Commissioner of Taxation’s vast powers for existing and future tax liabilities confirmed

The Commissioner under the Taxation Administration Act 1953 (Cth) [the enabling Act giving the Commissioner power of administration relating to taxation and other matters] has vast and wide powers.

But do some provisions of the Act give the Commissioner the power of making the ATO a secured creditor, for an unsecured future debt, seemingly ahead of other unsecured creditors?

The Court in Commissioner of Taxation of the Commonwealth of Australia v Zou[1] suggests the legislation empowers the Commissioner to do that, and the Court’s decision appears to support the proposition.


By a s255-105 Notice under the Act, the Commissioner in December 2020 gave Notice to Mr Zou requiring him within 21 days to give security to the Commissioner in the amount of circa $24 million AUD for the due payment of an ‘existing or future tax-related liability’. A pecuniary liability to the Commonwealth under a taxation law including a liability the amount of which is not yet due and payable is defined as a ‘tax-related liability’.

The security sought by the Commissioner was a first ranking mortgage over real estate held by Mr Zou (the “Security Notice”).

At the time the Security Notice was served, the Commissioner was concerned Mr Zou had a future tax related liability of circa $24million, and circumstances existed whereby the Commissioner reasonably believed that the requirement for Mr Zou to give security was appropriate, including things such as significant transfer of millions of funds to Mr Zou from offshore accounts which Mr Zou failed to disclose, his unco-operative nature and disengagement including lack of co-operation during an audit, and Mr Zou leaving the country and failing to return, with evidence his assets were listed on the market for sale.

The Commissioner determined that the income tax liabilities would remain unsatisfied given the circumstances, and that it was appropriate for Mr Zou to provide security.

Mr Zou failed to comply with the Security Notice, or challenge the Security Notice within time. Those failures meant Mr Zou committed an offence under the Act.

The Commissioner subsequently applied to the Federal Court to give effect to the Security Notice by seeking declarations that Mr Zou comply with the requirement to give security. Mr Zou failed to turn up at the hearing despite the finding he was effectively served.

The Federal Court held in the circumstances the Commissioner had the power under the Act requiring Mr Zou to give security.

The Federal Court agreed with the Commissioner, and ordered Mr Zou to give security to the Commissioner for the future tax liability by way of first mortgage of his property.


  • The ATO reported its outstanding and collectable debt for FY 2019 is circa over $30 billion[2], a significant jump from previous years;
  • Given the Commissioner’s success in this case, the Commissioner may be inclined to utilise this discretionary power more often if circumstances exist as another method to reel in unpaid taxes, or future tax-related liabilities where the Commissioner determines there is risk the tax liability will remain unsatisfied;
  • If a tax payer is served with a security notice, they should seek legal advice without delay as grounds may exist to challenge and/or review the notice. As strict time frames apply, the failure to do so could have significant ramifications to the tax payer’s assets, and amount to offences under the Act;
  • The Commissioner by utilising this power and procedure, and obtaining the Court’s Order and sanction to obtain a security interest for an unsecured debt, essentially elevates the ATO from being an unsecured creditor, to a secured creditor with priority, and seemingly to the detriment of other ordinary secured creditors, and escape from scrutiny and attack in any subsequent insolvency administration.


[1] [2021] FCA 633 – 10 June 2021

[2] Australian Taxation Office, Commissioner of Taxation annual report 2018-19 (Australian Government, 2019).

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

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