Commissioner of Taxation v Milne
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 1286/05)
Judgment date: 4 August 2006
Date published: 5 October 2006

Summary of decision:

Overview of facts:
The matter was an application for review by way of an appeal to the Federal Court from a decision of the Small Taxation Claims Tribunal (Tribunal). The Tribunal had set aside the Commissioner's objection decision and remitted the proceedings to the Commissioner with the direction to grant the taxpayer full release of his tax related liability, under section 340-5 of the Taxation Administration Act (1953 ), on the ground of serious hardship. | Issues decided by the court or tribunal | 1. His Honour Justice Conti held that the Tribunal applied the correct test of serious hardship in accordance with the legislation and the Commissioner's policy. | 2. Conti J held that in the complexity of the circumstances, exaction of the tax debt from the Respondent would amount to 'serious hardship' in accordance with IT 2440 [para 54]. | 3. The Tribunal was not bound to approach the test of hardship by ' by way of appraisal of any comparison of the value of Mr Milne's assets with the amount of his liabilities at any relevant point in time' [para 54] as in circumstances peculiar to Mr Milne at the time the Tribunal heard his appeal, exaction of his taxation debt would have amounted to 'serious hardship'. The facts that his estranged spouse held an equal share in the substantially hypothecated real estate assets and that the 'Brindabella' [para 52] property was unsaleable at the time of the hearing, support this notion. | 4. The Tribunal did not fail to take into account a ' viable factor of relevance' [para 57]. Essentially this means that if the Tribunal did fail to take a consideration into account, it was not of such relevance or strength to alter the conclusions of the Tribunal. | 5. Further, the Tribunal did not take into account irrelevant considerations [para 57]. The facts and considerations taken into account by the Tribunal were relevant and appropriate. | 6. Conti J found that it was open to the Tribunal to release the Respondent based on ' the complexity of evidence before it ... at least to a substantial or significant extent' [para 53]. As such, Conti J found that the Commissioner had not established any error of law. The implication of this finding is that Conti J found that the Tribunal's finding of serious hardship and the decision to exercise the discretion were both based on probative evidence and were reasonable.

Issues decided:
1. His Honour Justice Conti held that the Tribunal applied the correct test of serious hardship in accordance with the legislation and the Commissioner's policy. 2. Conti J held that in the complexity of the circumstances, exaction of the tax debt from the Respondent would amount to 'serious hardship' in accordance with IT 2440 [para 54]. 3. The Tribunal was not bound to approach the test of hardship by ' by way of appraisal of any comparison of the value of Mr Milne's assets with the amount of his liabilities at any relevant point in time' [para 54] as in circumstances peculiar to Mr Milne at the time the Tribunal heard his appeal, exaction of his taxation debt would have amounted to 'serious hardship'. The facts that his estranged spouse held an equal share in the substantially hypothecated real estate assets and that the 'Brindabella' [para 52] property was unsaleable at the time of the hearing, support this notion. 4. The Tribunal did not fail to take into account a ' viable factor of relevance' [para 57]. Essentially this means that if the Tribunal did fail to take a consideration into account, it was not of such relevance or strength to alter the conclusions of the Tribunal. 5. Further, the Tribunal did not take into account irrelevant considerations [para 57]. The facts and considerations taken into account by the Tribunal were relevant and appropriate. 6. Conti J found that it was open to the Tribunal to release the Respondent based on ' the complexity of evidence before it ... at least to a substantial or significant extent' [para 53]. As such, Conti J found that the Commissioner had not established any error of law. The implication of this finding is that Conti J found that the Tribunal's finding of serious hardship and the decision to exercise the discretion were both based on probative evidence and were reasonable.

ATO view of decision:
The implication of this decision is that the Commissioner's published interpretation of the law as set out in Income Tax Ruling IT 2440 and Chapter 24 of the ATO Receivables Policy which provide guidance in relation to the meaning of the term 'serious hardship' are 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 taxpayers from their taxation liabilities. | Conti J acknowledged there is no special rule for solicitors; that in terms of the Legal Profession Act 2004 (NSW ) bankruptcy does not mean a solicitor must lose his or her right to practice. | The Tax Office will not be lodging an appeal to the Full Federal Court.

Administrative treatment:
Although the test for serious hardship refers to normal community standards, each release case will continue to be considered uniquely on its own facts having regard to the community standard.

Legislative references: Taxation Administration Act 1953 (Cth) Schedule 1 340-5 Schedule 1 340-15 Schedule 1 Division 340 Bankruptcy Act 1966 (Cth) Part VI Div 4B 139J 139K 139P(1) 139P(2) 139Q 139T(1) 139T(2)(a) 139T(2)(b) 139T(2)(c) 139T(2)(d) 139T(2)(e) Income Tax Assessment Act 1936 (Cth) 265
Case references: NSW Associated Blue-Metal Quarries Limited v Federal Commissioner of Taxation (1956) 94 CLR 509 Re Filsell and Commissioner of Taxation [2004] AATA 1012 Re Wilson and Minister for Territories (1985) 7 ALD 225 Powell v Evreniades (1989) 21 FCR 252 89 ATC 4415 20 ATR 472 Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 New South Wales Bar Association v Murphy (2002) 55 NSWLR 23 50 ATR 267
Subject references: Administrative Law Context of liability to income tax review of decision of AAT to grant relief from income tax in favour of legal practitioner referable to circumstances of serious hardship implications of that statutory notion in case of long established legal practitioner adversely affected financially by marital breakdown, illness and financial misconduct of former partner whether Tribunal took into account irrelevant considerations or failed to take into account relevant considerations in its determination or otherwise of the prevalence of serious hardship