A bankrupt taxpayer – “It is no answer … to say that the Commissioner can be trusted”.

The Federal Court has correctly held that a person who is bankrupt has no standing to challenge a tax assessment of the Commissioner: Hanna v Deputy Commissioner of Taxation [2020] FCA 1021.  

The bankrupt was held not to be a “person aggrieved” for the purposes of the Administrative Decisions (Judicial Review) Act 1977 (Cth). Any right of a bankrupt to challenge a tax assessment passes to their trustee in bankruptcy.  In so far as the tax debt would be a proof of debt, the trustee may pursue the bankrupt’s right of challenge if it might mean that the debt would be reduced or eliminated.  But a trustee’s decision to do that is for the trustee, and a range of factors come into play, beyond those of the individual taxpayer.

A decision of McCallum v Commissioner of Taxation [1997] FCA 533 was cited, at least that of the majority judges, Lehane and Whitlam JJ, in relation to a person’s other right to challenge an assessment under s 14ZZ Taxation Administration Act 1953. An exception hypothesized might be if the tax decision affected the bankrupt’s rights after her or his discharge.

Justice Hill’s dissent

Justice Hill gave a very strong dissent saying that the bankrupt’s right to challenge the assessment should remain with him.

He went on:

The view which the majority of the Court has reached in the present case gives the Commissioner powers which are capable of abuse. It is no answer, in the remaining days of this century, to say that the Commissioner can be trusted. That is an argument which betrays a lack of realism and experience with tax administration. In so saying, I do not suggest that the present incumbent of the office of the Commissioner would in any way abuse his powers. But it is possible, as the report of the tax Ombudsman makes clear, that some officers might.

If the present judgment stands, and I can but suggest that professional bodies assist an appeal or lobby the government to change the law …

Justice Hill then described a hypothetical course of action in the absence of evidence of mala fides on the part of the Commissioner.

The Commissioner issues an assessment. The taxpayer objects to it. The assessment may be recovered as a debt. The Commissioner proceeds to do so. The taxpayer seeks a stay, but on the principles enunciated by the Court of Appeal in Federal Commissioner of Taxation v Mackey (1982) 82 ATC 4571 the stay is refused. The Commissioner proceeds to judgment and then issues a bankruptcy notice. That notice can not be challenged because if one sought to go behind the judgment debt one is met by an assessment unchallengeable under s 177: Clyne v Deputy Federal Commissioner of Taxation (1982) 82 ATC 4510; (1983) 83 ATC 4532. On the same basis, the taxpayer is made bankrupt. He is insolvent as a result of the tax debt. There may or may not be other creditors. The Commissioner appoints a trustee in bankruptcy or perhaps the Official Receiver becomes trustee. In either case the trustee has no interest in fighting the objection in the Administrative Appeals Tribunal. It is immaterial to the trustee. And the trustee has no funds to do so. Hence the taxpayer loses the right to appeal and is made bankrupt without ever having a right to challenge the assessment. It could not happen, could it?

Justice Hill concluded that the Court

should adopt an interpretation of s 14ZZ which ensures that taxpayers will always have a right to challenge assessments made against them. An interpretation conferring the right of appeal upon a trustee in bankruptcy without funds so to do may conduce to confer upon the Commissioner an absolute power with the consequences which Lord Atkin long ago observed.


Justice Hill’s dissent did not lead to the action he proposed.  The majority decision has been endorsed: Nugawela v Commissioner of Taxation [2019] FCAFC 206. His dissenting views have been later revisited, but to no avail: JKQT and Commissioner of Taxation [2019] AATA 5034.

I myself don’t say the policy view of Justice Hill is correct, or otherwise, but in view of such a vociferous dissent, I simply remind readers of his words.


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