Decision impact statement

Commissioner of Taxation v A Taxpayer

Court Citation(s):
[2006] FCA 888
2006 ATC 4393
63 ATR 450

Venue: Federal Court of Australia
Venue Reference No: NSD 1303/05
Judge Name: Stone J
Judgment date: 12 July 2006
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• IT 2440

Subject References:
Administrative Law
Judicial scrutiny of Tribunal decision
Tribunal's reasons must be read as a whole
distinction between issues of fact and law
when an inference of fact may demonstrate an error of law
grounds for judicial review
'no evidence' ground
failure to take into account relevant consideration
taking into account irrelevant consideration
Wednesbury unreasonableness
failure to exercise discretion
no error of law in Tribunal's decision
Taxation
appeal
meaning of 'serious hardship'
factors relevant to exercise of discretion to release taxpayer from tax liability

Brief summary of facts

1. The Court made suppression orders prohibiting the publication of information that would identify the name of the Respondent, the Respondent's immediate family, their address or the Respondent's immediate place of work.

2. The matter was an appeal to the Federal Court from a decision of the Small Taxation Claims Tribunal (Tribunal), a division of the Administrative Appeals Tribunal. The Tribunal granted the Respondent partial release of his tax related liability, under section 340-5 of the Taxation Adminstration Act(1953), on the ground of serious hardship (see Case Summary attached).

Issues decided by the court or tribunal

1. The Tribunal applied the correct test of serious hardship. What is required for proper maintenance and support is a relative question, which can only be determined with reference to the whole of the taxpayer's circumstances.

2. The Tribunal's conclusions were open to it on the evidence.

3. To establish that a Tribunal committed an error of law in drawing its inferences of fact, you need to establish that the inferences were not supported by probative evidence.

4. The Tribunal took into account relevant considerations and was not distracted from its task by irrelevant considerations.

5. Although the 'public interest' consideration of keeping the respondent in employment and paying taxes at a high rate is an irrelevant consideration in determining serious hardship, this issue did not distract the Tribunal.

6. The court did not accept that the Tribunal, in effect, found that bankruptcy per se constituted serious hardship.

7. The Tribunal's decision was not so unreasonable that no reasonable decision maker could ever have come to it.

8. Even though the Tribunal did not expressly refer to its discretion, it did exercise the discretion in a proper manner.

Implications of the decision

Income Tax Ruling IT 2440 and Chapter 24 of the ATO Receivables Policy provides guidance to meaning of the term 'serious hardship'.

Her Honour Justice Stone acknowledged the Commissioner's policy, as outlined in IT 2440 and paragraph 24.6.18 of the ATO Receivables Policy, concerning what constitutes serious hardship. That is -

"Thus, serious hardship would be seen to exist where payment of a tax liability would result in the taxpayer being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements."

Her Honour then noted [at para 17] that effect must be given to the qualification of the word reasonable.

Accordingly, whether a person will suffer serious hardship if required to meet their taxation liability is clearly a question of fact, which can only be determined by considering the individual's circumstances.

The implication of this decision is that the Commissioner's published interpretation of the law in relation to the term 'serious hardship' as set out in Income Tax Ruling IT 2440 and Chapter 24 of the ATO Receivables Policy is correct in determining release matters.

The decision turns on its own facts and does not create any direct precedent as to the circumstances which either establish serious hardship or influence the use of the discretion in relation to releasing taxpayer's from their taxation liabilities.

The ATO will not be lodging an appeal to the Full Federal Court.

Administrative Treatment

The decision confirms that whether a particular person would be left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements is a question that can only be determined by the particular circumstances of each case.

Each release case will continue to be considered uniquely on its own facts.

Implications on Law Administration Practice Statements

None.

Legislative References:
Administrative Appeals Tribunal Act 1975 (Cth)
44(1)

Federal Court of Australia Act 1976 (Cth)
50

Taxation Administration Act 1953 (Cth)
14ZZK
340-5(3)

Income Tax Assessment Act 1936 (Cth)
the Act

Case References:
Associated Provincial Picture Houses Limited v Wednesbury Corporation
[1948] 1 KB 223

Australian Broadcasting Tribunal v Bond
(1990) 170 CLR 321

Minister for Aboriginal Affairs v Peko-Wallsend Limited
(1986) 162 CLR 24

Minister for Immigration and Ethnic Affairs v Wu Shan Liang
(1996) 185 CLR 259

Powell v Evreniades
(1989) 21 FCR 252
89 ATC 4415
20 ATR 472