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SUPREME COURT OF VICTORIA

Re AROORA PTY LTD

Hayne J

10, 13 December 1993 - Melbourne

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Hayne J    This is an application to set aside a statutory demand made by the Deputy Commissioner of Taxation on 9 November 1993. The demand alleged that Aroora Pty Ltd owes the Deputy Commissioner $30,649.24 for: (a) the balance of tax instalment deductions made by the company as a group employer from salaries or wages of employees and not remitted to the Deputy Commissioner of Taxation as required under s 221F(5)(a) of the Income Tax Assessment Act 1936 between 1 July 1990 and 31 August 1993; (b) an additional amount alleged to be due and payable by the company pursuant to s 221F(12)(b)(ii)(B ) for late payment of tax instalment deductions; and (c) a penalty amount alleged to be due and payable by the company pursuant to s 221F(12)(b)(ii)( A).

   The demand was said to have been received by the company on 11 November 1993 and, by application dated 29 November 1993, the company applied to set the demand aside. No point was sought to be made about the time at which application was made, and I say nothing of this matter.

   The affidavit in support of the application said, amongst other things, that:

   

It is the submission of the company that the section of the Income Tax Act pursuant to which the demand has been made has no application to the company as it is not a group employer employing more than ten or more people; and further, the other requirements of that section have not been met. In addition, a perusal of section 459 specifically excludes any amount that the Deputy Commissioner of Taxation may seek to claim pursuant to section 221F(12) of the said Act.

   Submissions on behalf of the company amplified the points that were made in the affidavit. Although some other points were made which it will be necessary to notice, the two principal points made on behalf of the company were that it is not a group employer and that the demand for sums said to be due under s 221F(12) was not maintainable. It is convenient to deal with those matters in turn.

   It was submitted that Aroora does not employ ten or more people and that, therefore, it is not a group employer under s 221F of the Income Tax Assessment Act. Section 221F provides in part:

   

(1) An employer who, during a period of 12 months ending on 31 May in any year, has ordinarily had in his employment ten or more employees shall, unless he is already registered as a group employer, apply to the Commissioner, not later than 14 June in that year, in a form authorised by the Commissioner, for registration as a group employer.

 

…

 

(3) The Commissioner may register as a group employer any employer, or any person acting on behalf of 2 or more employers, whether or not he is required by this section to apply for registration as a group employer, and may at any time cancel the registration of a group employer, and shall notify the group employer in writing that he has been so registered, or that his registration has been cancelled, as the case may be.

 

(4) An employer registered as a group employer shall, notwithstanding any change in the number of his employees, remain registered as a group employer until notified by the Commissioner that his registration has been cancelled.

   The applicant tendered in evidence its application for registration as a group employer. That application was dated 12 June 1990 and it is apparent from the material that it was registered by the Commissioner as a group employer and that it remains so registered. In my view, it is not shown that the applicant is not a group employer.

   The Act clearly distinguishes between those who must register as group employers, being those employing ten or more employees, and those who may choose so to register - any employer whether or not required to register. There is, therefore, in my view, no validity in the first point sought to be made on behalf of the company.

   I turn then to consider the provisions of s 459E of the Corporations Law. Subsections (5) and (6) were inserted into s 459E of the Corporations Law by the Insolvency (Tax Priorities) Legislation Amendment Act 1993. Those subsections read:

   

(5) A demand under this section may relate to a liability under any of the following provisions of the Income Tax Assessment Act 1936:

 (a)  section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P;

 (b)  subsection 221YHDC(2);

 (c)  subsection 221YHZD(1) or (1A);

 (d)  subsection 221YN(1) ;

 (e)  section 221AHA;

 

even if the liability arose before the commencement of this section.

 

(6) Subsection (5) is to avoid doubt and is not intended to limit the generality of a reference in this Law to a debt.

   It is now contended on behalf of the company that a debt due under s 221F(12) may not be made the subject of a statutory demand because of the parenthetical reference in s 459E(5)(a).

   I should say at once that the language is curious. To make an exception in a provision said to be inserted for the avoidance of a doubt and not as a limitation on another general provision is strange. However, I do not consider that the exception contained in s 459E(5)(a) means that in no circumstances may a demand be based on s 221F(12) of the Income Tax Assessment Act.

   The amount claimed in the demand now in question is not a matter of estimation, it is the amount actually deducted from wages of employees and not remitted to the Commissioner as required under s 221F(5)(a) of the Income Tax Assessment Act (less a credit for certain cash payments that have been made by or on behalf of the company).

   It is desirable to note a little about the legislation which introduced s 459E(5)and (6) into the Corporations Law and about some provisions of the Income Tax Assessment Act.

   Under Div 8 of Pt 6 of the Income Tax Assessment Act, the Commissioner may estimate amounts not remitted by an employer on account of what are called the "remittance provisions" of the Act. The remittance provisions are defined in s 222AFB(1) as s 221F (except subs 221F(12)); s 221G (except subs 221G(4A); s 221YHDC(2); subs 221YHZD(1)and (1A); and s 221YN(1).

   When an estimate is made, there is created a separate and distinct liability to pay that estimate - separate and distinct, that is, from the liability to which the estimate relates. (See s 222AHA). The liabilities are parallel liabilities and thus the discharge of one is discharged pro tanto of the other, but the liabilities are distinct.

   The liability created under s 222AHA of the Income Tax Assessment Act is called in that Act a "liability to pay an estimate". (See s 222AHA(1) .)

   Here, as I have said, the amount claimed in the demand is not an estimate but is an amount actually due. It is, therefore, a liability under s 221F which, by operation of s 221R of the Act, is a debt due to the Commonwealth and payable to the Commissioner which may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name.

   Further, not only is the principal amount of tax such a debt, so too is the penalty that is due under s 459(12). This is not to say that liabilities to pay estimates are not debts. I need not express any view on such matters; they do not arise in this case.

   Whether s 459E(5) of the Corporations Law was intended to deal only with liabilities to pay estimates or was intended to deal with liabilities of any kind that are rooted in the provisions mentioned, I need not say. Its wording, including as it does, specific reference to s 222AHA, may well suggest a wider intention than the first intention that I have mentioned.

   Rather, it seems more likely that the parenthetical exceptions in s 459E(5) owe their origin to a too ready adoption of a common drafting formula used elsewhere in the legislation. (See s 222AFB and ss 443BAand 588F(1), introduced into the Corporations Law by the same amending statute.)

   However this may be, I consider that s 459E(6) is to be given its full force and effect. Thus, if, without recourse to s 459E(5), the amount claimed is a debt of a kind that otherwise might be the subject of a statutory demand, then nothing in s 459E(5) is intended to limit the application that other provisions of s 459E would otherwise have.

   As I have indicated, I consider that both the principal and the penalty amounts claimed in this matter are debts. (See s 221R of the Income Tax Assessment Act.) It follows that I am of the view that both may be subject of a statutory demand.

   Further, even were I wrong in that conclusion and the amounts claimed under s 221F(12) could not be made the subject of a statutory demand, I would not set aside the demand made by the Commissioner in this matter.

   The applicant has sought to make no case that it disputes the amount claimed and has sought to make no case that it has any offsetting claim against that made by the Commissioner. Rather, the only case which it has sought to make is that the demand is defective.

   It is to be noted that s 9 of the Corporations Law defines "defect" in relation to a statutory demand as including irregularity, misstatement of amount or total, misdescription of debt or other matter, and misdescription of person or entity. That definition is an inclusive definition but it indicates the kinds of things that the legislature had in mind when it spoke of a defect in relation to a statutory demand.

   Under s 459J of the Corporations Law, the court may set aside a demand if satisfied that, because of a defect in the demand:

   

Substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside.

   Subsection 2 of the section provides that:

   

Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

   It may be doubted that the matter of which complaint is now made would properly be classed as a defect for the purposes of the Corporations Law. If it were, I do not consider that substantial injustice would be caused unless the demand were set aside. Nor do I consider that, if, contrary to the view that I have earlier expressed, amounts of penalty due under s 221F(12) may not be included in a demand (assumedly because the legislature has indicated some intention that they not be the subject of demand) a demand which seeks payment of other sums allegedly due and in respect of which the company makes no case against their being due, should then be set aside.

   It is, in my view, necessary to bear steadily in mind that the company does not seek to dispute its liability to pay the group tax instalments claimed; nor, for that matter, does it dispute its liability to pay penalties on those sums. In those circumstances, even if the penalties may not properly be the subject of demand - and in my view they can - I do not consider that the demand should be set aside.

   If the company is solvent, it will show that on any application to wind it up. If it is not solvent, then the wrongful inclusion of a sum in the demand is, in my view, no reason why in the circumstances of this case the statutory presumption of insolvency should not go against the company and if otherwise the case is made out, it should be wound up.

   There is no evidence before me touching the question of solvency of the company. In those circumstances, I am not to be taken as expressing any view on that issue. My reference to alternative outcomes is no more than a reference to possible dispositions of any subsequent application for winding up. It constitutes no expression of any concluded view on those matters.

   Finally, the applicant suggested that from time to time it had made overtures to the Commissioner seeking to make some arrangement for payment of the sums claimed. The evidence of these matters is slight. However, even assuming that the assertions of a willingness to pay by instalments were sufficiently proved, that, in my view, falls far short of evidence that the debt or debts the subject of claim by the Commissioner have been or should be regarded as having been reasonably compounded to the satisfaction of the creditor. Nor do I consider that the history of earlier proceedings instituted by the Commissioner against the company assists the applicant company in this regard.

   In all the circumstances, I consider that the application should be dismissed.

   For reasons which I have just given, I am of the opinion that the company's application to set aside the demand made by the Deputy Commissioner of Taxation should stand dismissed.

   It is submitted on behalf of the company that I should make no order as to costs because the point that was agitated in debate before me was a novel point. It was further submitted on behalf of the company that the point was one which owed its origin to drafting of the relevant provisions of the Corporations Law that might properly be classed as obscure.

   If I may say so, as is apparent from my reasons for judgment, I think there is much force in the proposition that the drafting is not as clear as it might be. However this may be, I consider that the ordinary rule that costs should follow the event should not be departed from without substantial reason or cause.

   I do not consider that the fact that the point which is sought to be made is a novel point, or may [owe] its origin to drafting difficulties is reason enough to depart from that general rule. It follows there will be an order that the application stands dismissed with costs, including reserved costs.