Taxpayer lodges appeal to Federal Court in Bayconnection Property Developments; Commissioner applies to wind up company

On 1 February 2013 I reported the decision of the Tribunal in Bayconnection Property Developments Pty Ltd and Ors and Commissioner of Taxation [2013] AATA 40 where the Tribunal affirmed the view of the Commissioner that the applicants were not entitled to input tax credits they had claimed.  This was because it was clear that none of the applicants were carrying on an enterprise, even taking into account the extended definition of “carrying on” that includes “doing anything in the course of the commencement or termination of the enterprise”. The Tribunal also upheld the imposition of penalties of 75% for intentional disregard of the taxation laws, plus an increase in penalties by 20%.

On 20 February 2013 the taxpayer lodged an appeal to the Federal Court.

Yesterday, in a further twist, in Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd (No.2) [2013] FCA 208 the Federal Court ordered that the taxpayer be wound up and a liquidator be appointed. In April 2012, the Federal Court had adjourned the Deputy Commissioner’s application to wind up the taxpayer until after the Tribunal determined the review proceeding (see [2012] FCA 363). The taxpayer sought similar orders adjourning the application until after the Federal Court had heard the appeal from the Tribunal’s decision – submitting that there were irreversible consequences if the corporations were not allowed to proceed with the appeal and there was no public interest in winding up the taxpayer.

The decision provides a helpful illustration of the difficulties facing taxpayers where recovery proceedings have been issued but the taxpayer wishes to fight the assessment through the review procedure in Part IVC of the Taxation Administration Act. In the judgement Robertson J observed the following points of principle (at [15]):

I take into account that it is the taxpayer which bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances; that great weight must be given to the clear legislative policy which gives priority to the recovery of taxation revenue notwithstanding that the taxpayer has a Pt IVC proceeding on foot; that it is too narrow a view of the discretion to grant a stay merely because Pt IVC proceedings are pending or because on review of those proceedings there appears to be an arguable case; that in cases where the Court considers that it is in a position to assess the merits of pending Pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strengths of the merits but the taxpayer needs to have more than merely an arguable case; that irrespective of the merits of pending Pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and that more weight would be given to the merits factor if the case is one where the Deputy Commissioner has abused his position.

Robertson J then reviewed the judgment of the Tribunal and the grounds in the Notice of Appeal filed by the taxpayer, noting that the grounds were necessarily limited to questions of law. His Honour concluded that the grounds were not reasonably arguable and the clear legislative policy outweighed any merits of the appeal. The application to adjourn the winding up application was refused and the taxpayer was ordered to be wound up.

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