Zolsan Pty Limited v Deputy Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Supreme Court (2711/2007)
Judgment date: 21 November 2007
Date published: 22 August 2008

Summary of decision:
Outlines the Tax Office's response to this case which concerned, amongst other issues, the setting aside of a statutory demand which issued for a RBA debt (based on self-assessed GST and assessments following an audit) where the debt amount was disputed, but no objection had been lodged.

Overview of facts:
1. The proceedings involved an application by Zolsan Pty Ltd (Zolsan) to set aside a statutory demand issued by the Deputy Commissioner of Taxation (DCT) dated 18 April 2007 for $1,717,232.87. The statutory demand was based on self-assessed BAS liabilities for GST together with notices of assessments for four BAS periods and for penalty following an audit. | 2. The debt arose out of a partnership and a statutory demand had issued to the partner company as well; that company had failed to apply to have the statutory demand set aside and was subsequently wound up. | 3. There was no objection on foot in respect of the assessments. An objection had been lodged to the penalty assessment, but declined by the ATO. | 4. The basis of the application was that Zolsan alleged a genuine dispute as to the amount of the assessments and intended to lodge an objection but had not done so at trial. | 5. The matter was heard on 3 September 2007 before Young J and he invited further written submissions before giving judgment. Just before Young J was to give judgment, the Queensland Court of Appeal decision of Neutral Bay and Others v DCT (2007) QCA 312 was handed down. The Court of Appeal declined to follow the decision of the Full Court of the Federal Court in the matter of Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302. In Hoare Bros the Federal Court had found that a pending review under Part IVC of the Taxation Administration Act 1953 (TAA) does not constitute a genuine dispute to the debt for the purposes of 459H of the Corporations Act. In declining to follow Hoare Bros the Queensland Court of Appeal noted that there had been changes to the time when tax becomes due pursuant to section 204 of the Income Tax Assessment Act 1936 and that as the operation of that section (as it then read) was fundamental to the decision in Hoare Bros there were additional grounds for declining to follow that decision. | 6. Given the effect of the decision in Neutral Bay the DCT notified both the Court and Zolsan of the decision. His Honour requested the parties to provide additional written submissions on the effect of Neutral Bay on the matter before him. | 8. Judgement was given on 21 November 2007. | Issues decided by the court | 1. Authority of a DCT to issue a statutory demand | Young J held that by virtue of s255-5 of Sch 1 of the TAA the debt claimed by the DCT was a tax-related liability within the meaning of the TAA, and, on the basis of existing authority, the DCT had the authority to issue the statutory demand. | 2. Evidentiary certificate | Young J found that the subject proceedings were not proceedings for the recovery of an RBA deficit debt and accordingly that a certificate tendered by the DCT pursuant to section 8AAZJ had "no significance in [the] proceedings". | 3. Application of Hoare Bros | Young J found that the Queensland Court of Appeal in Neutral Bay had done a "proper analysis" of Hoare Bros and for good reasons did not follow it. The facts in Zolsan were similar to that of Neutral Bay in that there was a GST liability in dispute and therefore Hoare Bros could be distinguished and not followed consistent with the approach adopted by the Queensland Court of Appeal. | 4. Application of Neutral Bay decision | Young J referred to High Court's comments in the matter of Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. In that matter the High Court said that an intermediate appellate court should not depart from the decisions of another intermediate appellate court unless convinced that that appellate court's reasoning is plainly wrong. | His Honour found that the reasoning in Neutral Bay was "logical and correct". | 5. Reliance on s.105-100 TAA | In Neutral Bay the Queensland Court of Appeal had found that s105-100 (which establishes the conclusiveness of an assessment other than in a review under Part IVC of the TAA) did not apply to winding up proceedings. Whilst Young J was not convinced of the correctness of this finding he went on to find that s105-100 did not play a vital part in the matter before him. | 6. Outcome | His Honour decided that, even though there was no objection or review on foot (pursuant to Part IVC of the TAA), this was a GST liability that arose outside of an assessment, and in view of Neutral Bay the chance that the debt could be successfully challenged at law was not "feeble or non-existent." Therefore the statutory demand should be set aside either under s459H or 459J.

Issues decided:
1. Authority of a DCT to issue a statutory demand Young J held that by virtue of s255-5 of Sch 1 of the TAA the debt claimed by the DCT was a tax-related liability within the meaning of the TAA, and, on the basis of existing authority, the DCT had the authority to issue the statutory demand. 2. Evidentiary certificate Young J found that the subject proceedings were not proceedings for the recovery of an RBA deficit debt and accordingly that a certificate tendered by the DCT pursuant to section 8AAZJ had "no significance in [the] proceedings". 3. Application of Hoare Bros Young J found that the Queensland Court of Appeal in Neutral Bay had done a "proper analysis" of Hoare Bros and for good reasons did not follow it. The facts in Zolsan were similar to that of Neutral Bay in that there was a GST liability in dispute and therefore Hoare Bros could be distinguished and not followed consistent with the approach adopted by the Queensland Court of Appeal. 4. Application of Neutral Bay decision Young J referred to High Court's comments in the matter of Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. In that matter the High Court said that an intermediate appellate court should not depart from the decisions of another intermediate appellate court unless convinced that that appellate court's reasoning is plainly wrong. His Honour found that the reasoning in Neutral Bay was "logical and correct". 5. Reliance on s.105-100 TAA In Neutral Bay the Queensland Court of Appeal had found that s105-100 (which establishes the conclusiveness of an assessment other than in a review under Part IVC of the TAA) did not apply to winding up proceedings. Whilst Young J was not convinced of the correctness of this finding he went on to find that s105-100 did not play a vital part in the matter before him. 6. Outcome His Honour decided that, even though there was no objection or review on foot (pursuant to Part IVC of the TAA), this was a GST liability that arose outside of an assessment, and in view of Neutral Bay the chance that the debt could be successfully challenged at law was not "feeble or non-existent." Therefore the statutory demand should be set aside either under s459H or 459J.

ATO view of decision:
The Tax Office respectfully disagrees with the decision of Justice Young in respect of the following matters: (a) The Commissioner considers Neutral Bay to be wrongly decided. On 8 February 2008 the High Court gave the Commissioner special leave to appeal from the Queensland Court of Appeal's decision. The appeal was heard on 16 and 17 June 2008. (b) The Commissioner respectfully considers that Young J was in error in finding that the evidentiary certificate was of no significance in the proceedings. In the Neutral Bay High Court appeal, the Commissioner has directly invited the High Court to consider whether the relevant proceedings in relation to the issue of a statutory demand are recovery proceedings. (c) The Commissioner respectfully considers that Young J was in error to follow the decision in Neutral Bay rather than the decision of the Federal Court in Hoare Bros . (d) In addition, the Commissioner respectfully believes that Young J was in error to find that there can be a genuine dispute for the purposes of the Corporations Act notwithstanding that the taxpayer did not exercise its rights under Part IVC of the TAA to lodge a notice of objection which, in any event, it was out of time to do. The Commissioner's particular concern with Young J's decision is His Honour's finding that there was a genuine dispute in circumstances where there was a GST assessment, no Part IVC dispute and the taxpayer was out of time to challenge the assessment under Part IVC. Further, at the time of the hearing to set aside the statutory demand, the only action that the taxpayer had taken to dispute the GST liability was to dispute it in the proceedings to set aside the statutory demand. | (a) The Commissioner considers Neutral Bay to be wrongly decided. On 8 February 2008 the High Court gave the Commissioner special leave to appeal from the Queensland Court of Appeal's decision. The appeal was heard on 16 and 17 June 2008. (b) The Commissioner respectfully considers that Young J was in error in finding that the evidentiary certificate was of no significance in the proceedings. In the Neutral Bay High Court appeal, the Commissioner has directly invited the High Court to consider whether the relevant proceedings in relation to the issue of a statutory demand are recovery proceedings. (c) The Commissioner respectfully considers that Young J was in error to follow the decision in Neutral Bay rather than the decision of the Federal Court in Hoare Bros . (d) In addition, the Commissioner respectfully believes that Young J was in error to find that there can be a genuine dispute for the purposes of the Corporations Act notwithstanding that the taxpayer did not exercise its rights under Part IVC of the TAA to lodge a notice of objection which, in any event, it was out of time to do. The Commissioner's particular concern with Young J's decision is His Honour's finding that there was a genuine dispute in circumstances where there was a GST assessment, no Part IVC dispute and the taxpayer was out of time to challenge the assessment under Part IVC. Further, at the time of the hearing to set aside the statutory demand, the only action that the taxpayer had taken to dispute the GST liability was to dispute it in the proceedings to set aside the statutory demand.

Administrative treatment:
Pending the outcome of the hearing of the Commissioner's appeal to the High Court in the Neutral Bay case, the Commissioner will continue to use statutory demands where a taxpayer has not taken any steps under Part IVC of the TAA to dispute an assessment or is out of time to challenge an assessment under Part IVC. | The Commissioner will seek to identify a suitable matter for an appellate court to review the decision of Young J in relation to what constitutes a genuine dispute for the purposes of s459H of the Corporations Act and to clarify the law in that respect. The Commissioner did not proceed with his appeal in this matter because the substantive matter giving rise to the GST liability was settled.

Legislative references: Corporations Act 2001 (Cth) 459E 459G 459H 459J 459M 459T Part 5.4 Income Tax Assessment Act 1936 (Cth) Taxation Administration Act 1953 (Cth) 8AAZJ Part IVC 105-15 of Schedule 1 105-100 of Schedule 1 255-5 of Schedule 1
Case references: Bluehaven Transport Pty Ltd v Commissioner of Taxation (2000) 157 FLR 26 [2000] QSC 268 Hoare Bros v DCT (1996) 62 FCR 302 32 ATR 148 96 ATC 4163 Neutral Bay and Others v DCT (at first instance) [2006] QSC 394 (2006) 205 FLR 470 65 ATR 270 Neutral Bay and Others v DCT (on appeal) [2007] QCA 312 2008 ATC 20-006 68 ATR 886
Subject references: Application to set aside statutory demand Partnership debt for GST assessments for GST following audit no objection re GST assessment dispute re GST assessment.