EE&C Pty Ltd as Trustee for the Tarcisio Cremasco Family Trust and Commissioner of Taxation (Taxation)
[2018] AATA 4093
•30 October 2018
EE&C Pty Ltd as Trustee for the Tarcisio Cremasco Family Trust and Commissioner of Taxation (Taxation) [2018] AATA 4093 (30 October 2018)
Division:Taxation and Commercial Division
File Numbers: 2014/5476, 2016/2759, 2016/2760, 2016/2761 and 2016/2762
Re:EE&C Pty Ltd as Trustee for the Tarcisio Cremasco Family Trust (ABN 33 968 676 506)
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President S A Forgie
Date:30 October 2018
Place:Melbourne
The Tribunal decides that:
1. the applicant did not make valid objections to the respondent in respect of any of the years of income in issue;
(1)therefore, the respondent has not made reviewable objection decisions and is not deemed to have made reviewable objection decisions;
2. the Tribunal has no jurisdiction to consider the applications lodged by the applicant; and
3. the applications are dismissed.
....[sgd]................................................................
S A FORGIE
Deputy President
TAXATION – PRACTICE AND PROCEDURE – where parties entered into Deed of Settlement – where decision made under s 42C of the Administrative Appeals Tribunal Act 1975 – whether applicant waived right to object – whether power of Tribunal exhausted – no valid objection lodged – no objection decision made – Commissioner not deemed to have made a decision – Tribunal has no jurisdiction
Legislation
Administration Appeals Tribunal Act 1975 ss 25, 29, 34D, 42C, 43, 44
Administrative Decisions (Judicial Review) Act 1977
Commonwealth of Australia Constitution Act 1900 ss 51, 61
Income Tax Assessment Act 1936 ss 8, 99A, 161, 162, 166, 166A, 169A, 170, 170A, 170AA, 175A, 204, 251
Sales Tax Assessment Act (No 1) 1930 s 4
Taxation Administration Act 1953 ss 3A, 14ZL, 14ZQ, 14ZR, 14ZU, 14ZV, 14ZW, 14ZX, 14ZY, 14ZYA, 14ZZ, 14ZZL, Part IVC
Tax Laws Amendments (Improvements to Self Assessment
Tribunals Amalgamation Act 2015
Cases
Australian Communist Party v The Commonwealth [1951] HCA 5; (1951) 83 CLR 1
Australian National University v Burns [1982] FCA 191; (1982) 43 ALR 25; (1982) 64 FLR 166; (1982) 5 ALD 67
Australian Wool Testing Authority Ltd v the Commissioner of Taxation [1990] FCA 361; (1990) 26 FCR 171; (1990) 96 ALR 756; (1990) 21 ATR 877
Brown v Federal Commissioner of Taxation [1999] FCA 563; (1999) 99 ATC 4516; (1999) 42 ATR 118
Cox v Deputy Federal Commissioner of Land Tax (Tasmania) [1914] HCA 3; (1914) 17 CLR 450; (1914) Argus LR 166
Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432
Deputy Federal Commissioner of Taxation v Brown [1958] HCA 2; (1958) 100 CLR 32
Deputy Federal Commissioner of Taxation (NSW) v Chamberlain (1990) 26 FCR 221; (1990) 93 ALR 729; (1990) 21 ATR 133
Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640; (2014) 306 ALR 25
Federal Commissioner of Taxation v Australia & New Zealand Savings Bank Ltd [1994] HCA 58; (1994) 181 CLR 466; (1994) 125 ALR 213; (1994) 29 ATR 11
Federal Commissioner of Taxation v Brown [1999] FCA 1198; (1999) 42 ATR 672
Federal Commissioner of Taxation v McGrouther [2015] FCAFC 34; (2015) 229 FCR 466
Formosa v Secretary, Department of Social Security [1988] FCA 291; (1988) 46 FCR 117; (1988) 81 ALR 687; 9 AAR 260; (1988) 15 ALD 657
Grofam Pty Ltd v Federal Commissioner of Taxation [1997] FCA 660; (1997) 36 ATR 493
Hutchins v Deputy Federal Commissioner of Taxation [1994] FCA 1200; (1994) 123 ALR 133; (1994) 29 ATR 52
MacCormick v Federal Commissioner of Taxation [1984] HCA 20; (1984) 158 CLR 622; (1984) 52 ALR 53; (1984) 15 ATR 437
Minister for Immigration and Ethnic Affairs v Kurtovic [1990] FCA 22; (1990) 21 FCR 193; (1990) 92 ALR 93
Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597; (2002) 67 ALD 615; (2002) 187 ALR 117; (2002) 76 ALJR 598; [2002] HCA 11
Precision Pools Pty Ltd v Federal Commissioner of Taxation [1992] FCA 445; (1992) 37 FCR 554; (1992) 109 ALR 679; (1992) 24 ATR 43
Queensland Trustees Ltd v Fowles [1910] HCA 51; (1910) 12 CLR 111
Re Adams and the Tax Agents' Board (1976) 1 ALD 251; (1976) 12 ALR 239; (1976) 7 ATR 87
Re Cilli's Objection (1970) 15 FLR 426; (1970) 19 LGRA 331; [1970] ALR 813
Re Trustee for Confidential Trust and Commissioner of Taxation [2013] AATA 682; (2013) 138 ALD 409; (2013) 92 ATR 730; (2013) 61 AAR 215
Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422; (1983) 45 ALR 265
The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394; (1990) 95 ALR 321
Trajkovski v Telstra Corp Ltd [1998] FCA 169; (1998) 81 FCR 459; (1998) 153 ALR 248; (1998) 27 AAR 21
Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129; (2012) 293 ALR 241
REASONS FOR DECISION
Deputy President S A Forgie
EE&C Pty Ltd (EE&C), which is a company incorporated in Australia,[1] was named Everest Engineers & Consultants Pty Ltd between 4 August 1981 and 2 February 2015. At all material times, it has been the Trustee for the Tarcisio Cremasco Family Trust (ABN 33 968 676 506) (TCF Trust). The TCF Trust was settled by a Deed of Settlement dated 17 August 1981.[2] Between 2007 and 2011, EE&C and the Commissioner of Taxation (Commissioner) were in dispute about the calculation of EE&C’s taxable income in the years ending 30 June 1999 to 2005[3] and the efficacy of certain distributions that EE&C purported to make to Minesco Pty Ltd (MPL) as trustee of the Façade Unit Trust and MN Pty Ltd (MN) in those years. On or about 6 December 2007, the Commissioner issued notices of assessment for the 2002, 2003 and 2005 years.[4] EE&C objected to those notices of assessment on 29 January 2008.[5] When the Commissioner disallowed its objections, EE&C applied to the Tribunal for review of his objection decisions.[6]
[1] ACN 005 884 177
[2] Documents lodged on behalf of the Commissioner on 1 August 2016 (Commissioner’s documents);Tab 2.
[3] The 1999 year, 2000 year, 2001 year, 2002 year, 2003 year, 2004 year and 2005 year.
[4] Commissioner’s documents; Tabs 4, 5 and 6
[5] Commissioner’s documents; Tab 7
[6] Application Nos. 2009/4927-8, 2009/4929-30 and 2009/4931-2
Following negotiations between them from late 2009 to early 2011, EE&C and the Commissioner reached an in-principle settlement of their dispute and signed a Minute of Terms of Agreement on 18 January 2011.[7] A differently constituted Tribunal made a decision in accordance with s 42C(1) of the Administrative Appeals Tribunal Act 1975 (AAT Act) on 23 March 2011 setting aside the objection decisions under review and substituting other decisions.[8] They entered a Deed of Settlement dated 23 March 2011 to resolve their dispute (Deed of Settlement). When the Commissioner issued original income tax assessments, amended income tax assessments and shortfall penalty assessments to TCF Trust in respect of the seven years of income as required by cl 2.2 of the Deed of Settlement, EE&C lodged documents it described as “objections”. The Commissioner declined to make a decision under s 14ZY of the Taxation Administration Act 1953 (TAA) in respect of those documents on the basis that they were not valid objections.
[7] Affidavit of Mr Rodney Cairnduff sworn on 28 July 2016; Annexure RC-3
[8] See [23] below
EE&C has applied to the Tribunal on two bases. One is that, in respect of four years of income, the Commissioner is deemed to have made a decision following EE&C’s service of a notice under s 14ZYA(3) of the TAA. The other, in respect of the remaining three years of income – 2002, 2003 and 2005 , is that the Commissioner has, by not regarding EE&C as having made valid objections, refused to extend the time within which it could lodge objections. I have decided that EE&C did not make valid objections to the Commissioner, and therefore that the Commissioner has not made reviewable objection decisions that this Tribunal may review. I have reached that conclusion in light of the terms of the Deed of Settlement entered into by the parties. In relation to the Amended Assessments, I have also reached that conclusion in light of the fact that the Tribunal would be called upon to exercise review powers that it has already exercised on the particular issues in dispute for the Amended Assessments were issued as a consequence of its earlier decision.
BACKGROUND
In this section of my reasons, I will set out the facts that do not appear to be in dispute between the parties and that are supported by the material. Although it is in question whether EE&C has in fact made a taxation objection and, if so, the consequences of that taxation objection, in setting out the background, I have referred to it as a “taxation objection” rather than as a “purported taxation objection”. Similarly, I have referred to a “deemed decision” but I also recognise that, whether a decision has in fact been deemed to have been made, depends on whether the purported taxation objection is a taxation objection properly made.
Audit of the TCF Trust
In a letter dated 19 October 2007 to EE&C’s tax agents, an officer of the Australian Taxation Office (ATO) advised that it had completed its audit of the Cremasco group for the seven years ended 30 June 1999 to 30 June 2005 and attached its reasons for decisions together with proposed adjustments and penalties. The letter advised that the income tax returns of the corresponding beneficiaries would be adjusted to reflect the increase in net income to the TCF Trust. In addition, the interest charged on the tax shortfall for the appropriate years and the proposed remissions were set out in the letter. Those amounts would be applied to the shortfall amounts of the beneficiaries.
In the barest outline and without reference to the reasons given by the ATO in its letter, the ATO had considered six issues and made proposals regarding adjustments and penalties in relation to each. They were:
Issue
Proposed adjustment
Has taxpayer’s statement resulted in a shortfall?
Imposition of penalty
Were bad debts in the sum of $517,116 claimed in 1999 year an allowable deduction?
Deny deduction for bad debts in the sum of $517,116 and increase net income accordingly.
Yes.
Tax shortfall of beneficiary deemed to be that of trustee.
Trustee liable for penalty imposed as it made an “estate taxation statement” in the form of the income tax returns which resulted in an estate shortfall excess. Base penalty amount of 50% of shortfall amount imposed.
Interest expenses of $87,936, $89,653, $107,385, $103,602, $80,763, and $20,563 were claimed by EE&C for the 2000 to 2005 years respectively.
Amend income tax returns of TCF Trust to increase net income by denying deduction for interest expenses in each year.
The statements claiming interest expenses resulted in shortfall amounts in respect of the 2002, 2003 and 2005 years.
Trustee liable to pay penalty on basis of false or misleading statement made at a base penalty amount of 50% of shortfall amount.
Amount of capital gain made on sale of Medley Lodge units in 2000 and 2002 years.
Amend the income tax returns of TCF Trust to include, in the in 2000 year, a net capital gain of $147,735 and an additional $49,245 as income from G&T Cremasco Unit Trust on the basis it is entitled to 50% of its income and, in the 2002 year, additional distributions from G&T Cremasco Unit Trust regarding the capital gains issue of $149,987.50.
The statements did not lead to a shortfall in the 2000 year but did in the 2002 year.
As a beneficiary of the G&T Cremasco Unit Trust, the TCF Trust was not liable to a penalty.
Capital gain from sale of 15 units of the AGFS Unit Trust on 1 June 2004 but the profits were not returned in the 2004 year.
Amend the income tax return of TCF Trust for the 2004 year to increase net income by including capital gains of $56,250.
No
None imposed
Additional amounts of $8,887 and $9,333 distributed to TCF Trust in 2003 and 2004 years respectively. Amend the income tax returns of TCF Trust by including additional amounts of $8,887 and $9,333 for the 2003 and 2004 years respectively. As a beneficiary of the G&T Cremasco Unit Trust, the TCF Trust was not liable to a penalty. Resolutions made from 2001 to 2004 by the TCF Trust state that any additional net income will be distributed to the Façade Unit Trust. Resolutions of Façade Unit Trust were that 90% of its net income would be distributed to TCF Trust. The result was that 90% of the trust distributions were circulatory. Additional net income totalling $1,615,489.39 for the 2002, 2003 and 2005 years would be attributed to EE&C, as trustee of TCF Trust, from the Façade Unit Trust. That followed from the fact that no clause in the Trust Deed of the TCF Trust dealt with undistributed income distributed back to it. Therefore, EE&C, as trustee of the TCF Trust, was taxable under s 99A of the Income Tax Assessment Act 1936 (ITAA36). As a beneficiary, EE&C as trustee of the TCF Trust is not liable to a penalty on the tax shortfall.
Commissioner’s notices of assessment in relation to the 2002, 2003 and 2005 years
On or about 6 December 2007, the Commissioner issued notices of assessment to EE&C as trustee of the TCF Trust in respect of the 2002, 2003 and 2005 years (“2007 Assessments”).[9] EE&C’s taxable income was shown in those notices of assessment as $633,006 for the 2002 year, $421,208 for the 2003 year and $561,275 for the 2005 year.
[9] The submissions lodged on behalf of EE&C refer to the Notices of Assessment being issued on 21 December 2007 but the difference in date is of no consequence.
Objection by EE&C as trustee of TCF Trust and Commissioner’s objection decisions
On 29 January 2008, EE&C’s tax agents lodged a taxation objection against the 2007 Assessments and other taxation decisions in respect of all of the years from 1999 to 2005.[10] The Commissioner made an objection decision on or about 19 August 2009 disallowing the objection.
[10] Commissioner’s documents; Tab 7
Applications lodged in the Tribunal by EE&C and others
On 16 October 2009, EE&C as trustee of the TCF Trust lodged an application for review of the Commissioner’s objection decision.[11] A separate Tribunal file was opened in respect of each of the years from 1999 to 2005.[12] In the submission lodged on behalf of EE&C, Mr Jones of counsel described EE&C’s application as a “referral” with the “referred issues” being:
“16.1 The AGFS Unit Trust Capital Gain;
16.2the Medley Lodge Unit Trust Capital Gains;
16.3the share of net Capital Gains from the G&T Cremasco Unit Trust for 2000 and for 2002;
16.4share of the net income of the related unit trust for 2003 and 2004;
16.5the allowance of a carry forward loss amount;
16.6the excision or reduction in the circulating distribution; and
16.7penalties.”
[11] Commissioner’s documents; Tab 9
[12] Application Nos. 2009/4927–4933
On 6 November 2009, MN lodged an application for review of an objection decision made by the Commissioner in respect of the 1999 year.[13] Mr Tarcisio Cremasco lodged an application on 27 November 2009 in respect of the 2005 year.[14]
[13] Application No. 2009/5319
[14] Application No. 2009/5700
On 10 December 2009, the ATO wrote to EE&C’s accountants, Pitcher Partners outlining the issues that had arisen following a review of the trust deeds. Upon review of the Deed of Settlement of the TCF Trust, it appeared to the ATO that the tax returns and minutes of the trustee resolutions submitted on behalf of the TCF Trust had been based on an incorrect premise that MPL as trustee of the Façade Unit Trust and MN qualified as beneficiaries of the TCF Trust. It was apparent from the definition of the term “the beneficiaries” in cl 1(c) of the Deed of Settlement, the letter continued, that neither MPL as trustee of the Façade Unit Trust nor MN was within the class of potential beneficiaries of the TCF Trust. The consequences of this conclusion would be that the tax assessment to MN for the 1999 income year should be withdrawn, new tax assessments should be issued to EE&C as trustee for the TCF Trust for the 1999, 2000, 2001 and 2004 income years and that the shortfall penalty assessments should be reviewed. The Commissioner did not issue new tax assessments in respect of those years or issue Amended Assessments in relation to the 2002, 2003 and 2005 years until on or about 2 June 2011.[15]
[15] See [25] below
The ATO then turned to income distribution by the Façade Unit Trust in 2005. It had formed the view that there had been no resolution to distribute the income of the Façade Unit Trust for that year. Furthermore, there was no entry in Façade Unit Trust’s books by which MPL, as trustee of the Façade Unit Trust, had appropriated income for the benefit of the TCF Trust under cl 21(a) of the Trust Deed for the Façade Unit Trust. That led the ATO to the conclusion that a new tax assessment should be issued to MPL as trustee of the Façade Unit Trust for the 2005 year on the basis that the whole of the income of the Façade Unit Trust was accumulated. The ATO asked Pitcher Partners for its view on the conclusions it had reached and advised that, unless it was persuaded to the contrary, it would proceed to issue new assessments in accordance with its conclusions.[16]
[16] Affidavit of Rodney Cairnduff sworn on 28 July 2016; Annexure RC-1
On 14 December 2009, MPL as trustee for the Façade Unit Trust lodged an application in the Tribunal in respect of the Commissioner’s decisions for the 1999 to 2005 years.[17]
[17] Application Nos. 2009/5896-5902
A.Settlement discussions
EE&C and the Commissioner engaged in settlement discussions between themselves and in the Tribunal’s conference process. Ultimately, on 22 October 2010, they reached in‑principle agreement at a conciliation conference with a Tribunal member as conciliator. Representatives of MPL as trustee for the Façade Unit Trust, Mr Tarcisio Cremasco and MN also took part in that conciliation and they too reached in-principle agreement with the Commissioner.
Further discussions followed among EE&C, MPL as trustee for the Façade Unit Trust, Mr Tarcisio Cremasco, MN and the Commissioner before they each signed a document entitled “Minute of Terms of Agreement” reflecting the in-principle agreement they had reached.[18] That document referred to EE&C as “TCFT” and to MPL as trustee of the Façade Unit Trust as “FUT”. It also described EE&C, MPL as trustee of the Façade Unit Trust, Mr Tarcisio Cremasco and MN as the “Applicants” and to the Commissioner as the “Respondent”. The Minute of Terms of Agreement read:
[18] Commissioner’s documents; Tab 12
“The Applicants and Respondent agree to the following terms in settlement of the proceedings in the Tribunal:
1.Neither FUT nor M.N. Pty Ltd is within the class of potential beneficiaries of TCFT.
2. TCFT concedes:
a.The bad debt deductions claimed of $517,166 in the 1999 year of income;
b.The interest expenses claimed in the aggregate sum of $489,902 in the 2000 to 2005 years of income; and
c.The carried forward loss claimed of $2 million as at 30 June 1998.
3.The capital gain on the sale of the first tranche of units in the Medley Lodge Unit Trust is $13,600.
4.The capital gain on the sale of the second tranche of units in the Medley Lodge Unit Trust is $377,878.
5.An amended assessment is to issue to M.N. Pty Ltd for the 1999 year of income reducing assessed tax to $NIL.
6.Assessments are to issue to Everest Engineers & Consultants Pty Ltd in accordance with Annexure 1 to this minute. In particular:
a.Original assessments for the 1999, 2000, 2001 and 2004 years of income;
b.Amended assessments for the 2002, 2003 and 2005 years of income; and
c.Penalty assessments for the 2000, 2001, 2004 and 2005 years of income (imposed at a rate of 25%).
7.Penalties payable by Everest Engineers & Consultants Pty Ltd for the 1999, 2002, and 2003 years of income will be imposed at a rate of 25% and will accordingly be remitted to the amounts set out in Annexure 1.
8.The taxable loss of FUT in the 2004 year of income is $1,096,609 (not including the Hansen Yuncken claimed expenses).
9.The carried forward losses (not including the Hansen Yuncken claimed expenses) of FUT are as follows:
a.At the end of 2004 year of income - $1,197,793; and
b.At the end of 2005 year of income - $162,389.
10.The shortfall penalties for FUT for the 2002, 2003 and 2005 years of income will be remitted in full.
11.The claim for the Hansen Yuncken expenses falls to be determined in later years not the subject of these proceedings.
12.The sum of $165,000 is assessable to Tarcisio Cremasco in the 2005 years of income.
13.An amended assessment is to issue to Tarcisio Cremasco for the 2005 year of income as follows:
Amended Taxable Income
$214,722
Tax on Taxable Income
$86,631.34
Medicare levy
$3,220.83
Credits
$921.00
Balance of Amended Assessment
$88,931.17
14.The penalty for Tarcisio Cremasco in the 2005 year of income is to be imposed at the rate of 10% and remitted from $31,368.05 to $6,468.11.”[19]
[19] Commissioner’s documents; Tab 12
I have reproduced the Schedule in the Annexure to these reasons.
B. Deed of Settlement
On 23 March 2011, EE&C as trustee for the TCF Trust and the Commissioner entered a Deed of Settlement.[20] The Deed of Settlement began with a recital of factual matters and events. It recited that the TCF Trust is a discretionary trust established by Original Deed holding 90 of the 100 units that had been issued in the Façade Unit Trust and 50% of the units issued in the G&T Cremasco Unit Trust. EE&C and the Commissioner acknowledged that neither MN nor the Façade Unit Trust was within a class of potential beneficiaries of the TCF Trust.[21] They both acknowledged that, prior to the first sale of MLUT units, the TCF Trust held 30 of the 100 units issued in the MLUT and the remaining 70 were held by the G&T Cremasco Unit Trust. “MLUT” was a reference to Medley Lodge Pty Ltd as trustee for the Medley Lodge Unit Trust. The capital gain on the first sale of the 30 units held by the TCF Trust and 20 units held by G&T Cremasco Unit Trust was $13,600. On the second sale, which was the sale of the remaining 50 units held by G&T Cremasco Unit Trust, the capital gain was $377,878. Shortfall penalties, they agreed would be imposed at the rate of 25%.[22]
[20] Commissioner’s documents; Tab 13
[21] Deed of Settlement; cll 2.1.1 and 3.1.1
[22] Deed of Settlement; cll 2.1.2 - 2.1.4 and 3.1.2 – 3.1.3 and 3.1.5 with reference to the definitions and interpretation in cl 1.1
EE&C acknowledged that it was not entitled to the Bad Debt deduction, the interest expense or the $2M carried forward loss.[23] Both it and the Commissioner agreed that the adjustments to be made to EE&C’s taxable income, the tax on the adjusted taxable income and the shortfall penalties to be imposed for the 1999 to 2005 years of income were set out in the table at Schedule 1 to the Deed of Settlement.[24] That Schedule is in the same terms as that annexed to the Minute of Terms of Agreement. Both EE&C and the Commissioner agreed to ask the Tribunal for a decision under s 42C of the AAT Act in the form set out in Schedule 2 to the Deed of Settlement.[25] Schedule 2 reflected the terms of the decision later made by the decision on 23 March 2011.
[23] Deed of Settlement; cl 3.1.4
[24] Deed of Settlement; cll 2.1.5 and 3.1.6
[25] Deed of Settlement; cll 2.2.1 and 3.2
Once he received the Tribunal’s decision, the Commissioner undertook to issue amended income tax assessments reducing the taxable income in each of the 2002, 2003 and 2005 years.[26] These were described as the “Amended Assessments”. The Commissioner also agreed to remit the penalties payable under the penalty assessment to NIL.[27] The Commissioner also agreed to issue original assessments to the TCF Trust assessing taxable income for the 1999, 2000, 2001 and 2004 years of income. These were described as the “Original Assessments”.[28] The fact that they were described in this way was consistent with the fact that, in those years of income, an assessment of nil taxable income and nil tax payable were not “assessments” within the meaning of s 6(1) of ITAA36.[29] The Commissioner also agreed to issue shortfall penalty assessments to the TCF Trust at the rate of 25% of the shortfall identified in a table for each of the seven years from 1999 to 2005.[30] These were described as the “New Penalty Assessments”.
[26] Deed of Settlement; cl 2.2.2.1
[27] Deed of Settlement; cl 2.2.2.2
[28] Deed of Settlement; cl 2.2.3
[29] See further [58] below
[30] Deed of Settlement; cll 2.2.4
EE&C acknowledged and agreed that its liability to income tax and shortfall penalties for the 1999 to 2005 years are the amounts under the Original Assessments, the Amended assessments and the New Penalty Assessments together with General Interest Charge (GIC) on those amounts.[31]
[31] Deed of Settlement; cl 3.3
EE&C acknowledged and agreed that it:
“3.5 Will not make or bring any other application, claim or proceeding, in relation to the issues agreed as part of this settlement, or of related decisions, except in relation to the Commissioner’s obligations under this Deed.
3.6Will not seek any review of the issues agreed as part of this settlement, or of related decisions, under the Administrative Decisions (Judicial Review) Act 1977 or of administrative law generally, or any other law; and will not procure that a third party takes any such action or provides financial support or any other support for such action. However, this does not prevent the TCFT seeking review by the Ombudsman.
3.7Will not seek a ruling relating to any issues agreed as part of this settlement.
3.8Will not seek disclosure under the Freedom of Information Act 1982, of the Tax Office’s documents in relation to issues or decisions relevant to the settlement recorded by this Deed.
3.9Makes no admission as to liability notwithstanding any provision of this Deed.”
EE&C and the Commissioner agreed that the Deed of Settlement constituted the entire agreement and undertaking between them in relation to the subject matter.[32] Clause 7 made provision for any default by either of them and cl 8.1 provided:
“No amendment or variation of this Deed is valid or binding on a party unless made in writing and executed by all parties.”
C.Tribunal’s decision by consent on 23 March 2011 in relation to the 2002, 2003 and 2005 years
[32] Deed of Settlement; cl 6.3
The parties asked the Tribunal to make decisions that were consistent with the terms agreed upon by exercising its power under s 42C of the AAT Act. In application Nos. 2009/4927 (1999), 4930 (2002), 4931 (2003) and 4933 (2005) relating to EE&C, the member who had conducted the conciliation made decisions dated 23 March 2011. The Tribunal decided that it:
“Sets aside the decision under review in consideration for the Commissioner:
a.In respect of the year ended 30 June 1999, remitting the shortfall penalty to $NIL.
b.In respect of the year ended 30 June 2002:
i.Reducing the taxable income from $633,006 to $417,479;
ii.Remitting the shortfall penalty to $NIL.
c.In respect of the year ended 30 June 2003:
i.Reducing the taxable income from $421,208 to $320,947;
ii.Remitting the shortfall penalty to $NIL.
d.In respect of the year ended 30 June 2005:
i.Reducing the taxable income from $561,275 to $245,345;
ii.Remitting the shortfall penalty to $NIL.”[33]
[33] Commissioner’s documents; Tab 14
On the same day, the same member made a decision under s 42C of the AAT Act in the application lodged by MN. The decision set aside the decision under review in consideration of the Commissioner’s reducing the taxable income to $NIL for the 1999 year. Again on 23 March 2011, the same member made a further decision under s 42C in relation to the application lodged by Mr Cremasco. He set aside the decision under review in consideration for the Commissioner’s reducing the taxable income from $235,285 to $214,722 and remitting the shortfall penalty to $6,468.11 in respect of the 2005 year.
Commissioner issued notices of assessment and of amended assessments
On or about 2 June 2011, the Commissioner issued a number of notices of assessment and of amended assessment (Settlement Assessments):
(1)a notice of assessment increasing EE&C’s taxable income in the 1999 year from nil to $393,858 (1999 Assessment);
(2)a notice of assessment increasing EE&C’s taxable income in the 2000 year from nil to $370,640 (2000 Assessment);
(3)a notice of assessment increasing EE&C’s taxable income in the 2001 year from nil to $14,889 (2001 Assessment);
(4)a notice of amended assessment reducing EE&C’s taxable income in the 2002 year to $417,479 (2002 Amended Assessment);
(5)a notice of amended assessment reducing EE&C’s taxable income in the 2003 year to $320,947 (2003 Amended Assessment);
(6)a notice of assessment assessing EE&C’s taxable income in the 2004 year at $199,959 (2004 Assessment); and
(7)a notice of amended assessment reducing EE&C’s taxable income in the 2005 year to $245,345 (2005 Amended Assessment).
EE&C lodges “objection” to Settlement Assessments
On 4 June 2014 and acting through its lawyers, EE&C lodged what it said was a taxation objection against each of the Settlement Assessments. The basis of the objection was that EE&C had previously been unable to find a document amending the income class of beneficiaries under the TCF Family Trust to include MN and the Façade Unit Trust but had recently found it. EE&C asked the Commissioner to reconsider the Settlement Assessments with a view to varying the Deed of Settlement under cl 8.1. EE&C stated that it had acted diligently and quickly in bringing the document to the attention of the Australian Taxation Office (ATO) when it had found it. It had outstanding debts in relation to the Settlement Assessments and was anxious to have account taken of what it said were the correct facts established by the document and tax assessed on those facts. The correct facts were that MN and the Façade Unit Trust were within the class of potential beneficiaries of the TCF Trust.
EE&C acknowledged that the taxation objection was out of time in so far as it concerned the Amended Assessments issued in respect of the 2002, 2003 and 2005 years. Together with the taxation objection, it lodged a written request asking the Commissioner to deal with the objection as if it had been lodged within time. The written request was required under s 14ZW(2) of the TAA because the time stipulated by s 14ZW(1B) had passed.[34]
[34] Section 14ZW(1B) was the relevant provision because the taxation decision against which the taxation objection was made was an assessment that had been amended in a particular and the taxation objection satisfied s 14ZW(1B)(b).
On 19 September 2014, the Commissioner wrote to EE&C advising that he denied its request to reopen the settlement, regarded the taxation objection as invalid and advised that no further action would be taken on the matter.[35]
[35] Commissioner’s documents; Tab 25
Applications to the Tribunal
A. Taxation objection and the Amended Assessments for 2002, 2003 and 2005
On 21 October 2014, EE&C lodged an application for review of the decisions conveyed in the Commissioner’s letter dated 19 September 2014.[36] The Tribunal has treated that as an application for review of the Commissioner’s decision to refuse EE&C’s request to deal with its objection as if it had been lodged within time. Section 14ZX(4) provides that, if the Commissioner decides to refuse the request, the person making that request may apply to the Tribunal for review of that decision.
[36] Application No. 2014/5476
B.Taxation objection to Original Assessments for 1999, 2000, 2001 and 2004
On 23 February 2016, EE&C’s solicitors gave the Commissioner a letter stating that EE&C required the Commissioner to make an objection decision in respect of the objection made against the Original Assessment made for each of the 1999, 2000, 2001 and 2004 years. The notice was given under s 14ZYA(2) on the basis that EE&C had lodged a taxation objection within the required period and the Commissioner had not made an objection decision within the time limits specified in s 14ZYA(1)(a). The Commissioner did not respond to the notice within 60 days of being given the notice.
C. Application to the Tribunal
EE&C applied to the Tribunal on 19 May 2016 for review of a decision it described as having been deemed to have been made by the Commissioner under s 14ZYA(3) when he did not respond to the objection. [37]
[37] Commissioner’s documents; Tab 28. AAT Application Nos. 2016/2759; 2016/2760; 2016/2761 and 2016/2762.
THE SUBMISSIONS
On behalf of EE&C, Mr Jones submitted that it was entitled to apply to the Tribunal for review of the Original Assessments and of the Amended Assessments because:
(1)No Original Assessments or Amended Assessments taking into account of the new taxable facts were issued by the Commissioner before the resolution of Application Nos. 2009/4927-4933 in the Tribunal.
(2)The settlement of those proceedings was governed by the Minute of Terms of Agreement and, to the extent that the Deed of Settlement does not conform with it, that Minute prevails. Therefore, as the Minute of Terms of Agreement did not contain a clause that EE&C forwent its rights to object, it cannot be prevented from lodging objections.
(3)Any attempt by the Commissioner to restrict EE&C’s rights to object is void as against public policy and contravenes the powers under the Commonwealth Constitution.
(4)A right to lodge a taxation objection to a taxation decision is a right that cannot be bargained away outside a proceeding and before notices of assessment are issued.
(5)Estoppel does not operate to prevent the exercise of the applicant’s objection rights.
(6)The decisions made by the Commissioner in this matter are of a type that is reviewable by the Tribunal as they involve decisions about the content of the power to make an objection decision and any conditions precedent to the exercise of that power.
(7)EE&C is dissatisfied with the Original Assessments and Amended Assessments.
(8)If the Deed of Settlement governs the settlement, then EE&C made a unilateral mistake in entering the agreement. Its mistake was “… about the presence of the restriction on the objection rights for tax arising and yet to be assessed relating to unassessed tax facts”.[38]
(9)Anshun Estoppel, res judicata and abuse of process are inapplicable to EE&C’s taxation objections and to these proceedings.
(10)EE&C’s request for an extension of time within which to lodge its taxation objections to the Amended Assessments should be granted.
[38] Applicant’s submissions at [1.8]
In making the Original Assessments and Amended Assessments, Mr Jones submitted, the Commissioner had sought to achieve two outcomes in a single assessment process. He referred to “Table A assessments” but that is a reference to what I have called the “Original Assessments” made on or about 2 June 2011 by the Commissioner in respect of the 1999, 2000, 2001 and 2004 years. His reference to Table B assessments is a reference to the Notices of Assessment issued by the Commissioner on 21 (or 7) December 2007 in respect of the 2002, 2003 and 2005 years. The reference to “Table C assessments” is a reference to the Amended Assessments issued in respect of the 2002, 2003 and 2005 years.
Mr Jones submitted that the outcomes that the Commissioner had attempted to achieve were to:
“7.1 amend Table B assessments to give effect to matters conceded … by the applicant in the proceeding Tribunal Reference 2009/4927-4933 that had been referred to the Tribunal following objections … to the Table B assessments and determination of those objections by consent between the parties with complementary orders by the Tribunal; and
7.2amend Table B assessments and make original assessments (the Table A assessments) to incorporate an alteration by the Commissioner to the factual substratum on which tax was to be assessed to the applicant. That alteration of the factual substratum was to change the status of the two (2) entities, MN Pty Ltd and Minesco Pty Ltd (as Trustee of the Façade Unit Trust). In December 2007 in making the Table B assessments, these entities were taken by the Commissioner as a matter of fact to be income beneficiaries of the Tarcisio Cremasco Family Trust (the TCFT). In July 2011 in making the Table A assessments and the Table C amended assessments, the Commissioner altered these facts and based these assessments on the altered facts that the entities were not within the eligible class of income beneficiaries of the TCFT (‘the Altered Beneficiary Facts’); …”[39]
[39] Applicant’s Submissions (footnotes omitted)
The taxation objections to the Original Assessments and Amended Assessments, Mr Jones went on to submit, are made because EE&C is dissatisfied with those assessments to the extent to which they arise from the Altered Beneficiary Facts, to which the Commissioner had regard. EE&C submitted that MN and the Façade Unit Trust are income beneficiaries of the TCF Trust in each of the seven years from 1999 to 2005. Mr Jones also submitted that the:
“earlier referral to the Tribunal of the matters 2009/4927-4933 did not have any basis for the Tribunal to consider the Altered Beneficiary Facts. These Altered Beneficiary Facts could not be referred to the Tribunal as the respondent had not issued any assessments (the Table A assessments and the Table C amended assessments) based on the Altered Beneficiary Facts and had not raised for the Table B assessments a contention in the proceedings that the Altered Beneficiary Facts were to be applied to the Table B assessments by the Tribunal, and consequently the Tribunal orders ... [made on 23 March 2011] could not make concluded binding orders for the Table B assessments taking account of the Altered Beneficiary Facts.”[40]
[40] Applicant’s submissions at [29.3]
The ATO’s letter dated 19 September 2014 advising that the objections were invalid amounted to a decision to disallow the objections. That submission related to EE&C’s taxation objection to the Original Assessments issued on 2 June 2011 in respect of the 1999, 2000, 2001 and 2004 years. Alternatively, EE&C’s letter to the Commissioner dated 23 February 2016 was a valid request under s 14ZYA(2) of the TAA and, when the Commissioner did not make a decision, he was deemed to have done so. The deemed decision enlivens the Tribunal’s jurisdiction. With regard to the Amended Assessments, EE&C regarded the ATO’s letter of 19 September 2014 as amounting to a written refusal to grant additional time under s 14ZX(2). EE&C has applied for review of that decision in accordance with s 14ZX(4).
In summary and omitting the authorities to which they referred but to which I refer later in these reasons, Mr Hanks QC with Ms Baker of counsel on behalf of the Commissioner submitted that:
(1)The Tribunal only has power to review a decision if the AAT Act authorises it to do so.
(2)EE&C relies on ss14ZZ(1) and 14ZX(4) of the TAA as the source of power but each of those provisions relies, in turn, upon the person who is dissatisfied with an assessment, determination, notice or decision or with a failure to make a private ruling having first objected against it in the manner set out in Part IVC. That follows from ss 14ZL and the definition of “taxation objection” in s 14ZQ of the TAA.
(a)Section 175A(1) of the Income Tax Assessment Act 1936 (ITAA36) confers a right to object against an assessment or amended assessment. The objection must be made in accordance with s 175.
(b)A decision on that objection – an objection decision – could only be deemed to have been made under s 14ZYA(3) of the TAA if a valid taxation objection had been lodged. That is the effect of s 14YA(1).
(3)In order to establish it made a taxation objection, EE&C must rely on the document it lodged on 4 June 2014.
(4)Even if it could be construed as a taxation objection in other circumstances, a proper interpretation of the Deed of Settlement between EE&C and the Commissioner leads to the conclusion that it is bound by its agreement not to object or request an amendment or review of the Original Assessments. It was not a valid objection as EE&C had waived its right to object against the Settlement Assessments by virtue of cl 3.4 of the Deed of Settlement.
(5)To the extent that estoppel is relevant, the Commissioner submitted that he relied on the representations made by EE&C in the Deed of Settlement by by issuing the Settlement Assessments. He would now suffer detriment as he is now out of time under ss 170 or 171A of ITAA36 to amend the assessments of income tax of MN and the Façade Unit Trust so as to include any amount under s 97 of ITAA36 in their assessable income in respect of the TCF Trust.
(6)The Commissioner’s Amended Assessments simply gave form to the Tribunal’s decisions under s 42C of the AAT Act. He was obliged to make them under s 14ZZL of the TAA. If the Tribunal were to review those Amended Assessments it would, for all practical purposes, be reviewing its own decision even though it would be differently constituted on each occasion. Its power would be exhausted because it has already decided that precise dispute: Bogaards v McMahon.[41]
LEGISLATIVE FRAMEWORK
[41] [1988] FCA 161; (1988) 80 ALR 342; 8 AAR 556 at 348; 565 per Pincus J
The Tribunal’s power to review decisions
The Tribunal is an agency established by legislation and both the nature of its powers and their extent is dependent upon that legislation. The legislation is the AAT Act and, putting aside decisions made in the exercise of powers conferred by a Norfolk Island enactment, the starting point is s 25(1), which provides that:
“An enactment may provide that applications may be made to the Tribunal:
(a)for review of decisions made in the exercise of powers conferred by that enactment; or
(b)for the review of decisions made in the exercise of powers conferred, or that may be conferred, or that may be conferred, by another enactment having effect under that enactment.”
Where an enactment makes a provision of that sort, it must specify the person or persons to whose decisions the provision applies. The enactment may be expressed to apply to all decisions of a person or to a class of such decisions and it may specify conditions to which applications may be made.[42]
[42] AAT Act; s 25(3)
Before its amendment by the Tribunals Amalgamation Act 2015,[43] s 25(4) of the AAT Act provided that: “The Tribunal has power to review any decision in respect of which application is made to it under any enactment.” Since its repeal, the link between the lodgement of an application and the Tribunal’s power to review the decision in respect of which the application was made, is no longer expressly stated. It must now be understood by implication from other provisions of the AAT Act. Those provisions are found in Part IV of the AAT Act when it sets out the Tribunal’s powers in relation to applications that are made to it.
[43] s 3 and Schedule 1, Item 40
The range of decisions that the Tribunal may review is extensive and the powers conferred on the Tribunal under the AAT Act are broadly framed to deal with that diversity. Parliament may decide that certain of those powers are not appropriate or require modification when it decides to pass legislation providing that an application may be made to the Tribunal for review of a particular decision or decisions. With that in mind, s 25(6) of the AAT Act provides that:
“If an enactment provides for applications to the Tribunal:
(a)that enactment may also include provisions adding to, excluding or modifying the operation of any of the provisions of sections 27, 29, 29AB, 29ACm 32, 33 and 35 or of subsection 41(1) or 43(1) or (2) in relation to such applications; and
(b)those sections and subsections have effect subject to any provisions so included.”
For the reasons I gave in Re The Trustee for the Confidential Trust and Commissioner of Taxation[44] in the context of the TAA, the express reference to only some of the provisions of the AAT Act which confer powers on the Tribunal, does not limit Parliament’s power to exclude or modify the operation of other provisions of the AAT Act.
[44] [2013] AATA 682 (2013) 138 ALD 409; 92 ATR 730; 61 AAR 215 at [14]-[28]; 413-418; 735-739; 219-224
No provision of the AAT Act expressly states that the Tribunal may consider the limits of its own authority but authority to do so must necessarily be implied from the very fact that the Tribunal is a creation of statute not of the common law and must act within the powers given to it by statute be it by the AAT Act or by another enactment excluding or modifying the operation of any of the provisions of the AAT Act as contemplated by s 25(6). This was explained by Tamberlin J in Trajkovski v Telstra Corporation Ltd[45] (Trajkovski). He referred to earlier authorities including Re Cilli’s Objection,[46] in which Blackburn J, sitting as the Northern Territory Land and Valuation Review Tribunal, had been asked to annul a notice of forfeiture of lease on the ground of its invalidity. Blackburn J concluded:
“… I have formed a clear opinion, notwithstanding the contentions put to me by both counsel, for which I am very grateful, that for this Tribunal to "annul" a notice on the ground of its invalidity would be to exceed its powers and abuse its functions. This Tribunal is not a court, and there is nothing in the statute which creates it (the Valuation of Land Ordinance) or in any of the statutes which bestow functions upon it (for example, the Crown Lands Ordinance and the Darwin Town Area Leases Ordinance) to indicate that it is invested with any judicial power. What the Tribunal is being asked to do, in this instance, is to apply existing law to the determination of the disputed rights of the parties by deciding the question whether the notice of forfeiture was valid. In my opinion the Tribunal has no power to do such a thing. That is not to say, of course, that the Tribunal can never make a decision of law. It must satisfy itself that all its proceedings are in accordance with the law. It must, therefore, receive and consider, whenever the point is taken, an argument that it has no jurisdiction. To say that is, in truth, to say no more than that it must at all times act lawfully. …”[47]
[45] [1998] FCA 169; (1998) 81 FCR 459; 153 ALR 248; 27 AAR 21
[46] (1970) 15 FLR 426; 19 LGRA 331; Blackburn J
[47] (1970) 15 FLR 426; 19 LGRA 331 at 428; 333-334
Tamberlin J referred also to a passage from the reasons for decision of Brennan J in Re Adams and the Tax Agents’ Board[48] when sitting as the Tribunal’s first President. Mr Adams’ estate had been sequestrated by Supreme Court order and a Tax Agents’ Board had cancelled his registration under s 251(3) of the ITAA36. He applied to the Tribunal to review the Board’s decision arguing that s 251(3) was unconstitutional and invalid as it did not deal with a law relating to taxation as required by s 51 of the Commonwealth of Australia Constitution Act 1900. In considering that argument, Brennan J said:
“ The question raised by the ground as to whether s 251K(3) is invalid assumes that this Tribunal has the power to answer it. The assumption warrants examination. The Tribunal may, for the purpose of reviewing the Board’s decision, exercise the powers of the Board (s 43(1)), and it is therefore necessary to examine also whether the Tribunal by exercising the Board’s power may answer the question whether s 251K(3) is invalid. Neither the Tribunal nor the Board is vested with that power to which the Constitution refers as the judicial power of the Commonwealth. It is to a court in which the judicial power of the Commonwealth is vested that questions of constitutional validity of federal legislation are submitted for decision. A definitive answer to a question of constitutional validity requires the exercise of that judicial power, and can therefore be given only by a court in which that judicial power is vested. …
…
An administrative body cannot therefore lawfully exercise authority merely because it is of the opinion that it has the authority. Its opinion is not the charter of its powers and discretions. It derives its powers and discretions from and in accordance with the law. It is the court’s judgment and not the administrative body’s opinion which defines the extent of (as well as the constitutional support for) its statutory authority. …
An administrative body with limited authority is bound, of course, to observe those limits. Although it cannot judicially pronounce upon the limits, its duty not to exceed the authority conferred by law upon it implies a competence to consider the legal limits of that authority, in order that it may appropriately mould its conduct. In discharging its duty, the administrative body will, as part of its function, form an opinion as to the limits of its own authority. The function of forming such an opinion for the purpose of moulding its conduct is not denied to it merely because the opinion produces no legal effect. …”[49]
[48] (1976) 1 ALD 251; 12 ALR 239; 7 ATR 87
[49] (1976) 1 ALD 251; 12 ALR 239; 7 ATR 8 at 253-254; 241-242; 256-257; 88-89
In Trajkovski, Tamberlin J concluded:
“ The approach adopted in these cases lends support to the proposition that the AAT, in the present case, has the competence and authority to determine whether it has jurisdiction. It is not bound to decline jurisdiction simply because the jurisdictional question cannot be described as a ‘reviewable decision’ and it must consider antecedent matters going to its jurisdiction in order to enable it to perform its primary function. …
Also, there is a line of English authority to the effect that, if a certain state of facts has to exist before a tribunal has jurisdiction, it can inquire into the facts in order to decide whether it has jurisdiction but it cannot give itself jurisdiction by wrong decision upon those facts. …”[50]
[50] [1998] FCA 169; (1998) 81 FCR 459; 153 ALR 248; 27 AAR 21 at 468; ; 30
Tribunal’s power to review Commissioner’s decisions
In this case, there are only two statutory provisions entitling a person to make an application to the Tribunal that are relevant. One entitles an application to be made for review of an objection decision made by the Commissioner and the other for review of an objection decision that the Commissioner is deemed to have made. As both centre on an objection decision, I will begin with how the Commissioner may come to make a decision of that sort in circumstances relevant to those in this case.
Section 14ZL(1) provides that Part IVC applies if a provision of an Act or of regulations provides that a person who is dissatisfied with an assessment, determination, notice or decision (known as a “taxation decision”[51]) may object against it in the manner set out in that Part. Since 2013, s 175A of ITAA36 has provided that a taxpayer who is dissatisfied with an assessment made in relation to that taxpayer may object to it in the manner set out in Part IVC of the TAA. The entitlement conferred by s 175A(1) is qualified by s 175A(2). One qualification is that a taxpayer cannot object against an assessment that the taxpayer has no taxable income. The other is that the taxpayer cannot object against an assessment that the taxpayer has an amount of assessable income but that no tax is payable. Before its amendment in 2013, s 175A provided that a person who is dissatisfied with an assessment made in relation to a taxpayer may object to it.
[51] TAA; s 14ZQ
An objection under Part IVC is called a “taxation objection”.[52] Section 14ZR(1) provides that, if a notice incorporates two or more taxation decisions against which a person may object, the taxation decisions are taken to be one taxation decision for the purposes of Part IVC.
[52] TAA; s 14ZL(2)
A person who wishes to make a taxation objection decision must make it in the approved form, lodge it with the Commissioner within the period set out in s 14ZW and state in it, fully and in detail, the grounds that the person relies on.[53] If the taxation decision against which a taxation objection is made is an assessment or determination that has been amended, then the person’s right to object is limited by s 14ZV. The person’s right is limited to a right to object against alterations or additions in respect of, or matters relating to, that particular. Section 14ZW sets out the time within which a person must lodge with the Commissioner any taxation objection he or she wishes to lodge.
[53] TAA; s 14ZU
When a person wishes to make a taxation objection against an assessment or determination that has been amended, regard must also be had to s 14ZW(1B). For the purposes of that provision, if an assessment or determination has been amended more than once, the notice is the notice of the first assessment or determination in relation to the year of income or year of tax as the case requires.[54]
[54] TAA; s 14ZW(1C)
If the period within which a taxation objection by a person is required to be lodged has passed, a person may nevertheless lodge the objection with the Commissioner together with a written request asking the Commissioner to deal with the taxation objection as if it had been lodged within that period.[55] Section 14ZW(3) provides that the request must state fully and in detail the circumstances concerning, and the reasons for, the person’s failure to lodge the objection with the Commissioner within the required period.
[55] TAA; s 14ZW(2) and see also s 14ZX(2) as to the requirement that the Commissioner give the person making the request written notice of his decision.
Once a person has made a request to the Commissioner asking him to deal with a taxation objection as if it had been made within time, the Commissioner must consider it and decide whether to agree to it or to refuse it.[56] If the Commissioner decides to refuse the request, s 14ZX(4) provides that the person may apply to the Tribunal for review of the decision. If the Commissioner decides to agree to the request, the objection is taken to have been lodged within the required period.[57]
[56] TAA; s 14ZX(1)
[57] TAA; s 14ZX(3)
Putting aside particular circumstances dealt with in ss 14ZY(1A) and (1B), the Commissioner must decide whether to allow, whether wholly or in part, or to disallow, a taxation objection that has been lodged within the required period.[58] That decision is an “objection decision”.[59] If a taxation objection has been lodged with the Commissioner within the required period but the Commissioner has not made an objection decision within a certain time prescribed by s 14ZYA(1), the person who lodged the objection may give the Commissioner a written notice requiring him to make an objection decision.[60] The certain times prescribed by s 14ZYA(1) are: the end of 60 days after the day on which the taxation objection was lodged; if the Commissioner has agreed to a request to deal with the objection as if it had been lodged within the required period, the end of 60 days after he has decided to agree; or, if the Commissioner has given the person a written notice requiring him or her to give information relating to the taxation objection and done so within the original 60 days after the person lodged the objection or the Commissioner agreed to the request to treat it as within the required period, the end of the period of 60 days after the Commissioner receives that information.[61] The consequence of the Commissioner’s not making a decision is set out in s 14ZYA(3):
“If the Commissioner has not made an objection decision by the end of the period of 60 days after being given the notice, then, at the end of that period, the Commissioner is taken to have made a decision under subsection 14ZY(1) to disallow the taxation objection.”
[58] TAA; S 14ZY(1)
[59] TAA; s 14ZY(2)
[60] TAA; s 14ZYA(2)
[61] TAA; s 14ZYA(1)(a) and (b)
Putting aside objection decisions relating to a private ruling, which is not the case here, and an appeal to the Federal Court, s 14ZZ(1)(a) provides:
“If the person is dissatisfied with the Commissioner’s objection decision (including a decision under paragraph 14ZY(1A)(b) to make a different private ruling), the person may:
(a) if the decision is a reviewable objection decision – either:
(i) apply to the Tribunal for review of the decision; …
(ii) …”
CONSIDERATION
Scheme of self-assessment
Some 30 years ago, the Commissioner introduced a self-assessment system of taxation in Australia. Self-assessment meant that the ATO no longer employed assessors to check each and every taxation return that each taxpayer, be it an individual, company, trustee or superannuation fund, was required to lodge and to calculate the tax payable. Instead, the Commissioner generally accepts the information given by a taxpayer in a tax return and the amount of taxation payable is calculated on that basis of that information. Such a system is based on an assumption that most taxpayers will include all relevant information and will do so accurately. Inherent in such a system is a risk to the Commissioner and the public purse that this foundation assumption is incorrect whether because of a deliberate attempt by a taxpayer to avoid the payment of taxation or because of his or her innocent mistake or oversight of fact or law or some reason lying between the two extremes. The risk inherent in self-assessment lies also with the taxpayer if the Commissioner chooses to query the information in a taxation return or to conduct an audit. If the information included in a return proves to be incorrect and there is a shortfall amount because the relevant liability is less than it would have otherwise been in the absence of the incorrect information, a taxpayer will face not only payment of the shortfall amount but also interest and possibly penalties.
The integrity of a self-assessment scheme relies on the Commissioner’s ability to require a taxpayer to give him a return for a year of income[62] and on his ability to conduct queries or audits of individual tax returns to ensure that the information on which a taxpayer’s liability to pay taxation is assessed is accurate. Whether or not a year of income has ended, the Commissioner may require a person to give a return, a further return or a fuller return for a specified period or to give any information, statement or document about his or her financial affairs.[63] From the returns and from any other information in his possession, the Commissioner is required to make an assessment of the amount of taxable income of any taxpayer and of the tax payable on that taxable income.[64] The Commissioner may, for the purposes of making that assessment in relation to a taxpayer, accept, either in whole or in part, a statement in the return of the assessable income derived by the taxpayer and of any allowable deductions or rebates to which it is claimed the taxpayer is entitled. He may also accept any other statement made in the return by or on behalf of the taxpayer.[65] If the taxpayer raises a question in a document given with a return and that question is relevant to the taxpayer’s liability in respect of the year of income, the Commissioner must give attention to that question unless the taxpayer was entitled to apply for a private ruling under Part IVAA of the TAA.[66]
[62] ITAA36; s 161
[63] ITAA36; s 162
[64] ITAA36; s 166
[65] ITAA36; s 169A(1)
[66] ITAA36; s 169A(2)
In certain circumstances, including those in which a company furnishes a return, the Commissioner is taken to have made an assessment of the relevant taxable income or net income and of the tax payable on that taxable income or net income.[67] The Commissioner is deemed to have done so on the day the return is furnished and the return is deemed to be notice of the deemed assessment.[68] Notice of the deemed assessment is deemed to have been served on the entity on the same day.[69]
[67] ITAA36; s 166A(1)(a)
[68] ITAA36; s 166A(1)(b)
[69] ITAA36; s 166A(1)(c)
Amendments to ITAA36 have been made over the years including those made by the Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 (2005 Amendment Act). It commenced on 19 December 2005[70] and applied to things done on or after 1 January 2006.[71] I will begin, therefore, with the relevant provisions as they stand now and then touch on the law as it applied before the 2005 Amendment Act for it relates to the Nil assessments relating to the 1999, 2000, 2001 and 2004 years of income.
[70] 2005 Amendment Act; s 2
[71] 2005 Amendment Act; s and Schedule 2, Item 32
An assessment, once made, is not the Commissioner’s final word on the taxpayer’s liability to pay taxation in any particular year of income. Particular provisions authorise the Commissioner to amend an assessment.[72] Among them is s 170 of ITAA36. Subject to its terms, the Commissioner may amend any assessment by making such alterations or additions to it as he thinks necessary. He may do so in the circumstances set out in s 170(1) notwithstanding that tax may have been paid in respect of the assessment. The Commissioner may also amend amended assessments in the circumstances set out in s 170(3) as qualified by s 170(4). Each of these provisions prescribes time limits. The Commissioner may extend the limited assessment period in certain circumstances. If, for example, a taxpayer asks the Commissioner to do so before the expiration of that period,[73] or if the taxpayer has applied for a private ruling before the end of that period and the amended assessment gives effect to that ruling.[74] Even if the time specified in ITAA36 have passed, s 14ZZL(1) of the TAA requires the Commissioner to take such action, including amending any assessment or determination concerned, in order to give effect to the Tribunal’s decision on, among other matters, the review of a reviewable objection decision.
[72] See, for example, ITAA36; ss 170(10AA) and 170A
[73] ITAA36; s 170(5)
[74] ITAA36; s 170(6)
The Minute of Terms of Agreement began with a statement that the parties, being EE&C, MN, MPL, Mr Cremasco and the Commissioner, agreed “… to the following terms in settlement of the proceedings in the Tribunal”. Concessions of factual matters were made in relation to the 2002, 2003 and 2005 years that were properly in the Tribunal but also to matters raised in relation to 1998 and the remaining years from 1999 to 2005. “Settlement adjustments” were agreed upon in relation to the years from 1999 to 2005. The Minute of Agreement was clearly intended to be a settlement of all matters in dispute between EE&C as trustee of the TCF Trust and the Commissioner.
The Deed of Settlement was simply between EE&C and the Commissioner but was, in substance, no different from the terms agreed upon in the Minute of Terms of Agreement. Like the Minute of Terms of Agreement, it attached a Schedule setting out the adjustments to be made for each of the years from 1999 to 2005 inclusive. Concessions were made by EE&C and the Commissioner made acknowledgements and committed himself to a view of the facts and to reducing taxable income and remitting penalties in relation to all of the years between 1999 and 2005. That reflected the acknowledgment at the outset of the Deed of Settlement to the effect that EE&C and the Commissioner had been in dispute over the alleged liability of the TCF Trust to income tax and penalties for the 1999 to 2005 years of income and that they now wished to settle their dispute in the terms they proceeded to set out.
The actions agreed to by the Commissioner also reflected that that their agreement related to all of the years and was intended to put the matter to rest. He agreed to issue Amended Assessments in relation to 2002, 2003 and 2005 which were years that were the subject of three applications Nos. 2009/4927, 4930 and 4931 to the Tribunal. This was an action that the Commissioner was obliged to do under s 14ZZL(1) of TAA once the Tribunal had made the s 42C decision in those matters on 23 March 2011. The Commissioner also agreed to issue Original Assessments in respect of the years that were not validly before the Tribunal and in which there had previously been assessed to be nil taxable income and nil tax payable. Consistently with that conclusion, Pitcher Partners wrote to the Tribunal withdrawing Application Nos. 2009/4928, 4929 and 4932 relating to those years.
The substance of the Deed of Settlement, whether read alone or in the context of the Minute of Terms of Agreement and/or against a background of the dispute between EE&C and the Commissioner, leads me to conclude that they agreed to resolve their dispute once and for all. Consistent with that intention, cll 3.2 to 3.8 were simply express statements of the practical consequences of it. EE&C would not exercise any rights it might otherwise have to lodge objections to the Assessments and Amended Assessments that the Commissioner undertook to issue as part of the agreement. That agreement is binding upon the parties unless there is a basis for setting it aside. Under that agreement, EE&C agreed to forego any rights it had to lodge a taxation objection or to seek review of the Original Assessments, Amended Assessments or New Penalty Assessments issued by the Commissioner.
Was the Deed of Settlement affected by mistake?
The Deed of Settlement between EE&C and the Commissioner is a contract. There is nothing about the fact that it represents a negotiated compromise between parties to a proceeding that takes it outside the application of the law of contract. Any broad submission that to allow a negotiated settlement to be reopened would be to permit litigation to be reopened after judgment has been entered does not find favour with the courts.[115] Instead, the issue of reopening negotiated settlements is determined according to the law of contract.
[115] See, for example, Deputy Commissioner of Taxation v Chamberlain (1990) 26 FCR 221; 93 ALR 729; 21 ATR 133 per Wilcox J
For the purposes of this case, the law is as stated by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson:[116]
“… [A] party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the
existence of his mistake or misapprehension. … [I]t is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates. In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party’s actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it. Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened.”[117]
[116] [1983] HCA 5; (1983) 151 CLR 422; 45 ALR 265; Mason ACJ, Murphy and Deane JJ; Dawson J dissenting
[117] [1983] HCA 5; (1983) 151 CLR 422; 45 ALR 265 at 432-433; 272
Mr Cremasco’s evidence was to the effect that Mr Cairnduff had told him that the Deed of Settlement formalised the Minute of Terms of Agreement. It was imperative, Mr Cremasco understood, that he sign the Deed of Settlement so that the matter would not go to trial. Mr Cremasco continued:
“… I recall being annoyed and frustrated at the figures in the Deed and asked Mr Cairnduff again whether there was anything we could do to come back to it. I recall that Mr Cairnduff’s response was that although getting the Deed signed was a priority, we always had the right to object to tax assessments and this remained an option for us to consider in the future.”[118]
[118] Affidavit of Mr Tarcisio Cremasco sworn on 19 July 2016 at [16]
In relation to the earlier Minute of Terms of Agreement, Mr Cremasco said that he had been upset about the figures in that document. He recalled Mr Cairnduff’s telling him that the debts were due to “distributions’ and that he would always have the right to object to the taxation assessments that would be raised. Mr Cremasco added:
“… Some days later I asked Mr Cairnduff to sign the Minutes on behalf of the Trustee company , as I was not interested in incurring further costs in having the dispute go to trial in the AAT.”[119]
[119] Affidavit of Mr Tarcisio Cremasco sworn on 19 July 2016 at [15]
Mr Cairnduff’s evidence is:
“At no stage did the ATO discuss with me that it was going to take away from the client the usual rights that the client had in relation to these assessments. This also was never mentioned directly to me or Terry Cremasco in my presence, by the best of my knowledge by Pitchers. This was significant as from my experience I know that a taxpayer has the right to object to an assessment made by the Commissioner.”[120]
[120]Affidavit of Mr Rodney Cairnduff sworn on 28 July 2016 at [12]
Even accepting, as I do, that Mr Cremasco’s memory of events is as he says, two essential facts remain. One is that both the Minute of Terms of Agreement and the Deed of Settlement were seen by Mr Cremasco, as well as by the Commissioner, as bringing their dispute to an end. Their dispute would not be brought to an end if EE&C could re-agitate the same issues with the Commissioner at a later time and the matter would potentially return to the Tribunal. I do not think that Mr Cremasco’s affidavit can be read as wanting the then extant proceedings in the Tribunal alone to be brought to an end.
The second fact is that the Deed of Settlement contained clauses clearly abrogating EE&C’s rights to object to, or request amendment or review of the Original Assessments, of the Amended Assessments or of the New Penalty Assessments. There was no attempt to hide or obfuscate the relevant clauses. Seven clauses dealt with various aspects of review so that the fact that EE&C was foregoing any rights it had for review was spelt out from a number of angles. The clauses appeared clearly under a heading regarding EE&C’s obligations as trustee of the TCF Trust.
There is nothing in the evidence to suggest that the Commissioner had any inkling that EE&C or those associated with it were labouring under a misapprehension that they could object to all or any of the three types of assessment that the Commissioner undertook to issue after the Tribunal made its decisions under s 42C of the AAT Act. This is a case in which EE&C and its connections might have been labouring under a mistake but it was a mistake of which the Commissioner was unaware and that the Commissioner could not reasonably be expected in the circumstances to have been aware. Therefore, I have concluded that there is no basis on which to set aside the Deed of Settlement according to which the Commissioner issued the Original Assessments, Amended Assessments and New Penalty Assessments.
As EE&C has bound itself contractually not to object to them, there can be no objection to the Original Assessments and New Penalty Assessments and so no obligation placed upon the Commissioner to decide any such objection. As there is no obligation to decide it, he cannot be deemed to have made an objection decision. Without an objection decision, there is no basis on which EE&C could make an application for review to the Tribunal.
Similar reasoning applies to the Amended Assessments for which EE&C sought an extension of time within which to lodge objections. In view of the negotiated terms agreed upon in the Deed of Settlement, EE&C could not lodge a taxation objection to the Amended Assessments issued by the Commissioner in accordance with the terms of that Deed.
Quite apart from that issue, I accept that submission made by Mr Hanks QC that, even if EE&C had been entitled to object to the Amended Assessments, the effect of ss 14ZZL and 14ZV would be to limit it to objecting to particular alterations or additions given effect to in those Amended Assessments. Those particular alterations or additions would have been made to the Assessments originally made only in order to give effect to the Tribunal’s decision made under s 42C and giving effect to the parties’ agreement in the Deed of Settlement. As the Tribunal has already made its decision on the matters leading to those alterations or additions, it has exhausted its powers of review on them. That is the effect of the judgment of Pincus J in Bogaards v McMahon.
Request to extend time under section 14ZX of TAA
Although that seems to me to be an end of the matter in relation to the Amended Assessments, I note that there remains the issue of whether the Commissioner should have granted an extension of time under s 24ZK of the TAA in respect of the 2002, 2003 and 2005 years. The Commissioner has reserved his position on this as it was not the subject of the issues addressed in the hearing. I note that it remains an outstanding issue if I should be incorrect on my conclusions that I do not have jurisdiction to consider the applications lodged by EE&C.
DECISION
For these reasons, I have concluded that EE&C waived any right that it might otherwise have had to object to the Original Assessments, Amended Assessments and New Penalty Assessments when it signed the Deed of Settlement. That means that it has not made a valid objection to them. Therefore, the Commissioner either has not made, or is not deemed to have made, a reviewable objection decision in relation to them.
| I certify that the preceding one hundred and eleven (111) paragraphs and Annexure are a true copy of the reasons for the decision herein of Deputy President S A Forgie |
...[sgd].....................................................................
Associate
Dated: 30 October 2018
| Date of Hearing: | 13 October 2016 |
| Counsel for the Applicant: Solicitor for the Applicant: Counsel for the Respondent | Mr Kevin Jones Mr James Huggett Mr Peter Hanks QC, Ms Melanie Baker |
| Solicitor for the Respondent: | Ms Suzanne Singh Australian Taxation Office |
ANNEXURE 1
MINUTE OF TERMS OF AGREEMENT
SETTLEMENT ADJUSTMENTS
EVEREST ENGINEERS & CONSULTANTS PTY LTD as trustee for TARCISIO CREMASCO FAMILY TRUST
PARTICULARS 1999 $ 2000 $ 2001 $ 2002 $ 2003 $ 2004 $ 2005 $ Taxable Income/Loss Returned (123,258) 148,566 (74,764) 46,390 208,458 53,612 274,782 Adjustments Bad Debt deduction disallowed 517,116 Adjust for carried forward losses recouped in return 123,258 74,764 Interest Expense disallowed 87,936 89,653 107,385 103,602 80,763 20,563 Capital Gain – sale of 1st tranche of units 8,160 Distribution from G&T Cremasco Unit Trust – sale of 1st tranche of units 2,720 Capital Gain – sale of AGFS Units 56,250 Distribution from G & T Cremasco Unit Trust – sale of 2nd tranche of units 188,940 Distribution from G & T Cremasco Unit Trust 8,887 9,333 Adjusted Taxable Income 393,858 370,640 14,889 417,479 320,947 199,959 295,345 Distributions N/A N/A N/A N/A N/A N/A 50,000 Adjusted Taxable Income Assessable to Trustee under s. 99A of the ITAA 1936 393,858 370,640 14,889 417,479 320,947 199,959 245,345 Tax on Adjusted Taxable Income Tax 185,113.26 174,200.80 6,997.83 196,215.13 150,845.09 93,980.26 115,312.15 Medicare Levy 5,907.87 5,559.60 223.33 6,262.18 4,814.20 2,999.37 3,680.17 TOTAL 191,021.13 179,760.40 7,221.16 202,477.16 155,659.29 96,979.63 118,992.32 Shortfall Penalty (25%) 47,755.28 44,940.10 1,805.29 50,619.32 38,914.82 24,244.90 29,748.08
CJ, McTiernan, Williams, Kitto and Taylor JJ
0
6
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