since 2001, with lodgements made in bunches of 4 or 5. This is the sort of thing the Commissioner frequently ‘latches hold of’ when disallowing hardship applications, but the Tribunal de-emphasised this by saying: “This hardly favours the exercise of the discretion in the applicant’s favour. However, I do not think it should weigh heavily against him.” [para 45].
  4. The Commissioner submitted that the fact that the taxpayer’s income and expenses ran at a weekly deficit showed that he “cannot demonstrate that he has made provision for future debts” and “he is currently [ie. already] in hardship”. Again the Tribunal hosed this down and held that “the applicant and his wife are getting by and will continue to do so”. [para 47]

(Re ZDCW and FCT [2016] AATA 788, AAT, File No: 2015/3436, Molloy DP, 7 October 2016.)

[Austlii report of Tribunal’s decision] [LTN 195, 10/10/16]

Extract from Tribunal’s reasons


  1. The applicant was born in 1948. In 2006 he was diagnosed with Parkinson’s disease. At the time, he was employed as a CEO of an organisation. In 2009 his illness forced him into early retirement.
  2. The applicant received payments under an income protection policy in the years ended 30 June 2010, 2011, 2012 and 2013. He was unaware that the payments constituted assessable income until he received advice to that effect in 2012.
  3. On 9 January 2014 the applicant lodged tax returns for each of the above financial years. On 17 January 2014 the Commissioner of Taxation (“the Commissioner”) issued assessments of those returns.
  4. On 2 May 2014 the applicant applied to the Commissioner for a release from liability for taxation. On 27 June 2014 the application was disallowed. On 22 August 2014 the applicant objected to the Commissioner’s decision. On 23 October 2014 an objection decision was made disallowing the applicant’s objection.
  5. In the meantime, on 21 October 2014, the applicant made a second application for release. On 20 January 2015 the second application was also disallowed by the Commissioner. On 19 March 2015 the applicant objected to the Commissioner’s decision. On 7 May 2015 an objection decision was made disallowing the applicant’s objection.
  6. This application, lodged on 8 July 2015, is brought from that second objection decision.
  7. It is accepted, on behalf of the applicant, that under s 14ZZK(b)(ii) of the Act the onus is on him to show that the decision should not have been made or should have been made differently.
  8. The applicant provided affidavit evidence in support of his application. However, he was not available for cross-examination because he has difficulty speaking, and his doctor has expressed an opinion that the experience would be distressing and humiliating for him. The Commissioner did not raise any issue with this.

Serious hardship (the case law)

  1. The term “serious hardship” should be given its ordinary meaning. The description may be satisfied by something less than destitution (Powell v Evreniades and Others [1989] FCA 114).
  2. The application calls for consideration of the applicant’s individual circumstances by reference to normal community standards. (Commissioner of Taxation v A Taxpayer [2006] FCA 888) Whether payment of a tax liability would entail serious hardship involves a consideration of the financial affairs of the taxpayer, including his financial relations with other members of his household (Van Grieken v Veilands and Ors [1991] FCA 167).