It is common for the Commissioner of Taxation to issue a statutory demand against a company and express the debt as a single amount, being the total deficit debt stipulated on a Running Balance Account (RBA). No breakdown is provided in the statutory demand showing the actual composition of the debt as between primary taxation obligations.
Usually the schedule to the statutory demand describes the RBA deficit debt as being due under the BAS provisions, which are identified generally as including provisions relating to GST, PAYE, fringe benefits tax and deferred company instalment provisions. The schedule also refers to administrative penalties and general interest charges.
In the matter of Oakdale Queensland Pty Limited  NSWSC 1958 the applicant companies each sought to set aside a statutory demand issued by the Commissioner where the alleged debt was identified as a single amount, being the total deficit debt stipulated on an RBA.
In essence, the companies argued that the bare claim in the statutory demand for the balance of the RBA did not give them sufficient information to enable them to understand whether they were liable for the debt claimed and that this was a defect that could easily have been cured by annexing a copy of the statement for the RBA to the statutory demand.
Taxation Administration Act 1953
The Court made the following findings in relation to the Act:
- The Commissioner is empowered to establish one or more systems of accounts (RBAs) for primary tax debts.
- An RBA may be established for any entity, on any basis that the Commissioner determines.
- Separate RBAs may be established for different types of primary tax debts.
- Separate RBAs may be established for different businesses or undertakings conducted by the same entity, different parts of the same business or undertakings, or different periods.
- If an RBA has been established for a particular type of tax debt, the Commissioner may allocate a primary tax debt to that RBA.
- If two or more RBAs have been established for a single type of primary tax debt, the Commissioner may allocate any primary tax debt that arises of that type to any of the RBAs, or may allocate a single debt between a number of RBAs.
- General interest charges that accrue in relation to primary tax debts that have been allocated to an RBA will accrue in the relevant RBA.
- If there is an RBA deficit debt on an RBA at the end of the day, the tax debtor is liable to pay the Commissioner the amount of the debt. The amount is due and payable at the end of the day and constitutes a single debt.
- An individual taxpayer may be liable to the Commissioner for primary tax liabilities and one or more RBA deficit debts at the same time.
The Court commented that there is no theoretical limit to the number of RBAs that the Commissioner may establish in relation to the primary tax debts of an individual taxpayer. Unless the Commissioner chooses only to allocate primary tax debts of a given type to an RBA established for that type of debt, there may be any number of RBAs where different types of primary tax debts have been allocated. Those RBAs may have been mixed as to different businesses or undertakings, or parts of those businesses or undertakings, and as between different periods.
Oakdale: no substantial injustice
The Commissioner tendered evidence that explained how the relevant balances in the RBAs were established in respect of the companies, including a full statement. The Commissioner’s evidence showed that many items in the RBA reflected self-assessed liabilities and credits of the company that were based on business activity statements and instalment activity statements lodged by the company. Other items recorded as penalties for late lodgement had been detailed in a penalty notice sent to the company.
The final component of the RBA deficit debit comprised general interest charges that were charged on balances in favour of the Commissioner. The company was not informed of the allocation of these charges to the RBA when they were incurred.
The Court held that the company must have known the total of its self-assessed liabilities and credits, and the amount of the tax payments that it had made. The company also knew the amount of the administrative penalties, because the Commissioner gave penalty notices for each penalty incurred. The only amounts for which the company did not have information were the general interest charges, and the company should have been able to estimate, at least as an approximation, the accrual of interest.
The Court held that no substantial injustice was caused to the company as a result of the statutory demand not stipulating how the single deficit debt on the RBA was comprised.
Relevant to the Court’s decision was that there was only a single RBA and the only portion of the RBA deficit debt that was not known to the company was the precise amount of the general interest charges. The Court said it should not have been beyond the company to make a reasonable estimate of the amount of the general interest charges.
RBAs in more complex cases
However the Court commented that in a more complex case a taxpayer may not be able to sufficiently work out from its own records whether the particular RBA deficit debt could genuinely be disputed.
Without making any definitive observation the Court observed that in more complex situations the proper specification of the debts in the statutory demand may require more information.