Denlay v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (QUD 114 of 2012; QUD 115 of 2012)
Judgment date: 5 April 2013
Date published: 5 June 2013

Summary of decision:
Outlines the ATO's response to this case in which the Commissioner's decisions to issue notices under section 260-5 of Schedule 1 to the Taxation Administration Act 1953 to garnishee amounts held in the taxpayers' superannuation funds were quashed.

Overview of facts:
Both taxpayers had substantial debts owing to the Commissioner arising from the issue of income tax assessments to include undeclared offshore income held in accounts of the Liechtenstein Bank as part of Project Wickenby. The taxpayers commenced Part IVC challenges to their assessments in the Federal Court. They also commenced s.39B proceedings challenging the making of the assessments, which were unsuccessful. | The Commissioner commenced parallel recovery proceedings, and obtained judgment in respect of the taxpayer's outstanding debts. However enforcement of the judgment was stayed by the Supreme Court of Queensland until the outcome of the Federal Court income tax appeals. The Commissioner challenged the stay, and was unsuccessful. The Court below made findings on the taxpayer's evidence, which were not disturbed on appeal. Relevantly, the taxpayer's evidence was they had limited funds to provide for daily living expenses and to prosecute their Federal Court appeals if they were to be made bankrupt in the future. Their evidence was that their only source of funding was rental receipts from a residential property and funds held in their superannuation accounts. | The Commissioner became aware of deposits into the self-managed superannuation fund, and their dissipation. The Commissioner had cause to believe that the taxpayers had access to moneys from offshore bank accounts. Accordingly, the Commissioner issued garnishee notices under section 260-5 of Schedule 1, of the Taxation Administration Act 1953 (TAA) requiring remittance to the Commissioner of the remaining amounts held in each taxpayer's superannuation account. The funds in the superannuation accounts were duly paid to the Commissioner and applied against the outstanding debts of the taxpayers. | In the interim, the stay had lapsed and the taxpayers sought an extension of the stay. The Commissioner opposed the extension but provided an undertaking that he would take no steps to bankrupt the taxpayers until resolution of their Part IVC taxation appeals. The taxpayers went into voluntary bankruptcy shortly before the conclusion of the hearing of their Part IVC appeals. | Upon request, each taxpayer was provided by the Commissioner with written reasons for the decisions to garnishee the superannuation account funds. The taxpayers then applied out of time for a judicial review of the decisions under the Administrative Decisions (Judicial Review) Act 1977 . | Issues decided by the Federal Court | 1. The Court decided that the decision-maker had failed to take into account the following relevant considerations when exercising the power under section 260-5 of the TAA: (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. | (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. | 2. The Court found that the decision to issue each of the section 260-5 notices was so unreasonable that no decision-maker, acting reasonably, could have made the same decision. | 3. The Court quashed the Commissioner's decisions to issue the section 260-5 notices and subsequently ordered that the monies obtained under the notices be refunded to the superannuation fund accounts.

Issues decided:
1. The Court decided that the decision-maker had failed to take into account the following relevant considerations when exercising the power under section 260-5 of the TAA: (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. 2. The Court found that the decision to issue each of the section 260-5 notices was so unreasonable that no decision-maker, acting reasonably, could have made the same decision. 3. The Court quashed the Commissioner's decisions to issue the section 260-5 notices and subsequently ordered that the monies obtained under the notices be refunded to the superannuation fund accounts.

ATO view of decision:
The Commissioner's written reasons for decision for issuing the section 260-5 notices, referred to both the taxation appeals and to the Commissioner's policy with respect to garnishee notices but they did not specifically outline the decision maker's deliberations in this regard. | ATO officers will continue to apply the stated policy in PS LA 2011/18 at paragraph 112: Where a tax debtor is appealing to a tribunal or court against the assessments that raised the debt, the Commissioner will consider whether a garnishee would significantly prejudice the tax debtor's rights in pursuing those appeals. | ATO officers will also take into account the daily living expenses of taxpayers. | Section 260-5 confers a general discretion on the Commissioner to consider " those things that the legislation requires to be taken into account and ignores any prohibited consideration, the grounds of failing to take into account a relevant consideration, or taking into account an irrelevant consideration , ..." per Healy J in Elias No 1. See also Aronson & Dyer Judicial Review of Administrative Action 2nd Ed. 2000 at 225. | The discretion under section 260-5 is unconfined by the terms of the statute, and the decision-maker is not bound to take a particular matter into account unless an implication to that effect is to be found in the subject matter, scope and purpose of the statute: Peko-Wallsend (supra) at 40.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None

Legislative references: Administrative Decisions (Judicial Review) Act 1977 The Act Taxation Administration Act 1953 s 260-5 of Schedule 1 s 14ZZM s 14ZZR
Case references: Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 Australian Machinery & Investment Co Ltd v Deputy Commissioner of Taxation (1945) 8 ATD 133 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 237 CLR 473 69 ATR 357 2008 ATC 20-045 Deputy Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54 (1976) 76 ATC 4113 Edelsten v Wilcox (1988) 83 ALR 99 19 ATR 1370 88 ATC 4484 Klein v Domus Pty Ltd (1963) 109 CLR 467 [1963] HCA 54 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Queensland Maintenance Services Pty Ltd v Federal Commissioner of Taxation (2011) 207 FCR 405 [2011] FCA 1443 Saitta Pty Ltd v Commissioner of Taxation (2002) 125 FCR 388 [2002] FCA 1105 2002 ATC 4776 50 ATR 565 Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 18 ATR 439 87 ATC 4078 Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10
Subject references: Judicial review of decision to issue garnishee notice under section 260-5 Relevant considerations in issuing a garnishee notice