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The Federal Court (Conti J) has dismissed the Commissioner's appeal from a decision of the AAT, which held that the taxpayer, a solicitor, should be released from a liability to pay a tax debt on the grounds of serious hardship. The taxpayer's financial position had been adversely affected by the fraud of a former partner, by his subsequent business venture and by ill-health. Although the taxpayer jointly owned, amongst other assets, a holiday cottage which the Commissioner argued could be sold, the Court held that it was unsaleable. Both the holiday cottage and the family home were heavily mortgaged. The Court said, at para 26:

"The Tribunal member considered that [the taxpayer's] outgoings already exceed his income, according to the information he has provided, [and] he is at the worst level of financial hardship’, and moreover that ‘should he lose his right to practise as a solicitor, not only he but his two children will suffer severe deprivation’, emphasising in that latter regard to education of children being ‘one of the basic requirements set out in TR 2440’. The Tribunal member further observed that should Mr Milne be bankrupted, he and his children (two of which are apparently dependant on him financially or at least substantially so) would lose not only his income but the house where they all lived together. Each of those considerations were matters which the Tribunal was in my opinion entitled reasonably to take into account."

The Court concluded, at para 56:

"I am unable to accept that the Commissioner has distilled administrative error in the juridical sense referrable to the reasoning and findings of the Tribunal, being reasoning and findings which were rationally open for adoption in my opinion according to principles of administrative law, and in particular in the light of the relevant evidentiary material placed before the Tribunal. That material was consistent essentially with the conclusion that any enforced exaction of the outstanding income tax indebtedness of Mr Milne would cause serious operation in the terms of operation of s 340-5 of the Administration Act. "
FCT v Milne [2006] FCA 1005 (Federal Court, Conti J, 4 August 2006)

For a copy of the decision, go here

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