If a company does not pay an amount claimed in a statutory
demand within 21 days, the company is presumed to be insolvent.
This presumption can be relied upon to wind the company up.
A statutory demand can be set aside where there is a
"genuine dispute" about the debt claimed in the statutory
demand or where there is "some other reason why the demand
should be set aside".
In Deputy Commissioner of Taxation v Broadbeach Properties
Pty Ltd  HCA 41, the High Court held that a taxpayer
cannot set aside a statutory demand for a tax debt merely because
they have lodged an appeal against the assessment.
The Commissioner of Taxation issued assessments to a taxpayer
company and rejected the taxpayer's objection against the
The taxpayer then appealed to the Administrative Appeals
Before the appeal had been determined, the Commissioner tried to
recover the amount set out in the assessment by issuing a statutory
The taxpayer sought to have the demand set aside arguing that
the AAT appeal showed a genuine dispute about the tax debt and
constituted a good "other reason" for setting the demand
The Commissioner accepted that the taxpayer had a reasonable
argument to challenge the assessment.
However, he relied upon provisions in the Tax Acts which provide
that a notice of assessment is conclusive evidence (except on an
appeal against the assessment) that "the amount and all the
particulars of the assessment are correct".
The High Court accepted the Commissioner's argument and held
that the conclusive evidence provision meant that the statutory
demand was valid.
Impact of the decision
The High Court's decision illustrates the substantial powers
at the Commissioner's disposal. Taken to the extreme it means
the Commissioner could liquidate a company even though there is a
pending appeal in which the taxpayer has good prospects of
This means that it is critical that taxpayers and advisers are
conversant with the ATO Receivables Policy, particularly those
parts which outline when the Commissioner will defer any recovery
action (e.g. where 50% of the disputed tax debt is paid).
The decision does offer some glimmers of hope for taxpayers in
the same situation as Broadbeach. A failure to comply with a
statutory demand simply means that the Commissioner can bring
winding up proceedings. In those proceedings, the Court has a broad
discretion to refuse a winding up for reasons which could not have
been raised to have the demand set aside.
The High Court noted that a taxpayer might be able to argue that
the fact that the assessment was subject to an appeal is a matter
which is relevant to this broad discretion.
Kirby J also hinted at some possible doubts about the
constitutional validity of the conclusive proof provisions in the
However, any such constitutional challenge might be ambitious
because a majority of the High Court has recently stated that the
provisions are valid: see Commissioner of Taxation v Futuris
Corporation Limited  HCA 32 at .
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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