Deputy Commissioner of Taxation v McGuire [2013] NSWSC 184

Supreme Court New South Wales

Medium Neutral Citation: Deputy Commissioner of Taxation v McGuire [2013] NSWSC 184 Hearing dates: 4 February 2013 Decision date: 11 March 2013 Jurisdiction: Equity Division Before: Gzell J Decision: Partnership Act 1892, s 60(1) inapplicable. Judgment to be entered for RBA deficit debt including GIC. Catchwords: TAXES AND DUTIES - Running Balance Accounts - limited partnership - Taxation Administration Act 1953 (Cth), Sch 1, s 444-30 - RBA deficit debt including GIC of partnership imposed on partners - whether liability to contribute to the liabilities of the limited partnership under the Partnership Act 1892, s 60(1) Legislation Cited: A New Tax System (Goods and Services Tax) Act 1999 (Cth) Commonwealth Constitution Income Tax Assessment Act 1997 (Cth) Partnership Act 1892 (NSW) Taxation Administration Act 1953 (Cth) Category: Principal judgment Parties: Deputy Commissioner of Taxation (Plaintiff) Bradley Peter McGuire (First defendant) David Matthew Gray (Second defendant) Representation: Counsel: M O'Meara (Plaintiff) V Thomas/ R Withana (Defendants) Solicitors: Australian Government Solicitor (Plaintiff) Jackson Lalic Lawyers (Defendants) File Number(s): SC 2011/136834

Judgment 1These proceedings are brought by a Deputy Commissioner of Taxation for the recovery of an income tax liability with respect to a limited partnership, of which the defendants, Bradley Peter McGuire and David Matthew Gray, were limited partners, each with a liability limit of $5. They submit that that is the extent of their liability to the Deputy Commissioner because of s 60(1) of the Partnership Act 1892 (NSW) (Partnership Act). It was in the following terms: "The liability of a limited partner to contribute to the liabilities of the limited partnership is (subject to this Part) not to exceed the amount shown in relation to the limited partner in the Register as the extent to which the limited partner is liable to contribute." 2Section 50A(1) of the Partnership Act provided that a limited partnership was formed by and on registration of the partnership under the Act as a limited partnership. C & C Combined was registered as a limited partnership under the Act with BM & DG Enterprises Pty Ltd as the general partner and Mr McGuire and Mr Gray as the limited partners. 3The Taxation Administration Act 1953 (Cth) (Administration Act), s 8AAZC provided that the Commissioner might establish one or more systems of accounts for primary tax debts, each of which was to be known as a Running Balance Account (RBA). An RBA might be established for any entity. 4Entity was defined in s 8AAZA of the Administration Act to include a partnership. 5The Commissioner established an RBA in the name of the three members of the C & C Combined limited partnership. 6Section 8AAZD(1) of the Administration Act provided that the Commissioner might allocate a primary tax debt to an RBA that had been established for that type of tax debt. 7Pay as you go (PAYG) liabilities and liabilities under A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) were allocated to the RBA. They were primary tax debts as defined in s 8AAZA of the Administration Act as they were amounts due to the Commonwealth directly under a taxation law. 8The PAYG system is contained in Sch 1 (Schedule) to the Administration Act. Section 12-35 in Division 12 provided that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it paid to an individual as an employee. The limited partnership being an entity for the purposes of the PAYG system was bound by that provision. While the Schedule did not say that a partnership included a limited partnership, s 3AA(2) provided that an expression had the same meaning in the Schedule as in the Income Tax Assessment Act 1997 (Cth) (1997 Tax Act) and s 995-1 of that Act defined a partnership to include a limited partnership. 9Section 16-70 of the Schedule provided that an entity that withheld an amount under Division 12 must pay the amount to the Commissioner. That amount was a primary tax debt of the limited partnership. 10The same position arose with respect to liabilities created under the GST Act. An entity included a partnership under s 184-1 and the dictionary in s 195-1 stated that partnership had the meaning given to it by s 995-1 of the 1997 Tax Act. 11The limited partnership was liable to pay GST on any taxable supply that it made under s 9-40 of the GST Act. That it was the liability of the limited partnership rather than the partners was enforced by s 184-5(1) of the GST Act. It was in the following terms: "For the avoidance of doubt, a supply, acquisition or importation made by or on behalf of a partner of a partnership in his or her capacity as a partner: (a) is taken to be a supply, acquisition or importation made by the partnership; and (b) is not taken to be a supply, acquisition or importation made by that partner or any other partner of the partnership. Note: Section 444-30 in Schedule 1 to the Taxation Administration Act 1953 deals with the liability of partners for the obligations imposed on a partnership under the GST law." 12Thus the primary tax debts under the GST Act allocated to the RBA were primary tax debts of the limited partnership and not primary tax debts of the partners. 13In terms of the definition in s 8AAZA of the Administration Act, an RBA deficit debt arose in relation to an RBA of an entity if there was a balance in favour of the Commissioner. In this case there was such a balance. 14Section 8AAZH(1) of the Administration Act provided that if there was an RBA deficit debt on an RBA at the end of a day, the tax debtor was liable to pay to the Commonwealth the amount of the debt. 15Tax debtor in relation to an RBA was defined in s 8AAZA of the Schedule to mean the person or persons who were liable for the tax debts that were allocated to the RBA. 16It follows from the discussion above that the limited partnership was liable to pay the Commonwealth the amount of the RBA deficit debt. 17Another consequence of there being an RBA deficit debt was the imposition of the general interest charge (GIC). 18Section 8AAZF of the Administration Act provided that if there was an RBA deficit debt at the end of a day, then GIC was payable by the tax debtor on that RBA deficit debt for that day and the balance of the RBA was altered in the Commissioner's favour by the amount of the GIC payable. 19Section 8AAE of the Administration Act provided that the GIC for a day was due and payable to the Commissioner at the end of that day. 20In consequence, there was an increase in the RBA deficit debt for which the limited partnership was liable. 21In the table to s 250-10(2) of the Schedule, an RBA deficit debt was item 85 and was a tax-related liability. The GIC was item 70 and was also a tax-related liability. Section 255-5(1) provided that an amount of a tax-related liability that was due and payable was a debt due to the Commonwealth and was payable to the Commissioner. 22While the legislation provided that the limited partnership was liable to pay the RBA deficit debt and the GIC to the Commissioner, it was not a legal entity. Hence the reference to s 444-30 of the Schedule in the note to s 184-5(1) of the GST Act set out above. Materially for present purposes, it provided: "(1) Obligations that are imposed under this Schedule or an indirect tax law on a partnership are imposed on each partner, but may be discharged by any of the partners. (2) The partners are jointly and severally liable to pay any amount that is payable under this Schedule or an indirect tax law by the partnership." 23The PAYG obligations allocated to the RBA were imposed under the Schedule. 24The GST obligations so allocated were imposed under an indirect tax law. Pursuant to s 3AA(2) of the Administration Act, that term had the same meaning for the purposes of the Schedule as it had in the 1997 Tax Act and the dictionary in s 995-1 of the 1997 Tax Act defined the term to include the GST Act.