Explanatory Memorandum
(Circulated by authority of the Treasurer the Hon. P.J. Keating, M.P.)Notes on Clauses
Clause 1: Short title, etc
Sub-clause (1) of this clause provides for the amending Act to be cited as the Taxation Administration Amendment (Recovery of Tax Debts) Act 1986.
Sub-clause (2) facilitates references to the Taxation Administration Act 1953 which is the Act being amended by this Bill. The Taxation Administration Act 1953 is referred to in clause 3 as "the Principal Act".
Clause 2: Commencement
Under clause 2, the amending Act is to come into operation on the day on which it receives the Royal Assent. But for this clause, the Act would, by virtue of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent. The amendment being made to the Principal Act will, on commencement, apply to a cause of action to recover a tax debt whenever that cause of action arose or arises.
Clause 3: Modification of limitation laws applying to the recovery of tax debts
Clause 3 will insert a new section - section 14ZKA - in the Principal Act. The broad effect of this section will be that any application of a law of a State or Territory dealing with the limitation of actions for the recovery of debts will be modified in certain actions for the recovery of taxation debts.
Sub-section 14ZKA(1) contains definitions of a number of terms that are used throughout new section 14ZKA.
- "limitation law" is a term used to describe a law in force in a State or Territory which specifies a period after the expiration of which court action cannot be commenced in respect of a particular cause of action - broadly, the facts which give a person the right to institute a proceeding in the courts to obtain judicial relief (paragraph (a)). Paragraph (b) deals with the situation where the law of the State or Territory provides for the extinguishment of a cause of action or of the right to bring proceedings in relation to a cause of action, e.g., section 63 of the New South Wales Limitation Act, 1969. The period provided in a limitation law is referred to in new section 14ZKA as the "limitation period".
- "objection" is defined to have the same meaning as that term has in sub-section 3(1) of the Taxation (Interest on Overpayments) Act 1983. Broadly, the term refers to the procedure available under a specified provision of a taxation law by which a person may dispute a tax liability. Tax liability is an existing term defined in section 2 of the Principal Act to mean a liability to the Commonwealth arising under a taxation law. A taxation law is in turn defined to mean the Principal Act and all other Acts and regulations of which the Commissioner of Taxation has the general administration. The term "objection" is used in new sub-section 14ZKA(2) to describe those situations where a tax debt (see next definition) is being disputed.
- "tax debt" means a tax liability (see notes on definition of "objection") which is due and payable.
Sub-section 14ZKA(2) is the operative provision which, in the specified circumstances, modifies the effect of the State and Territory limitation laws in relation to the recovery of taxation debts. It will only operate if, in a particular State or Territory, a limitation law in force in that State or Territory applies by virtue of section 64 of the Judiciary Act 1903 to limit the period in which an action to recover a tax debt may be commenced.
If a particular limitation law does not apply, either by its express terms or on its construction, because it is held that section 64 of the Judiciary Act does not operate to apply that law to the recovery of tax debts or because of other provisions of a taxation law (e.g., section 30 of the Gift Duty Assessment Act 1941), section 14ZKA will have no application. If a limitation law does apply in relation to an action for the recovery of a tax debt by virtue of section 64 of the Judiciary Act, section 14ZKA will modify the date on which the limitation period would otherwise end. The section also specifies that the modification is deemed always to have been in effect. Thus, a modified limitation period will apply to any tax debt whenever that debt was incurred. The section does not, however, impose any tax liability. It operates only in relation to tax liabilities already imposed under other taxation laws.
By sub-paragraph (a)(i), the circumstance in which a limitation period is modified is set out. This is where a person has lodged or lodges an objection against an assessment or decision of the Commissioner that has given rise to the tax debt being recovered. In ascertaining the modified limitation period sub-paragraph (a)(ii) requires it to be assumed that the period commenced to run on the date on which all action in relation to the objection ceased to be pending. This date would normally be the date on which the decision on the objection was notified by the Commissioner, the date on which a decision on any reference to the Administrative Appeals Tribunal or a Supreme Court is given or the date on which a decision on any appeal to a higher court is given.
The purpose of paragraph (b) is to ensure that a tax debt payable under one of the specified provisions is subject to the limitation period applicable to an ordinary tax debt and not that applicable to penalties. Under some State and Territory limitation laws the limitation period for the recovery of a penalty is shorter than that applicable to the recovery of ordinary debts.
By paragraph (b), a tax debt payable under a provision of a tax law specified in the paragraph is deemed not to be, or not to have been, a penalty or a sum by way of penalty. The provisions specified in sub-paragraphs (b)(i) to (ix) are those that deal with the imposition of additional tax, additional duty or additional charge, broadly, for the making of a false or misleading statement, the late lodgment of a return or for participation in a tax avoidance scheme. Apart from Part VIII of the Fringe Benefits Tax Assessment Act 1986 (sub-paragraph (b)(iv)), these provisions were inserted in the various taxation laws by the Taxation Laws Amendment Act 1984. That Act repealed the then existing provisions that dealt with the imposition of additional tax for late or incorrect returns and participation in tax avoidance schemes. Sub-paragraph (b)(x) therefore ensures that additional tax imposed under one of the repealed provisions is treated in the same way as the additional tax imposed under the existing provisions.
Additional penalty tax for late or non-payment of a tax liability (e.g., section 207 of the Income Tax Assessment Act 1936) is excluded from the operation of paragraph (b). Thus, additional tax of this kind will continue to be subject to the limitation period applicable to any penalty provided, of course, that the relevant State or Territory limitation law applies in that way.
Sub-section 14ZKA(3) will ensure that the modified limitation period applicable under sub-section (2) applies to any cause of action that accrued at any time before or after the commencement of the section, irrespective of when the tax debt arose. An exception to this rule is contained in sub-section 14ZKA(4) - see notes that follow.
Sub-section 14ZKA(4) will specify certain circumstances where the modified limitation period ascertained under sub-section 14ZKA(2) will not apply. These circumstances are where either -
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- on or before the date of introduction of the Bill a court has made a decision on a demurrer to so much of a defence as is based on the application of a limitation period to a cause of action for the recovery of a tax debt (paragraph (a)). Broadly, a demurrer is a pleading which alleges that the defence filed by a person in respect of a writ shows no good cause of action or defence. This was the legal procedure followed by the Deputy Commissioner of Taxation in several cases recently the subject of consideration by the Full Court of the Supreme Court of Queensland, including DCT v Moorebank Pty Ltd. The Court overruled the demurrers, in effect deciding the point of law against the Deputy Commissioner; or
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- a court judgment or order has been given or made on or before the date of introduction of the Bill so as to bring to finality by that court a cause of action to recover a tax debt (sub-paragraph (b)(i)) where the application of a limitation law was raised by the taxpayer as a defence to that cause of action (sub-paragraph (b)(ii)). In this situation it will make no difference whether the decision was in favour of, or against, the Commissioner of Taxation or whether the decision is affirmed or overruled on appeal to a higher court. Thus, a modified limitation period will not apply in a case in New South Wales which has been decided by a single judge of the Supreme Court of that State in favour of the Commissioner, but is on appeal by the taxpayer to the Full Court of that Supreme Court with the decision reserved. This will be so even if the Full Court upholds the appeal.
In summary, sub-section 14ZKA(4) will ensure that new section 14ZKA does not apply to a taxpayer who has successfully contested an action (whether on the hearing of a demurrer to a defence, or on a cause of action either at first instance or on appeal) for the recovery of a tax debt on the basis that the action is barred by the application of a limitation law. However, for sub-section 14ZKA(4) to apply, a court must have given judgment on the demurrer or cause of action, or made an order deciding the question, on or before the date of introduction into the Parliament of this Bill.
Sub-section 14ZKA(5) sets out the situations in which an objection procedure in connection with an objection is pending at a particular time for the purposes of paragraph 14ZKA(2)(a). As explained previously, the limitation period is taken to have ended at the time it would have ended assuming it commenced on the date that an objection procedure in connection with the relevant tax debt ceased to be pending. An objection procedure is pending if:
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- the Commissioner has not decided an objection and given written notice of the decision on the objection to the person who lodged the objection (paragraph (a));
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- no decision has been made in respect of an application for an extension of time in relation to the objection. This means that an objection procedure would be pending where, for example, there was before the Administrative Appeals Tribunal or a Supreme Court an undecided application for an extension of time in which to lodge a request for reference on a decision on the objection (paragraph (b));
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- the time for instituting proceedings, e.g., an appeal, under a taxation law or the Administrative Appeals Tribunal Act 1975 in connection with an objection had not yet ended (paragraph (c)); or
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- a proceeding that was instituted in relation to the objection under a taxation law or the Administrative Appeals Tribunal Act 1975 has not yet been determined. This means that an objection procedure will be taken as being current as long as there is outstanding a decision by the Administrative Appeals Tribunal or a court in connection with a decision on an objection (paragraph (d)).
Sub-section 14ZKA(6) will explain, for the purposes of paragraphs 5(c) and 5(d), when an objection by a person against an assessment or decision of the Commissioner is to be treated as finalised.
Under paragraph (6)(a) where an objection or a request for a reference to the Administrative Appeals Tribunal or a Supreme Court or an appeal to a court has lapsed or otherwise been terminated (e.g., where a company that has lodged an appeal has been dissolved before that appeal has been heard) that proceeding is to be regarded as having been finalised.
By virtue of paragraph (6)(b) the possibility that an extension of time for the lodgment of an objection or a request for reference of a decision on an objection to the Administrative Appeals Tribunal or Supreme Court or an appeal to another court might be granted is to be disregarded in ascertaining whether the time for instituting proceedings has expired.
Sub-section 14ZKA(7) is a measure designed to ensure that, in proceedings before a court to determine whether a limitation law applies by virtue of section 64 of the Judiciary Act 1903 to the recovery of a tax debt, new section 14ZKA is to be disregarded in deciding that question.
This sub-section is considered necessary because a court may conclude that, because the Parliament considered it necessary to enact new section 14ZKA, Parliament took the view that section 64 of the Judiciary Act has the effect of attracting the application of limitation laws to actions by the Commissioner of Taxation to recover tax debts. The intention of sub-section (7) is that that question ought to be decided by the courts without any implication being drawn one way or the other from the enactment of this section.