The Federal Court has dismissed a taxpayer’s appeal against a decision not to release him from his tax liabilities on grounds of serious hardship. The taxpayer was a paediatric surgery registrar and surgical assistant who managed his tax affairs poorly. He failed to lodge on time his tax returns for most years from 2007 to 2017 and ended up with a tax debt, including PAYG instalments, GST and GIC, of just over $1.19m.
Although the taxpayer’s tax liabilities significantly exceeded his assets, after-tax household income for the 2020 income year was just over $315,000 (most of which was his income). Annual household expenses were approximately $270,000, including $91,000 for renting a large house, $110,724 in private school fees (the taxpayer and his partner had 3 children) and financial support for the taxpayer’s mother and brother in the UK (at least $1,000 per month).
In ZCSB and FCT [2021] AATA 138, the AAT affirmed the ATO’s decision not to release the taxpayer from his tax liabilities on grounds of serious hardship under s 340-5 of Sch 1 to the TAA. The Federal Court has dismissed the taxpayer’s appeal, finding in particular that the AAT was entitled to conclude that:
- it was open to the taxpayer to find adequate accommodation for his family at a significantly cheaper price; and
- having regard to the high quality local government schools, the taxpayer did not have to spend more than $100,000 a year on private school fees to provide his children with a “reasonable education”.
The AAT was also entitled to be sceptical about the taxpayer’s accountant’s financial projections that household income would exceed household expenses by approximately $675,000 in total over between 2021 and 2025.
(Wood v CofT [2021] FCA 1236, Federal Court, Kerr J, 13 October 2021.)
[Tax Month – October 2021 – Previous Tax Month; 17.10.21; LTN 198, 14/10/21]