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[2012] NSWSC 1234
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In the matter of Oztec Pty Limited [2012] NSWSC 1234 (15 October 2012)
Last Updated: 10 January 2013
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Case Title:
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In the matter of Oztec Pty Limited |
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Medium Neutral Citation:
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Hearing Date(s):
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Decision Date:
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Jurisdiction:
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Equity Division - Corporations List |
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Before:
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Decision:
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Originating Process dismissed. Parties to be
heard as to costs. |
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Catchwords:
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CORPORATIONS - Winding up - Statutory demand -
Application to set aside statutory demand - Whether genuine dispute established
- Whether
offsetting claim established - Whether there is some other reason to
set aside statutory demand. |
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Legislation Cited:
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- Corporations Act 2001 (Cth) Pt 5.4, ss 459G,
459H, 459H(1)(a), 459H(1)(b), 459H(2), 459H(5), 459J, 459J(1)(a),
459J(1)(b) - Evidence Act 1995 (NSW) s 91- Income Tax Assessment Act 1997
(Cth) - Tax Laws Amendment (Research and Development) Act 2011 (Cth) -
Taxation Administration Act 1953 (Cth) Pt IVC, Sch 1, ss 8AAZA, 8AAZC, 8AAZF,
8AAZI, 8AAZJ, 53 - Uniform Civil Procedure Rules 2005 (NSW) r 7.2 |
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Cases Cited:
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Texts Cited:
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- F. Assaf, Statutory Demands and Winding Up in
Insolvency, 2nd ed, LexisNexis Butterworths, 2012 |
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Category:
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Parties:
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Oztec Pty Limited (Plaintiff) Deputy Commissioner
of Taxation (Defendant) |
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Representation
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Counsel: S. Oke (Director) (Plaintiff) Y.
Acheampong (Defendant) |
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- Solicitors:
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Solicitors: ATO Legal Branch (Defendant) |
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File number(s):
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Publication Restriction:
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JUDGMENT
- By
Originating Process filed on 30 March 2012, the Plaintiff, Oztec Pty Limited
("Oztec") seeks to set aside a statutory demand dated
2 March 2012 ("Demand")
served by the Deputy Commissioner of Taxation ("DCT"). The Demand claims the
amount of $458,442 described
as:
"Running Balance Account deficit debt as at 2 March 2012 in respect of
amounts due under the BAS [business activity statement] provisions
as defined in
sub-section 995-1(1) of the Income Tax Assessment Act 1997 ("the ITAA 1997")
..., administrative penalties due under Part 4-25 of Schedule 1 to the Taxation
Administration Act 1953 ("the TAA 1953") and the general interest charge payable
under section 8AAZF of the TAA 1953, being a debt due and payable by the Company
pursuant to section 8AAZH of the TAA 1953".
- Oztec's
application to set aside the Demand is made on the grounds specified in ss 459H
and 459J of the Corporations Act 2001 (Cth). The Originating Process
further identifies the grounds of that application as that (1) Oztec does not
owe the amount claimed;
(2) there is a genuine dispute about the existence of
the amount of the debt; (3) Oztec has an offsetting claim; (4) the Demand is
defective because it has been based on source documents and processes that are
misleading and contain gross errors; and (5) injustice
would be caused unless
the Demand be set aside. Oztec seeks an order setting aside the Demand and
costs. Oztec also claims damages,
but the Court has no jurisdiction to make an
order for damages in an application to set aside a statutory demand and that
claim was
not pressed in Oztec's submissions before me.
- Oztec
was represented by its director, Mr Simon Oke, in the application. I dispensed
with the requirement for Mr Oke to file an affidavit
as to his authority to
carry on the proceedings complying with r 7.2 of the Uniform Civil Procedure
Rules 2005 (NSW), having drawn to his attention the prospect that he might be
ordered to pay the costs of the proceedings in accordance with
the principles
set out in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR
178 and May v Christodoulou [2011] NSWCA 75. The DCT neither consented to
nor opposed that course.
- Oztec
relies, in support of the application to set aside the Demand, on Mr Oke's
affidavits dated 30 March 2012 and 3 August 2012.
In broad summary, Mr Oke
contends that Oztec does not owe the money claimed; that the DCT has made errors
in calculating its claim
and based that claim on documents that are defective
and misleading; that the DCT has relied on an audit process that was misleading
and deceptive; and that the Demand is defective and there would be injustice if
it were not set aside. Mr Oke acknowledges that the
amounts claimed are
generally consistent with the outcome of an audit conducted by the Australian
Taxation Office but Oztec complains
as to the audit process. Mr Oke refers to
difficulties by Oztec in accessing documents and staff during the period of the
audit,
by reason of a relocation of its premises; that the audit was completed
with "undue haste"; that documents that he contends were
mailed to the
Australian Taxation Office were, he contends, ignored by it; that the Australian
Taxation Office revised Oztec's business
activity statements for a wider period
than it had indicated was the subject of the audit; that the DCT disallowed
Oztec's claimed
GST credits for a 45 month period and should not have done so;
that no penalties or charges should apply since the claimed GST credits
should
not have been disallowed; and that the DCT made later statements which could
only be correct if its letter dated 14 December
2011 setting out the interim
findings of the audit were incorrect.
- For
reasons which will emerge below, it is ultimately not necessary for the Court to
reach an assessment of the detail of these criticisms.
I should note, however,
that it was by no means clear that they were justified. To take three examples,
Mr Oke refers to Oztec's
difficulties in accessing documents and staff in order
to justify GST credits claimed by Oztec during the period of the audit, but
there is no evidence that those documents were subsequently provided to the DCT
in order to seek to persuade it to change its views,
nor were they put in
evidence in these proceedings in order to seek to support Oztec's position. Mr
Oke contends that documents were
provided to the DCT and ignored, but the
transaction listing for purchases on which Oztec relies includes, for example,
substantial
internet transfers without further explanation. The criticism that
the DCT acted inconsistently with the interim report provided
on 14 December
2011 ignores the fact that that report was interim in character, and it was
hardly inappropriate for the DCT not to
act on the outcome of the audit before
finalising it.
- Mr
Oke indicates that Oztec has applied for an internal review by the DCT of the
audit findings, although there is a dispute that
it is not appropriate to
resolve in an application of this kind as to when that application was made. Mr
Oke contends that Oztec's
running balance account ("RBA") of GST credits and
debits has been in surplus based on Oztec's own records, but those records were
largely not in evidence before me. Mr Oke also contends that the RBA on which
the DCT relies do not include R&D tax offsets claimed
by Oztec and Oztec
therefore has an offsetting claim which exceeds the amount of the Demand or the
debt properly owed. I will address
that contention further
below.
- Mr
Oke's affidavit dated 3 August 2012 exhibits further documents, including an
objection to the findings of the audit which Oztec
claims it submitted in
February 2012, but which the DCT denies receiving at that time. Oztec also
relies on its income tax returns
for the years ended 2011 (which it claims was
posted to the DCT in October 2011 and relodged in August 2012; the DCT's
evidence is
that it did not receive that return until 2 August 2012 and had not
yet processed it) and 2012 (which it claims to have lodged in
September 2012 and
relodged on the date of the hearing of this application).
- The
DCT relies on an affidavit of Mr Brendan D'Arcy dated 7 June 2012, which
outlines its accounting systems; indicates the origin
of the debt claimed,
including the outcome of the audit and the issue of revised business activity
statements forms to Oztec for
the period 1 October 2007-31 March 2011; and sets
out the manner in which liabilities and penalties are treated in the RBA
maintained
by the DCT in respect of primary tax debts in relation to Oztec. The
DCT also relies on a Certificate under s 8AAZJ of the Taxation Administration
Act 1953 (Cth) ("TAA 1953") showing a deficit debt owed by Oztec of
$472,561.31 as at 7 June 2012, which corresponds to the balance claimed
in the
Demand as at 2 March 2012 plus further general interest charged from that date
to 7 June 2012.
- It
is not necessary to review the statutory structure for the RBA in detail.
However, broadly speaking, liabilities arising under
the business activity
statements and assessment notices in respect of penalties are "primary tax
debts" for the purposes of s 8AAZA of the TAA 1953. The RBA in respect of
primary tax debts is maintained by the DCT under s 8AAZC of the TAA 1953. A
general interest charge is imposed where there is an RBA deficit debt (as
defined in TAA 1953 s 8AAZA) on a daily basis: TAA 1953 s 8AAZF. The amount of
Oztec's liability for GST was self-assessed and, in its original business
activity statements, the amounts it owed
to the DCT broadly corresponded to the
amounts it claimed the DCT owed it for GST credits. Following the audit, the DCT
issued amended
business activity statements which excluded the claims for
amounts owed by the DCT to Oztec, on the basis that the DCT considered
that
Oztec had not substantiated those claims.
- The
DCT also relies on the affidavit of Mr Michael O'Neill sworn 20 August 2012. Mr
O'Neill's evidence is that he has not located
any record of any objection lodged
by Oztec under Pt IVC of the TAA 1953 and he refers to Assessment Notices issued
by the DCT to Oztec for GST liability and penalties respectively on 17
and 18
January 2012. Mr O'Neill's evidence is that Oztec's RBA balance as at 20 August
2013 was in deficit in the amount of $478,878.72.
The DCT also relies on a
Certificate under s 8AAZJ of the TAA 1953 in that regard.
- Oztec
made lengthy written submissions and Mr Oke also made comprehensive oral
submissions. As I pointed out to Mr Oke in the course
of those submissions, I
cannot have regard to matters asserted in those submissions that are not
established by evidence led in the
proceedings. In particular, Mr Oke made
submissions as to the business activities of another entity, Ozone Manufacturing
Pty Limited
("Ozone Manufacturing"), and as to its history in research and
development ("R&D") which were not the subject of evidence led
in the
proceedings. Mr Oke also relied on the judgment of the Full Court of the Supreme
Court of South Australia in Ozone Manufacturing Pty Ltd v Deputy Commissioner
of Taxation [2006] SASC 91; (2006) 94 SASR 269 to seek to establish matters
as to the business of Ozone Manufacturing, but that judgment is not admissible
as proof of the relevant
facts in these proceedings, by reason of s 91 of the
Evidence Act 1995 (NSW); and, second, there is no reason to assume,
absent evidence, that the business of Ozone Manufacturing (or, indeed, Oztec) in
2011-2012 is the same as the business of Ozone Manufacturing in the period prior
to 2006.
- Oztec
also refers to the legislative basis of R&D tax offsets and provides a
detailed analysis of the structure of the Income Tax Assessment Act 1997
(Cth) (as it stood prior to amendments by the Tax Laws Amendment (Research
and Development) Act 2011 (Cth)). It is not necessary to address those
provisions because the DCT did not contend that the Income Tax Assessment
Act did not permit R&D tax offsets in a proper case.
Whether a genuine dispute is established
- The
first basis on which Oztec seeks to set aside the Demand is that there is a
genuine dispute as to the existence of the amount
of the tax debt to which the
Demand relates, for the purposes of s 459H(1)(a) of the Corporations Act.
The principles applicable to establishing a genuine dispute are
well-established. In order to establish such a dispute, Oztec needs
to show that
its claim that the debt does not exist, or does not exist in the amount claimed,
is not vexatious or frivolous or may
have some substance or involves a plausible
contention requiring investigation: Eyota Pty Ltd v Hanave Pty Ltd (1994)
12 ACSR 785 at 787; Panel Tech Industries (Australia) Pty Ltd v Australian
Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [17]; Central City
Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [9].
- Oztec
faces several difficulties in seeking to establish that the debt claimed in the
Demand is genuinely disputed. First, the DCT
relies on the statement of RBA and
certificates annexed to the affidavits of Messrs D'Arcy and O'Neill. The RBA for
Oztec indicates
that the amount of the deficit at 2 March 2012 is the amount
claimed in the Demand. Section 53 of the TAA 1953 in turn provides that the
production of a RBA statement in relation to business activity statement debts
is prima
facie evidence that the amount and particulars contained in it is
correct. The DCT has also issued a certificate in respect of the
RBA deficit as
at 7 June 2012, which is consistent with the amount claimed at 2 March 2012 plus
interest, and that certificate is
also prima facie evidence of that matter under
s 8AAZJ of the TAA 1953.
- Moreover,
on 17 January 2012, the DCT issued a Notice of Assessment under s 105-5(1) of
Sch 1 to the TAA 1953 applying a debit of $269,227 to Oztec's RBA reflecting the
outcome of the audit. Section 105-100 of Sch 1 of the TAA 1953 in turn provides
that the production of a Notice of Assessment is conclusive evidence that the
assessment
was properly made and, except in a proceeding under Pt IVC of the TAA
1953 on a review or appeal relating to the assessment, that the amount and
particulars in the assessment are correct.
On 18 January 2012, the DCT issued a
Notice of Assessment and Liability to Pay Penalty to Oztec in the amount of
$134,613.50. Section 298-30 of Sch 1 of the TAA 1953 provides for the DCT to
make an assessment of an administrative penalty and that the production of a
notice of that assessment or a copy of it certified by or on behalf of the DCT
is conclusive evidence of the making of that assessment
and the particulars in
it, other than in proceedings under Pt IVC of the TAA 1953 on a review or appeal
relating to the assessment: TAA 1953 Sch 1 s 298-3(3)-(4). The amounts of the
assessment are in turn reflected in Oztec's RBA with process dates of 16 and 18
January 2012 and, after
general interest charges are applied to 1 March 2012,
give rise to the amount claimed in the Demand.
- In
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008]
HCA 41; (2008) 237 CLR 473 at [57]- [58], the plurality of the High Court held
that, even if review proceedings in the Administrative Appeals Tribunal had been
commenced
under Pt IVC of the TAA 1953 (which they have not in this case), the
effect of s 105-100 of Sch 1 of the TAA 1953 was that the production of the
notices of assessment conclusively demonstrated the amounts and particulars
in
them, and that no "genuine dispute" as to those amounts could be established for
the purposes of s 459H(1)(a) of the Corporations Act. Mr Oke seeks to
distinguish that decision on the basis that the tax dispute in issue in that
case raised questions of principle
rather than whether GST deductions on
numerous purchases of items of equipment were justified. I do not understand the
High Court's
reasoning to be limited to a particular form of tax dispute, and
there is in any event no evidence in these proceedings to establish
that the GST
credit claimed in fact related to purchases of a particular kind. I must treat
the High Court's observations in that
decision as an authoritative statement of
the law: Mossimo Systems International Pty Ltd v Deputy Commissioner of
Taxation [2010] NSWSC 1409 at [28]; Catarina Gardens Pty Ltd v Deputy
Commissioner of Taxation [2011] NSWSC 449. It follows that, since there are
conclusive provisions as to both the amount of the tax assessment recorded in
the RBA and the amount
of penalty applicable, there is no room for a genuine
dispute as to those matters to be established.
- Mr
Oke submitted that the High Court's decision in Broadbeach Properties
left open the possibility that a genuine dispute could arise in respect of the
amount of general interest claimed by the DCT, by
reason of a concession made by
the DCT in that case. While I accept that submission, Oztec did not seek to
establish any basis for
a genuine dispute as to the interest claimed by the DCT
other than that the tax assessed and penalty assessed were not due, and it
cannot establish that matter for the reasons noted above. Absent any other
challenge to the basis of the interest claimed, it also
cannot establish that
there is a genuine dispute as to the amount of interest included in the Demand.
- For
these reasons, Oztec's claim to set aside the Demand on the basis that there is
a genuine dispute as to the amount claimed under
s 459H(1)(a) of the
Corporations Act must fail.
Whether an offsetting claim is established
- Oztec
also seeks to establish an offsetting claim in respect of the debt claimed in
the Demand, for the purposes of s 459H(1)(b) of the Corporations Act,
arising from tax offsets to which it claims to be entitled as a result of deemed
assessments on lodging its 2011 and 2012 tax returns.
As I have noted above,
there is a dispute as to when those returns were lodged, which it is not
necessary to determine for the purposes
of these proceedings.
- I
raised with Mr Oke, in the course of submissions, whether it was open to Oztec
to rely on its 2012 tax return, having regard to
the principle in Graywinter
Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund [1996] FCA 822;
(1996) 70 FCR 452; 21 ACSR 581. I am satisfied that it is open to Oztec to do
so, because Mr Oke's original affidavit seeking to set aside the Demand, which
was
filed within the 21 day period specified in s 459G of the Corporations
Act, had identified an offsetting claim exceeding the sum of the Demand and
pointed to further R&D tax offsets which would also be
lodged for R&D
work already performed for periods corresponding to those stated in the Demand.
That reference was, in my view,
sufficient to identify the fact that further
credits would be claimed in respect of the financial year ending 30 June 2012 as
a basis
of opposition to the Demand.
- An
"offsetting claim" for the purposes of s 459H(1)(b) of the Corporations
Act is the amount of a claim, or claims, that the company has against the
person who served the statutory demand by way of counter claim,
set-off or cross
demand, whether or not that amount arises out of the same transaction or
circumstances as the debt to which the
demand relates: s 459H(5). If the Court
is satisfied that the company has an offsetting claim, then the Court is
required to calculate the "substantiated amount"
of the demand by deducting any
offsetting claim from the admitted amount of the debt: s 459H(2).
- It
is well-established that a company can establish an "offsetting claim" if there
is a "serious question to be tried" or "an issue
deserving of a hearing" as to
whether the company has such a claim against the creditor and that claim is made
in good faith and
is arguable and not frivolous or vexatious: Scanhill Pty
Ltd v Century 21 Australasia Pty Ltd [1993] FCA 618; (1993) 47 FCR 451; 12 ACSR 341 at
356-7. The amount of an offsetting claim is the amount claimed by a party in
good faith, so long as that claim as so quantified
is not fictitious or merely
colourable: Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty
Ltd (No 2) (1994) 12 ACLC 490 at 493. The amount of any offsetting claim
must be determined at the time the proceeding to set aside the statutory demand
is heard:
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd [1997] FCA 1366; (1997) 80 FCR
296; 16 ACLC 12 at 30. In Macleay Nominees Pty Ltd v Belle Property East Pty
Ltd [2001] NSWSC 743 at [18], Palmer J observed that an offsetting claim
is:
"... a claim on a cause of action advanced in good faith, for an amount
claimed in good faith. 'Good faith' means arguable on the
basis of facts
asserted with sufficient particularity to enable the Court to determine that the
claim is not fanciful".
- In
Gujarat NRE Australia Pty Ltd v Williams [2006] NSWSC 518 at [20], Austin
J noted that the standard to be reached to persuade a Court that there is an
offsetting claim "is the same as the standard
to be reached to persuade the
Court that there is a genuine dispute between the alleged debtor and the party
claiming to be creditor".
His Honour also noted (at [21]) that, in proceedings
of this kind, the Court does not enter into the merits of any dispute but merely
satisfies itself, to the standard described by McLelland CJ in Eq in Eyota
Pty Ltd v Hanave Pty Ltd above, that the assertion of an "offsetting claim"
is "genuine" and, if so, the statutory demand procedure is out of place. In
Toorallie v Black [2001] NSWSC 1088 at [15], Barrett J noted
that:
"[T]he court must look sufficiently closely at the asserted claim to assess
its general viability in the light of the evidence."
- Oztec
placed particular weight on the analysis of the character of an offsetting claim
in the decision of the Full Court of the Supreme
Court of South Australia in
Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation above.
Oztec contended that Ozone Manufacturing was a related body, although the only
evidence as to that matter was a concession
by the DCT that Mr Oke was director
and secretary of both Ozone Manufacturing and Oztec. Oztec also contended that
Ozone Manufacturing
had previously carried on the business now carried on by
Oztec but that was not established by admissible evidence. In that decision,
the
Full Court referred to well-known cases concerning the nature of an "offsetting
claim" and Debelle J observed, consistent with
the authorities to which I have
referred above, that:
"when deciding whether an offsetting claim exists, the test is whether the
court is satisfied that there is a serious question to
be tried that the person
on whom the demand has been served has an offsetting claim ... or that the claim
is not frivolous or vexatious
... or that it is not fictitious or merely
colourable ...".
His Honour also noted (at [46]-[47]) that the test whether an offsetting
claim exists is the same as for a genuine dispute, that is
to say, the claim
must be bona fide and truly exist in fact and that the grounds for alleging the
existence of the dispute are real
and not spurious, hypothetical, illusory or
misconceived.
- In
that case, Ozone Manufacturing had not disputed the substantial negative balance
in its RBA (other than a relatively small amount)
but had contended that it was
entitled to tax offsets for R&D expenditure for 3 years so that the total of
the credits exceeded
the balance in the RBA and a refund was due to it, and the
Full Court held that Ozone Manufacturing had established an offsetting
claim.
The Court undertook a detailed analysis of the relevant legislative provisions
and held that, if Ozone Manufacturing qualified
for deductions from income tax
for R&D expenditure, it was entitled to claim a tax offset instead of a
deduction for that expenditure
and could apply those tax offsets against taxes
other than income tax. The Court pointed to matters which suggested that Ozone
Manufacturing's
claim was not artificial, including that it had been claiming
and had been allowed deductions for R&D expenditure from 1995 to
2001 and
had been claiming tax offsets for that expenditure since 2002, and observed that
the question whether Ozone was able to
establish what part of its expenditure
was for research and development, as distinct from whether there was a genuine
offsetting
claim, was a question to be determined in other proceedings. The
Court also relied on the fact that Ozone Manufacturing had supplied
a large
number of documents in response to an Australian Taxation Office audit of its
research activities.
- Oztec
similarly contends that its offsetting claim arises from R&D tax offsets
available to it under its 2011 and 2012 tax returns.
Oztec contends that deemed
assessments arose when Oztec lodged those returns and the DCT does not contest
that contention. Oztec
contends that, even if it cannot compel the DCT to credit
the R&D tax offsets that it claims in those returns against its RBA,
it has
an offsetting claim against its liability under the RBA arising from them. While
there is no suggestion that the amount of
any credit arising under the 2012
return existed as at the date of the Demand, that does not prevent Oztec relying
on the amount
of that credit as an offsetting claim, if it is otherwise
established. An offsetting claim may include a claim which arises after
the
proceedings to set aside the Demand are filed but prior to the hearing:
Noroton Holdings Pty Ltd v Sydney Land Corporation Pty Ltd [1999] NSWSC
192 at [12]; F Assaf, Statutory Demands and Winding Up in Insolvency, 2nd
ed, LexisNexis Butterworths, 2012 at [6.4].
- In
the course of his oral submissions, Mr Oke accepted that a genuine offsetting
claim was not established merely because Oztec had
self-assessed a particular
amount of R&D tax offset to be due to it, notwithstanding the deemed
assessment which might arise
from the lodgement of its return, but also required
that there be a genuine case that Oztec was properly entitled to the tax offset
it claimed. In my view, that concession was properly made. While a claim to a
tax offset might arise merely from the amount of a
deemed assessment, limited
only by the taxpayer's ingenuity and ambition in the amount of the R&D tax
offset claimed in its return,
that would not be a genuine offsetting
claim unless the taxpayer also established that the claim to a tax offset was
genuinely made and there was a serious question
to be tried or an issue
deserving of a hearing as to whether that tax offset was properly to be set off
against the debt or otherwise
recoverable against the ATO.
- In
order to establish that its claim for an R&D tax offset was genuinely made,
Oztec relied on its applications to AusIndustry
for registration of its R&D
activities for the years 2010-2011 and 2011-2012 and on the lodgement of the
relevant tax returns.
Those applications refer to some projects to be undertaken
in both years; there was also a difference between the projects identified
as to
be undertaken by Oztec in its 2010-2011 AusIndustry application and its
2011-2012 AusIndustry application, with a point of
entry water purifier and grey
water, rain water and recirculating water recycling systems using redox
treatment identified as to
be undertaken in 2010-2011 but not 2011-2012 and
electric hose reel research and designs identified as to be undertaken in
2011-2012
but not in 2010-2011. The applications set out expenditures proposed
to be made in respect of the relevant projects and objectives
of those projects
as well as describing, in general terms, the activities to be undertaken. Those
applications were admitted without
objection by the DCT, and it sought no
limitation on the matters proved by them. Those applications should therefore be
treated as
proof of the fact of the matters stated in them. However, they are
directed to the activities that Oztec proposed to undertake and
do not establish
that those activities were in fact undertaken. The tax returns on which Oztec
relies in turn establish that it claimed
to have incurred expenditure subject to
a R&D tax incentive, but also do not establish that it had in fact incurred
such expenditure
or that that expenditure qualified for the R&D tax offset
claimed.
- The
difference between, on the one hand, evidence of claims made by Oztec and, on
the other, evidence of activities undertaken by
Oztec that would support those
claims emerged clearly in oral submissions, when I raised with Mr Oke whether
there was any evidence
before me to establish that Oztec's claim to an R&D
tax offset was genuine, apart from the fact that Oztec had made it. Mr Oke
responded by drawing attention to the evidence that Oztec had sought
registration for R&D activities and claimed tax deductions
for them, as
distinct from evidence that such activities were in fact undertaken by
it:
"Well, your Honour, to that I would answer that there is a web of documentary
evidence before the Court which proves the genuineness
of the claim comprising
four kinds of documents: The first document is the taxation return. This is one
for each of the years. The
first is the taxation return. The second is the
research and development tax incentive schedule, which is the separately 4 paged
document attached to it. The third is the objection form, which has only been
submitted for 2011 at this point in time. The fourth,
importantly, are the two
Oztec Industry application forms, and these are substantial documents.
For example, for 2012, at tab 3 annexure B is the Oztec Industry forms, a 22
paged document. For 2011, the Oztec Industry form is
at tab 2 annexure J, which
is a 10 paged document. Looking at the 2012 document by way of example, that is
at tab 3 annexure B, what
is required with [AusIndustry] is to state what the
individual projects are or the costs of the subprojects and what the core
R&D
activities are. That begins, for example, on p 5 of 22. It runs through
to p 17 of 22.
The plaintiff has done everything that is legislative[ly] required to
properly claim the R&D tax return. This is a form of tax
offset. There is
nothing else. Not only is there nothing else that the plaintiff needed to do to
properly claim the R&D tax offset,
but there is nothing it actually can do.
The grand total of what it can do in terms of the legislative requirement and
the paperwork,
is all done. All that is required in addition, which is of
course provided a difficulty to provide to this Court in addition to the claim,
that
it had actually done it, done the R&D." (emphasis added)
- It
was not, of course, necessary for Oztec, in order to meet the relatively low
threshold of establishing an offsetting claim, to
establish that it had
undertaken research and development so as to entitle it to an R&D tax offset
in the detail that might be
necessary in a substantive trial. However, in order
to establish that Oztec had a genuine claim to an R&D tax offset, and
therefore
a genuine offsetting claim derived from that tax offset, it needed to
satisfy the Court to the relatively undemanding standard set
by s 459H of the
Corporations Act that it in fact undertook activities that were capable
of supporting such a claim, so the claim was made in good faith. Oztec did
not
lead evidence in this application, even in summary form, that it in fact
undertook R&D activity, as distinct from lodging
applications with
AusIndustry anticipating that it would do so and claiming tax offsets on the
basis that it had done so.
- I
have also referred above to the evidence that, on 20 August 2012, the RBA
balance of Oztec was $478,878.22 and, on 20 August 2012,
the DCT certified that
the RBA deficit debt owed by Oztec was that amount. I accept Oztec's submission
that the prima facie evidence
arising from those matters, under ss 8AAZI and
8AAZJ of the TAA 1953, would be capable of being rebutted by evidence that tax
offsets
were due to Oztec, and I do not understand the DCT to contend to the
contrary. However, as Mr Acheampong who appeared for the DCT
pointed out, even
if it were assumed that Oztec was entitled to the R&D tax offsets which it
claimed in its tax returns, it did
not follow that Oztec had any claim against
the DCT arising from those tax offsets, because that would depend upon Oztec's
overall
tax position (including its income tax liabilities) as to which it had
led no evidence. Where Oztec sought to establish that it had
a genuine
offsetting claim, then it was a matter for it, not the DCT, to establish that
there was a serious question to be tried,
or an issue deserving of a hearing,
that its overall tax position meant that either the entire amount of the R&D
tax offsets,
or some identifiable part of them were available to be offset
against the debt claimed in the Demand. Oztec also did not establish
that
matter.
- For
these reasons, an offsetting claim under s 459H(1)(b) of the Corporations Act
is not established.
Whether there is some other reason to set aside the Demand
- Section
459J(1)(a) of the Corporations Act provides that a statutory demand may
be set aside when the Court is satisfied that, because of a defect in the
statutory demand,
substantial injustice will be caused unless the statutory
demand is set aside. I do not understand Oztec to assert there is a defect
in
the Demand, other than that it contends the amount claimed is not due. It has
not established a defect in that sense.
- Section
459J(1)(b) of the Corporations Act allows a statutory demand to be set
aside on the basis that there is some other reason why it should be set aside.
The Court's power
to set aside a statutory demand under that section exists to
maintain the integrity of the process provided under Pt 5.4 of the
Corporations Act and is to be used to counter an attempted subversion of
the statutory scheme, but is not exercised by reference to subjective notions
of
fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd
(1996) 20 ACSR 746; Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24;
(2005) 53 ACSR 229; CP York Holdings Pty Ltd v Food Improvers Pty Ltd
[2009] NSWSC 409. A statutory demand may be set aside under that section where
it involves conduct which is unconscionable or an abuse of process:
Arcade
Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA
3; (2005) 157 ACTR 22.
- However,
the scope for s 459J(1)(b) of the Corporations Act to operate in respect
of tax debts is also constrained by Broadbeach Properties, where the
plurality of the High Court emphasised that the application of s 459J(1)(b) in
this context must have regard to the legislative policy which provides for the
recovery of tax debts. In Mossimo Systems International Pty Ltd v Deputy
Commissioner of Taxation above at [30]-[31], Barrett J observed
that:
"The question of what comes within the s 459J(1)(b) category is to be
answered by reference to legislative policy, including the policy of the
taxation legislation. That policy makes
tax debts recoverable, notwithstanding
the pendency of steps directed towards revision of the liability for tax under
that legislation.
It follows that any appeal to undefined notions of fairness on the ground
that a concluded assessment or other quantification against
a taxpayer is the
subject of challenge initiated by the taxpayer under the taxation legislation is
foreign to the operation of s 459J(1)(b) in a case such as the present or, more
particularly, to the exercise of the discretion under that section. This very
point is made
at para [62] of the joint judgment in Broadbeach."
In Catarina Gardens Pty Ltd v Deputy Commissioner of Taxation above,
Macready AsJ took the same view.
- The
fact that Oztec contends that the audit, which gave rise to the relevant tax
debt, was "unfair" is not a matter which can give
rise to an abuse of process or
other reason to set aside the Demand, for the purposes of s 459J(1)(b), where a
genuine dispute as to the amount of the debt cannot be established for the
reasons noted above. So far as Oztec relied on
the disruption to its business
that would ensue from a statutory demand which had not been set aside; the
plurality of the High Court
emphasised in Broadbeach Properties
(at [60]), that matters of this kind were ordinary incidents of reliance by
the DCT upon the statutory demand system. Oztec has also
not established that
the Demand should be set aside for some other reason under s 459J of the
Corporations Act.
Orders and costs
- I
therefore order that the Originating Process be dismissed. I will hear the
parties as to costs.
**********
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