FEDERAL COURT OF AUSTRALIA Cumins v Deputy Commissioner of Taxation [2007] FCAFC 207 BANKRUPTCY – bankruptcy notice – validity – alleged overstatement – application to set aside – judgment debt owed to Commissioner – whether credit should have been allowed for PAYG instalments remitted to Commissioner by employer but not credited under assessment at date of bankruptcy notice – whether running balance account provisions of Taxation Administration Act 1953 (Cth) required credit, prior to issue of assessment, in respect of PAYG payments remitted by employer – argument not put at first instance – no evidence relating to existence or nature of any relevant RBA – no obligation on Commissioner to establish RBAs – appeal dismissed TAXATION - income tax – pay as you go – withheld payments – time at which credit for such payments allowed – issue of assessment – whether credit to be given prior to assessment under RBA system Income Tax Assessment Act 1936 (Cth) s 204, Taxation Administration Act 1953 (Cth) s 6-1, s 6-5, s 16-20, s 8AAZC, s 8AAZL, s 8AAZLC, s 8AAZLF Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 cited SGRO v Liberty Funding Pty Ltd (2004) 207 ALR 625 cited Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269 cited BRIAN CUMINS v DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA WAD 361 OF 2006 FRENCH, TAMBERLIN AND STONE JJ 24 december 2007 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 361 OF 2006 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT BETWEEN: BRIAN CUMINS Appellant AND: DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent JUDGES: FRENCH, TaMBERLIN AND STONE JJ DATE OF ORDER: 24 december 2007 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondent's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 361 OF 2006 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: brian cumins Appellant AND: DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent JUDGES: FRENCH, TaMBERLIN AND STONE JJ DATE: 24 december 2007 PLACE: PERTH REASONS FOR JUDGMENT THE COURT: Introduction 1 On 15 June 2005 a summary judgment was entered against the appellant, Brian Cumins, in the Supreme Court of Western Australia in proceedings brought against him by the Deputy Commissioner of Taxation. Judgment was for the sum of $38,084,522.24 together with general interest charged pursuant to s 204 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) and Pt IIA of the Taxation Administration Act 1953 (Cth) (TAA). Mr Cumins was ordered to pay the Deputy Commissioner's costs. Mr Cumins did not consent to the judgment but did not oppose it. 2 On 17 March 2006 the Deputy Commissioner issued a bankruptcy notice against Mr Cumins requiring payment, within 21 days after service, of the amount of $38,051,066.24. The amount demanded comprised the sum of the judgment less an amount of $33,456 described in the bankruptcy notice as "payments made and/or credits allowed since date of judgments or orders". 3 On 14 July 2006 a Registrar of the Federal Magistrate's Court made an order for substituted service of the bankruptcy notice and directed that subject to compliance with the steps required for substituted service the bankruptcy notice would be deemed to be served on Mr Cumins on 4 August 2006. 4 On 21 July 2006 the Deputy Commissioner issued a notice of assessment to Mr Cumins for the financial year 2004/05. It showed tax on taxable income of zero and PAYG withholding credits of $9,516. The balance of the assessment was a credit of $9,516. However the assessment noted other amounts payable in the sum of $43,381,460.10, leaving a net amount of $43,371,944.10 payable on 11 August 2006. 5 On 14 August 2006 Mr Cumins filed an application in this Court to set aside the bankruptcy notice. The application was heard by Stanley DDR on 18 September 2006 and dismissed on that day. Mr Cumins then sought review of the Deputy District Registrar's decision by a judge. His application was heard by Siopis J on 1 December 2006 and dismissed on that day with costs. Mr Cumins lodged a notice of appeal from his Honour's judgment. 6 The argument before his Honour involved the proposition that, at the time the bankruptcy notice issued, the Commissioner should have recognised a credit in favour of Mr Cumins in the amount of $9,516 being the PAYG withholding credits referred to in the subsequent notice of assessment for the year ended 30 June 2005. The credit which was recognised in the assessment was recognised pursuant to s 18-15 of Div 18 of Pt 2-5 of Sch 1 of the TAA. That section provides for such credits to be given at the time of issue of the assessment. The argument before his Honour was that the Commissioner could and should have given credit for the withheld PAYG payment at the time he issued the bankruptcy notice and that it was therefore invalid as overstating the amount owed. 7 A different argument, not put before Siopis J, was raised on appeal. It depended upon the proposition that the Commissioner was obliged to establish a running balance account (RBA) in respect of the taxpayer under Pt IIB of the TAA and that a credit for the withheld PAYG payment properly arose pursuant to the RBA scheme. The credit, for the amount of $9,516, should have been offset against the judgment sum in the bankruptcy notice. 8 For the reasons that follow we regard the argument as unsustainable. The appeal will be dismissed with costs. Evidence before the primary judge 9 The materials before the learned primary judge included affidavit evidence which had been before Stanley DDR and further affidavits which were put before his Honour. The material before Stanley DDR comprised three affidavits sworn by Mr Cumins on 14 August, 23 August and 5 September 2006. There was an affidavit of Nola Kathryn Rice, of the Australian Taxation Office (ATO), sworn 28 August 2006 and two affidavits of Shannon Jayne Caporn, Mr Cumin's solicitor, sworn 4 September and 9 October 2006. The affidavits of Ms Caporn and Ms Rice were not reproduced in the appeal book. In addition, there were before his Honour two affidavits of Ms Rice sworn 2 and 16 November 2006 and two affidavits of Ms Caporn sworn 10 and 14 November 2006. Much of Mr Cumins' evidence on the review was not material to the appeal. He did say that in the period May 2005 to 14 March 2006 he had paid the Commissioner an amount of $10,500 which he believed may not have been credited against the amount of the judgment debt. On that basis he asserted his belief that the bankruptcy notice exceeded the amount of the judgment debt due and payable and relied upon for the bankruptcy notice. 10 Nola Kathryn Rice is an APS Level 6 officer in the Australian Public Service employed in the Debt Complex Case Management Section of the ATO. She deposed to the issue of the bankruptcy notice which demanded payment of $38,051,066.24 being the judgment sum less payments and credits amounting to $33,456. The sum of $33,456 was made up of credits and payments. The credits comprised two sums: 1. $9,516 on 30 August 2005 as a result of a notice of assessment issued to Mr Cumins for the year ended 30 June 2004; 2. $7,140 on 30 August 2005 as a result of a notice of assessment issued to Mr Cumins for the year ended 30 June 2003. The balance of the credit reflected payments made as the result of garnishee notices between 22 August 2005 and 7 March 2006. Ms Rice said that, since the bankruptcy notice was issued, there had been a further credit of $9,516 as a result of the issue of a notice of assessment to Mr Cumins for the year ended 30 June 2005. A further five monthly payments totalling $5,250 had also been made pursuant to the garnishee notice. Ms Rice stated her belief that as at the date of issue of the bankruptcy notice all credits to Mr Cumins and all payments received from him had been accounted for in reduction of the judgment debt and the amount of $38,051,066.24 in the bankruptcy notice was true and correct. The further statements made by her were not in dispute. 11 In his affidavit of 5 September 2006 Mr Cumins said that since the date of the bankruptcy notice, that is 17 March 2006, a further six monthly payments of $1,050 each, totalling $6,300, had been made to the Commissioner pursuant to a garnishee notice. He also said (at [5]): Further to paragraph 21 of Respondent's affidavit, my PAYG withholding credits for the year ended 30 June 2005 were overpaid by an amount of $9,516.00 and those credits have not been deducted from the judgment sum. He exhibited a copy of a notice of assessment issued to him on 21 July 2006 for the year ended 30 June 2005. That notice included the following information: Your Taxable Income is NIL Tax on Taxable Income A 0.00 PAYG Withholding Credits E 9516.00CR Balance Of this Assessment L 9516.00CR Other amounts payable 43381460.10DR Net amount payable 43371944.10DR *****Due date for payment of $43371944.10 ***** ***** is 11 AUG 06 ***** 12 In her affidavit sworn on 2 November 2006 Ms Rice said that between 1 July 2004 and 30 June 2005, $9,516 was withheld and remitted by Cash Converters Pty Ltd (Cash Converters) for the credit of Mr Cumins. The credits were withheld pursuant to either s 12-35 of the TAA as a payment to an employee, or pursuant to s 12-40 of the TAA pursuant to a payment to a company director. Ms Rice contended: 5. In accordance with subsection 18-15(1) the Applicant was not entitled to these credits until an assessment was made of the income tax payable by the Applicant or that an assessment was made that no income tax was payable by the Applicant. 6. The Applicant's income tax return for the 2005 income year was due to be lodged by 30 July 2006. The Applicant's tax return was lodged on 17 July 2006 and an assessment was issued on 21 July 2006. 13 Ms Caporn, in her affidavit of 10 November 2006 which was before his Honour, referred to the assessment notice for the year ended 30 June 2005 and annexed a list of the dates in which PAYG was paid to the Commissioner by Cash Converters in respect of Mr Cumins. That list disclosed 12 instalments each of $793 paid between 23 August 2004 and 20 July 2005. They totalled $9,516. Ms Caporn's affidavit of 14 November 2006 exhibited a copy of Mr Cumins' group certificate in respect of the financial year 30 June 2005. That group certificate showed total tax withheld for the period 1 July 2004 to 30 June 2005 amounted to $9,516. Submissions on behalf of the Commissioner at first instance 14 Counsel for the Commissioner relied upon Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 for the proposition that a bankruptcy notice speaks from the date of its issue and that any payments made by the debtor between the date of issue of the bankruptcy notice and the date of its service, which had the effect of reducing the liability of the debtor to the creditor, would not invalidate the notice. Counsel for the Commissioner also referred to s 18-15(1) of Sch 1 of the TAA. 15 The Commissioner contended that pursuant to s 18-15 Mr Cumins only became entitled to a credit in respect of the $9,516 PAYG deduction which had been made and remitted in respect of the 2005 tax year at the date when the assessment was made in respect of that tax year, that is to say 21 July 2006. The lodging by Mr Cumins of his tax return for the 2005 year and the associated assessment occurred after the date of issue of the bankruptcy notice on 17 March 2006. The credit could not therefore have the effect of invalidating the bankruptcy notice. The appellant's submissions to the primary judge 16 The written submissions before the primary judge on behalf of Mr Cumins turned on the contention that the amount of the bankruptcy notice was overstated. His Honour was referred to the effect on the validity of a bankruptcy notice of an overstatement in the notice of the amount for which the creditor was entitled to issue execution. Reference was made to Walsh 156 CLR at 340. Reliance was placed upon a decision of McInnis FM in SGRO v Liberty Funding Pty Ltd (2004) 207 ALR 625 at 633 in which it was held that omitting an amount paid by an applicant prior to the issue of a bankruptcy notice constitutes a failure to meet an essential requirement and a failure in respect of a substantive matter. 17 Counsel for Mr Cumins referred his Honour to the notice of assessment issued on 21 July 2006 and the credit shown therein in respect of PAYG withholding credits for the year ended 30 June 2005. It was submitted that the bankruptcy notice should have credited the amount of $9,516 to the bankruptcy notice amount as that credit "… was effective as at the date of payment to the Respondent … being on or before 30 June 2005, or alternatively as at 14 August 2005, the date the Group Certificate was lodged with the Respondent, being a date after the Judgment had been obtained by the Respondent but before the Bankruptcy Notice had been issued". 18 Counsel submitted that the Commissioner was required to apply any credit held on behalf of Mr Cumins against the amount claimed and that his omission to do so in this case rendered the notice invalid. A submission was also made that a person who receives a withholding payment as a result of an amount of income collected under the PAYG withholding system is entitled to a credit for the amount withheld from the withholding payment. Reliance was placed upon Schedule 1 s 6-10 and Div 18 of the TAA. Such credits, it was said, are applied against the taxpayer's tax debts and any excess refunded to the taxpayer. Reference was made to Pt IIB, Div 3 of the TAA. The ATO-Receivables Policy was cited. It was said to state that as a "general principle" and consistent with good business practice the Commissioner would offset credits or payments belonging to a taxpayer against any tax debts owed by the taxpayer. Passing reference was made to s 8AAZL of the TAA at [45] of the submissions: In circumstances where the provisions of section 8AAZL(3) of the TAA do not apply, it is submitted that the Respondent should apply credits against existing tax debts at the time of receipt of the PAYG payments or alternatively at the time of lodgement of the group certificate by an employer confirming PAYG payments made on behalf of a taxpayer. Reasons for judgment at first instance 19 His Honour found on the evidence that on 14 August 2005, which was after the date of the judgment but before the date of the bankruptcy notice, Cash Converters had lodged with the Commissioner a group certificate in respect of PAYG deductions which it had made and remitted to the Commissioner during the tax year ended 30 June 2005 in respect of Mr Cumins. The group certificate reflected the fact that the sum of $9,516 had been deducted from moneys payable to Mr Cumins and remitted to the Commissioner. His Honour found that Mr Cumins' tax return for the 2005 tax year was lodged on 17 July 2006 and that the Commissioner issued an assessment in respect of the 2005 tax year on 21 July 2006. That assessment reflected the credit of $9,516 already mentioned. 20 His Honour rejected the submissions made on behalf of Mr Cumins. The date of the accrual to Mr Cumins of credit in respect of PAYG deductions was to be assessed by reference to s 18-15 of Sch 1 of the TAA. There was no reason not to give effect to that statutory provision. Mr Cumins only became entitled to the credit once the assessment was made for the tax year in respect of which the PAYG deductions were made. His Honour concluded that, at the time of the issue of the bankruptcy notice on 17 March 2006, the sum of $9,516 did not comprise an amount in respect of which a deduction should have been recorded in the bankruptcy notice as either a payment made or a credit due. On that basis the bankruptcy notice did not overstate the amount due and was not invalid. His Honour declined to set it aside. The grounds of appeal 21 The notice of appeal against his Honour's decision sets out one ground only in the following terms: His Honour Justice Siopis erred at law in finding that PAYG payments of $9,516 made to the Respondent by the Appellant or on behalf of the Appellant by its employer before the issue of Bankruptcy Notice No 122 of 2006 (Bankruptcy Notice) did not constitute: (a) a credit which should have been recorded in the Bankruptcy Notice and that the amount could not have been regarded as a payment for the purposes of that notice; and (b) payments which could ultimately have been credited to the judgment sum in accordance with Item 5 of the Schedule to the Bankruptcy Notice. Statutory framework – Income Tax Assessment Act 1936 22 The Commissioner is authorised by s 166 of the ITAA 1936 to make an assessment of the amount of the taxable income (or that there is no taxable income) of any taxpayer, and of the tax payable thereon, or that no tax is payable. The time at which income tax becomes due and payable is provided for in s 204(1): Subject to the provisions of this Part, the tax payable by a taxpayer other than a full self-assessment taxpayer for a year of income becomes due and payable: (a) if the taxpayer's return of income is lodged on or before the due date for lodgment – on the later of: (i) 21 days after the due date for lodgment of that return specified in the Gazette under section 161 for the year of income; or (ii) 21 days after a notice of assessment is given to the taxpayer; or … (2) An amount of tax that a taxpayer is liable to pay because the Commissioner amends the taxpayer's assessment is due and payable on the 21st day after the day on which the Commissioner gives the taxpayer notice of the amended assessment. Statutory framework – Taxation Administration Act Schedule 1 – PAYG system 23 Schedule 1 of the TAA was inserted by Act No 178 of 1999. Its first chapter is designated "Chapter 2" entitled "Collection, recovery and administration of income tax". Part 2-1 is entitled "Introduction to the Pay As You Go (PAYG) system". Section 6-1 describes the nature of the substantive Pts 2-5 and 2-10. It states: To help taxpayers meet their annual income tax liability, they are required to pay amounts of their income at regular intervals as it is earned during the year. The system for collecting these amounts is called "Pay as you go". Amounts collected under this system also go towards meeting liability for Medicare levy, liability to repay contributions under the Higher Education Contribution Scheme (HECS), liability to repay debts under the Higher Education Loan Program (HELP) and liability to repay financial supplement debts under the Student Financial Supplement Scheme (SFSS). 24 Section 6-5 announces that Pts 2-5 and 2-10 establish the PAYG system which has two components: . PAYG withholding (Pt 2-5) . PAYGinstalments (Pt 2-10) It is PAYG withholding which is relevant for present purposes. This is explained in s 6-5(2) as follows: Under PAYG withholding, amounts are collected in respect of particular kinds of payments or transactions. Usually, someone who makes a payment to you is required to withhold an amount from the payment, and then to pay the amount to the Commissioner. 25 Division 16 of Pt 2-5 of Sch 1 sets out the obligations and rights of an entity required to withhold an amount under Div 12 or to pay an amount to the Commissioner under Div 13 or 14. In particular s 16-20 provides: An entity that: (a) withholds an amount as required by Division 12; or (b) pays to the Commissioner an amount as required by Division 13 or 14; is discharged from all liability to pay or account for that amount to any entity except the Commissioner. It is an offence to fail to withhold an amount as required by Div 12 (s 16-25(1)). 26 Division 18 of Pt 2-5 of Sch 1 deals with a recipient's entitlements and obligations. Sub-division 18-A is entitled "Crediting withheld amounts against liability for income tax, withholding tax or mining withholding tax". Section 18-1 explains that in general an entity that receives a withholding payment is entitled to a credit for the amount withheld from the withholding payment. The subdivision tells the reader who is entitled to a credit and how to work out the amount of the credit. The application of the credit is set out in Div 3 of Pt IIB. Section 18-15(1) provides: An entity is entitled to a credit equal to the total of the amounts withheld from withholding payments made to the entity during an income year if an assessment has been made of the income tax payable, or an assessment has been made that no income tax is payable, by the entity for the income year. Statutory framework - Taxation Administration Act - Running Balance Accounts 27 Counsel for Mr Cumins placed particular reliance upon the provisions of Pt IIB of the TAA which deals, inter alia, with RBAs. This was not an argument which had been put before his Honour. Division 2 of Pt IIB deals with the establishment of RBAs and provides, inter alia: SECTION 8AAZC ESTABLISHMENT OF RBAs … (1) [System of accounts] The Commissioner may establish one or more systems of accounts for primary tax debts. (2) Each account is to be known as a Running Balance Account (or RBA). (3) An RBA may be established for any entity. (4) RBAs for entities may be established on any basis that the Commissioner determines. (4A) Without limiting subsection (4), separate RBAs may be established for different types of primary tax debts. (5) Without limiting subsection (4), separate RBAs may be established for: (a) different businesses or undertakings conducted by the same entity; or (b) different parts of the same business or undertaking; or (c) different periods. 28 There are certain relevant definitions in s 8AAZA which must be referred to to understand the sections that follow. They are: RBA deficit debt, in relation to an RBA of an entity, means a balance in favour of the Commissioner, based on: (a) primary tax debts that have been allocated to the RBA and that are currently payable; and (b) payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that have been allocated to the RBA. RBA surplus, in relation to an RBA of an entity, means a balance in favour of the entity, based on: (a) primary tax debts that have been allocated to the RBA; and (b) payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that have been allocated to the RBA. primary tax debtmeans any amount due to the Commonwealth directly under a taxation law (other than, except in Division 4, the Product Grants and Benefits Administration Act 2000), including any such amount that is not yet payable. credit includes: (a) an amount that the Commissioner must pay to a taxpayer under a taxation law (other than the Product Grants and Benefits Administration Act 2000), whether or not described as a credit; and (b) [Not applicable] 29 Under s 8AAZD(1) the Commissioner may allocate a primary tax debt to an RBA established for that type of tax debt. Section 8AAZF provides for a general interest charge to be payable by a tax debtor on an RBA deficit debt (if any) which exists at the end of a day. By s 8AAZG the Commissioner may, at any time, prepare a statement for an RBA. 30 Section 8AAZH imposes liability to pay to the Commissioner an RBA deficit debt: If there is an RBA deficit debt on an RBA at the end of a day, the tax debtor is liable to pay to the Commonwealth the amount of the debt. The amount is due and payable at the end of that day. 31 Division 3 of Pt IIB deals with the treatment of payments, credits and RBA surpluses. It begins with s 8AAZL which explains the working of the Division. In particular s 8AAZL(1) and (2) provide: (1) This Division sets out how the Commissioner must treat the following kinds of amount: (a) a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity; (b) a credit (including an excess non-RBA credit) that an entity is entitled to under a taxation law; (c) an RBA surplus of an entity. (2) The Commissioner must treat each such amount using the method set out in section 8AAZLA or 8AAZLB (but not both). Subsection 8AAZL(3) is not material for present purposes. 32 Section 8AAZLA provides: (1) The Commissioner may, in the manner he or she determines, allocate the amount to an RBA of the entity or, if the entity is a member of an RBA group, to an RBA of another member of the group. (2) The Commissioner must then also apply the amount against the following kinds of debts (if there are any): (a) tax debts that have been allocated to that RBA; (b) general interest charge on such tax debts. Subsection (3) is not material for present purposes. 33 Section 8AAZLC relates to RBA surpluses and related credits and provides: (1) If an RBA surplus is allocated or applied under this Division, the Commissioner must reduce by the same amount excess non-RBA credits that relate to the RBA. (2) If, under this Division, an excess non-RBA credit that relates to an RBA (the related RBA) is: (a) allocated to an RBA; or (b) applied against a non-RBA tax debt; the related RBA is adjusted in the Commissioner's favour by the same amount. 34 Division 3A deals with refunds of RBA surpluses and credits. Section 8AAZLF provides: (1) The Commissioner must refund to an entity so much of: (a) an RBA surplus of the entity; or (b) a credit (including an excess non-RBA credit) in the entity's favour; as the Commissioner does not allocate or apply under Division 3. The remaining subsections are not relevant for present purposes. The appellant's contentions on the appeal 35 On the hearing of the appeal counsel for Mr Cumins referred to s 18-15(1) of Sch 1 of the TAA. He observed that the provision applies after an assessment is made. The credit is to be dealt with in accordance with Div 3 of Pt IIB. However counsel submitted that the Commissioner had an obligation to deal with the PAYG payment even before an assessment was made. This was because Div 3 applies to an amount paid to the Commissioner in respect of a current or anticipated tax debt. In this connection counsel referred to s 8AAZL(1)(a) of the TAA. 36 Counsel submitted that s 8AAZLA authorises the Commissioner to allocate the amount of a PAYG payment to an RBA of the entity. Section 8AAZLA(2) provides that the Commissioner must then also apply the amount against tax debts that have been allocated to that RBA and then the general interest charges on such tax debt. It was submitted that the obligations created by s 8AAZLA are mandatory and reliance was placed upon Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269 at [34]-[37]. As a result, it was submitted, if there is a payment made to the Commissioner in respect of a current or anticipated tax debt the Commissioner is obliged to create an RBA pursuant to s 8AAZC to deal with the payment. 37 Turning to the facts of the present case, counsel submitted that there was a payment in respect of an anticipated tax debt by reason of the PAYG instalments in relation to Mr Cumins paid by Cash Converters. He submitted that Mr Cumins was entitled to have the amount of those payments applied in accordance with s 8AAZLA. He acknowledged in his submissions that s 8AAZLA(1) provided a discretion to the Commissioner as to whether to allocate the amount to an RBA of the taxpayer or another member of the RBA group. He acknowledged in argument that there was no evidence that Mr Cumins was a member of an RBA group or that the Commissioner had exercised a discretion to allocate the amount to another member of an RBA group related to him. He noted that the Commissioner's position was that there was no need to deal with the amount in accordance with Div 3 as Mr Cumins was not entitled to a credit pursuant to s 18-15(1) of Sch 1. It was submitted that the learned primary judge had adopted that position with respect to the effect of s 18-15(1) of Sch 1. It was submitted for Mr Cumins that this was incorrect. The respondent's contentions 38 The Commissioner's contention was put concisely. He relied upon s 18-15 which provides for the creation of a credit upon the making of the relevant assessment. He submitted that s 8AAZL(1)(b) and (2) would apply to the credit to which Mr Cumins was entitled under s 18-15 when, but not before, the Commissioner made the assessment of his income tax on 21 July 2006. It was submitted that it cannot be the intention of the Act that the payments made by a payer such as an employer, in this case Cash Converters, should be allocated to a liability such as an existing judgment debt of the recipient employee. If that were so, it was submitted, the recipient would receive a double benefit as he or she would be entitled under Div 18 to a credit for the total of the amounts withheld once an assessment had been made. Whether the primary judge erred 39 Section 18-15 of Div 18 of Pt 2-5 of Schedule 1 of the TAA provides for the crediting of amounts withheld from withholding payments made to a taxpayer during an income year "… if an assessment has been made of the income tax payable, or an assessment has been made that no income tax is payable, by the [taxpayer] for the income year". It was by operation of that section that Mr Cumins was entitled to a credit for the sum of $9,516 "PAYG withholding credits" referred to in the assessment for the year ended 30 June 2005 which issued on 21 July 2006. There was no criticism of his Honour's reasoning in that respect. Nor could there be. The entitlement to such a credit at the time of issue of the assessment is clear from the terms of s 18-15. 40 The criticism of his Honour's reasoning was based upon an argument that never seems to have been put to him. It does not appear from the written submissions before him except by a process of unlikely and imaginative construction. The acronym RBA appears nowhere. 41 It is now said that his Honour in effect held "implicitly" and wrongly that s 18-15 provided the only mechanism by which a withheld PAYG payment could be credited to a taxpayer. The alternative mechanism, not put to his Honour, depended upon the proposition that the relevant credit arose under an RBA of Mr Cumins of the kind provided for in Pt IIB of the TAA. There was of course no evidence before his Honour or the Full Court that any such account existed or if so the basis upon which it had been created. 42 Counsel for Mr Cumins approached the evidentiary difficulty with the proposition that the Commissioner was obliged to set up an RBA "in circumstances where there is likely not to be a surplus at the end of the tax year". The argument then went that, absent fulfilment of that obligation, the Commissioner should be treated, for the purpose of allowing credits, as though he had set up an RBA in respect of the taxpayer. The critical importance to the argument of the existence of an obligation to establish an RBA was acknowledged by counsel. Counsel accepted that absent such an obligation his argument had no purchase. 43 It is clear from the language of s 8AAZC that the Commissioner has a discretion to establish, one or more systems of accounts for paying tax debts. The language is not obligatory. Nor is the language of s 8AAZC(2) which is facultative. The basis of establishment of RBAs is to be determined by the Commissioner. They may be established for different kinds of primary tax debts. 44 The whole tenor of the RBA scheme is facultative rather than prescriptive. It forms no basis for a contention that PAYG payments of the kind which were made in this case are to be credited against the taxpayer's liabilities to the Commissioner in advance of the issue of an assessment. 45 The authorities to which counsel for Mr Cumins referred were of little assistance to his argument. He referred, in particular, to a passage from the judgment of the Full Court of the Supreme Court of South Australia in Ozone Manufacturing Pty Ltd 94 SASR 269. That case concerned an application by a corporation to set aside a statutory demand from the Commissioner on the basis of an offsetting claim for tax offsets in respect of research and development expenditure. The taxpayer had claimed tax offsets in respect of research and development expenditure in relation to three tax years, namely 2002, 2003 and 2004. It had not supplied relevant information and documentation to the Commissioner who rejected the claim for offsets for the 2002 year on that basis. The Commissioner had not yet determined the claims for the subsequent years but indicated that these would be rejected as well. The balance of the taxpayer's RBA was due for payment and constituted an "RBA deficit debt". The taxpayer argued, in support of his application to set aside the statutory demand, that it had a genuine offsetting claim. The Full Court held that the amount of a refund would be a credit for the purpose of the RBA and as the claim for tax offsets was long standing, bona fide and not artificial, the taxpayer had a genuine offsetting claim. This required the court to set aside the statutory demand. It will be seen that the question before the Full Court in that case was quite different from the question before the Full Court in this case. It throws no light on the issue before us. 46 In a passage from the judgment of Debelle J (Besanko and Layton JJ agreeing), his Honour said (at [37]): Division 3 of Pt IIB of the Administration Act, which is constituted by ss 8AAZL to 8AAZLE, prescribes how a credit is to be treated by the Commissioner. These provisions impose an imperative obligation upon the Commissioner to credit a tax offset to an RBA. That is apparent from the use of the word "must" on two occasions in s 8AAZL… In context this does not reflect or support the existence of any obligation to establish an RBA. Such an obligation would be contrary to the clear language of the relevant provisions. 47 That being so, as counsel in effect accepted, the argument raised for the first time in this Court, absent any evidentiary background, quite apart from its constructional merits which appear to be non-existent, cannot be sustained. 48 The appeal must be dismissed with costs. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 24 December 2007 Counsel for the Appellant: Mr J Thomson Solicitor for the Appellant: Q Legal Counsel for the Respondent: Mr J Allanson Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 18 May 2007 Date of Judgment: 24 December 2007