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The AAT has refused to release a taxpayer, who was in serious financial difficulty, from the obligation to pay his tax liability, pursuant to an application made under s 340-5(3) of the Taxation Administration Act 1953 (TAA).

The AAT summarised its findings as follows:

"I am satisfied that Mr Rasmussen is facing serious hardship in the immediate future in the sense of his being without means to purchase food, clothing and medical supplies for his wife and children or to continue to provide accommodation, education for his children and other basic requirements that are reasonable by reference to general community standards. Even if he and his wife were to sell the former family home and the taxi licence, he is likely to continue to face serious hardship but it is not serious hardship that arises from his being required to satisfy his tax liability. It is serious hardship that arises because his liabilities, of which his tax liability is but one, exceed his assets and the outgoings required to service those liabilities exceed his income. It is not serious hardship that Mr Rasmussen would suffer because he is required to satisfy his tax liability. That means that Mr Rasmussen does not meet the criterion in Item 1 of s 340-5(3) of the TAA. As he does not meet that criterion, I do not have power to release him from whole or part of his tax liability. Even if I had decided that he did meet that criterion, I would not have exercised the discretion to release him from either whole or part of his tax liability."

In relation to the exercise of discretion referred to, the AAT said as follows at paras 98-100:

"Mr Rasmussen has made...choices that have led him, until very recently, to maintain the payments on the family’s two assets but not to maintain any payments towards the reduction of the tax liability since December 2011. When faced with choices of that sort, it may well be easy for a taxpayer to characterise an obligation to pay a tax liability in terms of an obligation to pay the Commissioner or the Australian Taxation Office (ATO). Focusing on those whose task it is to administer the taxation legislation and to collect tax, is to take the focus away from the fact that it is collected under those laws for, ultimately, the benefit of the Australian community of which the taxpayer is a member. Within that community, an individual taxpayer may husband his or her own income and assets but, as a member of it, he or she must make a contribution to the infrastructure that is provided for the benefit of all. It is provided whether or not an individual taxpayer needs to call on it all the time, some of the time or not at all. Hospitals and roads are obvious examples but so too are income maintenance payments. When seen in this light, when choosing to maintain payments on privately acquired assets but not to maintain any payments to meet a tax liability, a taxpayer is saying that the community should support him or her for his or her share of the costs of meeting the infrastructure and services that are met out of taxpayers’ meeting their tax liabilities.

If I were to exercise the discretion to waive the tax liability, my analysis of Mr Rasmussen’s financial situation leads me to conclude that he is vulnerable to being declared bankrupt. His vulnerability may not come from his mortgagee for it has rights to foreclose on the mortgage but may come from unpaid utility bills. It may be that he chooses to take steps to bankruptcy himself. If it does come about, release of the tax liability would mean that no part of the amount released could be recovered in the bankruptcy.

All of these matters lead me to conclude that, had Mr Rasmussen satisfied the criterion under Item 1 of s 340-5(3) of the TAA, I would not have exercised the discretion to release him from the tax liability. For those reasons, I affirm the objection decision of a delegate of the Commissioner dated 23 July 2012."

Rasmussen and FCT [2013] AATA 746 (AAT, Forgie DP, 17 October 2013).

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