Deputy Commissioner of Taxation v Smith
Document type: Decision Impact Statement
Venue: Miscellaneous - Australian (148/2007)
Judgment date: 19 September 2008
Date published: 19 January 2009

Summary of decision:
Outlines the Tax Office's response to this case which concerned, amongst other issues, whether the general interest charge (GIC) is payable on administrative overpayments where the Tax Office has not issued a notice to the taxpayer under section 8AAZN of the Taxation Administration Act 1953 (TAA).

Overview of facts:
1. The defendant, trading under a business name, and his company claimed GST input tax credits for the continuous periods 1 July 2002 to 31 December 2004 and received a consequent payment from the Commissioner. Following an audit the Deputy Commissioner of Taxation (DCT) issued notices of assessment of GST net amount(s) for the continuous periods 1 July 2002 to 31 December 2004 denying the claim for input tax credits. | 2. The defendant subsequently became liable to repay the administrative overpayment, GIC, tax shortfall and failure to lodge on time penalties. The DCT did not serve a notice in accordance with subsection 8AAZN(2) of the TAA. | 3. The DCT commenced recovery action in the District Court of New South Wales against Mr Smith in respect of the RBA deficit debt comprising the administrative overpayment, the general interest charge associated with that debt, tax shortfall and failure to lodge on time penalties. | 4 In his defence, the defendant stated that he was entitled to the GST input tax credits. | 5. The administrative overpayment was allocated to a running balance account (RBA) and the GIC was calculated as accruing from the date of the overpayment. | 6. The DCT submitted that an administrative overpayment is a primary tax debt and may therefore be allocated to an RBA and that she had allocated the administrative overpayment in the matter at hand as a primary tax debt to an RBA. As the RBA was in deficit GIC was payable pursuant to subsection 8AAZF(1) of the TAA. | 7. In support of her application for judgment, the DCT produced to the Court a copy of the notice of assessment issued to Mr Smith and relied on the notice as conclusive evidence of Mr Smith's liability pursuant to the then applicable sections 59 and 61 of the TAA [now sections 105-100 and 105-110 of Schedule 1 to the TAA]. | 8. The DCT also relied on evidentiary certificates pursuant to section 8AAZJ of the TAA. | Findings of the Court | 9. Truss J found that • There was an administrative overpayment within the meaning of subsection 8AAZN(3). • The RBA provisions provide an alternative method to section 8AAZN for the recovery of administrative overpayments. • Contrary to the views of Shaw J in Deputy Commissioner of Taxation v De-Angelis (2008) SADC 103 that subsection 8AAZN(2) cannot be overridden by the general GIC provisions contained in the RBA provisions, Truss J concluded that the legislation entitles the Commissioner to allocate the administrative overpayment to the RBA but not the GIC. The GIC on the RBA then becomes payable under s 8AAZF not s 8AAZN(2). • Once the character of the debt changed from an administrative overpayment to a RBA deficit debt by allocation to the RBA, subsection 8AAZN(2) is no longer relevant, GIC being calculated under s 8AAZF. | • There was an administrative overpayment within the meaning of subsection 8AAZN(3). • The RBA provisions provide an alternative method to section 8AAZN for the recovery of administrative overpayments. • Contrary to the views of Shaw J in Deputy Commissioner of Taxation v De-Angelis (2008) SADC 103 that subsection 8AAZN(2) cannot be overridden by the general GIC provisions contained in the RBA provisions, Truss J concluded that the legislation entitles the Commissioner to allocate the administrative overpayment to the RBA but not the GIC. The GIC on the RBA then becomes payable under s 8AAZF not s 8AAZN(2). • Once the character of the debt changed from an administrative overpayment to a RBA deficit debt by allocation to the RBA, subsection 8AAZN(2) is no longer relevant, GIC being calculated under s 8AAZF.

Issues decided:

ATO view of decision:
10. The Tax Office accepts the decision of Truss J.

Administrative treatment:
11. The Tax Office will continue to allocate administrative overpayments to RBAs, and to calculate GIC on such administrative overpayments from the date of the overpayment where it has been posted to an RBA. | 12. The Tax Office will continue to seek recovery of administrative overpayments and GIC on them. | 13. It should be noted that the decision by Truss J. in this case is not binding on other jurisdictions.

Legislative references: Taxation Administration Act 1953 8AAZA 8AAZC 8AAZD 8AAZF 8AAZJ 8AAZN 8AAZW 22 [now s105-5] 35 [now s105-50] 59 [now s105-100] 61 [now s105-110]
Subject references: Administrative Overpayments Running Balance Account General Interest Charge