Coco v Commissioner of Taxation
[1993] FCA 286
•30 APRIL 1993
Re: SANTO COCO
And: DEPUTY COMMISSIONER OF TAXATION and COMMISSIONER OF TAXATION
No. QG207 of 1992
FED No. 286
Number of pages - 7
Administrative Law
(1993) 93 ATC 4330
(1993) 114 ALR 223
(1993) 25 ATR 331
(1993) 42 FCR 219
(1993) 30 ALD 882 (extract)
COURT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J(1)
CATCHWORDS
Administrative Law - judicial review - objection to competency - review of decision of the Deputy Commissioner of Taxation refusing to vary the amounts of PAYE instalments to be deducted from the applicant's wages - whether the decision was one to which the Administrative Decisions (Judicial Review) Act 1977 applies - whether it was a decision 'making or forming part of the process of making, or leading up to the making of, assessments or calculations of tax' within the meaning of paragraph (e) of Schedule 1 of the Act - meaning of 'assessment' and 'calculation' of tax.
Administrative Decisions (Judicial Review) Act 1977; Schedule 1, paragraph (e)
Income Tax Assessment Act 1936; ss. 6(1), 17, 221A, 221C, 221D, 221F, 221G, 221H and 221YB
Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243
Balnaves v Deputy Federal Commissioner of Taxation (1985) 8 FCR 589
Briggs v Deputy Commissioner of Taxation; Ex parte Briggs (1986) 69 ALR 185
Clyne v Deputy Commissioner of Taxation (1986) 14 FCR 304
Constable Holdings Pty Ltd v Federal Commissioner of Taxation (1986) 11 FCR 136
Deputy Commissioner of Taxation v Clarke and Kann (1984) 1 FCR 322
Independent Holdings v Deputy Commissioner of Taxation 92 ATC 4599
Smorgon v Australia and New Zealand Banking Group Ltd and Ors (1976) 134 CLR 475
Stergis v Federal Commissioner of Taxation 89 ATC 4442
The King v Deputy Federal Commissioner of Taxation (S.A.); Ex parte
Hooper (1926) 37 CLR 368
HEARING
BRISBANE, 21 April 1993
#DATE 30:4:1993
Counsel for the Applicant: Mr J. Batch
instructed by: Minter Ellison Morris Fletcher
Counsel for the Respondents: Mr J.K. Bond
Instructed by: The Australian Government Solicitor
ORDER
THE COURT ORDERS THAT:
1. The objection to competency be overruled.
2. The respondents in the principal proceedings pay the costs of the notice of objection to competency of the applicant in the principal proceedings, to be taxed if not agreed.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
SPENDER J This is a notice of objection to competency filed by the respondents in respect of an amended application for an order of review under the Administrative Decisions (Judicial Review) Act 1977, (the 'ADJR Act'). The applicant, Santo Coco, sought to review the decision of the Deputy Commissioner of Taxation failing or refusing to vary the amount of PAYE deductions following an application by Mr Coco to the Commissioner of Taxation under s. 221D of the Income Tax Assessment Act 1936 (the 'Act'). The amended application for an order of review, in the alternative, sought review of the decision of the Deputy Commissioner failing or refusing to give due consideration to that application.
On or about 11 November 1992 a member of the firm Coopers and Lybrand, the accountants for Mr Coco, forwarded to the Australian Tax Office (the 'ATO') an application for variation of tax instalment deductions on behalf of Mr Coco. The application specified the reason for it as being "interest deductions on loan to purchase dividend paying shares will exceed total assessable income".
By letter dated 16 November 1992 the Deputy Commissioner of Taxation replied, saying in part:
"You are advised that consideration cannot be given to this application until all outstanding debts are cleared with this office. At such time a fresh application should be made. "
On or about 15 December 1992 an officer of the Brisbane branch of the ATO advised Mr Coco's accountants that a decision had been made not to alter the position from the letter of 16 November 1992, and that the ATO had been considering this issue and were preparing a tax ruling on the point.
The notice of objection to competency asserts that the decision refusing the applicant's application under s. 221D to vary PAYE deductions is not a decision to which the ADJR Act applies, being a decision which falls within the exclusion contained in paragraph (e) of Schedule 1 of that Act.
Schedule 1 to that Act lists a number of classes of decisions which are not decisions to which the Act applies. They include, in paragraph (e) of the Schedule:
"(D)ecisions making or forming part of the processing of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty, or decisions amending, or to amend, assessments or calculations of tax, charge or duty, under any of the following Acts:
... Income Tax Assessment Act 1936..."
Mr J.K. Bond, counsel for the respondents, submitted that the decision is one which either forms part of the process of making or leads up to the making of, assessments or calculations of tax under the Act.
Mr J Batch, counsel for Mr Coco, submitted that the decision in question is not one forming part of the process of making, or leading up to the making of assessments or calculations of tax, but a decision relevant to the collection of tax. He submitted that a decision under s.221D is not part of the assessment of tax process.
It is necessary to have regard to the statutory framework.
By s.6(1) of the Act, "assessment" relevantly means:
"(a) the ascertainment of:
(i) the amount of taxable income; ...
and of the tax payable on that taxable income..."
Section 17 of the Act provides:
"Subject to this Act, income tax at the rates declared by the Parliament is levied, and shall be paid, for the financial year that commenced on 1 July 1965 and for each succeeding financial year, upon the taxable income derived during the year of income by any person, whether a resident or a non-resident."
Section 221D is contained in Division 2 of Part VI of the Act which Division is headed "Collection by Instalments of Tax on Persons other than Companies."
By s.221A in that division:
"'(T)ax payable by the employee' means income tax that is or may become due and payable by an employee under an assessment made or to be made on a return that he has furnished, or has been or may be required to furnish, or under an assessment made or to be made in default of any such return."
The 'tax' referred to in this definition includes both income tax that is due and payable, or tax that may become due and payable under an assessment to be made.
Section 221C(1) provides:
"For the purpose of enabling the collection by instalments from employees of income tax the regulations may prescribe rates of deductions to be made by employers from payments of salary or wages that the employees receive or are entitled to receive in respect of a week or part of a week."
The introductory words "For the purpose of enabling the collection by instalments from employees of income tax" are important.
Section 221C(1A) obliges the employer to make the deduction at the rate prescribed at the time of paying the salary or wages. Section 221D(1), which is central to this application, is in the following terms:
"Notwithstanding anything contained in section 221C, the Commissioner may vary the amounts to be deducted from the salary or wages of an employee or a class of employees for the purpose of meeting the special circumstances of any case of class of cases."
Section 221D(2) obliges the Commissioner to give notice to the employer of any variation pursuant to s.221D(1) and the subsection obliges the employer thereafter to make deduction in accordance with the variation. Sections 221F and 221G provide for the creation by the employer of either a group certificate or a tax stamp sheet which records the amounts of salary or wages paid and the amounts of tax deductions made and obliges the employer to remit the amount of the deductions made to the Commissioner within certain time limits.
It seems Mr Coco was employed by a group employer so that the group certificate regime applied to him.
Section 221H(1) obliges the employee to forward the group certificate or tax stamp sheet in respect of salaries or wages received by the employee in any year of income to the Commissioner with his tax return, which the employee is required under s.161 to furnish in respect of that year of income.
The Deputy Commissioner relies on s.221H(2) which provides:
"Where the Commissioner receives from an employee a tax stamps sheet or a group certificate, or both, in respect of salary or wages of the employee from which deductions have been made in any year of income, and the tax payable by the employee in respect of that year
of income has been assessed, the Commissioner shall-
(a) if the sum of the amount represented by the face value of the tax stamps duly affixed to any such tax stamps sheet and the amount of the deductions shown in any such group certificate does not exceed the tax payable by the employee in respect of that year of income - credit that sum in payment or part payment of that tax;
(b) if that sum exceeds that tax - credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess;
or
(c) if he is satisfied that there is no tax payable by the employee - pay to the employee an amount equal to that sum."
It is to be noted that the consequences specified in (a), (b) and (c) of that section occur only after "the tax payable by the employee in respect of that year has been assessed" (my emphasis).
In Deputy Commissioner of Taxation v. Clarke and Kann (1984) 1 FCR 322, the Full Court (Bowen CJ, Lockhart and Fitzgerald JJ) said at 325:
"Because para (e) plainly intends to exclude form review some decisions which are made prior to assessment, it must be taken to refer not only to assessments which have been made but to those which will be made.
The decisions which are excluded from review by para (e) of the Schedule are decisions making assessments, decisions forming part of the process of making assessments, and decisions leading up to the making of assessments. Each category provides for some extension of the former, but overall effect is to emphasise the essential need for a connectionbetween the decision and an assessment."
The Full Court later said:
"A decision is not a decision leading up to the making of an assessment unless the making of an assessment has followed or will follow from the decision."
The Court concluded that a decision to issue s.264 notices and to refuse the request for an extension of time were held to be outside paragraph (e) of Schedule 1. The Court concluded there was no sufficient relationship between the demands for information and the making of an assessment to attract paragraph (e) of the Schedule. The Court said in a matter which has a present significance at 326:
"It was argued for the respondent that that paragraph only excludes from review those of the appellant's decisions which
are
are otherwise reviewable under income taxation legislation. The absence of an alternative method of review under the income tax legislation may not be immaterial to a consideration whether a decision is within para. (e) but, in the circumstances, it is unnecessary to consider that question further."
The notice of objection to competency really turns on what is an "assessment" or "calculation" of tax. In Smorgon v. Australia and New Zealand Banking Group Ltd and Ors (1976) 134 CLR 475, Stephen J considered the word "assessment" in s. 264 of the Act dealing with the power of the Commissioner to obtain information. His Honour rejected the narrow meaning contended for by the taxpayer, namely, the completed process which has resulted in the attachment of a liability upon a taxpayer, in favour of the definition in s.6(1) of the Act where "assessment" is defined as "the ascertainment of the amount of taxable income ... and the tax payable thereon." Stephen J said at 480:
'... the use of the word in par.(b) appears to me to be one descriptive of the entire process whereby, from the interaction of taxable income and allowable deductions, there first emerges a taxpayer's taxable income, from which his tax may then be calculated and notified to him. In R. v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper
(1926) 37 CLR 368, at p 373, Isaacs J referred to part of this process as "the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer"; see also Batagol v. Federal Commissioner of Taxation (1963) 109 CLR 243, per Kitto J (1963) 109 CLR, at p 251, and per Owen J (1963) 109 CLR, at pp 255-257.'"
Owen J in Batagol said at 256-257 that the conclusions reached in that case did not run counter to the statement of Isaacs J in The King v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper (1926) 37 CLR 368. There Isaacs J had said at 373:
"An 'assessment' is not a piece of paper: it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances ... of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification therof called 'a notice of assessment'
... But neither the paper sent nor the notification it gives is the 'assessment'. That is and remains the act or operation of the Commissioner."
See also Independent Holdings Ltd v. Deputy Commissioner of Taxation 92 ATC 4599 and Briggs v. Deputy Commissioner of Taxation; Ex parte Briggs (1986) 69 ALR 185, particularly at 192.
The central submission of the Commissioner is that a decision under s.221D directly impacts on the calculation of the instalments of income tax during a tax year and is one of the steps forming part of the process of making or leading up to the making of the eventual assessment or calculation of tax under the Act for that year. This contention is disputed on behalf of Mr Coco. It was submitted on his behalf that the decision as to the calculation of instalments of income tax under s. 221D is not one of the steps forming part of the process leading up to the making of an assessment or calculation of tax: the rates struck by the remitting employer have nothing to do at law with either "the ascertainment of the amount of taxable income" of the taxpayer or of "the tax payable" on that taxable income.
It is clear that decisions of an administrative character, but which have no sufficient connection with assessment or calculation of tax, do not fall within paragraph (e). The request to issue a s.264 notice and the refusal of a request for an extension of time for compliance with a notice in Clarke and Kann (supra) are examples. Balnaves v. Deputy Federal Commissioner of Taxation (1985) 8 FCR 589 is another which concerned a decision to grant or withhold an extension of time for lodgment of a return. In Constable Holdings Pty Ltd v. Federal Commissioner of Taxation (1986) 11 FCR 136, a decision refusing a request for extension of time for the dissolution of a company under s.47(2B) was held to be outside paragraph (e) of Schedule 1 of the ADJR Act.
The operation of Division 2 of Part VI of the Act was summarised by Hill J in Stergis v. Federal Commissioner of Taxation 89 ATC 4442 where his Honour said at 4450:
"Division 2 of Pt VI of the Act is at the heart of the system of PAYE tax and has been in substantially its present form since the Division was substituted by Act No. 63 of 1947. The scheme of the Division is that an employer who pays "salary and wages" as defined in sec.221A(1) is required to deduct an amount prescribed by regulation from those salaries or wages unless exempted from the requirement so to do and to pay that amount to the Commissioner. The manner of payment depends upon whether the employer is or is not registered as a group employer under sec.221F. If, as is the case with the corporate applicants in the present case, the employer is registered as a group employer it will be obliged not later than the seventh day of the month next succeeding the month in which it is required to make the deduction to pay the totality of the amounts to be deducted by it to the Commissioner with a return which sets out the amount of deductions in the preceding month. If the person is not registered as a group employer he is required to keep a tax deduction sheet and to purchase, not later than the last day of each successive period of four weeks, tax stamps equal to the amount of deductions which he has made. The tax deducted and paid in this way to the Commissioner is an advance payment on account of the employee's ultimate liability to income tax so that when the employee lodges his return he is required under sec.221H(1) to enclose either the tax stamp sheet or the group certificate which the employer is obliged to furnish him and the Commissioner is obliged to credit the tax deducted against the employee's liability or, if the amount deducted exceeds the ultimate liability, to refund to the employee the amount of any tax ultimately found to have been overpaid. The requirement that tax be deducted and remitted to the Commissioner by a group employer, or be paid for weekly by way of tax stamps, ensures to the Government a continuous stream of revenue to finance the outgoings of the Commonwealth. To protect this stream of revenue the failure to deduct or the failure to remit gives rise to penalties."
His Honour speaks of "the tax deducted and paid in this way to the Commissioner" but characterises it as "an advance payment on account of the employer's ultimate liability to income tax".
Both parties before me relied in part, and on different parts, of the judgment of Jackson J in Clyne v. Deputy Commissioner of Taxation (1986) 14 FCR 304 where his Honour held that the process of estimation and calculation of provisional tax payable by the Commissioner referred to in s.221YDA(4) involved a step forming a part of the process of making or leading up to the making of a calculation of "an amount payable" under the Act. However, his Honour found that paragraph (e) of Schedule 1 of the ADJR Act did not apply because provisional tax was not a "tax" under the Act within the context of paragraph (e) of Schedule 1 of the ADJR Act, and therefore a determination under s.221YDA(4) was not a decision which was a calculation of tax under the Act.
Section 221YB(1) is in the following terms:
"For the purpose of enabling the income tax that will be payable by taxpayers to whom this section applies to be collected during the financial year for which income tax is levied, a person (other than a relevant entity within the meaning of Division 1B) is liable to pay provisional tax in accordance with this Division..."
The terms of this section are to be contrasted with the terms of s.221C earlier set out, and in particular the words "for the purpose of enabling the income tax that will be payable by taxpayers ... to be collected" with the words "for the purpose of enabling the collection by instalments from employees of income tax". His Honour said at 307:
"I would have thought that the opening words of s.221YB(1) indicate that a distinction is to be drawn between income tax payable under the Income Tax Assessment Act and the provisions made by the Act for payment of that income tax, one of the latter provisions being the requirement that the tax be paid provisionally in advance."
The submissions for the taxpayer in the present case seek to draw a distinction between the assessment of income tax payable under the Act and provisions made by the Act for payment or collection of that tax, it being submitted that the pay-as-you-earn scheme in Division 2 of Part VI is directed at the collection and payment of income tax and not its ascertainment or calculation. His Honour concluded at 308 that:
"(I)t seems to me that provisional tax is what its name implies, namely a requirement to make payments provisionally on account of a tax calculated in accordance with other provisions of the Act."
While it may be accepted that a decision of the Commissioner under s.221D is a step forming part of the process of making or leading up to the making of a calculation of an amount payable under the Act, in my opinion the calculation of the PAYE instalments should not be regarded as a "calculation of tax" or the "assessment of tax" under the Act. It therefore follows that in my opinion paragraph (e) of Schedule 1 of the ADJR Act has no application, and the notice of objection to competency should be dismissed.
In summary, my opinion is that the procedure outlined in s.221H(2), namely the determination of the amount that a taxpayer has to pay, or alternatively the amount which the taxpayer is to be paid, reached after reconciling the amount of tax payable by a taxpayer with the amounts of the tax stamps or the amounts of the deductions shown in the taxpayer's group certificate, is not an assessment of tax or calculation of tax under the Act. The assessment of tax has been made before that arithmetical process.
This conclusion accords with the definition of "assessment" of tax in s.6 of the Act and is fortified in my opinion by the words "has been assessed" in s.221H(2).
I overrule the objection of competency with costs.
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