Deputy Commissioner of Taxation v Balnaves, Peter John [1998] FCA 1388

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY SG 7150 of 1997

BETWEEN: deputy commissioner of taxation

Applicant

AND: peter john balnaves

Respondent

JUDGE: MANSFIELD J

DATE: 30 october 1998

PLACE: ADELAIDE

REASONS FOR JUDGMENT Application for sequestration order in respect of the estate of Peter John Balnaves ("Mr Balnaves"). The petition was first presented on 30 July 1997 by William Thomas Burton in respect of a judgment debt, and relied upon the fact that execution under process of a Court against Mr Balnaves had been returned unsatisfied on 30 January 1997 as the act of bankruptcy. Those matters have been duly proved. It is not contested that Mr Balnaves committed the act of bankruptcy on which the petition is based on 30 January 1997. On 27 July 1998 the Deputy Commissioner of Taxation ("the Commissioner") was substituted as the petitioning creditor, and the Court ordered that the petition lapse two years from 30 July 1997. I am satisfied that the Commissioner has established the formal matters required by the Bankruptcy Act 1966 ("the Act") and the Bankruptcy Rules have been complied with. The issue is whether there is, and was at 30 January 1997, owing by Mr Balnaves to the Commissioner a debt of the amount and nature specified in s 44 of the Act. The debt in issue is for tax instalment deductions made in the conduct of an accounting practice Balnaves Cooper & Co ("the practice") for the period from 1 July 1996. The evidence clearly establishes that tax instalment deductions were made in respect of employees of the practice from 1 July 1996, and were not duly paid to the Commissioner as required by s 221F of the Income Tax Assessment Act 1936 ("the Tax Act"). They were clearly owing to the Commissioner. For the period July to December 1996, those deductions totalled $10,022.91 and additional amounts for late payment had been added under s 221F(12)(b)(ii)(A) and (B) of the Tax Act. Mr Balnaves' contention is that it is not proved that he is the person who was responsible for paying those tax instalment deductions to the Commissioner, and so is not a debtor in respect of them. Alternatively, he contends that if he became responsible for paying those amounts, then that responsibility arose only when he was obliged to pay those amounts to the Commissioner under s 221F(5) of the Tax Act, and by 30 January 1997 his liability to have paid the tax instalment deductions did not amount to, or exceed, $2,000 so the qualifying amount specified in s 44(1)(a) of the Act is not met. The basis of Mr Balnaves' position is that the practice was conducted at all material times by "The Balnaves Family Trust" ("the Trust"), and it is the Trust which is responsible for the debt to the Commissioner. Alternatively, he says that Cummings Corporation Pty Ltd (in liq) ("Cummings") is responsible for the debt. Cummings was for a time trustee of the Trust, and the registered group employer. Although Cummings ceased to be the trustee of the Trust on 1 December 1995, and Mr Balnaves was then appointed its trustee, he says that because Cummings continued to be the registered group employer it remained liable for the tax instalment deductions after 1 December 1995, at least until 12 November 1996. On 12 November 1996, Cummings was wound up. It did not trade, nor act in any respect for the Trust, thereafter. Mr Balnaves says that if he, as trustee, then became responsible for the payment of the tax instalment deductions to the Commissioner, for the period 12 November 1996 to 30 January 1997, that responsibility did not amount to $2,000. Principally, however, he asserts that the liability was not of himself as the trustee but of the Trust. As trustee, he has the usual right of indemnity under the Trust deed against the assets of the Trust. In my judgment, the affairs of the Trust were conducted by Mr Balnaves as its trustee from 1 December 1995. There is no evidence of any other arrangement. Mr Balnaves was a director of Cummings. Upon its winding up, on 8 April 1997 he provided information under his hand to its liquidator. That information included that Cummings' assets as trustee were transferred in December 1995, that it did not owe any tax instalment deductions to the Commissioner, and that it held no records relating to the affairs of the Trust, including any salary or wages records. The Report as to Affairs, also signed by Mr Balnaves on 8 April 1997, is to the same effect. The consequence of that finding is that Mr Balnaves as trustee was the legal owner of the assets of the Trust, and is personally responsible for debts that he incurred in carrying out the affairs of the Trust: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 324; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367. The Trust itself has no legal personality, but is "… no more than a collection of duties, disabilities, rights and powers in relation to some specific property imposed upon or accorded to an existing legal person, the trustee" (Ford and Lee, Principles of the Law of Trusts, LBC 1996, par 1560).