Bosanac v Commissioner of Taxation of the Commonwealth of Australia & Ors
[2019] HCATrans 209
[2019] HCATrans 209
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P41 of 2019
B e t w e e n -
VLADO BOSANAC
Plaintiff
and
THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
First Defendant
THE FEDERAL COURT OF AUSTRALIA CONSTITUTED BY THE HONOURABLE JUSTICE STEWARD
Second Defendant
THE FULL COURT OF THE FEDERAL COURT OF AUSTRALIA CONSTITUTED BY THE HONOURABLE JUSTICE GREENWOOD, THE HONOURABLE JUSTICE BURLEY AND THE HONOURABLE JUSTICE COLVIN
Third Defendant
NETTLE J
TRANSCRIPT OF PROCEEDINGS
AT MELBOURNE ON FRIDAY, 18 OCTOBER 2019, AT 2.14 PM
Copyright in the High Court of Australia
____________________
MR M.L. ROBERTSON, QC: If the Court pleases, I appear with MR J.W.R. FICKLING, for the applicant. (instructed by Cove Legal)
MR S.J. SHARPLEY, QC: If your Honours please, I appear with MS T.L. JONKER, for the first defendant. (instructed by Australian Government Solicitor (WA))
HIS HONOUR: Yes, Mr Robertson.
MR ROBERTSON: If the Court pleases there was an error made by the applicant in the materials in the application. The most important section we are dealing with was not the current section or the section current in the years in question ‑ ‑ ‑
HIS HONOUR: Yes
MR ROBERTSON: ‑ ‑ ‑ and I have a copy ‑ ‑ ‑
HIS HONOUR: Thank you.
MR ROBERTSON: ‑ ‑ ‑ for the Court to hand out. And also in our submissions in reply we referred to our submissions made before Justice Steward and the oral submissions were not put into the material.
HIS HONOUR: Yes.
MR ROBERTSON: We have the one page of oral submissions as well to give to the Court. My friend has been given these.
HIS HONOUR: Thank you.
MR ROBERTSON: Your Honour, section 14ZZO as it was in the years in question, the page I have given you replaces 14ZZO at page 81 of the application, and the other sections on that page are the same. If I could refer you directly to the second most important section, we say, in these proceedings, which is at page 87 of the application.
HIS HONOUR: Yes.
MR ROBERTSON: It starts at page 86. Your Honour, this is section 50‑10, the conclusive evidence provision, and it is the section which was the previous section 177 of the Income Tax Assessment Act and the previous section 39 of the 1922 Act. At item 2, we see that “The production of”:
a notice of assessment under a taxation law –
is conclusive evidence that:
(a) the assessment was properly made; and,
(b)except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment‑‑the amounts and particulars of the assessment are correct.
And, your Honour, the High Court has held on a number of occasions that the amount that is referred to in this section is the same as the amount referred to in the old section 190B and now the 14ZZO that I gave you.
HIS HONOUR: Yes.
MR ROBERTSON: And what that means is that the amount of tax which by the production of the notice of assessment is payable by the taxpayer is the same amount that the taxpayer must prove to the Court is wrong.
HIS HONOUR: Yes.
MR ROBERTSON: If I can take you to the decision of this Court in Dalco which is at tab 40 of the joint authorities of volume 2.
HIS HONOUR: What is the citation please?
MR ROBERTSON: So the citation is 168 CLR 614.
HIS HONOUR: Thank you.
MR ROBERTSON: And the relevant passage I would like to take the Court first to is page 620 which is a decision of Justice Brennan. Your Honour will recall that Justice Brennan and Justice Toohey gave separate judgements and all the other members of the Court concurred with both their Honours’ judgment. At point 8 on page 620 ‑ I will just let me learned friend catch up, your Honour. Your Honour, at point 8 on page 620, Justice Brennan says:
Section 190(b) confirms the burden of proof which, apart from that provision, a taxpayer appellant would bear in seeking relief from the court against the liability which is otherwise conclusively imposed upon him by the operation of s 177(1) –
HIS HONOUR: Yes.
MR ROBERTSON: The term excessive in section 190(b) relates to the amount of the assessment ‑ ‑ ‑
HIS HONOUR: Or in this case the amended assessment against which you have objected.
MR ROBERTSON: No, it is the facts of Dalco show that the Court was concerned with the further amended assessments that resulted from the objection decision.
HIS HONOUR: I am sorry, in this case you had objected against the amended assessments, had you not?
MR ROBERTSON: We objected against the amended assessments. The objection was allowed in part and ‑ ‑ ‑
HIS HONOUR: Which led to further amended assessments?
MR ROBERTSON: Which led to further amended assessments.
HIS HONOUR: The issue is whether your appeal was an appeal against the disallowance of your objection against the amended assessment or against the further amended assessment?
MR ROBERTSON: Yes, that is right. So the relevant amount is the amount ‑ ‑ ‑
HIS HONOUR: Of the amended assessment.
MR ROBERTSON: ‑ ‑ ‑ of the further amended assessment.
HIS HONOUR: But your objection was against the amended assessment.
MR ROBERTSON: Yes, right.
HIS HONOUR: And your appeal was against the partial disallowance of the objection to the amended assessment.
MR ROBERTSON: Yes, that is right, where the Commissioner redetermined the liability of the taxpayer decided that the objection was allowed in part because the amended assessment was wrong ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ and issued ‑ and then notified by the amendment by way of the notice a week later.
HIS HONOUR: Yes.
MR ROBERTSON: And that is exactly what happened in Dalco. The Court in Dalco was concerned with the further amended assessment following the objection decision because that is the amount that section 177 related to. That is the amount that the Commonwealth could sue for the taxpayer.
HIS HONOUR: I understand.
MR ROBERTSON: So every year in Dalco concerned the assessment that resulted from the objection decision. And, your Honour, in this case and in Dalco’s Case the taxpayer did not object against the further amended assessment. The taxpayer appealed to the Federal Court against the further amended assessment.
HIS HONOUR: Yes.
MR ROBERTSON: And that enlivened the jurisdiction of the court to decide whether the debt owing to the Commonwealth as set out in the further amended assessment was correct. The earlier amended assessment no longer existed. The notice of the earlier amended assessment was a worthless piece of paper, it could not be tendered in recovery proceedings. There is only one assessment existing at a point in time. It exists as altered from time to time. So the jurisdiction of the Court in Dalco was the further amended ‑ or the amount set out in the objection decision and further amended assessments.
HIS HONOUR: I understand.
MR ROBERTSON: And the reason I have taken ‑ and that is why we have got the single judge decision in Dalco and the Full Court of the Federal Court decision in Dalco in the material, to demonstrate to the Court that that was what the Court was seized of and Justice Toohey goes through all of that in his judgement.
HIS HONOUR: Yes.
MR ROBERTSON: And I can take you to that, your Honour. If we go to Justice Toohey’s judgement, his Honour also makes the same point as Justice Brennan that the amount in section 177 is the same amount that the taxpayer must show is excessive under 190(b).
HIS HONOUR: Which page are you at, Mr Robertson?
MR ROBERTSON: At page 630, point 6 onwards and on the next page on 631:
In McAndrew, Dixon C.J., McTiernan and Webb JJ. referred to the term “excessive” in s. 190(b) as “the word chosen to correspond with the word ‘amount’ in s. 177(1)” ‑
And the facts Justice Toohey goes through from the bottom of 628 at point 8 he starts with a heading “1977”:
The amount shown in the amended assessment was $187,878.
That was the amount that the Commissioner decided on objection was correct and then issued the further amended assessment.
HIS HONOUR: Yes.
MR ROBERTSON: And we go through each of the other years and it was precisely the same. So the Court was not concerned whatsoever with determining the amount ‑ whether the amount objected to was correct, because the Commissioner had already decided that it was incorrect.
HIS HONOUR: Yes.
MR ROBERTSON: Your Honour, a case a little closer in time, also of this Court, was the decision of Federal Commissioner of Taxation v ANZ (1994) 181 CLR 466. I have got it at the first volume of authorities at tab 17. We see in that case at page 471, point 4 the Justices Brennan, Deane, Dawson and Toohey deal with the assessment that was in issue, which was the amounts set out in the Commissioner’s objection decision.
HIS HONOUR: Yes.
MR ROBERTSON: Not the amounts set out in the assessment objected to, and in that case the taxpayer had objected against an assessment and claimed a tax deduction and the Commissioner allowed the objection, in part, by giving the taxpayer his tax deduction but including an amount in the taxpayers assessable income. So a new item, a new ingredient of liability, came in to life ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ as a result of the objection decision and the Commissioner issued a further amended assessment allowing the deduction but increasing the amount of assessable income.
HIS HONOUR: Yes.
MR ROBERTSON: And the taxpayer appealed to the Federal Court arguing that that increase in assessable income was wrong. So the case had nothing to do with the taxpayer’s grounds of objection because the Commissioner had issued a – had increased his liability in another way, so the Court was seized with the new executive assessment under section 166 that that Commissioner made in deciding the objection.
HIS HONOUR: Yes.
MR ROBERTSON: And the question in that case was whether the court ‑ the jurisdiction of the Federal Court could include any further item. But the essential issue for today’s purpose is that the Court confirmed what was said in Dalco, that the ‑ what is the subject of 14ZZO, the amount that is the subject of the 14ZZO is the amount that is set out in section 177 in the notice of assessment to which 177 applies. Just go to page 479 of the judgment at the top of the page:
As was observed in Federal Commissioner of Taxation v Dalco, the term “excessive” in s. 190(b) relates to the “amount” of the assessment which is mentioned in s. 177(1).
So the assessment which must be shown to be excessive is that which is set out in the only assessment that exists at the time, which is the further amended assessment resulting from the objection decision.
HIS HONOUR: Yes. Of course, the grounds of objection are framed by and limited to those in the notice of objection which has been filed.
MR ROBERTSON: Yes, that is so, but if the Commissioner on objection allows it in part and adds a new ingredient of liability ‑ ‑ ‑
HIS HONOUR: Then you are required to object against that new particular if you wish to take issue with it.
MR ROBERTSON: No – well, not at all, because all you need to do is appeal the objection decision.
HIS HONOUR: Certainly, but you are limited by your grounds of objection unless you file an objection against the new particular in respect of which your rights of objection are limited by that new particular. Is that not the case?
MR ROBERTSON: No, this was discussed in Trautwein’s Case. Justice Gordon deals with this problem in BHP Billiton and Justice Gordon says, yes, there are two reasons why the Court is seized of the Commissioner’s new contention and that is because it is a new claim that he makes and has particularised and, secondly, because the Court has the power to allow the taxpayer to add to his or her grounds of objection, and because the taxpayer could not anticipate when objecting against an assessment that the Commissioner would add a new item that leave would always be given; that was Justice Gordon’s solution. But the solution of the High Court in Trautwein was that the question is not whether the taxpayer has formally objected but it is whether the taxpayer could object to it, and if it is a new particular that is raised on objection then the taxpayer could object to it and therefore the Court is seized with dealing with it.
HIS HONOUR: Very well. I think we are ad idem. Where does it go from here?
MR ROBERTSON: Well, where it goes from here is that when one goes to our notice of appeal, which is in a number of places, one place is in the affidavit of Roger Andrew Blow filed in support of the application at page ‑ ‑ ‑
HIS HONOUR: Page 170?
MR ROBERTSON: 174 – yes, is exhibit RAB 2A, at page 172 it seems. Do you have it? It is called ‑ ‑ ‑
HIS HONOUR: I have it, thank you.
MR ROBERTSON: It was entitled the minute of third substituted notice of appeal against appealable objection decision.
HIS HONOUR: Yes.
MR ROBERTSON: Yes. So when one looks to that document, what the taxpayer puts in issue are the amounts that are set out in the Commissioner’s objection decision and further amended assessments that resulted from the objection decision. If you go to page 175 we see primary tax for the year ended 30 June 2006. You see taxable income of 1,649,384. And at that your Honour matches the – that matches the notice of further amended assessment which is found at page 130 and that notice of assessment set out the previous taxable income which had been objected to and the taxpayer’s new amended taxable income and that is the amount set out in the originating process for the 2006 year; the same for the 2007 year, 2008 year and 2009 year. And, your Honour, if I can go to the 2010 year, which is at page 178, at paragraph 9, the taxpayer identifies the amended ‑ the amendments made – sorry, the amount decided on objection and in the further amended assessment as 590 and at ground 10 says, no ground is advanced in respect of primary tax.
HIS HONOUR: Right.
MR ROBERTSON: And that is because the taxpayer had achieved a reduction and was not dissatisfied ‑ ‑ ‑
HIS HONOUR: I follow.
MR ROBERTSON: Pardon?
HIS HONOUR: I said I follow.
MR ROBERTSON: But Justice Steward found for 2010 that the taxpayer had conceded that his amended assessment was excessive.
HIS HONOUR: I see.
MR ROBERTSON: The same for 2011. He had conceded 2010, 2011 as ‑ yes, so 2010 and 2011 Justice Steward said the taxpayer had conceded that the amended assessment objected to was excessive and that found its way into his Honour’s finding of facts at paragraph 111 that the Commissioner relies on here. That was completely wrong, of course; we were not ‑ the taxpayer was not dissatisfied at all with the objection decision, he had achieved the reduction he wanted. So that, we say, was ‑ those years, we say, the Court was not seized of because we were not dissatisfied with the objection decision or the further amended assessments that resulted.
HIS HONOUR: Granted that Justice Steward characterised it perhaps infelicitously as you conceding the amended assessment, nonetheless you were not taking issue with the amount of the further amended assessment in respect of those two years of income.
MR ROBERTSON: No, we were not ‑ they were not before the Court, in our view. We were not dissatisfied. We were not taking issue with them.
HIS HONOUR: So, what then does it matter?
MR ROBERTSON: For those years it does not matter unless the order of the Court ‑ because if you do not satisfy your onus of proof, as the seminal judgment of Justice Mason in Gauci says ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ the assessment prevails.
HIS HONOUR: Certainly, it does, but as you have been at pains to point out ‑ ‑ ‑
MR ROBERTSON: We are not ‑ ‑ ‑
HIS HONOUR: ‑ ‑ ‑ the operative assessment now is the further amended assessment.
MR ROBERTSON: Yes, that is what we say.
HIS HONOUR: With which you are satisfied?
MR ROBERTSON: Yes, for those years, if the Commissioner does not act on what Justice Steward says for 2010 and 2011, it does not matter.
HIS HONOUR: He could not, could he, having issued a further amended assessment?
MR ROBERTSON: Well, that is correct and that is one of the reasons why the Commissioner cannot do anything with these proceedings, and the outcome of these proceedings, because the Court decided that what was before them, its jurisdiction concerned the excessiveness of the amended assessments objected to.
HIS HONOUR: Yes.
MR ROBERTSON: So the whole of these proceedings are an utter futility if we are right, but if we are wrong then our notice of appeal was wholly incompetent. The question for the Court is whether the Federal Court in Part IVC proceedings is seized with the further amended assessments resulting from the objection decision ‑ which is what we say ‑ and which is what we did.
HIS HONOUR: Can we put 2010 and 2011 years of income to one side as being of no consequence?
MR ROBERTSON: Yes, yes.
HIS HONOUR: We are left with 2006, where, as I understand, the real money is.
MR ROBERTSON: No ‑ ‑ ‑
HIS HONOUR: 2009, was it not? That is the 600,000?
MR ROBERTSON: Yes. I think if we go to maybe paragraph ‑ it is probably illustrated if we go to paragraph 75 of Justice Steward’s judgement, the 2009 issues.
HIS HONOUR: Which paragraph do you say, Mr Robertson?
MR ROBERTSON: I think it is 75, your Honour.
HIS HONOUR: Yes, thank you.
MR ROBERTSON: Yes, this is 2009.
HIS HONOUR: This is a different point though, is it not?
MR ROBERTSON: No, this is going to the point. If we just leave the first sentence which goes to a different point, your Honour, and the second sentence:
The amount of tax payable under the first amended assessment was 442,888 ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: That is the assessment objected against, which is what Justice Steward found at paragraphs 7,8 and 9 to be the assessment he was concerned with. He puts in parenthesis that it was adjusted upwards to 643.
HIS HONOUR: Yes.
MR ROBERTSON: So the first amended assessment reflected undisclosed assessable income according to the Commissioner’s reasons for decision for issuing the amended assessment of one million. Now, the limited concession made by the Commissioner does not discharge the taxpayer’s onus of showing that the undisclosed assessable income of one million was not income derived by him that year.
HIS HONOUR: Yes.
MR ROBERTSON: So he considered that the taxable income in dispute for 14ZZO purposes was one million and one. Now, the amount we say was in dispute in our notice of appeal and in the further amended assessments was much higher than that. I will just get the actual amount. Well, we know that the tax was 643, rather than 442, so there was a corresponding higher taxable income.
HIS HONOUR: Yes.
MR ROBERTSON: Now, what we say in proceedings is that we bear the onus for showing that the taxable income that leads to tax of 643,000 was too much. Now, we might not be able to show that it is much less than $643,048, but we are entitled to show that, but Justice Steward would dismiss our appeal unless we showed that it was less than $442,881 because he thought that we had to show that our tax liability was less than $442,888. Our real tax liability, the one that the Commissioner was suing for under 350‑10, under his notice of assessment, he was suing for $643,048; that was the only amount that he could sue for. The 442 had gone, it was utterly irrelevant.
HIS HONOUR: Yes.
MR ROBERTSON: 643,000 had to come out of our pocket because of the further amended assessments.
HIS HONOUR: I follow all of that.
MR ROBERTSON: Yes.
HIS HONOUR: You had to demonstrate that whatever assessable income translated to $643,048 was excessive compared to the assessable income that you derived.
MR ROBERTSON: That is correct.
HIS HONOUR: All right, did you do that?
MR ROBERTSON: That was not considered by the court to be an issue. We said that we did because there were two concessions ‑ if we go back to the first sentence.
HIS HONOUR: Yes.
MR ROBERTSON: What we said Justice Steward had to do was, first of all, identify the tax that we had to pay ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ to show which was excessive. And then he had to identify how the Commissioner got to reach that tax liability, what were the particulars of the assessment, because 14ZZO makes all the particulars of the assessment before the court prima facie evidence of their correctness. And we said that the assessments which were issued as a result of the objection decision were ordinary section 166 assessments . Where the Commissioner did a full review of all our facts completely changed the basis that he had been acting on in reaching the figure which led to a tax liability of 442,000.
HIS HONOUR: Yes.
MR ROBERTSON: And that we were entitled ‑ and in fact we were entitled to pick and choose which items of assessable income were allowable deductions that we wanted to put in contest, and if we did not do that then 14ZZO operated to make the rest of the items correct. The prima facie statutory presumption that they were correct is not rebutted. And so when the Commissioner stood up at the start of the hearing and said that two items that he had included as integers in the calculation of taxable income ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ being section 6‑5 assessable income, were not in fact income. That was no different from him conceding that a deduction we had claimed and he had disallowed was allowable. And so we say that we had shown that the tax – well, we did not need to show because the Commissioner had conceded that the taxable income that led to tax of 643,000 was excessive and should be reduced. But we were like ships in the night, your Honour, because Justice Steward said he was not concerned with the further amended assessments and the reasons for the objection decision, he was concerned with the assessments objected to in the Commissioner’s reasons for decision for issuing the amended assessment objected to, which was an entirely different assessment setting out entirely different particulars, none of which attracted section 14ZZO and the conclusive evidence ‑ provisions of 350‑10.
So either our notice of appeal was incompetent because we identified the wrong assessment, or the Federal Court’s decision should be quashed because it failed to identify the subject matter of its jurisdiction.
HIS HONOUR: So what you say is if Justice Steward had correctly conceived of the appeal being concerned with the further amended assessment he would have understood that the particulars of the further amended assessment framed the issues and if one or more of them were conceded by the Commissioner to that extent you must succeed?
MR ROBERTSON: Correct. That is our case, your Honour, and we made this submission to the Full Federal Court and they rejected it and they said that Justice Steward was correct to look at the amended assessment and our grounds of objection. We further say that if we are wrong in our construction of Part IVC then there is a constitutional problem because the Court is being directed by Parliament to deal with an abstract issue.
HIS HONOUR: Well, we would have to go to 78B notices then, would we not?
MR ROBERTSON: We have done those.
HIS HONOUR: We have, have we?
MR ROBERTSON: Yes.
HIS HONOUR: I see. No one is interested?
MR ROBERTSON: No one is interested.
HIS HONOUR: Okay.
MR ROBERTSON: But because, as your Honour is aware, Part IVC is merely the parliamentary procedure to deal with a matter, a constitutional matter, an existing dispute between the Commissioner and the taxpayer, and the only existing dispute between the Commissioner and the taxpayer is over the amount of $643,048.
HIS HONOUR: Is that all that is left, and another 600,000 that was conceded?
MR ROBERTSON: No, there were other items, which we said were particulars of the further amended assessment as set out in the reasons for decision. I took the Full Federal Court and I abandoned a lot of the grounds of appeal ‑ I took the Federal Court through the objection decision, which is over 100 pages, and said, we are happy with these items. There are three or four items, your Honours, which we are unhappy about and they should be ‑ ‑ ‑
HIS HONOUR: Which years of income do they present in?
MR ROBERTSON: We have the 2009 year, and ‑ ‑ ‑
HIS HONOUR: Which is the 600,000?
MR ROBERTSON: It is in Roger Blow’s affidavit.
HIS HONOUR: It is a big affidavit, Mr Robertson.
MR ROBERTSON: Yes, I am sorry. My learned friend is helping me as quickly as ‑ it is to be found at paragraph 20 of Mr Blow’s affidavit, filed 14 August 2019, and they relate, your Honour, to the 2007 year, the 2008 year and the 2009 year.
HIS HONOUR: Those first two, Mr Robertson, A and B, were not amongst those which were abandoned, I take it?
MR ROBERTSON: That is right, yes.
HIS HONOUR: I understand how you get to the 600,000 in respect of the year of income ended of 30 June 2009.
MR ROBERTSON: Yes.
HIS HONOUR: In brief outline without particulars, how do you get to the matters in A and B?
MR ROBERTSON: B we say was not ‑ apparently it is set out at paragraph 58 of Justice Steward’s decision. We say that they were loans.
HIS HONOUR: That is the 600,000 or are these the same two?
MR ROBERTSON: No, this is the 982,500. We are talking about 20(b) for 2008.
HIS HONOUR: Well, you lost that one on the facts.
MR ROBERTSON: Well, we say no because all Justice Steward’s fact finding was done against his view that we had ‑ because the amended assessment that had been objected to was a default assessment under 167, of which there was only one particular ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ he said that unless you showed that your taxable income was whatever then you lost everything, and his view of the taxpayer was coloured by his view of all this extraneous issues, and his view of the taxpayer was also coloured by what he saw as the taxpayer’s concession that he had failed to show that the amended assessments for 2010 and 2011 were excessive which is plainly wrong.
HIS HONOUR: This is more particular than that. He says he is not satisfied on the balance of probability that the amounts which you claimed were deposits were repayments of loan.
MR ROBERTSON: Yes, because you go for these reasons ‑ and if you look upwards you see all this extraneous stuff which dealt with nothing to do with the simple question of whether a loan existed and was repaid. So we see that according to his Honour the taxpayer had not disclosed a secret company in the Virgin Islands ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ which was incorrect, as it happened, but that was an appeal ground which we abandoned because it had nothing to do with the ‑ because we accepted the foreign evidence. So, for example, the 600,000 that was conceded by the Commissioner we had put evidence on that led the Commissioner to concede the amounts so there were certainly ‑ all these matters could not be considered by Justice Steward properly until he had identified his jurisdiction, framed what items were an issue and we would have then had the chance to address them discretely.
HIS HONOUR: Just staying with this amount of $982,500, which is in paragraph (b) of paragraph 20 of Blow’s affidavit, at the moment, as it appears to me, you adduced evidence in an attempt to demonstrate that the amount was the repayment of a loan as opposed to the derivation of assessable income, and the judge found against you ‑ query whether rightly or wrongly, about which I am not greatly concerned I think ‑ on the facts.
MR ROBERTSON: He did find against on the facts; that is right, yes.
HIS HONOUR: All right, I understand that. What about the $243,650 in paragraph 20(a)?
MR ROBERTSON: We are just finding out what the 243,650 is. It is another ‑ we said it was a draw down from a Westpac facility, and he says he was not satisfied it was a draw down from a Westpac facility.
HIS HONOUR: Could you direct me to the place in his reasons where his Honour does that, please?
MR ROBERTSON: My learned junior is going to find out more about the 243, your Honour, but may I say this, that the question posed by the onus of proof in relation to a default assessment is entirely different from the question posed in relation to considering the constituent element of liability under a 166 assessment; in other words, the ordinary assessable income and allowable deductions.
What the authorities say ‑ and Macmine, your Honour, goes into it in the greatest detail ‑ is that the onus of proof provision is not a provision the Commissioner relies on, it is a statutory direction to the Court that the particular element of liability is, in law, satisfied. So in the case of a capital gain, it is presumed that the taxpayer made a capital gain from selling a capital asset after 1985.
HIS HONOUR: All right.
MR ROBERTSON: And for the taxpayer to demonstrate that that is wrong, he must show that those statutory elements are not met. Whereas under a default assessment, the taxpayer must positively show what his overall taxable income is. So when one is attacking a discrete item of liability such as section 6‑5 ordinary income, the onus of proof provision does not create a presumption of fact that a receipt is ordinary income. It creates a statutory presumption that there is section 6‑5 assessable income and the taxpayer must show that the receipt does not have the character of income ‑ in other words, it is not derived from personal exertion, or it is not derived from property, and‑ ‑ ‑
HIS HONOUR: All right. In the case of the amount of 243,650 ‑ I beg your pardon, 982,500 ‑ ‑ ‑
MR ROBERTSON: Yes.
HIS HONOUR: ‑ ‑ ‑ the way in which you attempted to do that was to demonstrate it was the repayment of a loan.
MR ROBERTSON: Yes.
HIS HONOUR: That was rejected, on the facts.
MR ROBERTSON: That was rejected on the facts.
HIS HONOUR: All right. Presumably, in the case of the 243,650 the way in which you attempted to demonstrate that it was not assessable income, to show that it was a draw down from Westpac, correct?
MR ROBERTSON: Yes, your Honour.
HIS HONOUR: That, I take it, was also rejected on the facts, was it?
MR ROBERTSON: What was found was that it was simply a transfer of funds.
HIS HONOUR: All right. So what is the problem?
MR ROBERTSON: Well, the point is a transfer of funds, as this High Court has held, is prima facie, a capital amount. A mere transfer of funds is prima facie capital. Section 190B and 14ZZO does not create a presumption of fact that ‑ ‑ ‑
HIS HONOUR: All right. Did your junior find the position where the judge dealt with the 243,650?
MR ROBERTSON: Paragraph 19 and 20 of the judgment.
HIS HONOUR: Thank you. All right. I see that, thank you.
MR ROBERTSON: So ‑ ‑ ‑
HIS HONOUR: Mr Robertson, just stop there ‑ does that mean we have now covered all the elements in dispute?
MR ROBERTSON: Yes, your Honour.
HIS HONOUR: Very well. Before you go on, could I just ask this?
MR ROBERTSON: Yes.
HIS HONOUR: Why could this not all have been the subject of an application for special leave to appeal from the Full Court of the Federal Court?
MR ROBERTSON: Yes, your Honour. We say that the Federal Court did not identify its correct jurisdiction in a Part IVC appeal.
HIS HONOUR: Well, I understand there.
MR ROBERTSON: And we say that a Full Federal Court, which was to rehear the taxpayer’s appeal ‑ a Warren v Coombes, Fox v Percy exercise of jurisdiction to rehear the appeal ‑ also failed to identify its original jurisdiction. We perceived that the High Court’s appellate jurisdiction in Part IVC proceedings was to give a final determination of liability to tax in the exercise of appellate jurisdiction where the federal courts had exercised original jurisdiction within Part IVC. And we perceive that because, if we are right, the Federal Court failed to identify its original jurisdiction, it failed to even exercise any determination and therefore it was more appropriate that this proceed in the court’s original jurisdiction.
HIS HONOUR: What, on the basis that because of its jurisdictional error their decision was a nullity and therefore there was nothing to appeal against?
MR ROBERTSON: No, not simply because it was a jurisdictional error such as an error to accord procedural fairness, but because the actual task of determining that the dispute between the Commonwealth and the taxpayer over a claimed amount had not even commenced by the Federal Court. For example, if this issue had been identified by Justice Steward at the start, and if he, his Honour, had said, I am here to look at the amended assessment objected to, we would say that it would be appropriate for a writ of prohibition to be sought and the matter to be removed under section 40 of the Judiciary Act in respect of the constitutionality of Part IVC.
So this is not a case where we have gone straight to the High Court to bypass the appellate jurisdiction of the Federal Court. We have raised these issues in the Federal Court so the High Court has the advantage of it. This is not a case where we are trying to bypass special leave because, as with special leave here, the Court has a discretion to refuse the relief. And, your Honour, this Court has found that the jurisdiction of the Federal Court in tax proceedings is a matter of public importance. So we would say that if we had sought special leave, the Court would consider ‑ would make discretionary considerations, including whether the jurisdiction of the Federal Court is a matter of public importance.
But if it were to exercise appellate jurisdiction, we say all it could do is quash these decisions, or make orders tantamount to quashing them, and remit the matters back to the Federal Court for hearing in accordance with law. So we saw nothing else that the High Court could do, if it was in its appellate jurisdiction, that it cannot do in its original jurisdiction, if that makes, those ‑ ‑ ‑
HIS HONOUR: It does. Can I ask you another question?
MR ROBERTSON: Yes.
HIS HONOUR: I understand how you say the $600,000 for the 2009 year of income is affected by jurisdictional error ‑ ‑ ‑
MR ROBERTSON: Yes.
HIS HONOUR: ‑ ‑ ‑ because you contend that because the trial judge misconceived the nature of the appeal, he excluded from his mind the particulars of disallowance of objection, and therefore did not appreciate it was sufficient for you to demonstrate that one of them was wrong.
MR ROBERTSON: Yes.
HIS HONOUR: I do not understand in relation to the other two amounts, the (a) and (b) amount in paragraph 20 of Mr Blow’s affidavit, that you are contending, or at least that it is at all demonstrated that they were affected by any jurisdictional error. It is just a finding of fact.
MR ROBERTSON: It is, your Honour, but as your Honour with Justice Gordon pointed out recently this year, a decision is not partly invalid. If the Federal Court’s jurisdiction did not get off the ground ‑ ‑ ‑
HIS HONOUR: I see, go along for the ride with those other things, I follow.
MR ROBERTSON: Everything else goes, the findings of fact do not survive; yes, that is the point ‑ ‑ ‑
HIS HONOUR: All right.
MR ROBERTSON: ‑ ‑ ‑ and we have to start again. If I can deal separately now, your Honour, with the 600,000 concession.
HIS HONOUR: Yes.
MR ROBERTSON: So what we are seeking is relief against the Full Federal Court and against the decision of the trial judge for certiorari and mandamus to have this matter start again in the Full Federal Court by reference to the notice of appeal and the correct amounts in dispute, and there is our separate point, which relates to mandamus against the Commissioner in respect of the 600,000. What the Commissioner did with the 600,000 has been set out and he surrendered that issue to the Federal Court by reference to section 14ZZO, and we say that that was wrong for him to do, and 14ZZO had nothing to do with an amount which was not in controversy, or no longer in controversy, before the Federal Court.
HIS HONOUR: I understand that.
MR ROBERTSON: And, your Honour, the Commissioner has a statutory direction under 14ZZR to collect tax pending the outcome of an appeal.
HIS HONOUR: Yes.
MR ROBERTSON: And it was not only the 600,000 in dispute, the Commissioner had penalised the taxpayer for intentional disregard of the law, for evading putting the $600,000 in his tax return.
HIS HONOUR: Yes.
MR ROBERTSON: So, what the Commissioner was ‑ he was under statutory duty to collect on the 600,000 and collect on the penalties that he had imposed, even though he had told the court that his assessment of that amount was wrong. And we said, it is not enough for him to surrender that issue to the court, this Court ‑ I gave your Honour the authority, it was W & A McArthur Pty Ltd v The Commissioner ‑ the Full High Court held that the Commissioner was not functus officio in respect of his objection decision because judicial power had been activated over that decision. If the Commissioner saw that a further amount should be collected ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ or if the Commissioner saw that he was wrong, having regard to all the evidence that had been adduced, his duty was to then alter his objection decision and remove that ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ by amending the assessment. And we say that that principle operates and the Commissioner’s duty to collect the correct amount of tax applies irrespective of whether judicial power has been enlivened or not. This Court has held he is not functus officio, and he was placed in a position of conflict, where Parliament had told him that he had to collect on that amount, pending the outcome of the proceedings, and so that was manifestly unfair on the taxpayer, who had ultimately a right to have the Court remove that amount, but that was not good enough, because in the meantime the Commissioner has retained a statutory duty to sue for it.
HIS HONOUR: He always does, or virtually always does, does he not?
MR ROBERTSON: Of course he does, but he only can sue for the amounts that he believes to be correct.
HIS HONOUR: He does believe it. Whether rightly or wrongly, he believes that you have that amount ‑ at least that amount of assessable income which he has assessed to you, notwithstanding that he was wrong about the 600.
MR ROBERTSON: Well, how can that be?
HIS HONOUR: Well, it has to be determined, if it needs to be determined, by a hearing.
MR ROBERTSON: Well, it is‑ but remember that, as I said, that six ‑ by his Honour’s ‑ by the Commissioner’s concession to the court about that item, had his Honour correctly appreciated that it was a separate item of assessable income ‑ ‑ ‑
HIS HONOUR: Mr Robertson, I do understand the argument but there is an alternative argument which the Commissioner advances, and until and unless there has been an adjudication no doubt the Commissioner thinks he is right and that his duty is to do what he thinks is right.
MR ROBERTSON: Yes. Well, we say the position at the moment, as it stands, is that the Federal Court’s decision should be quashed, and what we are left with is a situation where the Commissioner has announced that his further amended assessment wrongly included 600,000.
HIS HONOUR: I completely understand the argument.
MR ROBERTSON: Yes, so we are not in the judicial area any more.
HIS HONOUR: Yes.
MR ROBERTSON: And if we are not in the judicial area because this Court is going to quash the Federal Court decisions, we are left with a Commissioner stating to the court that he has assessed too much, and he has penalised too much ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: This Court in the West Australian Trustee Case says that the Commissioner cannot surrender his own claim to tax to the Court for its determination, and so that is why we are left with this duty.
HIS HONOUR: All right.
MR ROBERTSON: So, just as the Commissioner, if he found that $600,000 had been omitted by the taxpayer would be immediately reassessing because the Court has held that the Commissioner’s duty is to collect the correct amount of tax, not a penny more, not a penny less. I think that, your Honour, that is the nub of what I wanted to take ‑ draw your attention to.
HIS HONOUR: It is helpful. Thank you, Mr Robertson. Mr Sharpley.
MR SHARPLEY: Your Honour, might I start by pointing out that the matters before your Honour are considerably more narrowly confined than my friend’s submissions might lead you to expect. There has been a trend in his submissions for matters that were before the learned trial judge, in respect of how the 600,000 must be dealt with in terms of proving the income, which was an issue taken up to the Full Court, but which is currently not an issue. So there has been sort of a failure to focus on exactly what is being requested by this application for constitutional writs.
Now, on the face of the application, what is being sought falls into two categories. In respect of ‑ and items referring to the application ‑ items one to three, which might be better ordered three to one, are arguments for writs of certiorari and mandamus against the ‑ I will call it the Federal Court, as opposed to the Full Federal Court ‑ and a writ of certiorari against the Full Federal Court.
Now, in both cases the basis for the issue of the constitutional writs is an argument that both courts acted in excess of their jurisdiction. And, of course, that is what my learned friend has to prove, it is not enough to prove a mere disagreement, or a mere error of law, he has got to prove that they stepped outside their area of jurisdiction. So that is the first claim for relief and essentially the argument that has been put forward is, in respect of that stepping outside the jurisdiction, it is said that the trial judge stepped outside by not identifying the assessment that was the subject of the 14ZZ review.
The judge identified ‑ and we say correctly ‑ that the assessment the subject of the review is the assessment that was objected to, called the 2015 amended assessment in these proceedings. The taxpayer contends that in circumstances where the objection was ‑ as a result of the objection, further amended assessments were issued, that instead the judge misfired – instead he should have considered the amounts under the further amended assessments. We say that is plainly wrong.
The subject matter of a 14ZZ jurisdiction of the Federal Court is the objection decision and, in particular, it is the taxation decision which is the subject of the objection decision. I can take your Honour through the relevant provisions but they are very well set out in the Full Court’s decision ‑ ‑ ‑
HIS HONOUR: Here the objection decision was in part, in effect, to disallow the objection against amended assessments. Some up, some down.
MR SHARPLEY: Well, the first thing we have got to realise is it was a section 167, the assessments which were objected to were 167. So, it was a circumstance where, as his Honour explained, the taxpayer has apparently ‑ was very wealthy and had not filed any satisfactory tax return for a long time. So, the Commissioner took, not surprisingly, the approach of issuing 167 default assessments and as a result of that made determinations of the taxable ‑ of the amount of tax, that is of the taxable income, without going through the process in 166 of identifying assessable income deductions net, he made a determination. As a result of considering the objections, the Commissioner made some adjustments to those assessments.
HIS HONOUR: That was the objection decision.
MR SHARPLEY: That was the outcome of the objection.
HIS HONOUR: It was the objection decision.
MR SHARPLEY: Yes, the objection decision itself was to make adjustments up and down to the assessments.
HIS HONOUR: Very well.
MR SHARPLEY: Now, what the taxpayer ‑ insofar as the taxpayer wanted to – was still unhappy with the outcome of the objection, either because the amount had gone up or the amount had gone down but not as far as the taxpayer thought it should, the taxpayer should have objected to the further amended assessments. That is what the whole scheme on Part IVC provides for.
HIS HONOUR: Only insofar as they changed the particulars adversely to the taxpayer.
MR SHARPLEY: Insofar as there was – well, in two respects. Insofar as there was a different amount – your Honour is correct. Your right to object to an amended assessment or, in this case, a further amended assessment is limited to the particulars ‑ the things that have changed and the particulars, which is why a taxpayer who has received a further amended assessment can only object to the things that have changed since the amended assessment. You cannot go back and open up the original assessment.
That is for very good reason. Take, for example, an original assessment issued in 1980, in 1990 – going back a few years, say 2000 and 2010, in 2010 an amended assessment is issued. If it was unfavourable to the taxpayer, the taxpayer could object to the 2010 changes insofar as they were unfavourable but the taxpayer could not go back and reopen up the assessment 10 years earlier. Contrary, if the taxpayer realised that he had made an error and wanted to make an assessment, an adjustment in his favour, it is not open to the Commissioner to go back.
The whole scheme of Part IVC is to – for the Commissioner to raise assessments which are called “taxation decisions”. A taxpayer who is not happy with those may object. The objection is not a process of reassessment, which is a word which keeps creeping into my friend’s lexicon. Under 14XY the duty of the Commissioner is to consider the objections insofar as they apply to the assessment that is the subject of objection.
Now, as a result of that, the Commissioner may make no change, he may make a movement in favour of the taxpayer, he may make a movement against the taxpayer. If the taxpayer, for whatever reason, is dissatisfied with that objection decision which relates to the assessment before the officer considering the objection, he may appeal – either appeal to the Court or seek review in the AAT. Under 14ZZO, this subject matter ‑ and this is set out in the Full Court’s decision in considerable clarity and length ‑ the subject matter is the tax decision and the tax decision is defined as the assessment which was the subject of objection.
So, to take an example, if the Commission issues an assessment for $10 and the taxpayer objects and the Commissioner says, well, actually, based on the material I have obtained from you, I am of the view that the assessment should be $15, so I am going to amend it up by five, then what the taxpayer should do is appeal against the 10, object to the five, appeal against the five and have it all brought together, which is a pretty common circumstance in the AAT and the Federal Court, because otherwise you fall into this difficulty that the taxpayer ‑ the rod the taxpayers have made for their own backs here, if I might say, by not objecting to the amended assessments.
Now, it is particularly important in this case where the amended assessments, the 2015 assessments, are 167 default assessments. The argument of the taxpayer is that when the Commissioner exercised the power under 14XY to consider those amended assessments, he was engaged in a process of “reassessment”. That is just simply wrong. Furthermore, it is said that what the Commissioner was doing was exercising the power under 166.
Now, for tactical reasons, it is clear why the taxpayer is bringing the contention forward. Under a 167 assessment, the taxpayer must, in effect, reconstruct his taxable income. In order to prove the assessment is excessive, he has got to show what his actual income is; that is, he has got to construct it from the ground up by explaining all of his financial affairs, dealing with everything that could have a tax consequence and explaining what the tax consequence is.
Cases like Rigali and Gashi have made it clear that you cannot work down. If the Commission has issued you a default assessment for $1 million, you cannot just chip away at it and say, look, I have proven that you have double counted a hundred thousand there, therefore, I have proven my income is $900,000. It does not work that way. You have got to prove it from the ground up. The Commissioner’s default assessment is not a position from which you can chip down, you have got to prove it from the ground up because the facts are within the knowledge of the taxpayer, these are the taxpayer’s affairs in a 167 assessment.
Now, when the Commissioner considers an objection he does so under the power in 14XY, which is to look at the grounds of objection and apply – consider them by reference to the assessment that is before him. As a result of that, the assessment might be wholly disallowed resulting in no further assessment. It might be allowed in part, resulting in a further – an amended assessment that reduces the amount of tax, or it might result, in some cases, in increase in the taxation.
Now, when the Commissioner does that, it does not somehow magically convert what was a 167 assessment into a 166 further amended – or amended assessment. What the Commissioner is doing is merely exercising the power under 14XY to decide whether the objections have merit by reference to the assessment that is before the Commissioner at the time. Now, if the Commissioner – in a typical case where the Commissioner rejects the assessment, there will be no further assessments, and the taxpayer will simply object and the assessment, the taxation decision, will go up to the court in order to be assessed for excessiveness.
In the present case, the objection resulted in changes both for – in the interests of the taxpayer, reducing the tax and increasing the tax. The Commissioner, for reasons that are particular to this case, issued ‑ as they were further amended assessments, the 2016 assessments ‑ it was fully open to the taxpayer if they were still dissatisfied with those assessments to object to them and that is what they should have done. By not objecting to them, they have created this – I would say, this confusion.
There has been a difficulty which his Honour did resolve in the decision in paragraph 8 where he identifies the subject matter of this proceeding in circumstances where the taxpayers have only objected to the amended assessment and not the further assessment. The subject matter of the 14ZZ power of the Court, is the tax decision and the tax decision is defined as the assessment which is being objected to. So, what happened in this case was that the issue before his Honour was the accuracy of the 2015 assessments.
HIS HONOUR: The further amended assessments, did they still retain the character of 167 assessments?
MR SHARPLEY: Yes, your Honour ‑ well, the further amended assessments are issued pursuant to a combination of 14XY which is a review of an existing assessment and section 170, the power to make an amended assessment. The character – I do not actually think it makes any difference for these purposes. If put to it ‑ as the Commissioner’s position I believe would be is that they retain the character of 167 assessments and that is the taxpayer must prove what the taxable amount is.
HIS HONOUR: The reason I ask you is that in this case, very extensive particulars of the objection decision were furnished which is customarily what happens with a 166 assessment.
MR SHARPLEY: Your Honour, if the process of objection was a process of reassessment then that submission could be made but when the Commissioner considers an objection he is not reassessing the tax. Under 14XY ‑ ‑ ‑
HIS HONOUR: I follow that. It is just that if the Commissioner does provide particulars, ordinarily the conduct of the litigation is by reference to the particulars.
MR SHARPLEY: Ordinarily, your Honour, but it is a fundamental of Part IVC litigation is that what the subject matter before the Court is the excessiveness of the relevant assessment.
HIS HONOUR: Of course it is.
MR SHARPLEY: What the Commissioner has said in his objection decision as to the basis is neither here nor there, the Commissioner is not restricted, provided he gives natural justice, to the grounds in his objection decision. The Commissioner can defend his default assessment on any grounds whatsoever. The objection decision is not ‑ ‑ ‑
HIS HONOUR: It does depend upon the way in which the litigation is conducted.
MR SHARPLEY: It does. Your Honour, in a 166 case where the taxpayer is issued tax to $100 and the Commissioner issues an objection decision and he says, I actually think it should be $90, you have proven that that was not $10 of income. Were the taxpayer to object – let us assume – and no further assessment has been issued yet ‑ were the taxpayer to object to that $100 assessment, one would expect that the Commissioner would readily concede in the Part IVC litigation that what is really in issue is 90 and not 100 because the reasoning that I applied in the objection decision is equally applicable to the court.
The Commissioner is not bound to do that. The Commissioner may form the view ‑ and this does happen ‑ that concessions made at objection were wrongly made. The Commissioner ultimately is entitled to take the point that this is the assessment that is before the court, this is the amount of the assessment. I put the taxpayer ‑ particularly in a case like this where there was such a paucity of material ‑ I put the taxpayer to the proof of his actual income and he must prove every element of it.
In this case, as Justice Steward noted, and the Full Court noted, the Commissioner did take that point. This was not a case where the Commissioner knew enough about the taxpayer’s tax affairs that one could identify particular issues: is this receipt revenue or capital, is this outgoing deductible? It was a case where the Commissioner stood by his default assessments and required the taxpayer to prove what the tax ‑ in order to show they are excessive, the taxpayer to prove what his actual income was.
HIS HONOUR: Yes.
MR SHARPLEY: Now, if the taxpayer had objected to the further amended assessments, and assuming those objections were not allowed, the taxpayer could have appealed, and all these matters could have been heard together, which would have been the sensible and usual way to proceed. But the taxpayer has chosen not to appeal those further amended assessments. That being the case, the only subject matter before his Honour was the assessments the subject of objection, because the appeal is in respect of that objection. It is not in respect, as the Full Court points out, of the ‑ ‑ ‑
HIS HONOUR: Mr Sharpley, I tend to recall, I may do so incorrectly, but in a case where there was an extant appeal yet to be determined ‑ ‑ ‑
MR SHARPLEY: Yes.
HIS HONOUR: ‑ ‑ ‑ and the Commissioner issued an amended assessment in the course of it, the taxpayer was customarily given leave to amend his grounds of appeal to accommodate whatever was in the new amended assessment. Am I right about that?
MR SHARPLEY: I do not think the Commission could actually do that, because ‑ ‑ ‑
HIS HONOUR: You need an objection.
MR SHARPLEY: You need ‑ an objection gives the Court jurisdiction.
HIS HONOUR: It would have to be done quickly, you sort of went out the back and did it ‑ ‑ ‑
MR SHARPLEY: Yes. I mean, I have been in cases like that where ‑ another example is, I think Justice Gaudron discussed this in BHP, where the Commissioner issues an assessment, there is an objection, the taxpayer appeals, meanwhile learned tax counsel are engaged to point out to the Commissioner that, look, you have relied on substantive tax in this matter, there is also a Part IVA case. And so the Commissioner, while the matter is before the court, makes a Part IVA determination, then issues an amended assessment in the same amount ‑ because the view is, since Justice Gaudron’s case, is that that is what he should do ‑ then says to the taxpayer, this needs to be joined up, if you object quickly we will determine your objection quickly and we will consent to this matter ‑ if you appeal quickly we will consent and they will all be heard together.
HIS HONOUR: Well, what was it in this case that stopped the taxpayer from objecting against the further amended assessment?
MR SHARPLEY: I do not know, your Honour, and if I could ask my ‑ I was not in any of the proceedings below, so ‑ ‑ ‑
HIS HONOUR: My concern, if I may say, is this. If the matter were conducted on the basis that the particulars really framed the issues of the litigation, it would be quite different from one in which the Commissioner said from the outset, look, I will give you such particulars as I can, I really do not know whether they are true or not, it is my best effort, but I am standing on the fact that this is a default assessment and it is for you to demonstrate it is successive, that is another thing.
MR SHARPLEY: Yes, your Honour. The Commissioner took the latter view. The Commissioner did not rely on the – or the Commissioner did not refer to the objection decision. The Commissioner took the view that these are my default assessments. Obviously, the Commissioner had a number of concerns about share trading, property dealing, unexplained. The Commissioner’s view was, this is a case where you have very substantial overseas wealth, you have not put in a tax return, when you did put in a tax return it was for, frankly, laughable amounts. The Commissioner insists that you undergo the full burden of proving your taxable income.
HIS HONOUR: Can one see that anywhere apart from the submissions of counsel when he made the concession as to the 600,000?
MR SHARPLEY: I will ask my learned junior to find it, but his Honour Justice Steward noted that the Commissioner had in his ‑ it was either the appeal statement or written submissions ‑ maintained the position that he was putting the taxpayer to proof of every element.
HIS HONOUR: He did, yes, he did note that.
MR SHARPLEY: The only ‑ and this is where the 600,000 comes in ‑ the only concession the Commissioner made was in respect to the 2009 year. What the Commissioner said was, I accept that that $600,000 transfer was not income. Now, that is a useful concession to counsel who are attempting to discharge the onus of showing a 167 assessment is excessive ‑ ‑ ‑
HIS HONOUR: Yes.
MR SHARPLEY: ‑ ‑ ‑ because it means when you are collecting all your evidentiary material to prove what your client’s taxable affairs and taxable income were in that year, you need not explain that 600,000. That 600,000 is put to one side. But I think the ‑ in the present, what happened in the 2009 year, your Honour, was the Commissioner issued a default assessment for a certain amount. The onus was on the taxpayer to prove his actual taxable income, and I think the original amount ‑ the taxable income in 2009 was about 1.48 million.
The Commissioner said, look, my best estimate under 167 is 1.48 million, you have to prove what your taxable income is. In doing that, I do not require you to prove that this transfer of 600,000, which occurred in that year, was not income, so that is a concession I have made to you. But it is still up to you to prove your taxable income, whether it be 1.48 or 880, or some other number. And it is a feature of this case ‑ I mean, this was not a borderline case where the taxpayer almost proved his income, this was a case, on his Honour’s judgment, where the taxpayer comprehensively failed to prove his income in any year, did not get anywhere near it.
And so the relevance of the 600,000 is, that was an amount that the ‑ that was a concession that the taxpayer could take in satisfying the 167 onus, they did not have to worry about that 600,000. They still had to explain everything else, they still had to come forward with books or documents or a reconstruction that said, well, this is my income in 2009 putting the 600,000 aside. What they could not say was, well, you have assessed me a default assessment for 1.48, now you have conceded 600, that 600 must necessarily have been part of the 1.48, therefore I am down to 880 already.
It does not work like that. That is exactly the wrong thinking that was exposed in Rigali and Gashi. A concession by the Commissioner that a particular amount is or is not income, or is or is not deductible, is only useful to the extent that when the taxpayer undertakes this task of reconstructing or proving his income, he need not worry about that 600,000.
And I will take your Honour ‑ because my learned friend’s ‑ the taxpayer’s submissions over‑egg this statement by the Commissioner. The Commissioner’s counsel was very careful to say the 600,000 is an amount, we accept it is not income, but you must still prove your income in that year, as in every year in issue. And that was repeated ‑ and I will take your Honour to the transcript references in due course ‑ the Commissioner maintained that position, and that was recognised by his Honour Justice Steward and by the Full Court that the 600,000 concession did not amount to the taxpayer proving anything. The taxpayer still had to prove his assessable income in each year.
Your Honour, in terms of ‑ so, if I might go back to what the actual claims for prerogative writs are. The first claim is against his Honour Justice Steward in the Federal Court, and what is sought is certiorari mandamus on the basis of acting in excess of jurisdiction. And as we say, essentially the claim is that his Honour aimed ‑ undertook the wrong task. And we say, your Honour, I really cannot improve on what the Full Court says at paragraphs 12 to 25 and 47 to 52, and as to exactly what is the subject matter of a 14ZZ appeal.
The reference to taxation decision and the definition of taxation decision make it clear beyond doubt that it is the assessment the subject of objection that is the subject of appeal. A person who is dissatisfied with the internal review of that assessment may seek an external review. If there does happen to be an amended assessment issued as a result of that view, it is open to the taxpayer to object to that further assessment and that is why we have the rule that where you have a further assessment your objection rights are limited to what is different, the particulars of what is different. That rule would make no sense if the subject matter of 14ZZ was always the most recent assessment and you could challenge all of it.
The reality is, when you have an assessment and an amended assessment, you must challenge the assessment, and if you do not like the amended assessment you must separately challenge the amended assessment and when you do not, things can run off the rails.
HIS HONOUR: I suppose, even where there is no further objection to the further amended assessment, ultimately the question must be whether the further amended assessment is excessive, for at that ‑ ‑ ‑
MR SHARPLEY: Yes, your Honour.
HIS HONOUR: ‑ ‑ ‑ point of time it is the only extant assessment.
MR SHARPLEY: Yes. So, your Honour, if you took the view ‑ if you took an example where there is an original assessment for $100 and an amended assessment for $80, and the taxpayer appealed the $100, went to court and proved that his income was 50, one would expect that, under the broad relief that the court can give, that the court would require the Commissioner to issue a further further amended assessment for $50. The Commissioner could not maintain the 80 once the court had ruled that the true figure is 50 and not 80. So it will all come out in the wash, so to speak, but‑ ‑ ‑
HIS HONOUR: Well, here the only significance of the further amended assessment, at least as I understand the taxpayer’s argument, is that it somehow characterises the assessment as one which is no longer a default assessment ‑ ‑ ‑
MR SHARPLEY: Yes.
HIS HONOUR: ‑ ‑ ‑ and thus subjects the litigation for the ordinary rules of 166.
MR SHARPLEY: Well, I would say, your Honour, that is incorrect, and also it does not matter in the sense that the determination of the objections to a 167 assessment, such that in this case it is either reduced or it is increased, now can be increased because, I mean, not everything that comes in on a process of objection is necessarily going to be favourable to the taxpayer.
HIS HONOUR: No.
MR SHARPLEY: For example, the Commissioner might examine the taxpayer and discover all sorts of more interesting facts about further matters giving concern and the Commissioner may come to the realisation, well, my default assessment was too little, I am going to assess for more. So, for example ‑ and I am not linking this to this taxpayer, but you might have a case where the Commissioner is aware that a taxpayer is conducting business (a) overseas, and the Commissioner makes an estimate of the amount that should be taxed under 167, issues an assessment, then in the course of considering the objection, the taxpayer is examined and information comes out that the taxpayer is in fact running another business in a different country and the Commissioner may say, well, I not only disallow your objection, I am going to increase it because I think you have actually got even more wealth and more taxable income than I thought.
HIS HONOUR: Yes.
MR SHARPLEY: Now, in that case, what the taxpayer should do is object to both amended assessments, so that the total amount of tax which is in issue is going to go to the court, whether both issues are dealt with by the court. So we say that far from ‑ ‑ ‑
HIS HONOUR: So no jurisdictional error.
MR SHARPLEY: Pardon?
HIS HONOUR: No jurisdictional error.
MR SHARPLEY: Well, it is not a jurisdictional error. I mean, his Honour considered ‑ his Honour obeyed the statutory command to consider the assessment that was before the objection and he carried it out. Now, the taxpayer may argue about 600,000 here or 923,000 but it just does not go to jurisdiction. And it certainly does not go to the jurisdiction of the Full Federal Court, which is a separate question.
So the first point in relation to the first ground, which is constitutional writs targeted ‑ directed at Justice Steward’s decision, is that his Honour did not ‑ for the reasons the Full Court set out, his Honour did not misconceive his task. The second point we would like to make is that these applications for prerogative writs are considerably out of time and the time limit to seek constitutional writs is two months for mandamus and six months for certiorari.
HIS HONOUR: I am conscious of that, Mr Sharpley, you do not have to deal with it.
MR SHARPLEY: Pardon, your Honour?
HIS HONOUR: I said, I am conscious of the time ‑ ‑ ‑
MR SHARPLEY: Yes.
HIS HONOUR: ‑ ‑ ‑ you do not have to deal with it.
MR SHARPLEY: Yes. Your Honour, we are in a situation where the mandamus is almost a year late, the certiorari is eight months late, and we ‑ your Honour, in our materials we refer to Re Commonwealth; Ex Parte Marks, a decision of Justice McHugh, which said that in delays in that scope, extension should not be allowed except in very exceptional circumstances and the fact that the taxpayer had issued ‑ had exercised their statutory appeal rights in the interim does not matter, and, your Honour, that was held in two decision of Justice Gordon, which was Singh, which is, for the transcript, [2016] HCA 207 at approximately lines 200 to 206, and another decision of Justice Gordon, MZZVK [2017] HCA 027 at lines 259 to 264.
So in Ex parte Marks, a strict line was laid down. The time limits are numbered in the two and six months, the delays here are almost a year and almost eight months, and there is no explanation for the delay; I mean, the taxpayer could and should have sought these. That was my second point. So my first point is there is no excessive error in jurisdiction. My second point was these applications are out of time without explanation for the delay. The third point is that prerogative ‑ constitutional writs, I should say, are discretionary, and one of the grounds on which constitutional writs can be refused in the excess of the discretion of the court is if either no useful result would be achieved, or the hearing of the writ would be futile, and we say that applies squarely in this case.
Even if your Honour was to find that Justice Steward acted in excess of his jurisdiction, quash the decision and remit it for him to reconsider in accordance with law, then his Honour would be asked the question of, well, instead of looking at the amended assessments, I am going to look at the further amended assessments. The taxpayer faces the same task of proving his assessable income, whether it is 166 or 167, and the taxpayer had an opportunity to do that and comprehensively failed. This remittal to his Honour would achieve no different result, you cannot ignore the fact that there has been a hearing, there has been evidence, and there have been findings.
If his Honour was to apply the law, as the taxpayer concedes, aimed at the further amended assessments, instead of the amended assessments, there would be exactly the same result: the taxpayer did not get anywhere near proving his assessable income, because the same underlying issue would arise, under the taxpayer’s construction or the Full Court’s construction. What is your assessable income in that year? The Full Court dealt with this point at paragraphs 53 to 55. They said, look, even if we are wrong about how Part IVC works, it would not have made any difference because the taxpayer would face the same task and he has failed in that task.
Your Honour, the fourth point I wanted to raise, which is another ground for refusing relief on discretionary grounds, and this is the point that your Honour raised with my learned friend, about proceedings like this being used as an alternative to seeking special leave. My learned friend’s submission, as I understood it, was that ‑ and is premised on succeeding on the first point ‑ that the Full Court’s exercise of jurisdiction miscarried somehow leads to a result that this Court either cannot, as it is framed in the taxpayer’s submissions, or should not, consider a special leave application.
We say there are three things wrong with that. The first thing is that a mere assertion by the taxpayer that a court acted in excess of its jurisdiction, a contention that has already been rejected by the Full Court, cannot, without more, simply disable this Court from exercising its section 73 jurisdiction. And that is what is at the moment, it is an assertion, which was not accepted, which has been rejected by the Full Court. So merely asserting that the Federal Court did not exercise its jurisdiction does not lead to a circumstance where this Court loses its section 73 jurisdiction, particularly when there has been a Full Court decision in the meantime. So that is the first point.
Secondly, a decision by the Federal Court, which is a superior court of record, that actually is excess of its jurisdiction, is neither void nor a nullity. And the authority for that is Re Mack, it is a well‑understood principle. As a superior court of record, even decisions in excess of jurisdiction are prima face valid. They are voidable, and not void, and they would not be rendered void until a court such as this Court, with the jurisdiction, ruled on whether the court had acted in excess of its jurisdiction.
HIS HONOUR: Yes.
MR SHARPLEY: So, as it stands, the status of Justice Steward’s decision is, it has been criticised, but it is a decision of a superior court of record, and it has been upheld by the Full Federal Court. The third reason is that in a section 73 appeal, the subject matter is not Justice Steward’s decision. What is being appealed is the Full Court’s decision. Now, the taxpayer contends that because Justice Steward allegedly misunderstood his jurisdiction, it follows that the Full Court misunderstood its jurisdiction, but that is completely wrong. The jurisdiction that Justice Steward was exercising was that conferred by section 14ZZ. The jurisdiction that the Full Court was exercising was that conferred by section 24 of the Federal Court Act, appellate jurisdiction.
The Full Court was not exercising original jurisdiction, it was exercising appellate jurisdiction. Now, in a circumstance where a litigant claims that at first instance the court exceeded its jurisdiction, who then, as this taxpayer chose to, appeals, engages the section 24 jurisdiction. When the Full Court considered the taxpayer’s arguments that Justice Steward had exceeded its jurisdiction, it was not exercising 14ZZ, it was not standing in the shoes of the Commissioner, it was deciding, within the scope of the section 24 power, whether error had been demonstrated on the part of the court below, in particular, error in excess of jurisdiction.
What the Full Court did was squarely within its section 24 jurisdiction. Now, the taxpayer contends, well, it came to a wrong decision. Well, of course they do. That does not mean that the Full Court acted in excess of its jurisdiction, it does not become contaminated by an alleged excess of jurisdiction by the court below. I do not want to labour the point, your Honour, but this subject matter of a special leave application, which the taxpayers could have brought instead of this around about challenge, is not in any way hampered by any consideration that either the first decision is a nullity or that the Full Court’s decision is somehow infected with an excess of jurisdiction.
The Full Court acted squarely within its jurisdiction, and that decision, the rights and wrongs of that decision, are eminently suitable for an application for special leave. Your Honour, I refer to a case that is in our tab, that is Ex Parte Marks, at paragraphs 21 to 24, where this point was discussed. It was not in the context of section 24 appellate jurisdiction, it was a WorkCover case, and it was a different statutory jurisdiction, but the judge made the point that whatever might be said about the first level of decision, the second level, constituted by the Full Federal Court, is exercising a different jurisdiction. So there is absolutely no reason why the taxpayer could and should not have issued an application for special leave to review the decision of the Full Court, at least in respect of this first ground, the 2015/2016 ground.
So for that reason, we say there was no – Justice Steward did not act in excess of his jurisdiction. There are at least three discretionary reasons why one would not grant relief, including that an appeal is available from the decision of the Full Court, and also it follows that to the extent the first ground is also aimed at the Full Court seeking certiorari, that that is misconceived. The Full Court did not act in excess of its jurisdiction, at worst it simply made a wrong decision.
Your Honour, the second subject matter of the appeal ‑ I am sorry, of this proceeding ‑ is set out in the application for constitutional or other writ, and it is at point four, and this is a novel claim. What is sought here is for this Court to issue a writ of mandamus directed to the Commissioner requiring him in effect to issue a further further amended assessment, in effect subtracting 600,000 from the further amended assessment for 2009. This is a novel claim. The relevance of the 600,000 in the Full Court was that the taxpayer argued that the Commissioner, having made the concession of 600,000, the taxpayer had necessarily proven that his income in the 2009 year could not be more than the amount the Commissioner assessed, less 600,000. That is how it was put.
The Commissioner was not ‑ there was nothing like this sort. Now, in this proceeding, the taxpayer, even though my learned friend has made quite a few submissions about it, has not chosen to repeat that point. Now, that point was dealt with by the Full Court at ‑ that was ground 3 below, and paragraph 76, it was rejected. It was submitted that the assessment was excessive to the extent of 600,000, this proceeds on a false premise. The question is not whether the assessment could still be supported by the reasoning used to make the assessment, the question is whether the amount of the assessment was excessive. Unless and until Mr Bosanac had led evidence to show the extent of his income and his tax liability in respect to that income, the only finding to be made was the one made by the primary judge, namely, that the onus had not been discharged by the taxpayer.
Now, the taxpayer did have 39B proceedings below, which were proceeding in parallel with the Part IVC proceedings. My understanding, and my learned junior will correct me, is that those proceedings were concerned with the project do it aspect of the case, that the taxpayer argued he had been wrongfully excluded from an amnesty or concession. The 39B did not include, and was not amended to include, a claim of this type, seeking mandamus, an order that the Commissioner, having made the statement that he accepted that the item of 600,000 was not income, was, as the taxpayer put it, by the counsel for the Commissioner making that statement, not only was that operative in order to reduce the burden on the taxpayer improving his assessable income in that year, but it amounted to either a determination or reassessment of the taxpayer’s income in that year and gave rise to a duty to issue a further further amended assessment on the spot, or within a reasonable timeline, one would assume.
Now, that is not something the taxpayer has ever contended, that was not relief they sought before Justice Steward, it was not relief they sought before the Full Court. In the Full Court, the 600,000 dealt with was in ground 3. This is the first time the Commissioner, as opposed to being a Part IVC respondent, is now a respondent seeking an order for mandamus compelling him to do something. In effect, issue an amended ‑ a further further amended assessment, in an amount equal to the 2009 further amended assessment minus $600,000. And that is a novel claim, and, your Honour, we say that claim should be rejected for a number of reasons as well.
The first point is that the taxpayer’s case, with all due respect, considerably overstates the scope and effect of the concession by the Commissioner’s counsel below. It is variously described as: the Commissioner conceded that the amount of taxable income, set out in the 2009 assessment was wrong; well, that is not the case. It has contended that two items totalling 600,000 were wrongly included as assessable income; well, that is not the case. The Commissioner, having properly determined on consideration of further material the objection decision insofar as it related to the 2009 further assessment was wrong; well, that is not the case. And wrongly imposed a penalty for the deliberate understatement of 600,000 of income, and those statements are made at paragraphs 54, 54, 57, and 58 respectively. None of those statements are correct. What the Commissioner in fact said was ‑ and this is contained in Mr Blow’s affidavit, exhibit RAB‑3, at page ‑ ‑ ‑
HIS HONOUR: Page?
MR SHARPLEY: I am sorry, your Honour, it exhibit RAB‑3, page 185.
HIS HONOUR: Thank you.
MR SHARPLEY: It is transcript 26, point 2 to 29, and the relevant parts, if I can elide:
the Commissioner accepts that the sum of $250,000 –
. . .
which is the subject of item G1 –
. . .
and $350,000, the subject of item H4, were not income.
In particular, I will just give your Honour the transcript references, but the Commissioner, when this issue was raised, went on to make ‑ the Commissioner’s counsel ‑ very clear that that was the extent of the concession. The Commissioner was not conceding that the amount of the assessment was wrong or should be subtracted ‑ or 600,000 should be taken from it. And the three relevant parts, your Honour, are in the same exhibit at page 185, transcript page 6, lines 31 to 35. It was not conceded that the underlying factual foundation as to why those incomes were not income. Further, it is not conceded that the income for that year was excessive by the amount of 600,000, and that is transcript page 14, point 31 through to transcript 15, point 3 and did not accept that the effect of the concession was that the income was excessive for that year at all. That was specifically stated by the Commissioner on two occasions. The first is transcript 7, at lines 5 to 23 and transcript 16 at lines 34 to 17, line 18.
The Commissioner, far from making some sort of assessment or determination that the amount assessed for that year was wrong, specifically and deliberately restricted his concession to saying, when it comes ‑ in effect, when it comes to you proving your assessable income in this year, you do not need to take into account the 600,000 as potential income. Other than that, I maintain my position and I stay by my position. And that finding was ‑ or the effect ‑ the argument of the taxpayer to the contrary was rejected both by Justice Steward and by the Full Federal Court.
So, your Honour, the first – so I was going to make three points in respect of this second part of the case, the mandamus against the Commissioner. The first point was, the Commissioner did not make any such determination or reassessment which could give rise to any such duty. And I also point out, your Honour, at transcript ‑ this is in the ‑ the Commissioner maintained his position that the applicant was required to prove his taxable income, as noted by Justice Steward and by the Full Court. And the reference is the Burrows affidavit. I suppose I should say, your Honour, we rely on the affidavit of Mr Burrows filed in this proceeding.
HIS HONOUR: Yes.
MR SHARPLEY: And exhibit TPB‑15 at pages 237 to 238. The Commissioner maintained his position all the way through that, notwithstanding the 600,000 was not in place, so to speak, that the taxpayer must still prove his assessable income. The second point, your Honour ‑ ‑ ‑
HIS HONOUR: Third. You have given me two already.
MR SHARPLEY: I am sorry, your Honour. All right, well, that would be the third point, your Honour. The third point is also a time point, and, your Honour, that is, if the duty alleged arose on senior counsel for the Commissioner making this statement, that statement was made on 9 April and an application for mandamus, two‑month expiry, would have expired on 9 June. This application was filed on 14 August and so it is 14 months out of date. Now, if the taxpayer thought that what senior counsel thought gave rise to a duty on the Commissioner to reassess and reissue, the taxpayer had two months to bring an application for mandamus, or to amend their section 39B application below.
But this proceeding is the very first time this claim for mandamus has been made, it is 14 months out of date, and we rely on the authorities I have previously referred to, your Honour, that it would be a very exceptional case for this Court to exercise a jurisdiction where so many months had passed.
Your Honour, the last point, another discretionary point, is that it ‑ and it is tangential to that point ‑ is that there is authority for the proposition that it is an abuse of process for a litigant to raise for the first time in an
application for constitutional writs in this Court matters that could and should have been run in the courts below, and we rely on the decision of Justice Edelman in Hii, H‑i‑i, made recently this year, which is referred to in our authorities.
This claim for mandamus, if it was thought to have legs, could have been run in 39B, or in separate proceedings well within the time limits. It has now been brought 14 months out of time, and there is no explanation for the delay. This claim is not something that was raised in the Full Court, so the taxpayer cannot say, well, we held off on doing this while we ran it in the Full Court; they ran a different point about the 600,000 in the Full Court. This is collateral and tangential, though it would, from the taxpayer’s point of view, perhaps achieve the same objective of getting the assessment reduced by $600,000. So we say it is all too late, it is based on over‑egging and over‑reading a statement that the Commissioner made, and as a matter of discretion, the taxpayer ‑ litigant should not be raising claims of this nature in proceedings in this Court for the first time. If your Honour pleases, those are the submissions for the Commissioner.
HIS HONOUR: Thank you, Mr Sharpley. Is there anything in reply, Mr Robertson?
MR ROBERTSON: Yes, your Honour. In relation to the first principle point, the question of interpretation for the Court in relation to what assessment under 14ZZO means, is whether it means, as my learned friend says, the assessment objected to under 14ZY ‑ ‑ ‑
HIS HONOUR: Yes.
MR ROBERTSON: ‑ ‑ ‑ or it means the assessment referred to in section 350‑10 – which is conclusive evidence of the taxpayer’s liability to the Commonwealth at the time of the proceedings. We say that the High Court authority is overwhelming, that it is the latter and that, given the constitutional underpinnings referred to by the High Court in W.R. Carpenter that I have referred to in written submissions, makes perfect sense and is a construction which this Court should prefer due to section 15A of the Acts Interpretation Act.
What underpins – there are two problems with my learned friend’s submissions that he made to support his position and it is based on two false premises. The first is that there can be a separate objection and appeal rights in relation to a separate part of a taxpayer’s annual income liability and that Justice Steward was seized of the amounts under the amended assessments and that the taxpayer had to separately object against the further amended assessments, receive an objection decision, appeal to the Federal Court and have those matters joined up together.
HIS HONOUR: Yes.
MR ROBERTSON: That is the first premise that underlines his submission. The second premise is that the objection process is not an assessment process.
HIS HONOUR: Yes.
MR ROBERTSON: I will deal with the first proposition first. Your Honour correctly pointed out that there can never be one annual income tax assessment at one time. The genesis of that proposition arose in the context of whether a taxpayer could hive‑out a second assessment for a year and start and commence separate objection and appeal rights in relation to a second chunk. That was rejected firmly by Justice Isaacs in Hoffnung’s Case, by reference to his decision in Hooper’s Case and these authorities are in the proceedings.
Indeed, in the Full Court, the Commissioner, in fact, drew the Court’s attention to Hoffnung’s Case and Cadbury‑Fry‑Pascall which was relied on by the Full High Court for that very proposition, that an assessment – there is only ever one assessment – it exists as altered from time to time. There is not an assessment with an additional chunk. Obviously, there cannot be under our new assessment procedure where we have refundable tax offsets. Your Honour will recall Thomas Nominees. In Thomas Nominees, the taxpayer was assessed on the basis that he owed tax and he objected on the basis that he was entitled to refundable tax offsets and the Commonwealth owed him money.
So, if my learned friend is right, we have the strange situation where the taxpayer would seize his objection decision and he has to show that an assessment to liability is wrong when, in fact, the only issue in dispute is about franking credits and whether the Commonwealth owes him money. The word “excessive” is a nonsense.
So, what this Court in Trautwein illustrates, is that when an assessment – when an amendment is made and the court is seized of a matter, what comes before the court is the new amount of money that is owing to the Commonwealth – the one amount – and the court then examines what issues a taxpayer can properly agitate in that court in respect of the one item of liability. There cannot be two separate proceedings, or three separate proceedings, or four which are all joined together – it is a nonsense and has been rejected as a nonsense.
Another authority which we added was the West Australian Trustee Case where the Court made it clear that there was only ever one amended assessment and that an objection against an earlier assessment that had been superseded was incompetent. So, one objects to what is there. One agitates the Federal Court with what is there. It may change from time to time but all the issues are dealt with in the one proceeding. So, Justice Steward was wrong in that respect.
The second plank in the Commissioner’s argument is that the objection process is not an assessment process. It is exactly what it is. The taxpayer’s liability to tax is subject to an executive administrative continuum where the Commissioner assesses, the taxpayer draws the Commissioner’s attention to certain aspects of the assessment that he or she thinks is wrong. The Commissioner reassesses by reference to the taxpayer’s objection and applies the Act again to the new facts and new material that the taxpayer has put to the Commissioner. The Commissioner then makes an objection decision, issues a new assessment, and then the taxpayer has the right to go to the AAT and seek a further executive determination – a further reassessment of his or her liability to tax.
Your Honour will recall the well‑worn expression that the AAT stands in the shoes of the Commissioner. That comes from the decision of Justice Kitto in Mobil Oil. The AAT stands in the shoes of the Commissioner to reassess the taxpayer in accordance with the taxpayer – within the confines of the taxpayer’s objection because that is what the Commissioner does on objection, he reassesses the taxpayer in the confines of the taxpayer’s objection.
If High Court authority is needed on the point, I would refer you to Trautwein which is at tab 8 of the CLR – 56 CLR 63 – where the Commissioner considered the taxpayer’s objection and allowed the objection, in part, by reassessing the taxpayer on a new principle. That is at page 94, in Chief Justice Latham, and we have the joint judgment of Justices Dixon and Evatt where, at page 109, point one – and this is referring to a situation where the Commissioner has rendered a decision on objection and issued an amended assessment. As a result:
each assessment was a complete rewriting or reconstruction of the account for the year. Moreover, the rewriting was treated by the commissioner, not only as an exercise of the authority conferred by –
the power of amendment in section 170:
but also as a means of performing his duty under –
what is now section 14ZY:
which requires him to consider an objection and disallow or allow it either wholly or in part.
There is statutory recognition in Part IV of the Income Tax Assessment Act (1936) – that which is the assessment part ‑ and section 169A(3). If I can take your Honour to that, which will be in the application in the authorities – sorry, the application for constitutional relief, at page 29 going over to page 30 ‑ subsection (3), 169A(3) – this is in Part IV, “returns and statements” on page 30 of the application:
In determining whether an assessment is correct, any determination, opinion or judgment of the Commissioner made, held or formed in connection with the consideration of an objection against the assessment shall be deemed to have been made, held or formed when the assessment was made.
That deals with what we now have as a self‑assessment regime where someone puts a tax return in and gets a deemed assessment. Your Honour will know that many aspects of liability depend on the Commissioner’s own formation of determinations, opinions or judgment. But, obviously, the Commissioner does nothing in fact when a company puts a tax return in and gets a deemed assessment.
The Commissioner comes along, looks at it, amends it, the taxpayer objects. The Commissioner – his duty is to determine that the assessment is correct by reference to the objection that is made, looks at all the new information and exercises the statutory discretions that are opposed in him and that consideration, on objection, is deemed to have been held or formed when the assessment was formed and that is because the objection decision process is a reassessment process.
HIS HONOUR: I understand.
MR ROBERTSON: More pragmatically, here we have an amended assessment in the 2009 year for $1 million. We have a further amended assessment of $1.5 million. The only way to get from $1 million to $1.5 million is if the Commissioner carries out the process of reassessing the taxpayer. He does not pluck an extra 500,000 out of the air, he reassesses.
So, the reason I make this point is because the Full Federal Court accepted my learned friend’s proposition to the contrary but, ultimately, there is only one assessment. There is an executive continuum. The court is only concerned with the Executive’s final determination of liability, not anything before that. Anything before that, like every other administrative decision, is irrelevant and not a concern of the court. So, Justice Steward did not have jurisdiction to determine what was a superseded – the correctness of a superseded assessment. The court has confused notices – pieces of paper – with the one assessment process.
HIS HONOUR: I understand.
MR ROBERTSON: In relation to my learned friend’s point about the Full Federal Court and the exercise of its jurisdiction, of course its power was an appellate power under section 24 of the Federal Court Act. But, the point that, your Honour, I was making was that the exercise of its appellate jurisdiction was a rehearing of the appeal against the objection decision.
HIS HONOUR: It was, but not de novo.
MR ROBERTSON: Not de novo, but it had to make its own final decision by reference to a review of the record in the Fox ‑ ‑ ‑
HIS HONOUR: He is right, is he not? It was to do so in the exercise of section 24 appellate jurisdiction and not in the exercise of the original jurisdiction of Justice Steward.
MR ROBERTSON: Yes, and the point that I am trying to make is that the errors of the Full Court in misidentifying the tax liability were such that it could not reach any original determination of the correctness of the actual liability to the Commonwealth.
HIS HONOUR: It could not, on your argument, reach a correct interpretation but, nonetheless, it could reach one in the exercise of its appellate jurisdiction.
MR ROBERTSON: Yes, it could, but it did not. It said that ‑ ‑ ‑
HIS HONOUR: So, Justice Steward was right.
MR ROBERTSON: Justice Steward was right.
HIS HONOUR: Possibly that is wrong but, nonetheless, it was a decision at least open to it in the exercise of its ‑ ‑ ‑
MR ROBERTSON: In the exercise of its appellate jurisdiction. My point being, that the High Court’s appellate jurisdiction to determine final liability to tax under Part IVC could not be advanced in a special leave application.
HIS HONOUR: Yes, I understand.
MR ROBERTSON: That is the point.
HIS HONOUR: All right.
MR ROBERTSON: In relation to time limits, the Full Court was asked by me to quash the decision of Justice Steward but the word “squash” appears in the transcript, your Honour, not “quash”. But, I promise you, I meant “quash”.
HIS HONOUR: Thank you.
MR ROBERTSON: If the Court pleases, that is the submissions for the ‑ ‑ ‑
MR SHARPLEY: Your Honour, if I might have the indulgence of the Court just to add a couple of references that my industrious junior found while I was on my feet.
HIS HONOUR: Yes.
MR SHARPLEY: I referred to a case called Re Macks ‑ ‑ ‑
HIS HONOUR: Just a moment, please. Yes, you did – paragraphs 21 and 24.
MR SHARPLEY: Yes, (2004) 204 CLR 158 ‑ ‑ ‑
HIS HONOUR: Yes.
MR SHARPLEY: Your Honour, there are two cases in this case. There is Re Marks ‑ ‑ ‑
HIS HONOUR: Yes.
MR SHARPLEY: ‑ ‑ ‑ and there is Re Macks – which is in our list – and Re Macks with a “c” instead of an “r”.
HIS HONOUR: Very well.
MR SHARPLEY: Re Macks is the one that stands for the proposition that the Federal Court is a court of superior records, decisions are not nullities. The relevant passages are Justice Gaudron at 46 to 57 and Justice Gleeson at 20 to 23.
HIS HONOUR: Thank you.
MR SHARPLEY: Secondly, my learned junior also point also pointed out that I left out one transcript reference about what was said by senior counsel below and that was at paragraph 18 of the transcript, at line 4 – quote, unquote, “He needs to prove his taxable income”. Your Honour, with your leave, I would like to have 30 seconds to just address two matters my learned friend raised.
HIS HONOUR: No, that is enough, I think, Mr Sharpley.
MR SHARPLEY: As your Honour pleases.
HIS HONOUR: I am obliged to counsel for their assistance. I propose to reserve my decision. Adjourn sine die.
AT 4.21 PM THE MATTER WAS ADJOURNED
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Tax Law
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Administrative Law
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Civil Procedure
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Res Judicata
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