In a recent case, the Administrative Appeals Tribunal (AAT) refused an individual's application to be released from his tax debt of $58,000 on the grounds of serious hardship.
The AAT noted that no explanation was offered for the taxpayer's failure to meet his tax liabilities as they arose. The AAT said that instead of paying what it considered to be manageable tax assessments, the taxpayer "largely ignored his tax liabilities over the last five or six years, and has allowed the amounts due to accumulate with interest".
The Tax Commissioner has a discretion to release individuals from eligible tax debts. However, even if the Commissioner is satisfied that serious hardship would result from payment of the tax debt, he is not obliged to exercise the discretion in the taxpayer's favour.
Broadly, serious hardship is said to exist when payment of a tax debt would leave an individual unable to provide basic living necessities for themselves and their dependants. Ultimately, it is a question of fact whether payment of an eligible tax liability would result in serious hardship – and the onus is on the taxpayer to prove their case before a tribunal.
A taxpayer has been unsuccessful before the Administrative Appeals Tribunal (AAT) in seeking to be released from his tax liabilities under s 340-5 of Sch 1 of the Taxation Administration Act 1953
As of 4 May 2014, the taxpayer's outstanding tax debts amounted to around $58,000. However, the AAT was not satisfied that the taxpayer's situation, if the taxpayer were required to pay the tax debts, would entail serious hardship. The AAT said that even if it were a case of serious hardship, the AAT would not exercise the discretion to grant relief. The AAT noted that no explanation was offered for the failure by the taxpayer to meet his tax liabilities as they arose. When comparing household income with expenses, the AAT was of the view that, although outlays were not extravagant, there was a level of discretionary spending that, if necessary, could be reduced.
The AAT said that instead of paying what it considered to be manageable tax assessments, the taxpayer "largely ignored his tax liabilities over the last five or six years, and has allowed the amounts due to accumulate with interest". It added that the taxpayer "simply failed to give proper priority to paying his tax" and that "since entering the PAYG instalment system in 2008 he has paid only four of 22 assessments". Further, the AAT said that the taxpayer had made no "sustained effort to clear arrears and achieve compliance". It noted that since the "middle of last year he has been paying $150 per fortnight but he has not been meeting current assessments".
Re Power and FCT  AATA 343, www.austlii.edu.au/au/cases/cth/AATA/2014/343.html