Reported Decision : 55 ACSR 223 New South Wales Supreme Court CITATION : Kiama Wharf v DCT [2005] NSWSC 929 HEARING DATE(S) : 08/09/2005 JUDGMENT DATE : 14 September 2005 JURISDICTION : Equity Division JUDGMENT OF : Associate Justice Macready at 1 DECISION : Paragraph 44 CATCHWORDS : Corporations Law. Application to set aside statutory demand under s459G of the Corporations Act. Claims by plaintiff taxpayer for remissions of General Interest charges under the Taxation Administration Act 1953. Claims ignored by Commissioner. Demand set aside under s 459J(1)(b) because of oppresive conduct of the Commissioner. PARTIES : The Old Kiama Wharf Company Pty Ltd v Deputy Commissioner of Taxation FILE NUMBER(S) : SC 1590/2005 Mr Colbron of Colbron & Associates SOLICITORS : Mr A Korakis of DCT LOWER COURT JURISDICTION : - 1 - THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ASSOCIATE JUSTICE MACREADY WEDNESDAY 14 SEPTEMBER 2005 1590/05 - THE OLD KIAMA WHARF COMPANY PTY LIMITED v DEPUTY COMMISSIONER OF TAXATION JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand under s 459G of the Corporations Act. The demand was dated 2 February 2005 and claimed an amount of $247,557.72 and was described in the following terms: "Running Balance Account Deficit Debt as at 2 February 2005 in respect of amounts due under the BAS provisions as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 ('the ITAA 1997') [BAS provisions include, generally: the Goods and Services Tax provisions, the PAYG withholding provisions, the PAYG instalment provisions, the Fringe Benefits Tax instalment provisions and the Deferred Company instalment provisions] and the general interest charge payable under section 8AAZF of the Taxation Administration Act 1953 ('the TAA 1953'), being a debt due and payable by the company pursuant to section 8AAZH of the TAA 1953." 2 The case concerns the balance owing under the Business Activity Statement provisions of the Income Tax Assessment Act. As these are continuing provisions the present liability of the plaintiff to the Deputy Commissioner has also changed with the time taken to bring these proceedings on for hearing since their commencement on 21 February 2005. 3 The defendant alleges that at the date of hearing on 8 September 2005 the plaintiff only owed $22,781.72 of the amount claimed in the statutory demand. What that present balance represents in terms of the underlying tax liability is something of a mystery, according to the plaintiff. 4 The parties have been at war before in respect of this liability. Proceedings 2240/04 related to a demand dated 2 March 2004 seeking a debt of $174,383.35 up to 30 September 2003. The plaintiff paid the amount, which included all general interest charges. These interest charges approximated $39,000 and were paid under protest. An application to the Tax Office for a full or partial remission of these charges has been made. The Taxation Office has not responded to that request. 5 The plaintiff says there is a genuine dispute on two grounds: (a) In relation to the amount of interest charged on the running balance; (b) Because the Commissioner has not credited the running account by substituting for estimates of liability for payee withholding tax the actual amounts paid or the amounts by which the estimate should be reduced because the taxpayer had supplied an appropriate declaration under s 222AGF of the Income Tax Assessment Act as to what tax was withheld for the relevant period. 6 As to the first claim, although there was reference in the evidence to a request for consideration of the $39,000, the letter is not in evidence and nor are any of the documents which would be the foundation for the claim for reconsideration. It relates - it will be remembered - to the period prior to 30 September 2003. 7 A mere request for consideration in these circumstances is not evidence of a genuine dispute. 8 It was also suggested that there may be some wrong charging of interest in respect of the liability, the subject of the amount of the demand, because of the fact that when estimating PAYE deductions the Commissioner, at a time when the company changed from quarterly to monthly reporting, used the same quarterly amount for a monthly estimate instead of one third of the quarterly amount. It was said this would, on correction of the running balance account, lead to a need to recalculate the interest that has been charged on that wrong estimate. 9 Whether that is so is doubtful as the statutory authority to charge interest in 8AAZF(1) of the Taxation Administration Act 1953, which creates a liability on the deficit each day in the amount without provision for later adjustment. I will return later to the remission provisions. 10 However, there is no information in the evidence which would suggest what would be an appropriate reduction in the calculation or estimate of any relevant sum which would enable me to determine the extent of such a dispute or, if indeed it be an offsetting claim the likely amount of that claim. Also relevant on these arrears are the comments which I make later when I refer to Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379. 11 The second matter of genuine dispute concerns eight estimates of PAYG liability from the period 1 October 2003 to 30 November 2004. Each was for $28,097 and they totalled $224,776. In due course as a result of the supply of statutory declarations the running balance account was charged with the actual liability of the taxpayer and the estimates then needed to be reversed from the account. 12 In an affidavit of 9 June 2005 the director of the plaintiff conceded that four of these estimates were removed from the account but did not know about the other four. The facsimile from the Taxation Office asserted that all eight had been removed. 13 Exhibit 1 is a statement of account upon which the running balance statement issued. It clearly shows the amounts of estimates have been removed and, accordingly, there is no genuine dispute on this amount. Indeed, this is the major reason for the substantial reduction in the amount due under the statutory demand. 14 The plaintiff also seeks to set aside the demand under s 459J(1)(b) of the Corporations Act. There were three reasons advanced: (1) The amount of the demand was so grossly overstated with matters which were in genuine dispute at the time that it should be set aside as an abuse of process. (2) A genuine dispute as to the underlying tax liability. (3) The statutory demand procedure being used to coerce the plaintiff to pay the sum claimed without any adequate explanation of what is now claimed. 15 I turn to the first matter of overstatement. In First State Corporation v Kyling, a decision of Santow J of 2 June 1995, his Honour said: "Where a statutory demand has been so grossly inflated as almost exclusively to comprise matters which it should have been obvious from the outset were in genuine dispute between the parties at the time the demand was served, then an order under s 459J(1)(b) setting aside the demand may well be required to prevent such an abuse of the regime under Pt 5.4. This is even if the substantiated amount remaining above the statutory minimum. The lack of bona fides on the part of the creditor in serving a demand where substantially the whole claim was obviously in dispute might be relevant to this. However, after some consideration, I am satisfied that there were grounds for the Defendant making the contentions she did, though substantially unsuccessful, and that this is not a case where it is appropriate to make such an order." 16 As has been pointed out in Equicorp v Perpetual Trustee Pty Limited (1998) 16 ACLC 12 for a demand to be set aside on this ground under s 459J(1)(b) there has to be an absence of good faith or some abuse of process that would found the discretion. 17 In this case the substantial reduction in the amount of the demand results from the crediting or withdrawal of eight amounts totalling $224,776. That only occurred recently because the company did not lodge the appropriate statutory declarations until 12 May 2005, some months after the demand was issued and well after the statutory period for lodging the declaration had expired. 18 The estimates had been issued in January 2005. There is absolutely no evidence of any absence of good faith or abuse of process. 19 If there was an error, this of itself does not prove an absence of good faith. Far more evidence is required. Accordingly, I would not set the demand aside on this ground. 20 I turn to the second reason, namely, the dispute as to the underlying tax liability. This was not elaborated on in submissions with any particularity, except to the extent of the matters I have dealt with above in relation to a genuine dispute. The amount now claimed to be due in large part comprises general interest charges applied to the plaintiff's running balance account with the Commissioner. 21 The affidavit evidence of the Commissioner did not shed any light on what comprises the balance of the funds said to be due. The exhibit to which I have referred suggests that the major part is general interest charges. The matters which I have dealt with above under a "genuine dispute" would not constitute some other reason to set aside the demand. 22 I turn to the third reason, namely, oppressive conduct. It was submitted that the plaintiff cannot determine how the balance claimed is calculated and in these circumstances it has been coerced to pay the amount. 23 In Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379 Austin J dealt with a claim for penalties where there was a request for their remission. He held that a dispute about the remission of penalties is not a dispute about the existence or amount of the debt constituted by the penalties. The same obviously applies for the reasons which he gave to the request for remission of the general interest charges. He went on to observe the following in respect of s 459J(1)(b): "54. Sub-paragraph (b) nevertheless has an important role to play in circumstances such as the present, as the Full Court's remarks in The Hoare Bros case (at 4174) indicates. The policy underlying s 459H is that the statutory demand procedure should not be used to coerce a person to pay a disputed amount. A statutory demand is not an instrument of debt collection. By analogy, the Commissioner should not use the statutory demand procedure to apply coercive pressure to a taxpayer who genuinely objects to the Commissioner's decision. To do so would be to take unfair advantage of those provisions of the taxation legislation (such as ss 14ZZM and 14ZZR of the TAA) which say that an amount owing in consequence of the Commissioner's decision is recoverable, notwithstanding that an objection has been lodged against the decision. 55. If the Commissioner decides not to wait the outcome of the objection, the proper course will often be for him to take proceedings for recovery of the debt rather than to summon up the spectre of liquidation by issuing a statutory demand. If the Court forms the view that the Commissioner has acted oppressively or unfairly by issuing a statutory demand in such circumstances, the appropriate course is for the Court to set the demand aside under s 459J(1)(b). By doing so the Court does not deny that the debt is recoverable although an objection has been made, but it thereby insists that the statutory demand procedure should not be used to apply pressure for payment of an amount which might ultimately be found not to be payable." 24 As I have also recounted, the payments for settlement of the last proceedings included payment of general interest charges of $39,000, which were paid under protest, and a request was made for remission of penalties. There has been no response to that request. 25 A substantial part of the plaintiff's claim in these proceedings is that there should be a re-consideration of the interest charges both in respect of the $39,000 and the current interest charges. 26 On 7 July 2005 the solicitor for the plaintiff wrote to the Deputy Commissioner for Taxation asking, inter alia, for details of how the sum of $22,975.87 was calculated. There was no response to that letter, and at the hearing the affidavit of debt only gave the following explanation: "4. The sum of $22,781.72 remains due and payable and consists of the sum of $247,557.72 claimed in the 459E Statutory Demand, less the sum of $224,776.00 being payment and/or credits applied between 2 March 2004 and 8 September 2005." 27 Given the lack of information in the statutory demand which I have set out above, there is just no explanation of what the sum represents. 28 Exhibit 1 does not give the detail and is absent any explanation other than it was "produced by the computer". One cannot tell from it whether there has been any reconsideration of interest charges and I would infer that there has been none. 29 This approach by the Commissioner for offering no explanation seems to be consistent with the evidentiary provisions in Pt IIB of the Taxation Administration Act dealing with running balance accounts and the Commissioner's ability to recover under s 8AAZH(1) the amount that is due and payable on the account. 30 The evidentiary provisions are as follows: "8AAZI RBA Statement to be evidence 8AAZI(1) [Duly kept and statements correct] The production of an RBA statement: (a) is prima facie evidence that the RBA was duly kept; and (b) is prima facie evidence that the amounts and particulars in the statement are correct. 8AAZI(2) [Definitions] In this section: 'RBA statement' includes a document that purports to be a copy of an RBA statement and signed by the Commissioner or a delegate of the Commissioner or by a Second Commissioner or Deputy Commissioner. 8AAZJ Evidentiary certificate about RBA transactions etc 8AAZJ(1) [Certificate as evidence] In proceedings for recovery of an RBA deficit debt, Commissioner's certificate stating any of the following matters in respect of the specified RBA is prima facie evidence of those matters: (a) That no tax debts (other than general interest charge on the RBA deficit debt) were allocated to the RBA after the balance date shown on a specified RBA statement for the RBA; (b) That general interest charge is payable on the RBA deficit debt, as specified in the certificate; (c) That payments and credits were allocated to the RBA, as specified in the certificate; (d) That a specified amount was the RBA deficit debt on the date of certificate. 8AAZJ(2) [Definitions] In this section: 'Commissioner's certificate' means a certificate signed by the Commissioner of a delegate of the Commissioner, or by a Second Commissioner or Deputy Commissioner." 31 With the benefit of the prima facie evidence which these give the Commissioner can proceed to recover without any explanation or allocation of the amounts to a primary tax liability. As I say he seems to be following the same procedure in this case of ignoring the taxpayer's request for re-consideration and explanation. 32 I hasten to point out that it is the Commissioner's choice as to whether he proceeds to claim an underlying tax debt or by way of the running balance account. In H'Var Steel Services Pty Limited v Deputy Commissioner of Taxation [2005] WASCA 71 the Court rejected an argument that a demand was defective because the running balance account deficit on which the demand was based did not separately identify relevant debts. The Court found the running balance account system did not require the Commissioner to specify separate primary tax and interest charge debts and therefore the single debt due under the running balance account was sufficient for the demand. 33 In that case, however, the Court did not have to consider the problem with which I am faced, namely, whether the Commissioner is acting oppressively or unfairly by issuing the demand without considering the taxpayer's requests. 34 The Commissioner does have power to remit a general interest charged under s 8AAG of the Taxation Administration Act 1953. That section is in these terms: "8AAG(1) The Commissioner may remit all or a part of the charge payable by a person. 8AAG(2) However, if a person is liable to pay the charge because an amount remains unpaid after the time by which it is due to be paid, the Commissioner may only remit all or a part of the charge in the circumstances set out in subsection (3), (4) or (5). 8AAG(3) The Commissioner may remit all or a part of the charge referred to in subsection (2) if the Commissioner is satisfied that: (a) The circumstances that contributed to the delay in payment were not due to, or caused directly or indirectly by, an act or omission of the person; and (b) The person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances. 8AAG(4) The Commissioner may remit all or a part of the charge referred to in subsection (2) if the Commissioner is satisfied that: (a) The circumstances that contributed to the delay in payment were due to, or caused directly or indirectly by, an act or omission of the person; and (b) The person has taken reasonable action to mitigate, or mitigate the effects of, those circumstances; and (c) Having regard to the nature of those circumstances, it would be fair and reasonable to remit all or a part of the charge. 8AAG(5) The Commissioner may remit all or a part of the charge referred to in subsection (2) if the Commissioner is satisfied that: (a) There are special circumstances because of which it would be fair and reasonable to remit all or a part of the charge; or (b) It is otherwise appropriate to do so." 35 It can be seen there is a number of different bases upon which the Commissioner may act. These were discussed in Elias v Federal Commissioner of Taxation 51 ATR 1 [2002] FLA 1132 in these terms: "[44] It is convenient to make some observations as to the operation of subss 8AAG(3), (4) and (5) of the TAA, before turning to the particular grounds on which it is said that an order of review should be made. [45] Sections 8AAG(3) and 8AAG(4) are true alternatives. Section 8AAG(5) is intended to cover cases which are not within subs (3) or subs (4): Finance Facilities Pty Limited v FCT (1971) 127 CLR 106 at 138; 2 ATR 573 at 581; 71 ATC 4225 at 4231. The ambit of the discretion open to the Commissioner depends on which subsection he is proceeding under. The discretion broadens as one moves down the section and is at its broadest when one reaches section 8AAG(5)(b), where the Commissioner may remit all or a part of the GIC if the Commissioner is satisfied that it is 'otherwise appropriate' to do so. [46] If the Commissioner is satisfied as to the matters referred to in one of the subsections, then the Commissioner is required to remit all or part of the GIC. Use of the expression 'the Commissioner may remit' the GIC if satisfied as to specified matters does not confer a residual discretion not to remit all or part of the GIC even if the Commissioner is satisfied as to those matters: Webb v FCT (No 2) (1997) 47 FCR 394 at 404-405; 27 ATR 459 at 469; 93 ATC 5123 at 5131-32. [47] Sections 8AAG(4)(c) and 8AAG(5)(a) each require the Commissioner to be satisfied that it would be 'fair and reasonable' to remit all or part of the GIC. In determining the issue whether it would be fair and reasonable to remit the GIC, the Commissioner is entitled to take into account in the exercise of that discretion the policy of the TAA that additional tax is payable as at a certain date. That is a matter to be weighed in determining the fairness and reasonableness of remission: Webb v FCT at FCR 405; ATR 469; ATC 5132." 36 The fact that there are different discretions to be exercised is relevant when consideration is given to the nature of any refusal by the Commissioner. It should be noted that the Administrative Appeals Tribunal has no jurisdiction to remit the imposition of a general interest charge because the imposition of such a charge is not an assessment. (See Re Pye and FCT (2004) 55 ATR 1024.) 37 As pointed out in Elias the taxpayer has a right to request a remission and the Commissioner has a compounding obligation, if appropriately satisfied, to remit the charge. Clearly any decision would be based upon information provided by the taxpayer and in this sense there is an onus on the taxpayer. 38 There are guidelines published by the Commissioner which can be found in Pt F of the Tax Office's Receivables Policy of April 2003. These point out the obvious, namely, that remissions will not occur if insufficient information is given, or if the taxpayer merely relied on general grounds in the request. They then go on to give detailed guidance in respect of many common situations. 39 In the light of this regime I turn to the evidence before me of any request for remission. The director of the plaintiff has sworn there has been a claim for full or partial remission of the general interest charge for $39,000 which has not been properly responded to by the defendant. There was absolutely no response to this evidence by the defendant. For instance, the defendant did not suggest there had been no such request, or that any request was in such an improper form that it could be ignored by the Commissioner. As the terms of the claim and the evidence that support it are not in evidence, I cannot of course form any view as to whether or not it is likely to succeed. 40 In respect of the general interest charge for the current demand, there has been no request for remission made to the Commissioner, no doubt because of the way matters have unfolded during the course of these proceedings. 41 There have been errors in the estimates made by the Commissioner which is a factual ground upon which a claim might be made but that would need to take account of a number of other factors such as the late supply of the statutory declarations by the plaintiff. 42 Given the statutory right to apply for remission, the fact that such an application was made and effectively has been ignored since the commencement of these proceedings, the circumstances in my view point to an attempt to apply pressure to a taxpayer to force payment of a debt. If there had been some other explanation of the course the Commissioner has followed, that could have been considered in considering these grounds advanced by the taxpayer. 43 No doubt the debt may be recoverable but in these circumstances the statutory demand procedure should not be used. 44 Accordingly, the orders I make are order 1 in the originating process to set aside the statutory demand. I order the defendant to pay the plaintiff's costs. I order the exhibits be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.