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Is the statutory regime for recovery of tax debts unconstitutional?

Regime for recovery of tax debts unconstitutional?

Keith Swan & Peter King discuss the Victorian Supreme Court’s recent comments on the constitutional validity of the legislative regime for recovery of tax-related liabilities.

Keith Swan

Partner, KPMG Law

KPMG Australia


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The recent decision of Deputy Commissioner of Taxation v Buzadzic [2019] VSC 141 (Buzadzic) is a rare win for a taxpayer against the Commissioner in the context of the legislative regime for recovery of tax debts. The decision is unique because it is based on the potential constitutional invalidity of that regime. Before we get too far ahead of ourselves, it must be noted that the decision only went so far as holding that the argument had sufficient merit to warrant that the Commissioner’s application for summary judgment be dismissed. Nevertheless, the decision represents an interesting challenge to what is often thought to be an impenetrable regime and may provide an avenue for taxpayers in the unfortunate position of having to resist recovery proceedings whilst contesting the underlying assessments.

The statutory regime for recovery of tax-related liability

Each week, the Commissioner brings proceedings in the various Supreme Court registries seeking recovery of income tax, penalty and interest charges imposed, often under a “default assessment” where a return was not lodged or where the Commissioner is not satisfied with the return lodged.

After the assessment is issued and a tax-related liability arises, a statutory regime applies which deems notice of the default assessment as conclusive evidence that the assessment is properly made and the amount and particulars of the assessment are correct (the conclusive evidence provision). The assessment is deemed to be valid notwithstanding any non-compliance with the provisions of the tax legislation. The Commissioner is legislatively authorised to commence court proceedings to recover the tax-related liability imposed by the assessment, despite the pendency of any review in relation to the assessment (together, the Tax Recovery Statutory Regime).

While the merits of the assessment can be challenged under Part IVC and the conclusive evidence provision provides an exception permitting proceedings under Part IVC, any separate proceedings brought by the Commissioner to recover the tax-related liability imposed by the assessment which is under challenge remain unaffected. The effect of the statutory regime is that taxpayers must effectively “pay now and argue later” for fear of being made bankrupt or wound-up.

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