Deputy Commissioner of Taxation v De Angelis
Document type: Decision Impact Statement
Venue: Miscellaneous - Australian (2093/2005)
Judgment date: 14 August 2008
Date published: 19 February 2013

Summary of decision:
Outlines the Tax Office's response to an issue raised in this case concerning 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. Mr De Angelis and Mr Carpinelli entered into a partnership for the construction and sale of residential units. Mr De Angelis and Mr Carpinelli separately sought and obtained GST registration relating to the partnership's business and lodged business activity statements (BASs) claiming input tax credits. | 2. A refund of $77,018, representing input tax credits claimed, was paid to Mr De Angelis. However, the Tax Office later determined that the amount had been paid in error, resulting in an administrative overpayment occurring and issued amended assessments disallowing the input tax credits. | 3. The administrative overpayment was allocated to a running balance account (RBA) and the GIC was calculated as accruing from the date of the assessment. No notice issued pursuant to section 8AAZN of the TAA in respect of the overpayment. | 4. The Deputy Commissioner of Taxation (the DCT) commenced recovery action in the District Court of South Australia against Mr De Angelis in respect of the RBA deficit debt comprising the administrative overpayment and brought an application for judgment to be entered summarily. | 5. Mr De Angelis filed an amended defence wherein he, amongst other things, pleaded: • that the account relied on by the DCT was not an RBA for the purposes of section 8AAZC; • that an administrative overpayment is not a "primary debt" for the purposes of the RBA provisions; • that section 8AAZD did not permit the DCT to allocate an administrative overpayment to an RBA; and • that the DCT is not entitled to claim GIC on the administrative overpayment as no notice was given pursuant to section 8AAZN. | • that the account relied on by the DCT was not an RBA for the purposes of section 8AAZC; • that an administrative overpayment is not a "primary debt" for the purposes of the RBA provisions; • that section 8AAZD did not permit the DCT to allocate an administrative overpayment to an RBA; and • that the DCT is not entitled to claim GIC on the administrative overpayment as no notice was given pursuant to section 8AAZN. | 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). | 7. In support of her application for summary judgment the DCT produced to the Court a copy of the notice of assessment issued to Mr De Angelis and relied on it as conclusive evidence of Mr De Angelis' liability pursuant to the then 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. | Findings of the Court | 9. At first instance, Master Rice found, amongst other things: • that the RBA deficit debt could not be "conclusively proved under section 59 of theTAA as the over payment is not based on a notice of assessment, it is based on the overpayment mistake provision"; • that section 8AAZN is part of the "taxation law" and an administrative overpayment is a primary tax debt; • that the administrative overpayment made to Mr De Angelis was within the definition in subsection 8AAZN(3) and was a payment made by "mistake"; and • that because no section 8AAZN notice was given the Commissioner could not allocate GIC to the RBA debt. | • that the RBA deficit debt could not be "conclusively proved under section 59 of theTAA as the over payment is not based on a notice of assessment, it is based on the overpayment mistake provision"; • that section 8AAZN is part of the "taxation law" and an administrative overpayment is a primary tax debt; • that the administrative overpayment made to Mr De Angelis was within the definition in subsection 8AAZN(3) and was a payment made by "mistake"; and • that because no section 8AAZN notice was given the Commissioner could not allocate GIC to the RBA debt. | 10. The Master granted summary judgment for the amount of the primary tax debt ($77,018) but not the GIC. | 11. The DCT appealed to the District Court of South Australia against the decision of Master Rice. The DCT sought summary judgment for the GIC component on the basis that an administrative overpayment is a primary tax debt and may therefore be allocated to an RBA and that she had so allocated the administrative overpayment in the matter at hand. As the RBA was in deficit GIC was payable pursuant to subsection 8AAZF(1). | 12. The taxpayer cross appealed against, amongst other things, the decision to enter summary judgment for the sum of $77,018. The taxpayer argued that the case was not an appropriate case for summary judgment as it involved significant factual disputes and complex legal questions. | 13. In the time between the appeal being heard before Shaw J and the handing down of the decision the taxpayer was declared bankrupt. | 14. On the appeal, Shaw J found that the taxpayer had an arguable defence which was sufficient for the taxpayer's appeal to be upheld in relation to the contention that this was not a case for summary judgment. | 14. Her Honour found that it was reasonably arguable that the taxpayer had lodged the correct claim and it was reasonably arguable that if there was a mistaken payment it was made to the second partnership registered by Mr Carpinelli. Accordingly it was at least arguable that the Commissioner had not established the alleged overpayment in relation to the taxpayer. | 16. Her Honour also considered that the issue surrounding the conclusive nature of the assessments involved complex and important legal questions.

Issues decided:

ATO view of decision:
17. The Commissioner respectfully disagrees with the Master's conclusion in respect of the GIC issue and remains of the view that, when an administrative overpayment is posted to an RBA, the GIC provisions are engaged and GIC is payable on the RBA balance. Further, the Tax Office considers that the correct date from which GIC is able to be imposed is the date that the administrative overpayment was made and that the RBA deficit debt can be conclusively proved under section 105-100 of Schedule 1 to the TAA (formerly section 59 of the TAA) where the administrative overpayment is reflected in an assessment of the taxpayer's net amount made by the Commissioner. | 18. The Commissioner accepts that it was open to Shaw J. to find that this matter was not suited for summary judgment in view of the factual disputes and complex legal questions arising from the case. | 19. The Commissioner considered taking the matter back for trial. However the complexities arising from the taxpayer's bankruptcy made the case unsuitable for continued litigation. | 20. Following the conclusion of the De Angelis litigation, the Commissioner's views on the GIC issue were tested in the District Court of NSW in Deputy Commissioner of Taxation v Smith [2008] NSWDC 219. In that matter, the Commissioner was successful in obtaining judgment for both the administrative overpayment and GIC components of it allocated to an RBA without a subsection 8AAZN(2) notice being issued. The Commissioner has published a decision impact statement on that matter - DIS 148/2007 .

Administrative treatment:
21. It should be noted that the decision in Deputy Commissioner of Taxation v Smith [2008] NSWDC 219 is not binding on other jurisdictions. However, the Tax Office considers the decision in Smith to be the better approach in these circumstances and as such: 21.1 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. 21.2 The Tax Office will continue to seek recovery of administrative overpayments and GIC on them | 21.1 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. 21.2 The Tax Office will continue to seek recovery of administrative overpayments and GIC on them

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]
Subject references: Administrative Overpayments Running Balance Account General Interest Charge