The Federal Court has delivered its judgment in Hyder v Commissioner of Taxation [2022] FCA 264. The applicants in the case were Mr Hyder, EMH IV Pty Ltd as Trustee for the EMH IV Family Trust (the Trustee and the Trust, respectively) and Screaming Eagle Pty Ltd (SEPL), who was in a partnership with Mr Hyder (the Partnership). Alternative assessments were issued to Mr Hyder and the Trustee including penalties to pay shortfall interest charge (SIC) and the Commissioner sought to recover tax and interest under both of the alternative assessments. SEPL had previously been assessed for and paid tax on the same source of trust income. The applicants sought an order to prohibit the Commissioner from seeking recovery under the alternative assessments. The Court held that in seeking enforcement of payment of the total debt including SIC due under the alternative assessments the Commissioner engaged in oppressive conduct.

The Court's findings

The alternative assessments were issued to Mr Hyder and to the Trustee, following an audit by the Commissioner. The Commissioner did not accept that the Partnership was a bona fide commercial partnership and treated the amounts drawn from the Partnership bank account by Mr Hyder as receipts by him for his personal use. The Commissioner sought to enforce payment in full of each of the alternative assessments during the period 28 May 2020 to 27 July 2021. On 27 Jul 2021 the Commissioner changed his position so that he was only seeking to recover against Mr Hyder.

The Court held that:

• the Commissioner failed to give effect to PS LA 2006/7, which provides that despite the binding debt created by alternative assessments, the Commissioner is not permitted and does not intend to undertake double recovery of the tax;
• the Commissioner in seeking to recover the same income in the same income year from the related taxpayers, before the final resolution of a genuine dispute about the correctness of the alternative assessments, was conduct characterised as oppressive conduct in the sense contemplated in Deputy Commissioner of Taxation v Moorebank Pty Ltd [1988] HCA 29;
• in seeking to enforce recovery of the debt due under the alternative assessments, the Commissioner ought to have taken into account that tax had already been paid by SEPL and Mr Hyder on the precise amount of the distribution which formed the basis of the amount included in the Trustee's assessment.

In determining that the Commissioner's actions during the period 28 May 2020 to 27 July 2021, in which he pressed for payment of the full amount owing under the alternative assessments, was oppressive conduct, the Court noted the following:

• the Commissioner would have or ought to have known that he would only be able to be successful against one of the taxpayers in respect of the alternative assessments and should have sought payment or security over one of the alternative assessments;
• the Commissioner sought to enforce recovery of the total debt due under both alternative assessments (and related SIC and penalties) or sought payment of 50% of the total debt and security for the remaining 50% under both assessments prior to the final resolution of a genuine dispute; and
• as a condition of deferring recovery action the Commissioner sought an undertaking for payment of the full amount of the disputed debt together with accrued GIC within 14 days of the event that these proceedings proved to be unsuccessful.

Further, the Court held that the Commissioner erred in failing to take into account relevant circumstances when an ATO officer refused the taxpayers' request under s 225-10 of Schedule 1 of the Taxation Administration Act 1953 to defer the due date of the payment of the contested liability. The Court determined that there was no recognition that the consequence of the relevant circumstance in the particular case for each taxpayer was that, because the Commissioner had issued alternative assessments, the Commissioner necessarily had held a genuine doubt about where the final liability to tax rested.

Impact of the judgment

The judgment provides an example of circumstances in which a declaration would be made under section 21 and 23 of the Federal Court of Australia Act 1976 that the Commissioner has engaged in oppressive conduct.

The judgment contains a detailed discussion regarding the necessary considerations when the Commissioner is seeking to enforce payment under alternative assessments. In particular, this judgment has provided clarification regarding the interpretation and application of PS LA 2006/7. The Commissioner will need to have regard to the circumstances of each case when considering the deferral of payment of tax or of recovery action or the enforcement of debt under alterative assessments.