Judgment summary
The Federal Court of Australia (Downes J) heard three related applications for judicial review under s 5(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) brought by Brendan, Matthew and Daniel Ostwald, directors of Ostwald Bros. Pty Ltd (Ostwald) [1]-[2]. The applicants challenged decisions of the Commissioner of Taxation made on 22 May 2025 refusing to be satisfied that each had made out the "all reasonable steps" defence to director penalties under s 269-35(4A)(b) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA), in relation to superannuation guarantee charge (SGC) owed by Ostwald for three quarters in 2016 and 2017 [3]-[4].
The Commissioner objected to the competency of Matthew and Daniel's applications, contending there was no reviewable "decision" for them, and otherwise argued that none of the four grounds of review (failure to take into account relevant considerations, taking into account irrelevant considerations, acting in accordance with policy, and unreasonableness) was made out [5]-[6].
The Court upheld the Commissioner's objection to competency for Matthew and Daniel, found that even if their applications were competent none of the grounds succeeded for any applicant, and dismissed all three applications with costs [9].
Background
Ostwald was liable for SGC for the quarters ending 30 September 2016, 31 December 2016 and 31 March 2017 under the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Superannuation Guarantee Charge Act 1992 (Cth) [4], [22]-[29]. Although Ostwald made payments to a clearing house on or near the due dates, the superannuation guarantee was received by employees' funds after the statutory due dates in each quarter, giving rise to superannuation guarantee shortfalls and SGC liability [22]-[29]. Ostwald did not lodge superannuation guarantee statements by the due dates, and the Commissioner made default assessments on 29 July 2021, 4 October 2021 and 5 October 2021 [23], [26], [29], [34].
Ostwald was placed into external administration on 25 August 2017 and into liquidation on 30 November 2017 [30]-[31]. The Commissioner issued director penalty notices to Brendan, Matthew and Daniel on 22 February 2024 (First DPNs) and 8 March 2024 (Second DPNs) [35]-[36]. Objections lodged on Ostwald's behalf led to reduced assessments, and the Commissioner issued amended assessments in February and March 2025 [37], [40]-[42]. The applicants relied on the "all reasonable steps" defence in s 269-35(2) of Sch 1 to the TAA, submitting information by letters dated 3 May 2024 and 8 May 2025 [38], [43]-[44]. On 22 May 2025 the Commissioner notified each applicant that he was not satisfied of the matters required for the defence [45]-[46].
On 5 May 2025 an income tax credit of $20,988.72 was applied against Brendan's director penalties and recorded in a Statement of Account issued to him. A corresponding credit was recorded in ledger accounts for Matthew and Daniel, but no equivalent Statement of Account was issued to them, and their tax agent apparently first accessed those ledger entries only in November 2025 [63].
Core dispute
The central procedural issue was whether Matthew and Daniel's applications were competent, turning on whether the recording of the $20,988.72 credit in their ledger accounts amounted to the Commissioner notifying them in writing that he had "recovered" the penalty for the purposes of s 269-35(4A)(a)(ii) of Sch 1 to the TAA, which would trigger the 60-day period and thereby generate a reviewable decision [57]-[75].
On the merits, the dispute was whether the Commissioner's decisions of 22 May 2025 were affected by any of the four ADJR Act grounds: failure to take into account relevant considerations concerning the steps the directors took to fund payment of the superannuation guarantee (as opposed to SGC) (Ground 1); taking into account irrelevant considerations such as the timing of the Grant Thornton engagement letter and the use of ANZ loan funds (Ground 2); exercising a discretionary power in accordance with policy without regard to the merits (Ground 3); and legal unreasonableness (Ground 4) [5], [77]-[146].
Court findings
On competency, the Court held that s 269-35(4A)(a)(ii) is confined to notification of recovery of the penalty from the recipient of the notice, and does not extend to the mere application or partial discharge of a liability recorded in an internal ledger [65]-[73]. As no notice equivalent to Brendan's Statement of Account was given to Matthew and Daniel, there had been no "recovery" notified to them, so the Commissioner could not have reached any state of satisfaction under s 269-35(4A)(b) in respect of them on 22 May 2025. Their applications were therefore not competent and were dismissed on that basis [74]-[75].
On Ground 1, the Court held that only considerations probative of whether the directors took all reasonable steps to cause Ostwald to pay SGC (not the underlying superannuation guarantee) were relevant considerations under s 269-35(3)(b) [80]-[81]. Matters concerning payment of the superannuation guarantee itself, engagement of Grant Thornton and Allegiant FS, and ANZ financing were found to relate to operational and group funding matters, not specifically to causing Ostwald to pay SGC, and so were not considerations the Commissioner was bound to take into account [84]-[97]. In any event, the reasons showed that the Commissioner did take these matters into account when read as a whole, and any failure would not have been material [99]-[106].
New arguments raised for the first time in the applicants' closing submissions, not foreshadowed in the Originating Applications or in the information given to the Commissioner within the statutory 60-day period, were rejected for want of procedural fairness and, in any event, held to lack merit [108]-[120].
Ground 2 failed because the applicants did not establish that the matters complained of (timing of the Grant Thornton signature, partial use of ANZ funds) were impermissible considerations, or that taking them into account was material to the outcome [122]-[131]. Ground 3 failed because no relevant policy was identified in the Originating Application or put to the Commissioner within the 60-day period, and s 5(2)(f) of the ADJR Act was not engaged in any event [132]-[138]. Ground 4 failed because the Decisions were not shown to lack an evident and intelligible justification and fell within the range of outcomes rationally open to the decision-maker [139]-[146].
Outcome
All three applications were dismissed [147]. The Court granted the Commissioner leave nunc pro tunc to file the Notices of Objection to Competency out of time on 13 May 2026, and dispensed with compliance with r 31.05 of the Federal Court Rules 2011 (Cth) under r 1.34 [55]-[56], [150].
Brendan was ordered to pay the Commissioner's costs of his application, including costs incurred after the hearing [147]. Matthew and Daniel were ordered to pay the Commissioner's costs incurred only after the hearing on 28 May 2026, reflecting the additional expense caused by their expanded case in closing submissions and late affidavit evidence; indemnity costs sought on their behalf were refused [148]-[150].
Major issues / areas of contention
- Whether recording a credit in internal ledger accounts, without issuing an equivalent notice or Statement of Account, constitutes notification in writing under s 269-35(4A)(a)(ii) of Sch 1 to the TAA that the Commissioner has 'recovered' a director penalty, so as to trigger a reviewable decision.
- Whether Matthew and Daniel's applications for judicial review were competent under s 5(1) of the ADJR Act in the absence of such notification.
- Whether steps taken by directors to fund payment of the underlying superannuation guarantee (rather than the SGC itself) were 'relevant considerations' the Commissioner was bound to take into account under s 269-35(3)(b) in assessing the 'all reasonable steps' defence.
- Whether the Commissioner took into account irrelevant considerations, including the timing of the Grant Thornton engagement letter and the partial use of ANZ loan funds.
- Whether the Commissioner exercised a discretionary power in accordance with policy without regard to the merits of the particular case, where the relevant policies (PSLA instruments) were not raised before the Commissioner within the statutory 60-day period.
- Whether the Decisions were legally unreasonable in the sense of lacking an evident and intelligible justification.
- Whether the applicants could rely, without leave to amend, on new factual matters and arguments raised for the first time in closing submissions at the hearing.
- The appropriate costs order given the incompetency of two of the three applications and the manner in which the applicants expanded their case after the hearing.