The Administrative Appeals Tribunal (AAT) has recently refused the applications of two individuals who sought to be released from their tax debts under s 340-5 of Sch 1 to TAA 1953. The cases are as follows.

Case 1: serious illness, but debt release refused

Background

As at 9 August 2016, the taxpayer's total liability amounted to $130,416. In 2006, the taxpayer was diagnosed with Parkinson's disease and was forced to retire early. He received payments under an income protection policy for the years ended 30 June 2010, 2011, 2012 and 2013, but was unaware until 2012 that the payments constituted assessable income. In January 2014, the taxpayer lodged tax returns for each of the years. In May 2014, the taxpayer applied to be released from his tax debts.

The AAT heard details about the taxpayer's assets and liabilities, including the taxpayer's home and an investment property. Together these properties comprised the bulk of the taxpayer's and his wife's assets. The taxpayer contended that, as a result of mortgages over the two properties in favour of his wife, he was unable to dispose of either property to raise any amount to pay the tax debt. It was also submitted that if one of the properties was sold, that would compound the effect of the taxpayer's illness and may make it more difficult for him to acquire food, clothing, medical supplies or accommodation, and to provide support for his son, who suffers from schizophrenia.

Decision

The AAT accepted that a serious illness and the presence of dependent children were matters to be taken into account when considering the individual circumstances of an application for release. It said the taxpayer's illness had obviously a profound effect on his life, including on his life expectancy. However, the AAT said it was not satisfied that the requirement that the taxpayer pay his tax liability would bring about "the dire results in respect of his health or otherwise as advanced on his behalf".

The AAT also heard details of a contractual will arrangement which, among other things, was said to secure mortgages in favour of the wife over the taxpayer's interest in the two properties. However, the AAT said it was not satisfied that the taxpayer was under any obligation to enter into the contractual will arrangement. It was also not satisfied that the taxpayer's wife would seek to enforce her rights under that arrangement or that the properties would not be available to him to meet his tax liabilities.

The AAT affirmed the Commissioner's decision, finding that the taxpayer would not suffer serious hardship if he was required to pay his tax liability. Even if it were a case of serious hardship, the AAT said it would not exercise its discretion to grant relief. The AAT considered that the taxpayer had not made proper provisions to meet his tax liabilities and preferred to pay his other debts.

Re ZDCW and FCT [2016] AATA 788, 7 October 2016, http://www.austlii.edu.au/au/cases/cth/AATA/2016/788.html.

Case 2: discretionary spend a consideration

Background

In November 2006, the taxpayer applied for and was granted a release from his tax debts relating to the year ended 30 June 2004. In January 2012, the taxpayer lodged his returns for the years ended 30 June 2007, 2008, 2009 and 2010. He applied for, but was not granted releases from his tax debts relating to those years. In February 2015, the taxpayer lodged his returns for the years ended 30 June 2012, 2013 and 2014. The taxpayer again applied to be released, this time for the years ended 30 June 2007, 2008, 2009, 2010, 2012, 2013 and 2014. The application for debt release was again refused. The taxpayer contended that he had an outstanding compliance history that was not properly considered and that his current circumstances were a result of a catastrophic financial event in 2005. He contended that he was still experiencing hardship and was unable to meet even basic living necessities. The liability at 11 August 2016 to which s 340-10 of Sch 1 to TAA 1953 applied stood at $437,681 (comprising $242,246 primary tax and $195,435 general interest charge).

The taxpayer had been employed since January 2015 as a salesperson with a real estate agency based on the Sunshine Coast. The Commissioner pointed to the taxpayer's "unusually high level of discretionary spending, including on holidays, dining out and entertainment, which could be reduced". The AAT also heard details of the taxpayer's borrowings to purchase properties. The taxpayer contended that he and his former spouse did not invest any of their own equity into the properties but instead borrowed funds, and said there was no money that could have been used to meet his tax liabilities. He also contended that throughout this period he was continually affected by the catastrophic financial events of 2005, leaving him constantly stressed and anxious. In addition, the AAT heard details of the taxpayer's illegal early access to his superannuation benefits in the years ended 30 June 2007 and 2009. In total, the taxpayer accessed some $164,097. The AAT noted that the taxpayer had repaid some $88,238 to the self managed super fund.

Decision

The AAT agreed with the Commissioner's description of the taxpayer's discretionary spending. The AAT disagreed with the taxpayer's contentions and was of the view that he "simply gave priority to other matters and ignored his tax obligations". Overall, the AAT said the taxpayer had a "poor compliance history". The AAT considered its discretion to release the debt in favour of the taxpayer should not be exercised under these circumstances.

Re Moriarty and FCT [2016] AATA 796, AAT, 11 October 2016, http://www.austlii.edu.au/au/cases/cth/AATA/2016/796.html.