Case: Powell v Evreniades (1989) 21 FCR 252
Outcome: applied
The term 'serious hardship' is not defined in the Act. In Powell v Evreniades (1989) 21 FCR 252 (' Evreniades ') Hill J considered the term as used in s 265 of the Income Tax Assessment Act 1936 (Cth). His Honour, who was concerned with serious hardship to a taxpayer's dependants upon the death of the taxpayer, observed, at 258: 'There is no definition in s 265 of what is meant by 'serious hardship' nor would one expect there to be. Each of the words in the phrase is an ordinary English word having a well understood meaning. The context in which the words appear makes it clear that the Relief Board is to consider whether the exaction of the full amount of tax would involve the dependants of a deceased taxpayer in financial difficulty which in all the circumstances can be said to be serious. The financial difficulty will be such that the dependants will be in significant need warranting action by the Relief Board to relieve their condition.' 14 Hill J accepted that there was a distinction between extreme and serious hardship noting that what will constitute either will depend on the circumstances. His Honour also said it was inappropriate to attempt to state tests of what would constitute 'serious hardship' in the abstract and commented, at 259: 'Clearly there would be severe financial hardship if the dependants of a deceased person were left destitute without any means of support. That is not to say that in any particular case something less than that will not constitute serious hardship.' These observations were referred to with apparent approval by Gummow J in Van Grieken v Veilands (1991) 21 ATR 1639 at 1644. 16 In the Amended Notice of Appeal the applicant complains that the Tribunal used the 'wrong test' in determining the prospect of 'serious hardship' for the respondent. In its written submissions it expressed its complaint somewhat differently saying that the Tribunal 'misunderstood the meaning' of the term. It seems to me that the latter expression is less likely to lead to confusion as it recognises, at least implicitly, that "serious hardship" is itself the test that has to be applied to an applicant's circumstances to decide if that applicant is eligible for relief from a tax debt. There is no other test, although there may be issues about which factors, in the particular circumstances, are or are not relevant to this determination. It is because the assessment is based so squarely on the individual circumstances that Hill J in Evreniades thought it was inappropriate to try and identify, in the abstract, the circumstances that would give rise to serious hardship. 17 This is not to say that guidance cannot be given by examples in which the test of serious hardship would clearly be met. In Evreniades, Hill J gave such an example when he recognised that there would be 'severe financial hardship' if persons were left 'destitute without any means of support'. The Taxation Ruling gives a similar example when it says that there would be serious hardship if a taxpayer were left 'without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements'. I do not see any inconsistency in these examples. Effect must be given to the qualification of 'reasonable' in the Taxation Ruling and, consistently with the reasoning of Hill J, these examples do not exclude the possibility that something less than destitution will constitute serious hardship. Whether this is so depends on the particular circumstances of each case. 18 It is not entirely clear that the Tribunal appreciated that the Taxation Ruling allowed for consideration of individual circumstances. In commenting on the Ruling the Tribunal said that 'it is no more than policy and cannot bind this Tribunal'. This comment seems to suggest that the Tribunal misunderstood the Ruling as providing a rigid rule. As I have already explained, I do not think that this is the correct interpretation of the Ruling but, as the Tribunal did not apply any such rigid rule, the misunderstanding is not of present concern. 19 The applicant submitted that the Tribunal's rejection of the Taxation Ruling indicates that it used some other unidentified test of serious hardship to make its decision. I do not accept this submission. The Tribunal noted that what is needed for proper maintenance and support is a relative question that can only be answered with regard to the whole of the taxpayer's circumstances. The Tribunal considered all the relevant aspects of the respondent's circumstances including whether he could achieve 'acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements' that were not excessive or unreasonable in all the circumstances. I do not accept that the Tribunal used the wrong test. 59 The Tribunal was aware that it had discretion to grant or withhold relief even it was satisfied on the serious hardship point. This is made clear by the Tribunal's quoting from the decision of Hill J in Evreniades, where his Honour said at 262-263: 'It follows from Trebilco that in the course of consideration of the release of tax under s 265 the Board may consider not only such matters as go to the issue of serious hardship but also other matters which in the discretion of the Board may be relevant, those other matters being merely proscribed by the general principle that the discretion must be exercised bona fide and for the purposes for which it was conferred, there being jurisdiction in this Court to intervene if in the overall exercise of the discretion the Board does take into account considerations which having regard to the purposes served by s 265 , can be seen to be irrelevant,' 60 I am satisfied that the Tribunal did exercise its discretion. Although the issue of discretion is not addressed under a separate heading there is sufficient indication of this throughout the Tribunal's reasons for me to be satisfied that this is so. 61 It was accepted on all sides that the respondent's debt had not arisen because of avoidance or participation in any scheme. The applicant submitted, however, that the Tribunal failed to take into account that the respondent had earned substantial amounts of money in the relevant period without making adequate provision for his tax liability. The transcript of the hearing before the Tribunal shows that the Tribunal questioned the respondent about the issue. The respondent talked at length about the difficulties he had in the law firm where the income that gave rise to the tax debt was generated. He said that the firm had the capacity to reduce his income retrospectively so that amounts that he was anticipating he would receive did not materialise. He also referred to difficulties he had experienced on a family level in moving from interstate at a time when his wife's illness, with consequent medical expenses, first manifested itself. At the same time one child's learning difficulty and another's serious heart condition (now resolved) were diagnosed. The combination of these factors led to his neglecting his financial affairs and not realising that a debt was accumulated. His subsequent drop in income made it impossible to meet the debt.