The recent Full Federal Court cases of Bazzo v FCT [2017] FCAFC 139 illustrates the importance of drafting in agreements and, in particular, agreements with revenue authorities.
The Full Federal Court held in a very short unanimous joint judgment that a deed of agreement between the taxpayer and the Commissioner of Taxation did not prevent the Commissioner from recovering the general interest charge (GIC) from the taxpayer.
Under the deed, the Commissioner agreed to delay, until an objection process ended, recovery of a specific amount of disputed tax “and applicable GIC due and payable by the Taxpayer as at 7 August 2015”. The Commissioner took recovery action over $1,259,400 of accrued GIC after 7 August 2015. The Court interpreted the deed and found that it did not on its terms limit recovery of the accruing GIC.
Clause 6.1 of the deed stated:
“The Commissioner agrees, subject to clause 11.2, to refrain from commencing any proceedings or employing his statutory “garnishee” power … to recover any part of the Taxation Debt. For the sake of clarity, however, the Commissioner may employ any and all recovery options and powers to pursue any tax-related liabilities of the Taxpayer which are not part of the Taxation Debt which is the subject of this Deed ... .”
The deed defined “Taxation Debt” as follows:
“Taxation Debt means the amount of $13,828,790.35, which is comprised of Tax-Related Liability and applicable GIC due and payable by the Taxpayer as at 7 August 2015, subject to any adjustment to those amounts by virtue of the Determination of the Objection Process[.]”
The Court upheld the decision at first instance that the definition of “Taxation Debt” did not include the GIC that accrued after 7 August 2015. The “Taxation Debt” was identified precisely in the deed by reference to a specific amount owing at a particular date. Therefore, the Commissioner could recover the accrued GIC.
During World War II the phrase ‘loose lips sink ships’ was coined. In the context of drafting agreements or deeds with revenue authorities, the phrase should be ‘loose drafting, costs tax’ (or GIC).
Sladen Legal’s tax practice is highly experienced in resolving disputes with the ATO including (where relevant) the drafting of settlement deeds.
For further information or advice, please contact:
Neil Brydges
Special Counsel
T: 03 9611 0176
E: nbrydges@sladen.com.au
Daniel Smedley
Principal
T: 03 9611 0105
E: dsmedley@sladen.com.au
Rob Jeremiah
Principal
T: 03 9611 0103
E: rjeremiah@sladen.com.au
Sam Campbell
Associate
T: 03 9611 0135
E: scampbell@sladen.com.au
Millie Mavrodis
Lawyer
T: 03 9611 0130
E: mmavrodis@sladen.com.au
