The ATO's Model Litigant Responsibilities - Bringing Summary Judgment Applications out of time

April 29, 2020 Roger Blow

A recent decision by the District Court of Western Australia has criticised the ATO’s practice of routinely bringing summary judgment applications out of time. Will it be enough to force a change in the ATO’s practices?

Deputy Registrar Hewitt observed in Deputy Commissioner of Taxation v Babij that ‘the Deputy Commissioner… invariably brings applications for summary judgment outside the time permitted by the rules, and his delay in doing so is usually significant.’

Deputy Registrar Hewitt went on to say that the Deputy Commissioner ‘has not been diligent in pursuing this matter and certainly has not complied with the relevant rules concerning the filing of summary judgment applications’.

The Deputy Registrar also observed regarding the relevant claim against Mr Babij for ‘it is arguable that there was no effective step which [the defendant] could take’ to ensure his compliance with tax obligations. Indeed, the court considered that the defendant may not have even been reasonably expected to recognise any breach of his obligations. Therefore, the request for summary judgment was rejected on the factual grounds, in addition to being out of time.

Under the court rules, summary judgments are reserved for the clearest of cases. The court voiced its disapproval of the Deputy Commissioner bringing such an application in all of the circumstances and stated that ‘the way that this action has been conducted does not engender sympathy for the plaintiff’.

This decision brings to mind our other articles on the ATO’s obligations as a model litigant. In that article we discussed the high standards to which Government agencies are required to adhere within the litigation process.

Cove Legal offers specialist expertise in the area of tax disputes and insolvency.  We represent clients on all aspects of ATO debt recovery action (such as director penalty notices, garnishee notices, freezing orders, default assessments, audit requests and ATO criminal prosecutions). If you are facing actual or threatened ATO debt action or need advice on an insolvency situation generally, speak to us today.

Roger Blow, Practice Director, Ph: +61 8 6381 0326, or e: roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

Disclosure of Business Tax Debts – A New String in the ATO’s Bow

March 10, 2020 Roger Blow

The Australian Tax Office (ATO) now has a new power to add to its already impressive arsenal, being the power to disclose the tax debt information of businesses to registered Credit Reporting Bureaus.

This power was granted to the ATO on 21 February 2020 as part of the Government’s broader strategy to reduce overdue tax, encourage engagement with the ATO, and improve overall transparency. The ATO claims that the measure will ‘support more informed decision making within the business community by making large overdue tax debts more visible’. They further claim that it will address the unfair advantage which businesses obtain by failing to meaningfully engage with the ATO.

The ATO’s criteria for disclosure is:

The business has an ABN, but is not an ‘excluded entity’ (i.e. a registered charity, government entity, deductible gift recipient, or complying superannuation entity);
The business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days;
The business has not effectively engaged with the ATO in managing its tax debts; and
The business does not have an active complaint with the Inspector-General of Taxation concerning the proposed reporting of the business’s tax debt information.

A business that satisfies that criteria then has 28 days from the date of the ATO notification to engage with the ATO and manage its tax debt.

This new power can have a profound commercial effect, particularly on small businesses.

Standard credit defaults generally remain as a black mark on credit reports for a period of five years and have a detrimental effect on the ability to secure or maintain financial support from banks and other credit suppliers. Whilst ATO reported tax debts will only remain visible on a credit report for as long as they meet the above criteria, the default could have disastrous effects for businesses who lose credit eligibility based on the ATO’s report.

Considering the potential ramifications of this new reporting power on a business, it remains to be seen how it will be used by the ATO with respect to debts that are in dispute. However, it does highlight the need for businesses to engage early and often with the ATO when faced with an unpaid tax debt.

Cove Legal provide specialist advice to clients facing possible insolvency outcomes or facing actual or threatened ATO debt action. If you are attempting to address director personal liability issues, director penalty notices, garnishee orders, winding up applications, statutory demands or need advice on an insolvency situation generally, speak to us today.

Roger Blow, Practice Director Ph: +61 8 6381 0326, or e: roger@covelegal.com.au

Changes to Director Penalty Notices

July 4, 2019 Roger Blow

Since April 2019 there has been an important change to the Director Penalty Notice (DPN) regime in relation to a Director’s personal liability for an unpaid Superannuation Guarantee (SG) debt.

A Director will now be personally liable if a company’s SG liabilities are not remitted within 28 days of the end of each quarter. Previously a Director had 3 months to report their superannuation and settle the debt without the risk that the ATO would issue a lockdown DPN.

A Director who fails to lodge SG returns within the 28 day time period will cause the ATO to issue a lockdown DPN, which makes the Director automatically liable for those specific debts and prevents them from escaping liability via a liquidation/administration.

Directors should note that these changes do not alter the 3 month period allowed for the settlement of a company’s PAYG debt.

Cove Legal are experts in assisting clients with contentious tax matters and insolvency proceedings. We provide advice on ATO payment plans, director penalty notices, winders and all other aspects of ATO debt recovery action. Practice Director Roger Blow has acted extensively on behalf of the ATO in Perth and has specific expertise in tax related disputes.

Roger Blow P: +61 8 6381 0326 or e: roger@covelegal.com.au

Tax Litigation Update

March 21, 2019 Roger Blow

At Cove Legal we are very active in the tax litigation space and two recent decisions particularly caught our eye.

Firstly in Arbuckle v Commissioner of Taxation [2019] WASC 7 Martin J dismissed Mr Arbuckle’s Appeal against the sentence imposed by the Magistrate’s Court.

The Court found that Mr Arbuckle’s long-standing failure to meet his tax obligations did warrant a 6- month suspended prison term. He was released on the undertaking to be of good behaviour for a period of two years.

In handing down the sentence, Magistrate Huston said he needed to “send a message very clearly to Mr Arbuckle that he needs to be discouraged from engaging in this form of unlawful behaviour ever again.”

“I also need to send a message to the broader community that the expectations in the legislation for lodging income tax returns and business activity statements is not something to fit in when life is convenient. They have to be prioritised because it’s a legislative requirement to do those things.”

The second decision is Deputy Commissioner of Taxation v Nore [2019] WADC 27 which saw the District Court dismiss an ATO summary judgment application against Mr Nore on the basis that there was sufficient uncertainties in the ATO’s case (despite the ATO claiming Mr Nore had no defence to the claim) to justify the matters being aired in court.

Mr Nore had been issued with a Director Penalty Notice with respect to a company that failed to remit superannuation guarantee charges. There are a number of steps a Director can take in order to avoid personal liability in that scenario. Some of those actions were undertaken by Mr Nore with the Court observing “In the circumstances … I am struggling to see what the defendant could have done.”

The two decisions perhaps sit at opposite ends of the true litigation scale: the Supreme Court showing a willingness to endorse custodial sentences for more serious personal tax omissions whilst the District Court is resisting the Commissioner’s attempts to rely upon his procedural/legislative advantages so as to prevent arguable defences from being properly considered by the Courts. Both show that tax disputes can very much turn on their own particular facts and circumstances and require specialist guidance.

Roger Blow

P: +61 8 6381 0326 or e: roger@covelegal.com.au