FEDERAL COURT OF AUSTRALIA Cumins v Deputy Commissioner of Taxation [2006] FCA 1847 BRIAN CUMINS v DEPUTY COMMISSIONER OF TAXATION WAD 229 OF 2006 SIOPIS J 1 December 2006 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 229 OF 2006 BETWEEN: BRIAN CUMINS Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: SIOPIS J DATE OF ORDER: 1 December 2006 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The application is dismissed. 2. The applicant pay the respondent's costs, to be taxed if not agreed. 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 229 OF 2006 BETWEEN: BRIAN CUMINS Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: SIOPIS J DATE: 1 December 2006 PLACE: PERTH REASONS FOR JUDGMENT 1 The respondent has issued and served bankruptcy notice number 122 of 2006 on the applicant. The bankruptcy notice is based on the judgment of the Supreme Court of Western Australia in CIV 1171 of 2001, dated 15 June 2005. 2 The applicant seeks orders that the Court set aside the bankruptcy notice under s 30 of the Bankruptcy Act 1966 (Cth) ('the Act'); or alternatively that, under s 41(6A) of the Act, the Court extend the time for compliance with the notice, until such time as the applicant's appeal to the Supreme Court against the judgment has been heard and disposed of, and that the respondent be restrained from issuing a bankruptcy notice against the applicant, based on the judgment, until further order. 3 The matter comes before the Court as a review of the decision of a Registrar of this Court. The application to set aside the bankruptcy notice 4 The bankruptcy notice was dated 17 March 2006 and claimed the sum of $38 051 066.24. The Supreme Court judgment was for an amount of $38 084 522.24, but the amount claimed in the bankruptcy notice was for a lesser amount, because a deduction of $33 456, for payment made or credits given, was made. The applicant says that there was an overstatement of the amount claimed in the bankruptcy notice, because the notice should have deducted as a payment made or credit given, a further amount of $9516. 5 The evidence showed that on 14 August 2005, which was after the date of the judgment, but before the date of the bankruptcy notice, Cash Converters International Limited lodged with the respondent a group certificate in respect of PAYG deductions which it had made and remitted to the respondent during the tax year ending 30 June 2005, in respect of the applicant. The group certificate reflected that the sum of $9516 had been deducted and remitted. The bankruptcy notice did not make any deduction in respect of that sum; and, the applicant said that there was, therefore, an overstatement of the amount claimed in the bankruptcy notice. The applicant referred to s 6‑10 and Div 18 of Sch 1 of the Taxation Administration Act 1953 (Cth) ('the TAA') and to the case of SGRO v Liberty Funding Pty Ltd (2004) 207 ALR 625 in support of his contention that he was entitled to a deduction in respect of the $9516 which should have been reflected in the bankruptcy notice. 6 Counsel for the respondent contended that the validity of the bankruptcy notice was not affected by the failure to deduct the sum of $9516. Counsel relied upon Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 ('Walsh') in support of the submission that a bankruptcy notice speaks from the date of its issue; and, therefore, any payments made by the debtor between the date of the 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. 7 Counsel for the respondent went on to refer to s 18‑15(1) of Sch 1 of the TAA which deals specifically with the position in relation to PAYG withholding payments, and states: 'A person is entitled to a credit equal to the total of the amounts withheld from withholding payments made to the person 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 person for the income year.' 8 The last date for lodging the applicant's income tax return for the 2005 tax year was 30 July 2006. The applicant's tax return was actually lodged on 17 July 2006 and the respondent issued an assessment in respect of the 2005 tax year on 21 July 2006. This assessment reflected a credit of $9516 in respect of the PAYG deductions. 9 The respondent contended that the effect of s 18‑15(1) of Sch 1 of the TAA, was that the applicant only became entitled to a credit in respect of the $9516 PAYG deductions which had been made and remitted in respect of the 2005 tax year on 21 July 2006 – which was when the assessment was made in respect of that tax year. It followed, said the respondent, that, as the lodging by the applicant of his tax return for the 2005 tax year, and the attendant assessment, occurred after the date of the issue of the bankruptcy notice on 17 March 2006, the credit could not, on the principle in Walsh, have the effect of invalidating the bankruptcy notice. 10 Counsel for the applicant, however, submitted that the TAA and the Act comprised two different statutory regimes; and that I should not give effect to the provisions of the TAA in assessing, whether for the purposes of the Act, the bankruptcy notice was invalid because it failed to include the sum of $9516. Rather, I should accept that there was a progressive reduction of the debt due by the applicant, as PAYG withholding instalments were remitted throughout the 2005 tax year. 11 I reject the applicant's submission. In my view, the question of when the credit in respect of the PAYG deductions accrued to the applicant is to be assessed by reference to s 18–15(1) of Sch 1 of the TAA. There is no reason not to give effect to that statutory provision. It follows that the applicant only became entitled to the credit once the assessment was made for the tax year in respect of which the PAYG deductions were made. In those circumstances, I find that at the time of the issue of the bankruptcy notice on 17 March 2006, the sum of $9516 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. The bankruptcy notice did not, therefore, overstate the amount due and was not invalid. I decline to set it aside. 12 I note, in passing, that when the assessment for the 2005 tax year was made, the credit of $9516 was, in fact, substantially exceeded by other amounts payable which had accrued on the amount due on the tax debt for the 2004 tax year. Extension of time 13 The next issue is whether there should be an extension of time for the applicant to comply with the bankruptcy notice. The Court has power to extend time under s 41(6A) of the Act, which provides: 'Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice: (a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or (b) an application has been made to the Court to set aside the bankruptcy notice; the Court may, subject to subsection (6C) extend the time for compliance with the bankruptcy notice.' 14 Section 41(6C) provides as follows: 'Where: (a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and (b) the Court is of the opinion that the proceedings to set aside the judgment or order: (i) have not been instituted bona fide; or (ii) are not being prosecuted with due diligence; the Court shall not extend the time for compliance with the bankruptcy notice.' 15 This application was made on 14 August 2006 ‑ before the time fixed for compliance with the requirements of the bankruptcy notice had expired. 16 Before the Registrar, there was an issue as to whether the application made by the applicant to the Supreme Court on 23 August 2006, for leave to extend time within which to appeal against the Supreme Court judgment, fell within the definition of 'proceedings' for the purpose of s 41(6A)(a) of the Act. However, before this Court the respondent has not sought to rely upon that point. I, therefore, do not need to consider that issue, and will proceed on the basis that the application for the extension of time within which to appeal, filed in the Supreme Court, constitutes 'proceedings' for the purpose of s 41(6A)(a) of the Act. 17 There are a number of matters which I take into account in considering whether, for the purpose of doing justice to the parties, the time for compliance with the bankruptcy notice should be extended, so as to permit the applicant's proceedings in the Supreme Court to run their course. 18 First, the bankruptcy notice was based on a judgment which was obtained as a summary judgment in the Supreme Court before Master Sanderson on 15 June 2005, without opposition from the applicant. 19 The progress of matters which led to the obtaining of that judgment are set out in the affidavit of Nola Kathleen Rice sworn 16 November 2006. This affidavit shows that in 2000 the respondent made amended assessments in respect of the applicant. The applicant objected to each of those amended assessments, the respondent disallowed the objections, and the applicant commenced proceedings in the Administrative Appeals Tribunal ('the AAT') to review the respondent's decisions. 20 On 15 August 2002, the respondent brought an application for summary judgment against the applicant in a Supreme Court action which was founded on the tax debts arising from the amended assessments. On 10 January 2003, Acting Master Dixon granted the applicant leave to defend, primarily based upon the fact that the applicant was proceeding in the AAT to challenge the amended assessments and the disallowance of the objections. The AAT matters were listed for a three week hearing commencing on 14 February 2005. On 3 February 2005, the applicant filed a notice of withdrawal. The consequence of that withdrawal under the Administrative Appeals Tribunal Act 1975 (Cth) was that the applications for review were taken to have been dismissed. 21 On 17 February 2005, the respondent's solicitors wrote to the Supreme Court requesting that the Supreme Court action be listed for a status conference. On the same day the solicitors also wrote to the applicant's solicitors, who are not the same solicitors representing the applicant today, saying that they were instructed to proceed with a further application for summary judgment on the assessed tax debt at the earliest opportunity and said: 'However, as your client plainly has no defence and in order to avoid unnecessary costs, we invite your client to consider consenting to judgment in the appropriate terms.' 22 On 1 March 2005 the applicant's solicitors replied to the following effect: 'Our client does not consent to judgment and expects your client to move for judgment. Our client will not be opposing judgment or taking any further steps in the matter.' 23 That is what happened. The summary judgment application then went before Master Sanderson and on 15 June 2005 judgment was given by Master Sanderson without opposition by the applicant. 24 Secondly, no attempt was made by the applicant to stay the Supreme Court judgment. There is evidence that after the judgment was obtained there were some discussions and negotiations between the parties with a view to the applicant entering into an arrangement under Pt X of the Act, but those broke down. However, no application was made to stay the judgment, whilst those negotiations were in progress, or at all. It was only after the bankruptcy notice had been issued and served on the applicant, and this application had been commenced, that the applicant first took steps in the Supreme Court to challenge the Supreme Court judgment, by applying for leave to extend the time to appeal against the Supreme Court judgment. 25 Thirdly, there has been a considerable delay in bringing the application to extend time to appeal against the Supreme Court judgment, which is not properly explained in the affidavits. The applicant refers in his evidence to meetings with representatives of the respondent after the judgment was obtained. However, the evidence reveals that the representatives of the respondent made no commitment that they would withhold issuing a bankruptcy notice, nor that they would participate in a proposed arrangement under Pt X of the Act. 26 The fourth factor, which I take into account, is the merits of the application to the Supreme Court. The ground upon which the applicant wishes to impugn the Supreme Court judgment is that the amended assessments upon which the respondent relied were tainted with fraud. The applicant contends that he was induced to invest in schemes, which were called 'infomercial schemes', by the fraud of the promoters of the infomercial schemes. The applicant contended that in Australian Securities and Investments Commission v Infomercial Management Group [2002] VSC 262 ('Infomercial') the Court found that the promoters of those schemes had contravened the Corporations Act 2001 (Cth); and that the judge had in his reasons observed that the schemes were 'a fraud on the investors, if not on the Australian Taxation Office'. The applicant also said that the respondent had been investigating the activities of the schemes' promoters prior to the applicant's investment in the infomercial schemes and the respondent should have taken steps to inform him of those investigations. The applicant submitted that he should be entitled to contest the assessments, because it had never been determined before whether the infomercial projects, as a business, were capable of giving rise to tax deductions, and, therefore, whether the assessments could properly have been issued. Further, the applicant submitted that other members of the public had invested in these schemes, and, so, as a matter of public policy, he should be entitled to impugn the assessments. 27 The applicant also complained that he has not had an opportunity to look at documents which he says would assist him in advancing his case. 28 Section 175 and s 177 of the Income Tax Assessment Act 1936 (Cth) state that the production of a notice of assessment is conclusive evidence of the due making of the assessment and, except in proceedings for review or appeal, that the amount and all the particulars of the assessment are correct. It was open to the applicant to challenge the amended assessments at the appropriate time and in the appropriate forum. The judgment of the Supreme Court of Victoria, Infomercial, was delivered in 2002, and the AAT proceedings were only withdrawn in 2005, three years later. The applicant, therefore, had sufficient opportunity to raise before the AAT all of these issues and to take such steps as he needed in order to raise the issues, which he now belatedly says he wants to raise. He could even have tried to raise these issues in opposition to the summary judgment application in the Supreme Court, although his prospects of successfully doing so would have been low. 29 In my view, the applicant's prospects of successfully persuading the Court of Appeal of the Supreme Court to extend the time within which to appeal, and to allow the appeal, are very low. 30 In weighing up these factors, I am not persuaded that, in the interests of justice to the parties, the time for compliance with the bankruptcy notice should be extended. I, therefore, decline to exercise my discretion to extend the time for complying with the requirements of the bankruptcy notice. 31 Had I been required to do so, I would also have come to the view that the proceedings to set aside the Supreme Court judgment had not been instituted bona fide. I would have drawn the inference that the application in the Supreme Court to extend time to appeal was made as a means of providing an additional ground upon which to seek to delay compliance with the bankruptcy notice. 32 My main reason for holding that view is the timing of the application to the Supreme Court to extend the time to appeal. No steps were taken to stay, appeal, or seek leave to extend the time to appeal, the judgment of Master Sanderson until after the commencement of this application to set aside the bankruptcy notice, and, indeed until, after the first mention of the application to set aside the bankruptcy notice, which took place on 22 August 2006. In addition, there is, in my view, an absence of any satisfactory explanation for this delay. 33 Another factor that would have contributed to my drawing of the inference, is the absence of merit in the application for leave to extend time to appeal, particularly as the grounds now sought to be relied upon were open to the applicant to rely upon as part of the AAT proceedings, but instead he chose to withdraw the proceedings. 34 For those reasons, I, therefore, dismiss the application of the applicant. I certify that the preceding thirty‑four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate: Dated: 30 January 2007 Counsel for the Applicant: Mr K Dundo Solicitor for the Applicant: Q Legal Counsel for the Respondent: Mr L P Rayney Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 1 December 2006 Date of Judgment: 1 December 2006