Capital Holdings Pty Ltd v Deputy Commissioner of Taxation [2011] NSWSC 450

Supreme Court New South Wales

Medium Neutral Citation: Capital Holdings Pty Ltd v Deputy Commissioner of Taxation [2011] NSWSC 450 Hearing dates: Tuesday 5 April 2011 Decision date: 18 May 2011 Jurisdiction: Equity Division Before: Associate Justice Macready Decision: I dismiss the proceedings with costs. Catchwords: Corporations - Winding up - Winding up in insolvency - Statutory demand - Application to set aside demand - demand made pursuant to DCT notice of assessment - mere existence of an objection not sufficient ground to set aside demand Legislation Cited: Corporations Act 2001 (Cth) sections 459 G, 459H(1)(a), 459J(1)(b) Income Tax Assessment Act 1997 (Cth) Taxation Administration Act 1953 (Cth) Part IVC, sections 8AAZJ, 14ZZM, 14ZZR, 105-5, 105-5(1), 105-20, 105-40, 105-100 Cases Cited: Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 Category: Principal judgment Parties: Capital Holdings Australia Pty Limited v DCT Representation: Counsel: Ms Rose Caporale appeared in person for plaintiff Mr David Jay for Deputy Commissioner of Taxation Solicitors: ATO Legal Branch File Number(s): 2010/145959

Judgment 1This is the hearing of an application under section 459 G of the Corporations Act 2001 (Cth) in which the plaintiff company seeks to set aside a statutory demand served upon it by the Deputy Commissioner of Taxation ('DCT'). Miss Rosa Caporale appeared for the plaintiff, as an authorised officer thereof without objection from the defendant. 2The demand served on the plaintiff is dated 19 May 2010 and IT claims an amount of $310,883.32. The debt comprises an amount for a Running Balance Account deficit debt in respect of the BAS provisions of the Income Tax Assessment Act 1997 (Cth). 3The background to the matter is that the company, which was connected with certain land developments, lodged BAS returns that resulted in credits being paid by the Australian Taxation Office ('ATO') to it. Copies of the BAS are in evidence. 4The DCT undertook an audit of the company. As a consequence of that audit, the DCT determined the company was not entitled to any of the credits claimed. 5The company was notified when the ATO audit was complete and it was provided with: (a)Reasons for the DCT's conclusions; (b)Notices of assessment of a net amount; and (c)Notices of assessment of penalty. 6An objection to the Commissioner's decision was lodged on 7 February 2009. The Commissioner has not yet dealt with it. 7The plaintiff in its application suggests that there is a genuine dispute about the amount of its liability, the subject of the assessment and the running balance account. It led evidence in respect of two major projects, which it says the dispute centres around, to show that they are genuine and says that the views of the Commissioner, as exemplified in his audit, are wrong. The plaintiff also suggests that the matter being the subject of an objection that has not been dealt with by the Commissioner, also justifies the dismissal of the proceedings. 8It is necessary to examine the legislative background to see if the plaintiff's approaches of are available to it within the framework of the legislation. 9Pursuant to Taxation Administration Act 1953 (Cth) s 105-5(1) the Commissioner may make an assessment of the "net amount" in respect of a taxpayer for a tax period. Notice of the assessment must be given: s 105-20. An assessment may be amended at any time: s 105-25. Section 105-40 permits the taxpayer to lodge objections to a decision under s 105-5 in the manner set out in Part IVC. 10Section 105-100 of Taxation Administration Act 1953 (Cth) provides as follows: " 105-100 Production of assessment or declaration is conclusive evidence The production of: (a) a notice of assessment under this Part; or (b) a declaration under: (i) section 165-40 or subsection 165-45(3) of the *GST Act; or (ii) section 75-40 or subsection 75-45(3) of the Fuel Tax Act 2006 ; is conclusive evidence: (c) that the assessment or declaration was properly made; and (d) except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment or declaration-that the amounts and particulars in the assessment or declaration are correct." 11As previously mentioned, the company lodged objections with the ATO to the notices of assessment in February 2009 under Pt IVC of the Taxation Administration Act 1953 (Cth). Those objections have not yet been determined. 12Objections lodged with the ATO are not "proceedings under Pt IVC" and so have no effect on the conclusive evidence provisions of section 105-100(d). 13It was submitted that section 105-100 is a conclusive evidence provision which applies to GST assessments: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [33]. The effect of a conclusive evidence provision is that the amounts and all of the particulars of the assessments or declarations leading to the debts stated in the demands are correct: FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360; Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857. 14There has been tendered in evidence a certificate under section 8AAZJ of the Taxation Administration Act 1953 (Cth). That certificate is in the following form: "Pursuant to Section 8AAZJ of the Taxation Administration Act 1953 I hereby certify that: In relation to proceedings 2010/145959 in the Supreme Court of NSW at Sydney for recovery of RBA deficit debts against Capital Holdings Pty Ltd A.C.N. 107 319 139 1. No tax debts (other than general interest charge on the RBA deficit debts) were allocated to the RBA after the balance date of 19 May 2010 shown on the statement; (being the date of issue of the creditors' statutory demand on the company) 2. No payments and credits have been allocated to the RBA since 19 May 2010 3. As at 4 April 2011, the RBA deficit debt owed by the company is $355,786.79." 15Section 8AAZJ is in the following form: " 8AAZJ Evidentiary certificate about RBA transactions etc. (1) In proceedings for recovery of an RBA deficit debt, a Commissioner's certificate stating any of the following matters in respect of a 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 the certificate. (2) In this section: Commissioner's certificate means a certificate signed by the Commissioner or a delegate of the Commissioner, or by a Second Commissioner or Deputy Commissioner." 16As pointed out in submissions in Broadbeach , the High Court heard an application by three companies in respect of, inter alia, unpaid running balance account deficit debts for GST, interest and penalties. The respondents lodged objections to assessments made by the ATO. The objections were disallowed. The companies then commenced review proceedings in the Administrative Appeal Tribunal. The ATO issued statutory demands against the companies. The review proceedings were pending when the application to set aside the statutory demands was heard. The trial judge ordered that the statutory demands be set aside pursuant to ss 459H(1)(a) and 459J(1)(b) of the Corporations Act . The Deputy Commissioner's appeal to the Court of Appeal was dismissed. 17On the conclusiveness of the certificate the High court said the following: "57. Nothing turns upon the attribution to a s 459G application of the character of a proceeding in which, as Keane JA said, a tax debt may be disputed by the applicant taxpayer. Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment and of the GST declarations conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct ( Administration Act , Sch 1, s 105-100; Assessment Act , s 177(1)) . That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner. 58. The matter was explained, with respect correctly, by Williams J in Bluehaven Transport Pty Ltd v Deputy Federal Commissioner of Taxation (2000) 157 FLR 26 at 32. The use by the Commissioner of the statutory demand procedure in aid of a winding up application is in the course of recovery of the relevant indebtedness to the Commonwealth by a permissible legal avenue. The phrase "may be recovered" in ss 14ZZM and 14ZZR of the Administration Act applies to the statutory demand procedure. That state of affairs places the existence and amounts of the "tax debts" outside the area for a "genuine dispute" for the purposes of s 459H(1) of the Corporations Act . " 18Accordingly there can be no genuine dispute as asserted by the plaintiff. The question remains as to whether there is room for the application of section 459J(1)(b) of the act because the commissioner has acted oppressively. On this aspect, the majority of the Court in Broadbeach said: "59. Something should be added respecting the additional alternative ground found in para (b) of s 459J(1) of the Corporations Act . That was that the statutory demands were to be set aside because the Court of Appeal and the primary judge were "satisfied" that, although there were no defects in the demands, there was "some other reason" to set them aside. 60. It first should be observed that the hypothesis in the present appeals must be, in accordance with what has been said above, that there is no "genuine dispute" within the meaning of s 459H(1). Both the primary judge and the Court of Appeal emphasised the importance of the disruption to the taxpayers, their other creditors and contributories that would ensue from a winding up, together with the absence of any suggestion that the revenue would suffer actual prejudice if the Commissioner were left to other remedies to recover the tax debts. But these considerations are ordinary incidents of reliance by the Commissioner upon the statutory demand system. 61. Keane JA, expressing disapproval of what had been said to the opposite effect by Olney J in Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation (1995) 31 ATR 188 at 193, held that the scope of the discretion conferred by para (b) of s 459J(1) should be determined by the subject matter and purposes of the Corporations Act, to the exclusion of "the tax law" ((2007) 25 ACLC 1341 at 1361). But, as remarked earlier in these reasons, Pt 5.4 contemplates that the "debts" in respect of which statutory demands may issue will include "tax debts" in the sense given to that expression in these reasons. The "material considerations" See House v R (1936) 55 CLR 499 at 505 ; [1936] HCA 40 which are to be taken into account, on an application to set aside a statutory demand, when determining the existence of the necessary satisfaction for para (b) of s 459J(1) must include the legislative policy, manifested in s 14ZZM and s 14ZZR of the Administration Act , respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings. 62. The result is that the exercise of discretion by the primary judge under s 459J(1)(b) miscarried, and the Court of Appeal erred in upholding and supplementing it. Against the possibility of this Court so concluding, the respondents submitted that the matter should be remitted to the Supreme Court for re-exercise of the discretion under that provision. However, no fresh ground upon which the respondents might then succeed was suggested beyond reference to the time which has elapsed and the progression of the Pt IVC proceedings towards determination. But such a consideration, if it were supported by evidence of the state of progression of the Pt IVC proceedings, would be relevant in the operation of Pt 5.4 of the Corporations Act , if at all, at the later stage of the hearing of any winding up application. There should be no re-exercise of the discretion conferred by s 459J(1)(b)." 19It can be seen that the mere existence of an objection and nothing more, would not constitute oppression or an abuse when one has regard to the policy manifested in ss 14ZZM and 14ZZR of the Taxation Administration Act 1953 , respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings. 20In these circumstances, I do not think that there is any ground available to the plaintiff and I dismiss the proceedings with costs.