The AAT has set aside a departure prohibition order (DPO), against a taxpayer, who had become bankrupt, as the DPO was no longer serving its purpose.

The Commissioner issued assessments to the taxpayer/applicant totalling about $1.7m (for the 2003, 2004, 2005, 2007 and 2008 years). They arose out of money transferred to Vanuatu and they alleged ‘sham’ and assessed on the basis of deemed dividends.

The objection and appeal process (in Part IVC of the TAA) was elongated and not conclusive, in that the taxpayer/applicant objected in November 2010; got a negative decision from the Commissioner in August 2012; he applied to the AAT for review in October 2012; and the AAT ultimately dismissed his review application, in July 2014 (after he withdrew his application).

It seems that the Commissioner had not been doing much to collect the disputed debt, but when the AAT review was dismissed, he took the step of issuing the DPO, because he had a tax debt, for which no satisfactory arrangements had been made for its payment (which is relevant under s14S(1) of the TAA, for the issue of a DPO – see below). This was on 20 April 2015, and prior to that, the taxpayer/applicant had travelled to and from Australia frequently. The taxpayer/applicant made an effort, in December 2015, to get the DPO lifted, but it was not successful.

In the following year, the Commissioner obtained judgement for the debt – on 31 May 2016. The Commissioner did not then move to bankrupt him, but, in January 2017, the taxpayer/applicant went bankrupt, by his own petition.  The trustee of his bankrupt estate issued a report to creditors saying that there were no assets available to pay his debts.

The basis for issuing a DPO is set out in s14S(1) of the TAA, which is as follows.

14S(1) Where:

(a) a person is subject to a tax liability; and

(b) the Commissioner believes on reasonable grounds that it is desirable to do so for the purpose of ensuring that the person does not depart from Australia for a foreign country without:

(i) wholly discharging the tax liability; or

(ii) making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged,

the Commissioner may, by order in accordance with the prescribed form, prohibit the departure of the person from Australia for a foreign country.

The purpose of a DPO is to prevent people leaving Australia without making suitable arrangements for the discharge of their tax debts (and the Commissioner thinks it desirable to prevent the departure). This had been done before there was a judgement and a bankruptcy. But after the applicant became bankrupt, the inexorable process of the bankruptcy is to ultimately result in a discharge of the tax debt (along with any other debts). The DPO had become otiose.

The trustees in bankruptcy could have objected to the bankrupt travelling outside Australia, under bankruptcy law, but they did not and they gave no evidence in this proceeding either.

As a result, the DPO was lifted, under s14T of the TAA.

(Walsh v CofT [2018] AATA 235, AAT, Molloy DP, AAT File No: 2017/1007, 19 February 2018.)

[FJM; LTN 36, 22/2/18; Tax Month February 2018]


Study questions (answers below*)

  1. Did the Court lift the DPO of the bankrupt applicant?
  2. Did the Commissioner issue the DPO soon after issuing the assessments in 2010?
  3. Did the Commissioner issue the DPO, after July 2014, when the debt was no longer disputed?
  4. Is a DPO issued under s14T of the TAA?
  5. At the time when the Commissioner issued the DPO, did the taxpayer have an unpaid tax liability, and no arrangements for its discharge?
  6. Did the taxpayer, petitioning for his own bankruptcy, provide a basis for discharging the tax liability (even if statutorily)?







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