Tax & ATO News Australia

Walsh and Commissioner of Taxation [2018] AATA 235

In the decision of Walsh v Commissioner of Taxation, the Administrative Appeals Tribunal examines an applicant for review by a taxpayer of a decision of the Commissioner not to revoke a Departure Prohibition Order issued. Deputy President Molloy ordered that the Departure Prohibition Order be revoked on the basis its continuation did not serve the intended purpose and intrusion imposed on the taxpayer outweighed the protection of revenue.


Following an audit of the taxpayer’s affairs conducted by the Australian Taxation Office, the Deputy Commissioner of Taxation (‘DCT’) issued amended assessments and notices of assessments of administrative penalties for the financial years ended 2003, 2004, 2005, 2007 and 2008, on the basis that:


  • a sham arrangement existed between an Australian resident company and a company registered in Vanuatu, and monies transferred were the taxpayer’s assessable income; and
  • amounts credited in the loan account of the Australian resident company were deemed dividends and thus assessable income.

On 30 November 2010, the taxpayer objected to the assessment and on 10 August 2012 the Commissioner affirmed its decision. Accordingly, the taxpayer sought review of the decision on 9 October 2012, which was subsequently withdrawn and dismissed.

On 20 August 2015, the Commissioner issued a Departure Prohibition Order (‘DPO’) on the basis the taxpayer had a tax liability of $1,692,445.73, and that he failed to make an arrangement to pay his tax liability and there was a risk to revenue.

Subsequently, the DCT initiated proceedings in the Queensland Supreme Court to recover the tax liability and obtained a default judgement against the taxpayer.

On 2 December 2015, the taxpayer applied for revocation of the DPO, but the information provided by the taxpayer was not to the satisfaction of the Commissioner of Taxation (‘Commissioner’) to allow the revocation.

On 4 January 2017, pursuant to debtor’s petition, trustees of the taxpayer’s bankrupt estate were appointed.
The taxpayer sought to have the Tribunal review the Commissioner’s decision not to revoke the DPO on the basis of three grounds.


The DPO was no longer lawful

It was contended by the taxpayer that pursuant to the Bankruptcy Act 1966 the taxpayer could not be subject to the DPO as a creditor cannot enforce any remedy against a bankrupt person in respect of a provable debt.

Conversely, the Commissioner contended the notion that no bankrupt who was at the time of the bankruptcy in debt to the Commissioner could ever be subject to a DPO had been rejected by the Federal Court in Edelsten v Federal Commissioner of Taxation.

Ultimately, the Tribunal was not satisfied that the DPO was rendered unlawful by virtue of the taxpayer’s bankruptcy.


Continuation of the DPO does not serve the purpose

The Tribunal observed that the central purpose of Part IVA of the Taxation Administration Act 1953 (‘TAA’) is the prevention of persons with tax liability leaving Australia, where in the Commissioner’s belief reasonably arrived at, the recovery would or might thereby be impaired.

It was observed that the DPO had been in place for two years, over that time no contributions to revenue were made and the taxpayer did not have assets to pay the tax debt. Additionally, even if the DPO was set aside, the trustees would still control possession of the taxpayer’s passport and his ability to depart Australia.

In all the circumstances, the Tribunal was not satisfied the departure of the taxpayer from Australia would make it less likely that his tax liability will be discharged in either whole or part, or that the Commissioner’s ability to recover the tax would be impaired. Accordingly, the Tribunal found that the purpose of the legislation would not be met by the continuation of the DPO.


Freedom of movement

The Tribunal referred to Poletti v Commissioner of Taxation, where the Full Federal Court commented that the ‘severe intrusion’ of a DPO upon an individual’s ‘liberty, privacy and freedom of movement’ must be balanced against the protection of the revenue.

As the taxpayer’s principal place of resident was in the United States of America with his wife and young daughter, the Tribunal accepted the DPO operated as a particularly severe intrusion on his freedom of movement.

The Commissioner in relying on Troughton v Deputy Commissioner of Taxation (‘Troughton’) submitted that the factors concerning the personal hardship on the taxpayer and his family do not justify the revocation, but a consideration relevant for a Departure Authorisation Certificate under s 14U TAA.

However, the Tribunal found the comments in Troughton were directed to the facts and circumstances of that case and not made with the intention of laying down any principle of general application.

The Tribunal noted that the discretion to under s 14T(2) TAA to revoke a DPO is wide in terms. Accordingly, the Tribunal found it unlikely that the legislative intention behind exercising that discretion would allow the decision maker to ignore the impact the continuation of the DPO would have on the taxpayer and his family.

On this basis, the Tribunal found that the taxpayer’s family circumstances would weigh heavily in favour and against the continuation of the DPO.


Co-authored with Ben Caratti

Posted in: Tax & ATO News Australia at 28 February 18


Tax & ATO News Australia

Author: David Hughes

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