e, JUDGMENT No. of Q2.szZone IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) No. QG 176 of 1994 GENERAL DIVISION ) BETWEEN: PETER NOEL BURROWS AND: DEPUTY COMMISSIONER OF TAXATION CORAM: SPENDER J PLACE: BRISBANE DATE: 2 DECEMBER 1994 MINUTES OF ORDER THE COURT ORDERS THAT: The appeal and application for an order of review be dismissed, with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. RECEIVED 16JAN 1995 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRS epeeeeesaees IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) No. QG 176 of 1994 GENERAL DIVISTON ) BETWEEN: PETER NOEL BURROWS AND: DEPUTY COMMISSIONER OF TAXATION CORAM: SPENDER J PLACE: BRISBANE DATE: 2 December 1994 REASONS FOR JUDGMENT This is an appeal to the Federal Court under s. 14V of the Taxation Administration Act 1953 ("the Act") against an order of the Deputy Commissioner of Taxation made pursuant to s. 148(1) of the Act. Section 14S5(1) empowers' the Commissioner, by order in accordance with the prescribed form, to prohibit the departure of a person from Australia to a foreign country where: " (a) a person is subject to a tax Iiability; 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 (iz) Making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged. " The term "tax liability", by s. 2 of that Act, means a liability to the Commonwealth arising under or by virtue of a taxation law. By an application filed on 1 December 1994 - that is to say, yesterday - Peter Noel Burrows appealed, pursuant to s. 14V of the Act, and also in that application sought an order of review pursuant to the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act"). The application sought review or appeal pursuant to s. 14V of the Act concerning the departure order which was made on 25 November 1994 against Mr Burrows. As stated in the application, Mr Burrows' grounds are that, in the circumstances that apply to him, requiring him to remain in Australia would not bring into effect the purpose of wholly discharging the applicant's tax liability nor making arrangements for that liability to be wholly discharged, and that, in any event, there could be no reasonable grounds for it being desirable to ensure the applicant did not depart Australia. In the application it was said on his behalf that he wished to travel overseas to fulfil a job engagement, and his being prevented from doing so could not provide reasonable grounds for it being desirable to give effect to the purpose in s. 148(1)(b). It was said further that the decision was unreasonable, and took into account irrelevant considerations and failed to take into account relevant considerations, and that the applicant was denied natural justice. The applicant sought an order revoking the prohibition order, an order abridging the time for service of his application, and an order dispensing with whatever requirements of the Rules would prevent the hearing of the appeal forthwith. Reliance on the ADJR Act was essentially directed at the possibility that, on an interlocutory basis, the court might make an order the effect of which was to permit the applicant to depart Australia pending final determination of his application. The function of s. 14S of the Act has recently been considered by a Full Court of the Federal Court in Poletti v Deputy Federal Commissioner of Taxation, reported at 94 ATC 4639 at 4640. The Full Court referred to a number of cases in which the function of that section has been considered. As that case makes plain, the hearing of an appeal under s. 14V is not a hearing de novo. The court said at 4643: "The evident purpose of the right of appeal is to enable departure prohibition orders which the Commissioner may make, to be set aside where the person against whom the order is made is not subject to a tax liability or where the Commissioner's belief (to which para. (b) of 14S(1) is directed) is not held bona fide or is not based on reasonable grounds. " The Commissioner bears no onus to establish before the court any of the elements of s. 148(1) in an appeal of this kind. The three principal questions to be addressed are: first, whether the person is subject to a tax liability; secondly, whether the Commissioner held the belief of which the subsection speaks; and thirdly, whether reasonable grounds existed for the formation of that belief. The Full Court said at 4644: In our opinion an appeal under s. 14V is an appeal in which the person aggrieved must establish that the order was wrongly made. " The facts in the present case are that Mr Burrows, who resides in one of a duplex of apartments at 2 Mount Street, Burleigh Heads, is an Australian citizen born on 29 October 1950. The Commissioner has issued assessments for the years 1988, 1989, 1990 and 1991 which total $549,768.79. The schedule of the amounts totalling that sum are set out in the departure prohibition order which I set out in full: " Sub-regulation 16(1) FORM 3 COMMONWEALTH OF AUSTRALIA Taxation Administration Act 1953 DEPARTURE PROHIBITION ORDER Pursuant to sub-section 148(1) of the Taxation Administration Act 1953, I, John Richmond Cox, authorised officer of the delegate of the Commissioner of Taxation, believing on reasonable grounds that it is desirable to do so for the purposes of ensuring that Peter Noel Burrows, being a person subject to the tax liability referred to in the Schedule, does not depart from Australia for a fore1rgn country without - (a) wholly discharging the tax liability: or (b) making arrangements satisfactory to the Commissioner for Taxation for the tax liability to be wholly discharged, hereby prohibit the departure of Peter Noel Burrows from Australia for a foreign country. SCHEDULE (Details of tax liability) INCOME TAX ASSESSMENT ACT 1936 YEAR PRIMARY TAX ADDITIONAL TAX TOTAL 1988 § 395624.24 $ 22024.89 417649.13 1989 31563.73 1757.19 33320.92 1990 48329.20 2690.55 51019.75 1991 45259.35 2519.64 47778 .99 TOTAL $ 549768.79 Dated 25 November 1994 (Sgd) J. R. Cox Authorised Officer of the Delegate of the Commissioner of Taxation " The circumstance for the urgency of this application 1s that Mr Burrows has received an offer of employment in Kuwait by a company Al Homaizi Foodstuffs Company. In November he travelled to Kuwait for a short period and returned to Australia. In his affidavit he says the job is to commence on 1 December 1994. It appears from the material that he received the job offer in a letter dated 19 November 1994 which he received on 22 November 1994, and on which day he acknowledged his acceptance of the offer. The prospective employer 1s unaware of the departure prohibition order, and Mr Burrows says that he fears that should the employer be aware of that, he would lose his employment opportunity, and that he has made strenuous efforts in the last twelve months to obtain employment and is financially desperate to obtain this particular position. The Commissioner, on 1 March 1994, filed a Supreme Court writ claiming $549,768.79 unpaid tax. The largest component appears to be the result of a view by the Commissioner that funds which Mr Burrows asserts were the income of a company were income of Mr Burrows. The later years, where the amounts are not so substantial, do not seem to suffer from the same divergent views. In any event, Mr Burrows has lodged an objection to the assessment, and in respect of an amended assessment only recently issued, has given instructions for an objection to be lodged concerning that amended assessment and, should the objection process be unsuccessful, to pursue the matter in the Administrative Appeals Tribunal. Mr Burrows asserts that he 1s without assets. His financial position shows assets of $3000 as at 30 June 1994 and liabilities of $58,263.59, with a contingent liability to the Australian Taxation Office of $549,768.79. It is difficult not to sympathise with Mr Burrows in his unsuccessful attempts thus far to obtain employment, and for his concern at his being prevented from pursuing his employment opportunities in Kuwait. However, in May of 1994, there were discussions between Mr Burrows and his representatives and officers of the Commissioner, at which he indicated it was likely he would be travelling overseas and that he was seeking employment overseas. He says in his affidavit: " At one point I was asked to inform the respondent where I was travelling. I offered to do this. In retrospect, I probably did not adhere to the letter of that offer when going over for the job interview in Kuwait. However I was only away for three days. I had a return ticket. " There is a further matter which, while not directly relevant, has a bearing on the reasonableness of the belief by the Commissioner as to the desirability of Mr Burrows' attendance in Australia, and that 1s that in April of this year Mr Burrows was charged with a number of charges arising out of two cheques; one for $1900.00 and the other for $2500.00, the charges being either uttering and wmis- appropriation or uttering and false pretences. The material is not clear. It appears that he has been committed to the Cairns District Court in respect of four charges. Mr Burrows says he intends to resist the charges and that, should an attempt by him for a nolle prosequi in respect of those charges be unsuccessful, he would intend to return to Cairns to defend them when the trial is listed. He was bailed on his own undertaking, the terms of which are before me. It appears from a perusal of that undertaking that it may be that he might still be required to attend at the sittings of the District Court which apparently commenced on 28 November 1994, although it is right to acknowledge that Mr Burrows' belief, based on information from his solicitor, is that his trial will not take place until the new year. It may be, nonetheless, that an indictment will be presented some time at the current sittings and that questions of bail would then be the subject of review. As to the matters of which s. 14S speaks, Mr Burrows says he has no assets to pay the amount allegedly owing and that, unless he turns up in Kuwait in the short term future, he fears losing his job and he has no other source of income in contemplation. The material on behalf of the Commissioner shows that John Richmond Cox who, on 25 November, pursuant to an authorisation from the Deputy Commissioner of Taxation to exercise on his behalf powers delegated to him by the Commissioner of Taxation, considered and made the departure prohibition order the subject of the present applications. The material before him appears from his affidavit. It is not in dispute that for present purposes there is a present liability in excess of half a million dollars owed by Mr Burrows to the Commissioner but that, in respect of that amount, there were undetermined objections to the various assessments. Mr Cox, in his affidavit, swears: "I also considered that it was necessacy that the taxpayer be available to be ainterviewed by the Respondent's officers particularly to clarify statements made by him in earlier interviews which appeared to conflict with the information which suggested that he had a shareholding in a company which had acquired a large shopping centre. " The material before him included a transcript of an interview on 6 May 1994, to which I have earlier referred. In the course of that interview reference 1s made to two trusts: the P & J Burrows Trust, which was involved in a significant transaction in 1988, the trustee of which trust was P. Burrows Pty Ltd; and the Burrows Family Trust, the trustee of that trust being Burshand Pty Ltd. Mr Burrows, in the course of oral evidence on this application, indicated that the trustee had been Burshand Proprietary Limited until some time earlier in 1994 when the trustee was changed to his present wife, Karen Burrows. My reading of the transcript does not suggest that that change was communicated to the officers of the Commissioner. The question by no means is a small one because it appears that the Burrows Family Trust, through the trustee, Karen Burrows, owns the duplex in which Mr Burrows presently lives and is the source in part of the income which Mr Burrows said he received in the 1994 tax year. Further, it appears, again from his oral evidence today, that the Burrows Family Trust holds 100 of the units of a unit trust in a company, CMB No. 1 Pty Ltd. The trustee company, according to Mr Burrows, has no current assets, and in particular is not involved in the acquisition of a shopping centre at Smithfield near Cairns. That shopping centre was the subject of an article which appeared in The Courier-Mail and which is referred to in the material attached to the affidavit of Mr Cox. The article asserts that the Smithfield Shopping Centre near Cairns has been sold for $22m: " ...making it the second largest retail sale in north Queensland in the past year. Investment company CMB No. 1 Pty Ltd bought the centre from a consortium headed by Cairns investor Lou Piccone and Jean Grace, a member of Sydney's Grace family (previously associated with Grace Brothers Department store)." And later the article reads: "A spokesman for the buyer, Jim Montgomery, said he had great faith in the northern beaches area. " The effect of Mr Burrows' evidence is that the newspaper report 1s wrong and that the company CMB No. 1 Pty Ltd, in which the Burrows Family Trust had unit interests, was not the purchaser of that shopping centre. He did say that Mr Montgomery had an interest, not in any strictly legal sense, in CMB No. 1 Pty Ltd, but he said that the fears of the Commissioner were baseless. The question really before me is whether' the Commissioner had reasonable grounds for the belief of which s. 148(1) speaks. I can understand that the departure for Kuwait without any notification or advice to the Commissioner is a cause of concern to the Commissioner, but the fundamental question is whether the Commissioner had reasonable grounds for the belief that it was desirable to prohibit Mr Burrows departing from Australia without either wholly discharging the tax liability or making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged. I think it plain behind the report on which Mr Cox acted that the main basis for the recommendation for the departure prohibition order 1s the conflicting information and actions between his interview on 6 May and the subsequent events as they are believed by the Commissioner to have happened . The concern is directed at two matters: first, that Mr Burrows claimed he had no assets; and secondly, that because of his work he is required to travel overseas. The concern about assets arises, amongst other things, from the trust arrangements, and, in particular, the possibility of an involvement by CMB No. 1 Pty Ltd in the Smithfield purchase. This 1s not a case such as was referred to by Young J in Dalco v Federal Commissioner of Taxation 19 ATR 443. His Honour said at 447: " Section 14T gives the clue that the matters which spark the making of a S. 14S order are that the recoverability of tax will be affected by the departure of the taxpayer from Australia. Accordingly, once the Commissioner is satisfied that the tax is completely irrecoverable then it cannot be the case that collection of the tax will be affected by the taxpayer going outside Australia and the raison d'etre for making the order has gone so that the order must be revoked. " In this case it was reported to Mr Cox: " Although Mr Burrows indicated that he had no assets, this aspect was not conclusively proved or accepted by the ATO officers. The dealings of the taxpayer show that he was involved in trusts. In these cases, in depth reviews of the taxpayer's financial dealings are essential to determine whether: (a) any loan dealings occurred between the entities that would be recoverable under bankruptcy legislation; (b) any preferential payments had occurred; (c) any dealings whereby the transactions could be voided in bankruptcy. " It was recommended that a departure prohibition order issue in order to protect the revenue, based on information, first, that Mr Burrows had left the country without advice to the Tax Office; secondly, that the taxpayer who had no funds or assets, had made a gift to his daughter, value unknown; and thirdly, the taxpayer has assets in that he 1s a director and shareholder of a company which owns a $22 million shopping centre in Cairns. In regard to the second matter, Mr Burrows says that the amount is of a trivial kind and was a small gift made to his nine year old daughter, and he denies that the company of which the Burrows Family Trust 1s a unit holder is the purchaser of the Smithfield Shopping Centre. It seems to me, however, that it cannot be said that the Commissioner did not have reasonable grounds for believing that it was desirable that Mr Burrows remain in Australia in the context of the resolution of the question of how much, if any, tax might be recovered from him. It 1s not to the point that he now complains that things are not as the Commissioner might suspect. It is clearly in his own interests to lay the cards on the table and give full information concerning the matters referred to in the report by Mr C. Cumpsty attached to Mr Cox's affidavit. It seems to me that the basis for the belief of the Commissioner is reinforced by the circumstance that Mr Burrows is facing criminal charges in Cairns, 1n the sense that that circumstance might enlarge a temptation not to return to Australia. Moreover, he proposes to be absent for two years, a not inconsiderable period of time, and indicates that he then intends to return. This is not the case of a short absence overseas for a specific purpose but 1s of a long-term Nature and in circumstances where there are grounds to believe that the promises to return may have some doubt attaching to them. It is not for this court to say what it might have done. In my view, it cannot be said that the decision of the Commissioner was wrongly made. That certainly has not been demonstrated on this material. The possibility exists, when the matters are fully canvassed and investigated, that the prohibition order might be varied or revoked. It is unnecessary for me to consider whether that might be an appropriate course depending on what inquiries concerning Mr Burrows' position, including his trust position, might he. I have indicated my sympathy with his concern concerning his employment, but on this material it cannot be said that the decision of the Commissioner's delegate was wrongly made, and the appeal is dismissed. I certify that this and the preceding twelve (12) pages are a true copy of thé reasons for judgment of the Hdnourable Justice Spender. horancsy de —ooy Ajassociate 2 December 1994 Counsel for the applicant: Mr L. Boccabella instructed by : Mr Stephen Webb of McCullough Robertson Counsel for the respondent: Mr P. Hack instructed by : Mr P. McMorrow of Australian Government Solicitor Date of hearing i 2 December 1994