Deputy Commissioner of Taxation v Dean Gallagher Developments Pty Ltd [2006] FCA 1822

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Dean Gallagher Developments Pty Ltd [2006] FCA 1822

DEPUTY COMMISSIONER OF TAXATION v DEAN GALLAGHER DEVELOPMENTS PTY LTD ACN 061 721 686 QUD 205 OF 2006

DOWSETT J

1 DECEMBER 2006

BRISBANE IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD 205 OF 2006

BETWEEN: DEPUTY COMMISSIONER OF TAXATION

Applicant

AND: DEAN GALLAGHER DEVELOPMENTS PTY LTD

ACN 061 721 686

Respondent

JUDGE: DOWSETT J

DATE OF ORDER: 1 DECEMBER 2006

WHERE MADE: BRISBANE

THE COURT ORDERS THAT:

1. Dean Gallagher Developments Pty Ltd ACN 061 721 686 be wound up pursuant to the provisions of the Corporations Act 2001 (Cth); 2. Gregory Michael Maloney and Peter Ivan Felix Gerrof of Ferrier Hodson, Level 7, 145 Eagle Street, Brisbane, be appointed as liquidators to act jointly and severally; 3. Anything that is required or authorized by the said Act to be done by the liquidators, is to be done by all or one of them, and any action by one of them is to be the action of all of them; 4. The applicant's costs, including reserved costs, are to be costs in the liquidation. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD 205 OF 2006

BETWEEN: DEPUTY COMMISSIONER OF TAXATION

Applicant

AND: DEAN GALLAGHER DEVELOPMENTS PTY LTD

ACN 061 721 686

Respondent

JUDGE: DOWSETT J

DATE: 1 DECEMBER 2006

PLACE: BRISBANE

REASONS FOR JUDGMENT 1 Until September 2004 the taxpayer, Dean Gallagher Developments Pty Ltd, carried on business in partnership with the Halfpenny Family Trust in developing and selling land. It was also involved in other business ventures. It was voluntarily deregistered in December 2004 at which time Mr Gallagher, one of its directors, indicated that its assets amounted to less than $1 000. 2 This case is primarily concerned with the income tax year ended 30 June 2004. It seems to be accepted, although it may not be in evidence, that the Commissioner initially assessed the company's tax liability for that year in such a way that the Commissioner owed it money. On 2 December 2005 the Commissioner decided to audit the affairs of the company and wrote to the public officer, Mr Gallagher, indicating his intention to do so. By that time, the company had been deregistered. As a result of the audit, the Commissioner formed the view that certain amounts claimed as deductions in the 2004 return were not properly deductible. That view appears to have been based upon the fact that the company's BAS statements did not disclose the amounts. On that basis, the Commissioner proposed to issue an amended assessment for the 2004 tax year. However he took the view that he could not do so until the company was returned to the Register and so, on 15 June this year, he applied for an order that the company be reinstated and for an order that it be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (the "Act"). On 16 October this year, I ordered that the company be reinstated to the register and adjourned the application for winding up to Monday, 27 November 2006. The matter was argued and adjourned until today. Following reinstatement, the Commissioner issued an amended assessment for the income tax year ended 30 June 2004 which shows the amount payable as $251 516.10, due for payment on 31 March 2005. 3 Pursuant to s 177 of the Act, the production of a notice of assessment, or of a document under the hand of the Commissioner purporting to be a copy of a notice of assessment, is conclusive evidence of the due making of the assessment, and except in proceedings under Part IVC of the Taxation Administration Act 1953 (Cth), on a review or appeal relating to the assessment, that the amount and all particulars of the assessment are correct. This provision may have the effect that the amount was payable in accordance with the amended assessment at a particular date, notwithstanding the fact that there was, at that time, no assessment. The question is relevant only to the standing of the Commissioner to apply for a winding-up order, given that at the time at which he filed the original application for winding-up (15 June 2005), there was no assessed debt and so, as it would seem, the relevant tax was not due and payable. However he was, at that time, a contingent or prospective creditor. The Commissioner is entitled to petition on that basis, provided that he has the leave of the court. Such leave will only be granted if insolvency is demonstrated. I am satisfied that insolvency is demonstrated in that the company has no assets, and there is clear evidence of the Commissioner's debt. Section 3-5 of the Act makes it clear that there is a liability for tax, notwithstanding the fact that no assessment has been made. 4 The taxpayer resists winding-up upon the basis that it has sought review of the assessment, and such review has not yet been completed. However s 177 of the Act establishes that the assessment is conclusive evidence of the debt. It does not follow, however, that the Court would necessarily exercise its discretion in favour of making a winding-up order where the taxpayer demonstrates a bona fide intention to prosecute an application for a review of the assessment or to appeal against it. The taxpayer asserts that it intends to do so. 5 The basis for the re-assessment was the Commissioner's determination that deductions claimed in the 2004 return should be disallowed. In the letter of 2 December 2005 the Commissioner had asked the public officer of the taxpayer to provide financial statements for the income years 2002 to 2005, including balance sheets, profit and loss statements, trading account statements, general ledger, general journal and chartered accounts. A subject of particular interest was said to be: 'Any deductions, claims, related to contributions to Atlas Corporate Trustees and Corporate Business Centres International.' 6 In response to this inquiry Mr Gallagher, the former public officer, provided a three-page letter dated 9 January 2006 as follows: 'I do not believe that I have made any personal payments to (Atlas Corporate Trustees). If such payments were made they were made by the de-registered entity then Gallagher Developments Pty Ltd. I am not sure that I am able to answer, as the public officer of an entity, that it is no longer in existence, but for the purposes of assisting the Commissioner's inquiries, I guess that a $10,000-odd payment was made for the purchase of the Magestic Trustee, the deed of which I include. For the reasons outlined below, this is only speculation, and I have no confidence in the answer. As to any other supporting documents in relation to the payment, I answer this in relation to the company information request below.' 7 In connection with Dean Gallagher Developments Pty Ltd, the letter stated: 'Again, I state that I am not sure what my capacity is to provide answers in respect of a de-registered entity, but to further your inquiries I state as follows: (1) I do not recall any deduction being claimed in relation to the payments to either Corporate Business Centres International Ltd or Atlas Corporate Trustees Ltd. (2) To my best recollection, Atlas Corporate Trustees Ltd was the trustee of a New Zealand superannuation fund. (3) I do not recall that a deduction was needed for the company. (4) I do recall that Mr Dailey promoted a range of investment opportunities which he believed were better conducted from a superannuation fund with Atlas Corporation Trustees Ltd because it had an advantage under New Zealand law which allowed it to accumulate earning in a tax effective manner. (5) The investments range from the exotic (such as investments in a special economic zone in Laos to an on-line discount travel company) and ordinary fund investments. (6) I was told it was essential that the trustee made the decisions independently, and accordingly, since the liquidation of Atlas Corporate Trustees Ltd, I have not been able to get any information. I have no one to contact. (7) I recall that the general manager was a man called Terry Upton but not been able to get any details from him or locate him. (8) I recall the Corporate International Business Centres Ltd and Professional Administration Centres Ltd were involved from time to time in putting together the investment proposals and providing information, but since the liquidation of these entities I again have no means of obtaining any further information. (9) All my details were with ITP Southport and Ian Dailey was at the time actively involved in the conduct of these matters. (10) I am not able to provide you any further information. I have no records as when the company was to be de-registered. I gave all records, including whatever electronic disks there were, to Ian Dailey's staff at ITP Southport to ensure that all steps necessary were taken so that any outstanding liabilities that I was not aware of were met. They assured me that they had reviewed the files and there were no outstanding liabilities, and it was appropriate to de-register the company that was no longer being used. I have since upgraded computers and thrown out the old computer which probably did have copies on the hard disk. I was at that time confident that ITP Systems were able to store the documents satisfactorily as they do for many tens of thousands of taxpayers. (11) Since your inquiries have commenced, I have taken several steps to make sure that all conceivable avenues of inquiry have been pursued to obtain such information as may exist from all sources. To that end I have: Written and attempted to contact Atlas Corporate Trustees Ltd at all known addresses. I have received no further information from that entity. Written and attempted to contact Professional Administration Ltd at all known addresses. I have received no further information from that entity. Written and attempted to contact Corporate International Business Centres Ltd at all known addresses. I have received no further information from that entity. Attempted to contact Terry Upton at all his known addresses. I have received no further information from him. Written to, spoken, and visited Income Tax Professionals in Southport in relation to this matter. I have been advised, and enclose herein my advice in writing, that owing to a flood in June 2005 all my records, including those of many others, were irretrievably destroyed and are no longer available. I have asked that a search be conducted of their computer system for all records relating to myself and the company. Other than the tax return information, they retain no computer information on their hard disks. The attached communication from ITP verifies this matter to me in writing.' 8 As I understand it, the payments (and claimed deductions) which were disallowed were to Atlas Corporate Trustees. In light of the apparent total absence of any records, and in view of the description of the dealings with Atlas as in the nature of investment, it is hardly surprising that the Commissioner formed the view that the status of the payments as deductions was not established. 9 In these proceedings Mr Gallagher has sworn an affidavit in support of the taxpayer's attempt to resist the order for liquidation. He said, as to the question of the deductions: 'In my affidavit of 27 November 2006 at paragraph 11, I swore: in his affidavit, Mr McCabe refers to a number of payments that were made by the company during the financial year ending 30 June 2004. Those payments were made to an entity in New Zealand and were for expenses that occurred in the conduct of the business of the company and I believe that they were all legitimately deductible expenses for taxation purposes. My belief as to their legitimate deductibility for taxation purposes is based upon the advice that I received from my accountants and other business advisors at the time. I am unable to make further comment at this time, because the documentation relating to the payments was destroyed in a flood on 30 June 2005 as referred to in the affidavit of Andrew Daley sworn on 3 August 2006.' 10 Paragraph 9: '9. Whilst as I and my accountant have previously sworn the documents related to this matter were destroyed in a flood that occurred some time after the company was deregistered, being June 2005 I can recall the purpose of the payments. As far as I can recall al of the payments were made to a company incorporated in New Zealand called Atlas Corporate Trustee Limited. 10. I do not recall and cannot produce the documents to evidence every payment, however, I do recall that all of the payments, which are those that are claimed as deductions, were by the company for the payment of expenses relating to a property development managed from New Zealand. It being, as far as I can recall, an obligation under the relevant trust management agreements for the company to pay proportionately with all other investors the ongoing expenses associated with the conduct of the property development. I am unable to obtain a copy of any agreement that exists as I believe that they are in the possession of the Commissioner as a consequence of the seizures that have occurred in New Zealand. 11. Hence the payments were deductions, I believe, under Australian law as being the payment of expenses incurred to earn income, but not subject to any Goods and Services Tax, GST, as they related to any overseas GST exemption transaction. This is why there is a difference between the BAS declarations and the income in the tax returns. This difference, I believe, from reading the reasons of the Commissioner in their position statement being the sole reason for issuing the amended assessments, an action, for the reasons above, that are in my belief ill-conceived. 12. The payments to Atlas were for expenses incurred as a result of a property development with, among others, a company called Diva Ltd. The business of Diva related to the development of property. 13. The investment with Diva failed to return any amount to investors, hence there was no in-flow of moneys back to the company and I did not consider the investment of any value. 14. I am unable to provide further confirmation of the business between the company, Atlas and Diva, because the records of Atlas and Diva have been seized by the Commissioner during the raids referred to in the affidavit of Robert McArdle dated 27 November 2006. These actions by the Commissioner in New Zealand involving the seizure of all of the records of Atlas, Diva and a series of other companies in New Zealand.' 11 There are significant inconsistencies between the content of Mr Gallagher's letter of 9 January 2006 and his affidavit filed on 1 December 2006. In his earlier letter he seems to have asserted that, in fact, no deductions had been claimed in connection with payments by Dean Gallagher Developments to Atlas. However it seems that such deductions had been claimed, and it and Mr Gallagher, in his affidavit, now assert that such claimed deductions are legitimate. Further, he suggested in the letter that his payments to Atlas were for a range of investments. In his affidavit he seems to limit the operation to a particular property development. 12 However that may be, there is a more serious criticism of the company's claim. It is simply that Mr Gallagher seems not to be able to identify any particular payment for any particular purpose which could reasonably be described as likely to be an allowable deduction. He deals with all amounts in gross, without any attempt to break them down, and without any attempt to identify a specific purpose for which any outgoing may have been made. 13 In those circumstances, I conclude that there is no bona-fide dispute as to the Commissioner's reassessment. In those circumstances I see no reason why I should exercise the discretion against proceeding to make a winding up order against the company. 14 I order that the company, Dean Gallagher Developments Pty Ltd ACN 061 721 686 be wound up pursuant to the provisions of the Corporations Law 2001 (Cth). I order that Gregory Michael Maloney and Peter Ivan Felix Gerrof be the liquidators. 15 Anything which is required or authorised by this Act to be done by the liquidator is to be done by all or one of them. 16 The applicant's costs, including reserved costs, are to be costs in the liquidation/ I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.