Deputy Commissioner of Taxation v Dukes [2016] NSWSC 1759

Supreme Court New South Wales

Medium Neutral Citation: Deputy Commissioner of Taxation v Dukes [2016] NSWSC 1759 Hearing dates: 2 December 2016 Date of orders: 02 December 2016 Decision date: 02 December 2016 Jurisdiction: Common Law Before: Fagan J Decision: 1. Judgment for the plaintiff against the defendant for $1,091,270.44. 2. The defendant is to pay the plaintiff's costs. Catchwords: TAXATION – outstanding tax debts – liabilities under Notices of Amended Assessment and or Running Balance Account Legislation Cited: Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Taxation Administration Act 1953 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Category: Principal judgment Parties: Deputy Commissioner of Taxation (plaintiff) Richard Michael Dukes (defendant) Representation: Solicitors: Mr K Metlej (plaintiff) Mr R Dukes (defendant, in person) File Number(s): 2015/84244

Judgment 1. The plaintiff, to whom I shall refer as the Commissioner, commenced this proceeding by a statement of claim filed 20 March 2015 claiming outstanding tax debts in respect of the tax years 2010 to 2015 inclusive. A defence was filed but no affidavits to support it. The Commissioner's claim is to be determined according to whether affidavits filed by his officers substantiate the defendant's liability for the amounts in issue. 2. I infer that for the financial year ended 30 June 2010 the defendant must have lodged an income tax return which in the Commissioner's assessment understated his taxable income and hence his tax liability by a substantial amount. This resulted in the issue of a notice of amended assessment for that year on 9 December 2013 claiming a shortfall in tax payable and Medicare levy of $84,363.06 and interest pursuant to s 280-100 of Sch 1 to the Taxation Administration Act 1953 (Cth) ("TAA 53") of $19,835.74. 3. For the financial year ended 30 June 2011 two sequential notices of amended assessment were issued. The first, issued on 30 August 2013, was for a shortfall in tax and Medicare levy of $4,650 and interest pursuant to s 280-100 of $588.92. The second, issued on 9 December 2013, was for a shortfall of tax and Medicare levy of $63,757.05 and interest on the shortfall of $8,998.78. 4. In respect of each of these three notices of amended assessment of tax and of liability for interest, the interest was calculated from the date when the shortfall in tax should have been paid, up to the day before the issue of the amended assessment notice. That is in accordance with s 280-100. 5. In addition, in respect of these two years, the Commissioner issued notices of assessment of administrative penalties on the shortfall in tax. In respect of the year ended 30 June 2010, such a notice was issued on 6 December 2013 for an amount of $21,090.75. For the year ended 30 June 2011, a notice issued on 9 December 2013 for an amount of $15,939.25. 6. The total of all of the figures referred to thus far is $219,223.55. This amount, being the subject of assessments, is payable upon proof that the assessments have been served. In each case the assessments were sent by prepaid ordinary post to the defendant at a residential address in Double Bay, NSW. Evidence before me shows that the address used was the last known address of the defendant on the Commissioner's records. Service by prepaid registered post is effective service in accordance with s 174 of the Income Tax Assessment Act 1936 (Cth) ("ITAA 36"). 7. By force of s 350-10 of Sch 1 to the TAA 53, the assessments are conclusive evidence that they have been properly made in accordance with the tax laws and that the amounts and particulars of the assessments are correct. A general interest charge ("GIC") has accrued on these outstanding amounts pursuant to s 5-15 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 97") and pursuant to Pt IIA of the TAA 53. The evidence before me shows that the Australian Taxation Office's receivables management system records the amounts and dates of payments due from tax payers pursuant to assessments and calculates the accrued GIC from day to day. Two affidavits have been tendered showing the results of these calculations by the receivables management system. The first affidavit showed a calculation of general interest charged up to 24 March 2016 and the second affidavit brought the calculation up to date to 1 December 2016. 8. The total interest according to those calculations is $98,367.83. When this is added to the total of all the assessed amounts ($219,223.55, as referred to at [6]) the result is a sum of $317,591.38. However, a running account of the Australian Tax Office has produced a lower final balance taking into account all of the liabilities which have been referred to thus far. Namely an amount of $288,158.91. The discrepancy of approximately $29,000 must be attributable to credits allowed to the defendant or to which he is entitled but which have not been separately identified in the affidavit evidence before me. 9. The total lower figure to which I have referred is confirmed in a certificate which has been issued over the signature of the Deputy Commissioner of Taxation, dated 1 December 2016. The certificate has been issued pursuant to s 255-45 of Sch 1 to the TAA 53. It has conclusive evidentiary force. It is exhibit B to the affidavit of Daniel Abdul-Rahman, sworn 1 December 2016. The certificate shows the amount due as at today's date in respect of all of the income tax liabilities for the 2010 and 2011 years, including GIC, to which I have referred thus far, at $288,158.91. That is the amount which I find is due from the defendant to the plaintiff in respect of the liabilities mentioned to this point. 10. The Commissioner's evidence further shows that from late 2010 the defendant has been issued with a series of quarterly demands for payment of instalments towards income tax. These notices are referred to as instalment activity statements. The first that is relevant to the present case was issued in late 2010 in respect of the second quarter of the 2011 year. That is the quarter from 1 October 2010 to 31 December 2010. In each quarter of each financial year thereafter up to and including the second quarter of the 2015 financial year (that is, 1 October 2014 to 31 December 2014) there has been issued a further instalment activity statement. 11. The amounts due under these quarterly statements have varied from as much as $51,606 in some quarters down to $34,145 in other periods. All of these amounts due on instalment activity statements have been brought to account by the Commissioner on a running balance account maintained in the Australian Taxation Office's business records. The defendant's liability for the amounts which have been debited against him in the running balance account is provided for in Pt IIB of the TAA 53 comprising ss 8AAZA to 8AAZN. 12. That running balance account also calculates GIC, which is payable by statute on overdue and unpaid instalments. There have been credited to the running balance account the only two payments which have been made in reduction of the defendant's liabilities for these instalment activity statement amounts. The first credit is dated 11 November 2011 for $15,000 and the second is dated 31 October 2012 for $161,916.62. 13. When those credits are taken into account, together with all of the debits for the unpaid instalment amounts and the interest due on them, the final balance due as at 2 December 2016 is $803,111.53. That amount has been substantiated in evidence tendered on the hearing in the form of a printout of the running balance account, together with a certificate under s 8AAZJ of the TAA 1953, dated 1 December 2016 and signed by the Deputy Commissioner. Section 8AAZJ is a provision giving prima facie evidential effect to such a certificate. In this case, there is no rebutting evidence. 14. Having regard to the provisions referred to, the running balance account printout and the statutory certificates as to the correctness of the balance, I am satisfied that the amount which has been certified is due. Accordingly, the total amount due from the defendant to the plaintiff for which judgment will be given is the sum of the figures in [9] and [13], $1,091,270.44. 15. The defendant filed a defence to the original statement of claim but did not file any amended pleading when the plaintiff amended his statement of claim. The defence as filed must be treated as the defence intended to be referrable to the amended pleading of the plaintiff. It contends first, that the notices of assessment in respect of the 2010 and 2011 years were not served on the defendant. The document pleads that they were not posted to the address of the defendant known and notified to the Commissioner. It is not apparent whether that pleading is intended to assert that the documents were not posted to the address which the Commissioner says they were posted to or that the address was not the last residential address of the defendant of which the plaintiff knew. Whichever of these is the intended contention, there has been no evidence adduced by the defendant to support his pleading. The due service of the documents is covered by an evidentiary certificate which is annexed to one of the affidavits that has been read by the plaintiff in the proceedings and the fact of proper service has been proved. 16. In par 4 of the amended defence, it is contended that there is no liability for GIC pursuant to s 5-15 of the ITAA 97 because there was no failure to pay income tax. The absence of any default in the payment of income tax has not been supported by the evidence adduced by the defendant. The Commissioner's evidence fully satisfies me that there has been a shortfall in paying income tax with respect to the amended assessments of which notice was given for the 2010 and 2011 years. This ground of defence is unsustainable. 17. Paragraphs 5 and 6 of the defence assert that because the notices of amended assessment were not served on the defendant, he has not had an opportunity to object to the assessments and had he had that opportunity he may have been able to reduce the amounts payable to zero. That is a futile contention. Firstly, the notices were properly served. Secondly, at the very least, the defendant has had notice of the amended assessments since the commencement of these proceedings. No evidence has been adduced to show that any objection has been taken to the amended assessments, let alone that such objection has been decided by the Commissioner or that any appeal has been commenced under Pt IVC of the TAA 53 in respect of an objection decision. 18. The tax legislation is perfectly clear that amounts which are assessed are payable and that position can only be altered if an objection is lodged and upheld or, if not upheld, an appeal is brought and succeeds so that the assessment is removed. 19. In pars 7 and 8 of the defence it is contended with respect to the amounts due under the instalment activity statements which have been debited against the defendant upon his running balance account, that there was no liability to the amounts of primary tax and that they should not have been included on the running balance and that there is no liability to the GIC. No evidence has been adduced to support these contentions. They cannot have any weight in the face of the clear evidence from the Commissioner that there is a liability for the amounts due under the instalment activity statements and to the interest which has been calculated on the debit balance of the running account from time to time. 20. Paragraphs 9 and 10 of the defence raise an issue about the administrative penalties for the financial years 2010 and 2011 contending that the notices of assessment of those penalties were not served and that service was a condition precedent to legal liability. Again, there is no evidence to support these pleaded contentions and the Commissioner's evidence satisfies me that the notices of assessment of the administrative penalties were served. 21. At the commencement of the hearing on 2 December 2016, the defendant was not present in court. He was called three times outside the courtroom and when he did not appear the hearing commenced in his absence. Mr Dukes arrived in court at 10:22 am while I was reading plaintiff's affidavits, having embarked on hearing the proceeding. He said "If the matter were to proceed in a hearing, then the deponents [of the Commissioner's affidavits], I'd want them available for cross-examination". 22. The Registrar made orders on 29 January 2016, 6 May 2016 and 8 July 2016 for the evidence in chief of both parties to be on affidavits, which were to be filed by nominated dates. Pursuant to r 35.2 Uniform Civil Procedure Rules 2005 (NSW), if the defendant had given the plaintiff reasonable notice that he wished to cross-examine either or both of the plaintiff's two deponents then I would not have permitted their affidavits to be read unless they were called and made available – subject to ascertainment that the defendant's purpose in requiring the witnesses was bona fide and that without the opportunity to cross-examine them he would be denied a fair hearing. 23. I was informed by the defendant at T 13.37 that no notice had been given for the Commissioner's deponents to attend. The deponents were, accordingly, not present at the hearing. I therefore told the defendant at T 13.40 that there would be no cross-examination. The defendant did not apply for an adjournment to enable late notice to be given and/or for the witnesses to be brought to court. 24. The defendant sought to have the matter stood down, so that he could attend a bank to obtain a cheque to make a partial payment to the Commissioner. I refused to adjourn or stand down the proceedings and indicated to the defendant that if he wished to take any part in the defence of the plaintiff's claim he would have to remain in court and present his case. 25. Mr Dukes left the Court at 10:36 am, as recorded at T 14.10, very shortly after I had pointed out to him that, in the absence of notice having been given with respect to the Commissioner's deponents and they not being present, he would not have the opportunity to cross-examine. Mr Dukes was absent from court until 10:49 am (T 18.21) during which time I continued to receive evidence from the plaintiff and to hear submissions. He returned before I had commenced to deliver this judgment and provided to the Commissioner's representative at the bar table a bank cheque for $600,000 towards his tax liability. He submitted that I should not enter judgment for any sum which did not take account of this as a credit. 26. Mr Dukes also made further submissions in respect of his liability in the Commissioner's case and I gave him opportunity to put whatever he wished and conduct his defence as he saw fit before concluding the hearing and commencing to deliver my reasons. Nothing was submitted by Mr Dukes which gave me any doubt concerning the evidence the Commissioner had tendered or concerning the conclusions which I have here recorded. 27. As to the point concerning the bank cheque for $600,000 the Commissioner submitted that a cheque is a conditional payment. The condition is, of course, that the drawee will honour the cheque when presented. That would be likely to occur. There is very little scope for a bank to dishonour a cheque drawn on itself, although that has been known to occur. 28. The Commissioner's point is sound. There is no basis upon which I could treat the tender of the cheque at the bar table as an immediate credit which should cause me to reduce the amount of the judgment which I would otherwise enter. Once the cheque has been presented to the bank on which it was drawn and once the Commissioner is thereby put in funds, no doubt he will treat the judgment I am about to enter in his favour as partially satisfied and will not be looking to execute the judgment for any more than the remaining $491,270.44. 29. The orders of the Court are as follows: 1. Judgment for the plaintiff against the defendant for $1,091,270.44. 2. The defendant is to pay the plaintiff's costs.