Bell v The Commissioner of Taxation of the Commonwealth of Australia

[2013] HCATrans 179

[2013] HCATrans 179

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne       No M40 of 2013

B e t w e e n -

CHRISTOPHER BELL

Applicant

and

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 16 AUGUST 2013, AT 10.50 AM

Copyright in the High Court of Australia

MR N. OROW:   If the Court pleases, I appear for the applicant.  (instructed by WMB Lawyers)

MR P.R. BENDER:   If the Court pleases, I appear for the respondent.  (instructed by Australian Taxation Office – Legal Services Branch)

FRENCH CJ:   Yes, Mr Orow.

MR OROW: Your Honour, this application raises, amongst other questions, a question that is vexed and somewhat intractable. It just does not seem to go away. It derives from the expression “on a question of law” as has been used in section 44(1) of the Administrative Appeals Tribunal Act.  That expression has been used in a number of other legislative regimes, both at the State and federal level.  The second question concerns the nexus that governs the scope of operation of the small business concessions as they comprise a part of the CGT provisions in Division 152 of the Income Tax Assessment Act (1997).

FRENCH CJ:   Now, you have to win on both liabilities, do you not?

MR OROW:   Well, your Honour, at first instance before Justice Gordon we won in relation to the relationship of the borrowings by the trust to its assets.

FRENCH CJ:   But you need to get up in respect to both the 2 million and the 1.08 million.

MR OROW:   That is correct, your Honour.  Now, in relation to the 2 million issue, the Full Federal Court made a declaration reversing, in effect, the decision of Justice Gordon.  We say that there is no decision, or in the circumstances the Full Court does not have the jurisdiction to make a declaration in Part IVC proceedings.  This is an issue that forms the subject of a special leave application in the Gashi matter which is listed before your Honours in about two or three applications and it directly raises the question whether the Federal Court is seized of the jurisdiction to make declarations in Part IVC proceedings.  Now, if we succeed in that proposition then the decision of Justice Gordon will stand with respect to the $2 million liability and then the sole issue would be whether or not we will succeed with respect to the characterisation of the ‑ ‑ ‑

FRENCH CJ:   Is the question one of jurisdictional power?  It has power to make all kinds of ancillary orders under section 32 of its Act, does not it?

MR OROW:   Yes, your Honour, that is one of the arguments that has been advanced, but there is a question of whether or not the declaratory powers of the Federal Court are contained entirely within 39B, whether the Court has powers outside that particular provision.  In the context of Part IVC proceedings the Full Court of the Federal Court in Gashi held expressly that in Part IVC proceedings the Full Federal Court does not have jurisdiction to grant declaratory relief.

BELL J:   If we were to put aside for one moment the $2 million claim aspect of it and just return to the Adelaide Bank loan account, your opponent at application book 116, paragraph 12 notes that:

The Tribunal found, as a fact, that the Loan Account reflected borrowings used to fund the residence of the applicant and his spouse -

You have, in relation to the Adelaide Bank account aspect of the matter, more than one difficulty, do you not, including the factual finding?

MR OROW:   Yes, your Honour, it does present difficulty if viewed in that way.  One of the tests to distinguish whether or not there is a question of law or fact is in determining whether a statute applies in a particular way.  Courts have said that reasonable minds they may disagree, and if they do then it becomes a question of fact.  In this particular instance the court did not address – although by implication it is suggested that the question of characterisation of facts is a question of fact, the Full Court directly said that it is not, but Justice Gordon in the Tribunal did not. 

We say in this instance one of the questions on whether or not an application to the Federal Court or an appeal would be competent in the sense it raises a question of law where the question that arises is one in the characterisation of facts, we say that that is an appropriate question of law and it has not been addressed in other cases.  In this instance the facility that we are concerned with is one that has been used very broadly by small businesses.  If this construction ‑ ‑ ‑

FRENCH CJ:   This is the offset account arrangement?

MR OROW:   Yes, your Honour.  If this construction prevails what we end up with is a taxpayer that acquires perhaps a residence for $3 million instead of paying it off, retaining cash in a facility in a related or a linked facility to use in their small business, which is very common.  Those particular taxpayers may be denied their small business relief in instances where clearly they were exactly the kind of taxpayer contemplated by the legislation.  If one takes it to an extreme case, if the taxpayer buys a house for 6 million and has 6 million in cash the small business relief will never be available and yet, had that taxpayer sought advice just before they entered into the transaction and hence created the particular CGT event, that taxpayer would have been told, offset the two, and then the relief will be available.

So, essentially what the legislation would do is that in instances where a taxpayer seeks advice just before they enter into the transaction they will be able to avail themselves of the benefit, those that do not will fail to do so.  We say that that is an artificial construction and that the legislation must have contemplated a characterisation that looks to the balance of the account and/or in the alternative one that looks at the relationship between the two and that is the credit and the debit balance within the single facility.

FRENCH CJ:   Well, now, the first limb of that argument is the limb that appears somewhere in the papers as treating them as one account.

MR OROW:   Well, perhaps, your Honour, you could treat them as one account, or you can characterise the facility by reference to its balance.  Perhaps the Tribunal was somewhat ‑ ‑ ‑

FRENCH CJ:   Well, that reduces perhaps to the same thing, does it, in terms of ‑ ‑ ‑ 

MR OROW:   Well, yes, your Honour, perhaps the Tribunal was somewhat carried away by saying, well, is it one or two accounts?  That is really not the question.  The question is whether one should be offset against the other.  The question is whether one is related to the other so that the legislation contemplates looking at the balance of the two as opposed ‑ ‑ ‑

FRENCH CJ:   Well, the question is a statutory question, whether the liability is related to the asset.

MR OROW:   Yes, your Honour.  In the circumstances the court said, well, the Tribunal correctly applied the ordinary meaning of the word.  One of the questions of whether or not a question amounts to a question of law is whether or not it has the ordinary meaning or a technical meaning.  Again, that in itself is a vexed question.  Why is it the expression “related to” is one that bears an ordinary meaning, whereas the expression “incurred” in section 8(1) has a technical legal meaning?  Both of them contemplate some kind of a connection that governs the operation of a regime.  One is concerned with the deductibility of expenses, the other one is concerned with the availability of small business concessions.

If this particular provision, or the expression “related to”, is given its ordinary meaning, effectively all decisions by the Tribunal in relation to the small business concessions would be final because it will always be a question of fact and the Federal Court will never deal with it unless the

matter is commenced in the Federal Court.  We say, with respect, that that was not how it was contemplated to apply in the circumstances in general, and in, of course, this particular case. 

Your Honours, in addition to all these issues there is a question of whether or not a taxpayer that seeks advice, specialist taxation advice with respect to the availability of the small business concessions, as happened here, can genuinely say that “I have taken reasonable care”.  What the Tribunal said, which was upheld by the Full Federal Court, was that – perhaps I should take your Honours to this specific passage in the Full Federal Court decision at 94 of the application book.  Your Honours will see at paragraph 56 of the decision the Full Court said that that:

involves a misreading of the Tribunal’s reasons.  The Tribunal dealt separately with the Adelaide Bank issue, and there was no error of law in so proceeding, because, as it said, the Adelaide Bank account balance of $1,252,112 was enough to take the aggregate –

out.  At paragraph 57 the Court said:

The Tribunal found as a fact, albeit implicitly, that the take of advice by the appellant did not extend to the detail of the arrangements with the Adelaide Bank.

The problem with this approach is this:  taxpayers are expected to go and seek advice in circumstances where they do not understand extraordinarily complex and, in many respects, incomprehensible legislation.  It is for the advisor to determine what facts they need to enable them to give that particular advice.  If the advisor determines that these are the facts they need and they give advice on the availability of the particular division, it is not for the taxpayer to then seek to probe the advisor on whether or not the advisor has taken certain considerations into account because the particular taxpayer, by definition, does not understand, and that is why they sought the advice. 

So, with respect, that view is impractical.  In any instance where the taxpayer seeks advice with respect to the operation of a provision, that advice covers that operation and in those instances it should be sufficient for the taxpayer to avail themselves of the exclusion from penalty as contained in the reasonable care provision. 

Your Honours, perhaps in relation to the other submissions there is very little else to be said.  Your Honours are quite seized of those particular issues.  Thank you, your Honours.

FRENCH CJ:   Thank you.  We will not need to trouble you, Mr Bender.

This application for special leave to appeal raises a number of grounds, none of which, in our opinion, raises a question of principle that warrants a grant of special leave.  The grounds go to whether the debit balance in the applicant’s partner’s account with the Adelaide Bank and the liability of the applicant as trustee of the Bell Family Trust in the sum of $2,018,000 were liabilities related to the assets of the applicant’s partner and the trust respectively within the meaning of s 152-20 of the Income Tax Assessment Act 1997 (Cth). 

The conclusions reached by the Full Court of the Federal Court on that question were not attended by sufficient doubt to warrant the grant of special leave. The question whether, for the purposes of the applicable tax penalties, the applicant had taken “reasonable care” within the meaning of s 284‑215(2) of the Taxation Administration Act 1953 (Cth) does not, in our opinion, raise any question of general importance. Nor does the challenge to the discretionary decision of the Full Federal Court to reject the application for leave to rely on further evidence of the terms of the Adelaide Bank facility. Special leave should be refused with costs.

We will now adjourn to reconstitute.

AT 11.02 AM THE MATTER WAS CONCLUDED