Fastbet Investments Pty Ltd v Deputy Commissioner of Taxation (No 5)
[2019] FCA 2073
•9 December 2019
FEDERAL COURT OF AUSTRALIA
Fastbet Investments Pty Ltd v Deputy Commissioner of Taxation (No 5) [2019] FCA 2073
File numbers: QUD 547 of 2017
WAD 73 of 2018Judge: DERRINGTON J Date of judgment: 9 December 2019 Catchwords: ADMINISTRATIVE LAW – jurisdictional fact review – formation of reasonable belief – alleged failure to take into account a relevant consideration – approach to discerning relevant considerations or relevant factors – discussion of application of Peko-Wallsend test – whether Peko-Wallsend test applicable to particular facts of particular cases
TAXATION – security bond demands – relevant factors for determining whether “otherwise appropriate” to require security bond demand – whether consideration must be given to impact on recipient of requiring security – whether Commissioner can lawfully receive cash for discharge of mortgage security
Legislation: Administrative Decisions (Judicial Review) Act 1977 (Cth)
Income Tax Assessment Act 1922 (Cth)
Income Tax Assessment Act 1936 (Cth)
Judiciary Act 1903 (Cth), s 39B
Taxation Administration Act 1953 (Cth), Sch 1, s 255-100
Cases cited: Abebe v Commonwealth (1999) 197 CLR 510
Alexander v Australian Community Pharmacy Authority (2010) 233 FCR 575
Applicant WAEE v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 236 FCR 593
Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353
Bare v Independent Broad-Based Anti-Corruption Commission (2015) 48 VR 129
Bernadt v Medical Board of Australia [2013] WASCA 259
Buck v Bavone (1976) 135 CLR 110
Bushell v Environment Secretary (Bushell) [1981] AC 75
CAQ17 v Minister for Immigration and Border Protection [2019] FCAFC 203
Carltona Ltd v Commissioners of Works [1943] 2 All ER 560
Chang v Neill [2019] VSCA 151
CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086
D’Amore v Independent Commission Against Corruption [2012] NSWSC 473
EHF17 v Minister for Immigration and Border Protection [2019] FCA 1681
Foster v Minister for Customs and Justice (2000) 200 CLR 442
George v Rockett (1990) 170 CLR 104
He v Minister for Immigration and Border Protection (2017) 255 FCR 41
Hossain v Minister for Immigration and Border Protection (2018) 359 ALR 1
Insurance Australia Ltd trading as NRMA Insurance v Motor Accidents Authority of New South Wales [2007] NSWCA 314
Keris Pty Ltd v Deputy Commissioner of Taxation (2017) 253 FCR 233
Lee v Commissioner of Taxation (1962) 107 CLR 329
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24
Minister for Immigration and Border Protection v Sabharwal [2018] FCAFC 160
Minister for Immigration and Border Protection v SZMTA (2019) 363 ALR 599
Minister for Immigration and Citizenship v SZRKT (2013) 212 FCR 99
Minister for Immigration and Ethnic Affairs v Taveli (1990) 23 FCR 162
Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611
Minister for Immigration and Multicultural Affairs vJia (2001) 205 CLR 507
Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323
Minister for Immigration and Multicultural and Indigenous Affairs v SGLB (2004) 78 ALJR 992
O’Reilly v Commissioners of the State Bank of Victoria (1983) 153 CLR 1
Phosphate Resources Ltd v Minister for the Environment, Heritage and the Arts(No 2) (2008) 251 ALR 80
Pilbara Infrastructure Pty Ltd v Economic Regulation Authority [2014] WASC 346
Plaintiff M70/2011 v Minister for Immigration and Citizenship (2011) 244 CLR 144
Prior v Mole (2017) 261 CLR 265
R v Connell; Ex parte The Hetton Bellbird Collieries Ltd (1944) 69 CLR 407
R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327
Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Applicants S134/2002 (2003) 211 CLR 441
Ruddock v Taylor (2005) 222 CLR 612
Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252
Sean Investments Pty Ltd v Mackellar (1981) 38 ALR 363
Date of hearing: 10 June 2019, 11 June 2019, 10 July 2019 Registry: Queensland Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 221 Counsel for the Applicants: Mr PE Hack QC with Mr JW Fickling Solicitor for the Applicants: Robson Legal Counsel for the Respondent: Dr R Schulte Solicitor for the Respondent: Australian Government Solicitor ORDERS
QUD 547 of 2017 BETWEEN: FASTBET INVESTMENTS PTY LTD ACN 124 463 770
Applicant
AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
WAD 73 of 2018 BETWEEN: HOLMES ROAD PTY LTD ACN 609 139 577 AS TRUSTEE FOR THE HOLMES ROAD TRUST
Applicant
AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
JUDGE:
DERRINGTON J
DATE OF ORDER:
9 DECEMBER 2019
THE COURT ORDERS THAT:
1.In proceeding QUD 547 of 2017:
(a)the application is dismissed;
(b)if the costs of the application are not agreed between the parties and the Court informed by 4.00 pm AEST on 18 December 2019, the proceeding be listed for directions as to costs at 9.30 am on 20 December 2019.
2.In proceeding WAD 73 of 2018:
(a)the application is dismissed;
(b)if the costs of the application are not agreed between the parties and the Court informed by 4.00 pm AEST on 18 December 2019, the proceeding be listed for directions as to costs at 9.30 am on 20 December 2019.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
Introduction
In separate proceedings the respective applicants, Fastbet Investments Pty Ltd (Fastbet) and Holmes Road Pty Ltd (Holmes Road), each seek relief under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (AD(JR) Act) or s 39B of the Judiciary Act 1903 (Cth) in respect of decisions by the Deputy Commissioner of Taxation of the Commonwealth (the Commissioner) to issue notices to them under s 255-100 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (the TAA). Each of those notices required the recipient company to give security to the Commissioner for the due payment of a “future tax-related liability”.
Each applicant company is controlled by Ms Tina Bazzo, who is the sole director of each, and whose personal conduct and conduct in the control of other corporations formed the basis of the Commissioner’s decision to issue the notices. Each of the originating applications relies on substantially the same grounds, being, predominantly, that the Commissioner failed to take into account certain alleged relevant considerations when exercising the discretion to issue the notices. A constitutional ground is also advanced, although the applicants acknowledge that, in respect of this issue, this Court is bound by the decision in Keris Pty Ltd v Deputy Commissioner of Taxation (2017) 253 FCR 233 (Keris), where that same ground was rejected. In Fastbet’s application, relief is also claimed for the return of money which has been received by the Commissioner from time to time in return for the partial release of the security granted by Fastbet.
At the request of the parties the matters were heard together. Whilst that may have seemed an acceptable course at the time, it has ultimately resulted in some ambiguity in the evidence. The parties focused attention on the issues surrounding the notice given to Fastbet and seemed to accept that the relevant evidence applied to the circumstances of Holmes Road. As it transpired, that assumption was possibly too readily accepted. The issue in each matter turned on the decision-making process of the Commissioner in respect of each applicant and those processes occurred on different occasions in relation to slightly different circumstances.
As the following reasons disclose, in each matter the applicant has failed to establish the existence of an error which has invalidated the decision of the Commissioner to issue the notice. In summary, the applications fail for the following reasons:
(a)The applications were founded upon the erroneous basis that the requirement of the Commissioner to have regard to “all relevant circumstances” related to the exercise of his discretion to issue a notice under s 255-100. In fact, that obligation related to the antecedent step of the Commissioner reaching a reasonable belief that requiring security from the applicants was appropriate.
(b)That error permeated each application and the submissions made in relation to them. The applicants’ focus was on attempting to establish what were “relevant considerations” for the exercise of power rather than what were the factors or circumstances to which the Commissioner was to have regard in forming a reasonable belief about the appropriateness of requiring security.
(c)In any event, the matters which were said by the applicants to be “relevant considerations” were not matters which, by implication from the subject-matter, scope and purpose of the Act conferring power, the Commissioner was required to take into account in the exercise of his discretion or in the formation of the required state of mind.
(d)Even if the Commissioner was required to have regard to the matters identified, as a matter of fact, he largely did so when determining to issue the notices.
(e)Moreover, most of the matters advanced by the applicants were not essential, significant or important to the state of mind which the Commissioner was required to form under s 255-100(1)(b), in the sense that the failure to have regard to them would not evidence a failure to perform the statutory obligation. Any identified matter to which the Commissioner did not have regard fell within this category.
(f)The Commissioner is entitled to rely upon and adopt the calculations and assessments performed by his officers in the course of their employment and, for the purposes of reaching the state of mind required by s 255-100, he is not required to undertake them himself nor, to the extent to which he might be able, review them.
(g)Even if it be that the Commissioner did not have regard to one of the myriad matters identified by the applicants (in paragraph 3 of the respective originating applications), the failure to do so was not “material” and the omission did not give rise to any vitiating error in the formation of the required state of mind or the subsequent exercise of discretion. Neither party addressed the question of the materiality of any failure to have regard to any of the identified circumstances.
Background
Fastbet
On 19 September 2017, Fastbet received a notice pursuant to s 255-105 of the TAA requiring it to give security to the Commissioner of Taxation for the payment of certain future tax-related liabilities. Such notices are commonly referred to as Security Bond Demands and will be referred to in these reasons by the acronym “SBD”. The one issued to Fastbet stated that the Commissioner had formed the belief that it was appropriate to require the provision of security by that company having regard to the particular circumstances, which were set out as follows:
a)Information in the possession of the Commissioner indicates that the Company holds substantial property assets and is engaged in property development which is intended to result in the subdivision and sale of approximately 570 blocks of land.
b)ATO auditors estimate that the Company’s property development activity will give rise to GST and Income Tax liabilities of at least $6,892,222.
c) Tina Bazzo is the sole director of the Company.
d)Tina Bazzo has been non-compliant with regard to her personal taxation obligations.
e)Tina Bazzo presently owes more than $13,869,620 in personal taxation liabilities.
f) Tina Bazzo is being prosecuted in respect of two alleged taxation offences.
g)Numerous companies have been non-compliant with regard to their taxation obligations while under the control of Tina Bazzo, and this has resulted in those companies failing to pay tens of millions of dollars to the Commissioner.
h)Gundaroo Investments Pty Ltd incurred more than $3 million of unpaid taxation liabilities while Tina Bazzo was director.
i)Ankfar Pty Ltd (formerly Anketell Farms Pty Ltd) incurred more than $1.6 million of unpaid taxation liabilities while Tina Bazzo was director.
j)Parliament Place Pty Ltd as trustee for the Royal Trust incurred more than $1 million of unpaid taxation liabilities while Tina Bazzo was director.
k)Tina Bazzo is the sole director of GH1 Pty Ltd, formerly Gucce Holdings Pty Ltd, (“GH1”) which incurred more than $73 million of unpaid taxation liabilities during her directorship.
l)In October 2015, GH1 sold property to a third party, but allowed approximately $3.35m of the proceeds of sale to be paid to Parkdale Asset Pty Ltd, another company controlled by Tina Bazzo.
m) Paramount View Pty Ltd as trustee for the BG Unit Trust incurred more than $580,000 of unpaid taxation liabilities while Tina Bazzo was a director.
n)In a report to creditors dated 31 May 2013, the administrator of Paramount View Pty Ltd noted that Tina Bazzo’s granting of a fixed and floating charge in favour of her related company, GH1, constituted a breach of her director’s duties under sections 180-182 of the Corporations Act 2001. The administrator also conveyed his belief that there were grounds for bringing an Insolvent trading action against Tina Bazzo.
o)GH1 was placed into voluntary administration on 5 April 2017. As at the commencement of GH1’s administration, ASIC records indicated that GH1 owned 85% of the shares in the Company. On 19 April 2017, Tina Bazzo lodged a Change to Company Details form with ASIC, in which she said that the shares owned by GH1 had been transferred to another company controlled by her, GHT(WA) Pty Ltd (ACN 167 091 269) (“GHT(WA)”), more than three years earlier, on 6 March 2014.
p)As at the commencement of GH1's administration, ASIC records also indicated that GH1 owned shares in Byford Land Company Pty Ltd, Ocean Keys (WA) Pty Ltd, Flynn Drive Holdings Pty Ltd, Moonspark Nominees Pty Ltd, Platinum Sky Pty Ltd, 119 Nicholson Road Pty Ltd, Abernethy Land Company Pty Ltd, 115 Cambridge Street Pty Ltd, 220 St George’s Terrace Pty Ltd, Gold Class Nominees Pty Ltd, 89 Burswood Road Pty Ltd, 1110 Hay Pty Ltd, George 218 Pty Ltd and Prada Pty Ltd.
q)On 29 April 2017 and 30 April 2017, following the commencement of GH1’s administration, ASIC was notified that, on 31 March 2017, all of the shareholdings identified in the above paragraph were transferred to a company controlled by Tina Bazzo, GHT(WA), except for the shares in Prada Pty Ltd, which were transferred to Tina Bazzo.
r)On 3 April 2017 (two days before the commencement of the GH1 administration), Landgate records indicated that the Company lodged a Transfer of Land document which purported to show that a year earlier, on 4 April 2016, the Company had transferred a property at Lot 101 on Deposited Plan 20025, being certificate of title volume 2014, folio 652, to GHT(WA) Pty Ltd.
s)GH1 was placed into liquidation on 22 May 2017 and the Commissioner has lodged a Proof of Debt in the amount of $73,669,171.09 for unpaid taxation liabilities.
t)In addition to the above, Tina Bazzo is a director of more than a dozen other companies which, collectively, have more than twenty outstanding income tax returns or Business Activity Statements.
…
The Commissioner believes that this requirement to give security is appropriate because there is a risk that the Company will not pay the $6,895,222 of tax-related liabilities which it is expected to incur from its property development activity.
That perceived risk arises because the director of the Company, Tina Bazzo, has demonstrated a disregard for some important tax obligations incurred by companies under her control and by her in her personal capacity, including the obligation to lodge returns on time and the obligation to pay taxation liabilities due to the Commissioner of Taxation.
The SBD required Fastbet to provide security to the Commissioner in the amount of $6.5 million, which was said to be in respect of a $6,895,222 tax-related liability which the Commissioner anticipated the company would incur as a result of its property development activities. It required Fastbet to provide security in the form of a signed mortgage capable of registration at the Land Information Authority (Landgate) pursuant to the Transfer of Land Act 1893 (WA) in respect of 18 described parcels of land. It is to be noted that, by the time of the issue of the SBD, Fastbet had sold two of those parcels.
On 23 October 2017, and in a response to a request to do so, the Commissioner provided a statement of reasons pursuant to s 13(1) of the AD(JR) Act. In them, the delegate of the Commissioner made findings in support of the matters which were set out in the SBD. Relevantly, the delegate identified Fastbet’s involvement in an enterprise of development of land holdings with a view to the sale of subdivided portions. Findings were also made of Ms Bazzo’s delinquency in relation to her personal tax affairs as well as those of companies of which she was a director. It was identified that, as at 3 September 2017, she owed $13.8 million in personal taxation liabilities, she was being prosecuted in respect of two alleged taxation offences, and had been a director of multiple companies which had entered into insolvency with unpaid taxation liabilities which were incurred or accrued during the period of her directorship. Those unpaid liabilities were identified as being in the vicinity of approximately $80 million. Findings were also made as to her dealings with the assets of various companies which had the effect of removing those assets from those companies’ administrations. Further, the delegate made a finding that there were approximately 16 companies, of which Ms Bazzo was the then current director, which had outstanding taxation obligations.
In reaching the conclusion that it was appropriate to issue the SBD, the delegate indicated that he relied upon notification from the audit team of the Australian Taxation Office (the ATO) of Fastbet’s anticipated future tax liabilities, which were identified as being approximately $6.8 million. He added that he regarded the audit team’s calculations of likely net future tax liabilities as tending to be reliable, albeit conservative. As to the risk to the revenue, the delegate made the following findings:
In making my decision to issue the Notice, I held the belief that there was a significant risk that Fastbet Investments Pty Ltd would not pay the $6,895,222 of tax-related liabilities which ATO auditors had estimated that Fastbet Investments Pty Ltd would incur from its property development activity.
This belief was based on my consideration of the non-compliant behaviour of Ms Bazzo and more than fifteen companies of which Ms Bazzo currently is (or previously had been) a director, evidence of which was outlined in the submission of Cong Nguyen, dated 19 September 2017.
Based on my belief that there was a significant risk that Fastbet Investments Pty Ltd would fail to pay the anticipated $6,895,222 of tax-related liabilities, I concluded that it was appropriate that I should seek to mitigate that risk by issuing the Notice to require the provision of $6,500,000 of security.
I recognised that if I were to acquire the security in the form of a cash deposit, it might constitute an unreasonable burden on Fastbet Investments Pty Ltd’s cash resources. Accordingly, I concluded that the appropriate form of security I should seek would be a mortgage over Fastbet Investments Pty Ltd's real estate assets.
The securities which were required from Fastbet, by way of mortgages over the several parcels of land, were subsequently provided (save in respect of those parcels which were sold).
On 16 November 2017, a further SBD was issued by the Commissioner which was in identical terms to that issued on 19 September 2017, save that it required security over six other Fastbet properties. It would appear that mortgages were duly provided by the company.
From time to time Fastbet has sold several portions of land. On the completion of each sale, the Commissioner, in return for the payment of certain funds, has released the mortgage over that land. The dates, the properties in respect of which the funds were recovered, and the amounts were as follows:
Date Property Amount
13 February 2019 Lot 16, 9 Binfield Street $7,409.09
12 March 2018 Lot 158, 8 Galah Way $7,408.82
21 March 2018 Lot 153, 3 Groundlark Road $9,868.18
6 April 2018 Lot 152, 5 Groundlark Road $9,750.00
9 April 2018 Lot 176, Grandite Fairway $8,863.64
21 May 2018 Lot 11, 4 Groundlark Road $7,622.73
6 August 2018 Lot 24, 4 Binfield Street $9,750.00
3 September 2018 Lot 103, 91 Grandite Fairway $9,040.91
25 September 2018 Lot 12, 6 Groundlark Road $9,750.00
Total $79,463.37
Holmes Road
The SBD issued to Holmes Road was in substantially the same form as that issued to Fastbet. In it the delegate identified that Holmes Road held a real estate asset which it intended to develop by subdivision into 73 blocks, which were then intended to be sold. It was recorded that the auditors estimated the future tax liabilities of Holmes Road at around $1.2 million. It further recorded that the delegate had relied upon substantially the same 18 matters as were referred to in the Fastbet SBD, concerning the taxation delinquencies of Ms Bazzo and her companies, as the justification for it being issued. It indicated that the delegate considered that there was a risk that Holmes Road would not pay the $1.2 million of tax-related liabilities expected to arise from the property development activities when they fell due. The expression of risk was in the same terms as appear in the Fastbet SBD which was, perhaps, not surprising given the commonality of Ms Bazzo’s involvement. The SBD then stated that Holmes Road was required to give the Commissioner security in the amount of $1.2 million in respect of the anticipated future income tax liabilities.
Subsequently, the delegate provided reasons for the decision pursuant to s 13(1) of the AD(JR) Act. For present purposes there is no need to set out those reasons. They reflect the same concerns and appreciation of risk as appeared in the reasons in respect of the Fastbet SBD.
The legislation
The directly relevant provisions are contained in Part 4-15 of the TAA, which is entitled “Collection and recovery of tax-related liabilities and other amounts”. Section 250-1 states that the Part “deals with the methods by which the Commissioner may collect and recover amounts of taxes and other liabilities.” Section 250-25 identifies the object of the Part in the following manner:
Subdivision 250-B—Object of this Part
250-25 Object
The object of this Part is to ensure that unpaid amounts of *tax-related liabilities and other related amounts are collected or recovered in a timely manner.
The intended fulfilment of that objective can be seen from a brief perusal of the facultative provisions and powers granted to the Commissioner in Part 4-15. Apart from the sections presently under consideration, the Part confers an array of powers and privileges to assist the Commissioner in the collection of taxes, including: relieving the Commissioner of the obligation to effect personal service in some cases: s 255-40; the power to recover tax-related liabilities from third parties, liquidators, receivers, and the estates of deceased persons: Div 260; the right to recover from both persons who are jointly liable for a tax-related liability the full amount of the tax from either: Div 265; the ability to estimate the amounts of PAYG withholding amounts not paid to the Commissioner and to recover the same regardless of whether the amount is actually owing or not: Div 268; the right to require directors of companies which do not remit PAYG amounts to pay the withheld amount: Div 269. The Part also contains a variety of offences for non-payment of tax-related liabilities.
Unashamedly, Part 4-15 is directed to equipping the Commissioner with the ability and power to recover tax-related liabilities. Its purpose is the protection of the revenue and the facilitation of the collection of taxes. That said, in it, the legislature has taken measures — where it has considered it appropriate — to ameliorate the impact of the collection process on taxpayers. The Commissioner is given power to defer the time for payment of tax: s 255-10; or to allow for payment by instalments: s 255-15; a taxpayer who has received an estimate of unremitted PAYG withholding amounts is able to immediately relieve themselves from the obligation to pay by the giving of a statutory declaration or affidavit where the Commissioner may have proceeded on a misapprehension of the facts: s 268-40; a director who has received a penalty notice is able to relieve themselves of the obligation under it by taking any of the steps in s 269-15. (In respect of the latter two, see further CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086.)
That general consideration of Part 4-15 demonstrates that the legislature has sought to facilitate the collection of the revenue and, where appropriate, afforded the taxpayer certain protections. In doing that it has struck a balance between ensuring the recovery of taxation and avoiding undue burden on taxpayers.
Within that Part, Division 255 is directed to the topic of “General rules about collection and recovery”. Further, Sub-division 255-D deals with the topic of “security deposits”. For the purposes of this matter, the following individual sections are relevant:
255-100 Commissioner may require security deposit
(1)The Commissioner may require you to give security for the due payment of an existing or future *tax-related liability of yours if:
(a) the Commissioner has reason to believe that:
(i) you are establishing or *carrying on an *enterprise in Australia; and
(ii)you intend to carry on that enterprise for a limited time only; or
(b)the Commissioner reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances.
Note: A requirement to give security under this section is not a tax-related liability. As such, the collection and recovery provisions in this Part do not apply to it.
(2) The Commissioner may require you to give the security:
(a) by way of a bond or deposit (including by way of payments in instalments); or
(b)by any other means that the Commissioner reasonably believes is appropriate.
(3) The Commissioner may require you to give security under this section:
(a) at any time the Commissioner reasonably believes is appropriate; and
(b) as often as the Commissioner reasonably believes is appropriate.
Example: The Commissioner may require additional security if he or she reasonably believes that the original security requirement underestimated the amount of the likely tax-related liability.
255-105 Notice of requirement to give security
Commissioner must give notice of requirement to give security
(1)If the Commissioner requires you to give security under section 255-100, he or she must give you written notice of the requirement.
Content of notice
(2) The notice must:
(a)state that you are required to give the security to the Commissioner; and
(b) explain why the Commissioner requires the security; and
(c) set out the amount of the security; and
(d) describe the means by which you are required to give the security under subsection 255-100(2); and
(e) specify the time by which you are required to give the security; and
(f)explain how you may have the Commissioner's decision to require you to give the security reviewed.
(3)To avoid doubt, a single notice may relate to security for the payment of 2 or more existing or future *tax-related liabilities, but must comply with subsection (2) in relation to each of them.
When notice is given
(4)Despite section 29 of the Acts Interpretation Act 1901, a notice under subsection (1) is taken to be given at the time the Commissioner leaves or posts it.
Note: Section 28A of the Acts Interpretation Act 1901 may be relevant to giving a notice under subsection (1).
Miscellaneous
(5)A failure to comply with this section does not affect the validity of the requirement to give the security under section 255-100.
The expression “tax-related liability” is defined by s 255-1 to as:
255-1 Meaning of tax-related liability
(1) A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a *taxation law (including a liability the amount of which is not yet due and payable).
Section 255-110 creates an offence if the Commissioner requires a taxpayer to provide security and it is not provided.
The operation of s 255-100
Before turning to the submissions advanced in the present case, it is appropriate to consider the manner in which s 255-100 operates. In the course of the hearing, reference was made to the decision in Keris, which assists in that regard.
Keris Pty Ltd v Deputy Commissioner of Taxation
Several companies controlled by Ms Bazzo have engaged in litigation with the Commissioner, on numerous occasions. One is Keris Pty Ltd. It was given an SBD under s 255-100, requiring it to give security in an amount of $350,000 in relation to a future tax-related liability, by way of a mortgage over certain real property. The Commissioner had formed the view that Keris would not pay certain tax-related liabilities in excess of $373,000 when they were incurred. Keris sought to set aside the notice and failed before the primary judge. The Full Court dismissed an appeal and, in doing so, considered the operation of the scheme in Div 255 concerning the giving of SBDs requiring the provision of security. It is appropriate to consider the reasons of the Full Court (Greenwood, McKerracher and Moshinsky JJ) for doing so:
(a)The Court observed that s 255-100 conferred a discretion upon the Commissioner to require the taxpayer to give security for the due payment of an existing or future tax-related liability if either of the matters in subss (1)(a) or (b) is satisfied: [25].
(b)An existing tax-related liability is a pecuniary liability, the amount of which is known or quantified even if not then due.
(c)In relation to a “future tax-related liability”, the Court said at 242 [27]:
A future tax-related liability seems to contemplate a pecuniary liability directly arising under a taxation law, in the future, where the amount of the pecuniary liability is unknown or unquantified at the time of the exercise of the discretionary power because the section, when speaking of “a future *tax-related liability of yours” is forward-looking to events giving rise to a tax-related liability which have not yet occurred.
(d)The entitlement to require security in relation to forward-looking liabilities is consistent with the Commissioner’s power in s 255-100(3), which permits him to require security at any time he reasonably believes is appropriate and as often as he believes appropriate, as well as his ability to require additional security. The provisions recognise that a future tax-related liability will necessarily be an estimate of the liability: [28].
(e)The Court emphasised that the security is for the “due payment” of the existing or future tax-related liability, rather than as payment itself of the liability. That is, the section contemplates the eventual performance of the payment obligation: [29].
(f)An existing tax-related liability is one where, at the time of the exercise of power, a presently existing pecuniary liability to the Commonwealth arises directly under a taxation law, including a liability the amount of which is not yet due and payable. That occurs where the Commissioner has made an assessment or is taken to have made an assessment and a relevant notice of it has been given: [91].
(g)A future tax-related liability is that state of affairs which exists when, at the time of the exercise of power, future events postulate the possibility of a pecuniary liability to the Commonwealth arising directly, in the future, under a taxation law: [92]. The power to require security for that liability is not conditioned upon facts having occurred upon which the Commissioner could then act to make and notify an objectively correct quantification of the amount of the liability: [93].
(h)The scope of elements which enliven the power under s 255-100(1)(a) negate the suggestion that the provision is limited to where the Commissioner can isolate, at the time of the exercise of the power, existing taxable facts having occurred which would give rise to a liability which might be assessed.
(i)The “subject matter” of the conferral of the discretion in s 255-100(1) is a power to require the addressee to give security for the due payment of either an “existing tax-related liability” or a “future tax-related liability”: [98].
(j)The expression “due payment”, in respect of an existing tax-related liability, means payment, when due, of a sum which the person is legally liable to pay. “The ‘due payment’ of a ‘future tax-related liability’ means, prima facie, the payment, when due, to the Commissioner (for the Commonwealth) of the amount of a pecuniary liability, in the future, arising directly under a taxation law and, since the pecuniary liability so arising will not arise until some time in the future, the time for payment (on a date fixed for payment), will not arise until sometime after the future tax-related liability has arisen”: [101].
(k)Generally, the Court rejected Keris’ submissions that, before the Commissioner might require security in relation to future tax-related liabilities, there had to be an ascertainable amount of tax.
Keris also raised an argument arising under the Constitution similar to that now raised in this Court. The conclusions of the Full Court on this topic are considered below.
The structure of the section
The discretionary nature of the power to issue an SBD is a result of the word “may” in the chapeau to s 255-100. When exercised, the power is to require the recipient of the notice to provide security for the due payment of a tax-related liability. The nature of the security which the Commissioner might require an entity to provide is not, itself, specified in the chapeau. In relation to the exercise of the power in subs (1)(b), the security will be that which the Commissioner reasonably believes it is appropriate that the person gives in respect of the tax-related liability. In relation to subs (1)(a), there is no expressly prescribed limit to the type or suitability of the security which might be required, although the requirement that the power be exercised reasonably will confine that which might be required.
However, the antecedent step to the exercise of the discretionary power is the satisfaction of either of the jurisdictional facts identified in the sub-sections. In subs (1)(a), the jurisdictional fact is that the Commissioner has “reason to believe” in the establishment or the carrying on of an enterprise by the proposed recipient of the SBD which is intended to be carried on for a limited time. The rationale for the enlivening of the discretion on satisfaction of (1)(a) is obvious given that, where an entity intends to carry on an enterprise for a limited time, there is a risk that the revenue from the enterprise will be disbursed without the resulting taxation obligations being fulfilled, and no on-going business would exist from which tax might be recovered. (Subsection (1)(a) can be seen as the modern form of the power enacted in s 54(5) of Part IV of the Income Tax Assessment Act 1922 (Cth).)
The jurisdictional fact in subs (1)(b) is that the Commissioner has a reasonable belief “that the requirement [to provide security] is otherwise appropriate, having regard to all relevant circumstances.” The expression “otherwise appropriate” would appear to mean appropriate in circumstances other than those in (1)(a). Such circumstances are likely to be myriad, and there is no restriction on the nature of type of events which might cause the Commissioner to believe that the provision of security is appropriate. (Subsection (1)(b) can be seen as the modern form of the words later added — by the original enactment of s 213(1) of Part IV of the Income Tax Assessment Act 1936 (Cth) — to the progenitor in the 1922 Act.)
The type of security which the Commissioner might require is not limited, save that it is of a type which the Commissioner reasonably believes is appropriate: s 255-100(2).
The jurisdictional fact in subs (1)(b), being the formation of a reasonable belief that the requirement of security is appropriate, contains both subjective and objective elements. The Commissioner, or his delegate, must actually have the belief that the provision of security is appropriate, and that belief must be objectively reasonable. It follows that it is irrelevant if, on later examination, some fact or matter of law which the Commissioner reasonably believed to exist was shown not to exist, so long as the belief was reasonable when the decision was made: Ruddock v Taylor (2005) 222 CLR 612, 622-623 [27]-[28].
The formation of the required state of mind
For the purposes of establishing the state of mind on which the discretion is conditioned, s 255-100(1)(b) requires the Commissioner to have regard to “all relevant circumstances”. Neither party made any detailed submissions as to how that expression was to be construed in its context. The applicants submitted that it was equivalent to the concept of “relevant considerations” as that expression is referred to in Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 (Peko-Wallsend). (See, in particular, paragraph 72 of the applicants’ submissions.) That was consistent with their failure to appreciate that the exercise of having regard to the circumstances was directed to the formation of the reasonable belief, and not to the exercise of the discretion. No attempt was made to explain why the Peko-Wallsend test was applicable in these circumstances and no authority was advanced to support it. Counsel for the Commissioner agreed with the applicants’ submission.
As a matter of law the applicants’ submission is not correct and must be rejected, despite the applications having been argued by both parties on that basis. As will be seen below, in the formation of the reasonable belief which s 255-100 requires, there are possibly “factors” which the Commissioner is required to consider, and their existence is ascertained by a process akin to the test in Peko-Wallsend for ascertaining the “relevant considerations” which must be considered when exercising a discretionary power. However, the expression “all relevant circumstances” more accurately refers to the facts, materials or evidence in a particular case, and the question of which of those matters the delegate must have regard to and the consequences of not doing so differ from the test derived from Peko-Wallsend.
Section 255-100(1) and the review of a subjective jurisdictional fact
An important element in understanding the operation of subs (1)(b) is the identification of the circumstances in which a state of mind purportedly formed for its purpose might be vitiated. In other words, what are the grounds on which a jurisdictional fact, which includes a partly subjective state of mind, can be reviewed?
The following discussion concerns a number of grounds which might vitiate a subjective jurisdictional fact and is not limited to the issue of whether the repository of power has effectively considered the correct matters or all of them. The wider discussion is relevant to other parts of the application.
A court’s review of whether a jurisdictional fact exists is not, of itself, judicial review in the sense of being review for jurisdictional error. Whilst the absence of a jurisdictional fact may have the consequence that any subsequent purported exercise of the power which is conditioned on the jurisdictional fact is without authority: Plaintiff M70/2011 v Minister for Immigration and Citizenship (2011) 244 CLR 144, 179-180 [57]; the task of assessing whether the jurisdictional fact exists is not confined by the ordinary principles of judicial review. See EHF17 v Minister for Immigration and Border Protection [2019] FCA 1681 (EHF17) at [63]; CAQ17 v Minister for Immigration and Border Protection [2019] FCAFC 203 (CAQ17) at [68]-[75]; Pilbara Infrastructure Pty Ltd v Economic Regulation Authority [2014] WASC 346 at [116]; and Leeming M, Authority to Decide: The Law of Jurisdiction in Australia, The Federation Press, Australia (2012) at 62.
In s 255-100(1), the condition on which the discretionary power of the Commissioner to issue an SBD is enlivened is the formation of a state of mind by him as to the existence of either of the matters in subss (1)(a) or (b). In this case, subs (1)(b) requires the Commissioner to have a “reasonable belief” that the requirement that the entity give security “is appropriate, having regard to all the circumstances”. In part, that requires a subjective assessment by the Commissioner of the relevant circumstances. However, despite the statutory process involving an element of subjectivity, whether the requisite state of mind was reached before the power was exercised remains capable of curial examination: CAQ17 at [67]-[74].
The principles on which the court acts in the review of the exercise of powers which are conditioned upon the existence of reasonable grounds for a belief in something were recently said to be “not in question”: Prior v Mole (2017) 261 CLR 265 at 270 [4] per Kiefel and Bell JJ. For that proposition, their Honours cited George v Rockett (1990) 170 CLR 104, being a decision on which the applicants relied in this case in some respects. It concerned the issuing of a search warrant which police sought to execute on the offices of the solicitors of Sir Terence Lewis, a former Commissioner of Police in Queensland. The solicitors contested the warrant’s validity, with the central issue being whether the Magistrate had reasonable grounds for suspecting the existence of material in respect of which there were reasonable grounds for believing that material would afford evidence of the commission of an offence. The Court held (at 112):
When a statute prescribes that there must be “reasonable grounds” for a state of mind — including suspicion and belief — it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person.
In addition, in reaching that state of mind, the relevant authority cannot rely upon some other person having that state of mind. It must be formed by the repository of power for themselves.
More recently, in Minister for Immigration and Multicultural Affairs vJia (2001) 205 CLR 507 at 532 [73], Gleeson CJ and Gummow J identified the following approach to the review of the formation of a foundational belief on which the exercise of power is conditioned:
There is another preliminary matter that should be mentioned. It concerns the nature of the decision to be made under s 501. The Minister is given a discretionary power to cancel a visa if sub-s (2) applies to a person who holds a visa. Sub-section (2) applies if the Minister, having regard to either of two matters, is satisfied that the person is not of good character. The two matters are either the person’s past criminal conduct or the person’s general conduct. It is the Minister’s satisfaction that makes the sub-section applicable. Such provisions are construed as requiring the decision-maker reasonably to be so satisfied. The question then on judicial review is whether the decision-maker could have attained that satisfaction reasonably, in the sense explained in numerous authorities in this Court. In Foley v Padley, Brennan J emphasised that the question on judicial review is not whether the court would have formed the opinion in question, and that an allegation of unreasonableness in the formation of the opinion by the decision-maker may prove to be no more than an impermissible attack on the merits of the decision. (footnotes omitted)
One of the “numerous authorities” referred to was Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 (Eshetu), where Gummow J considered at length the manner in which the Court might examine the satisfaction of a condition on which a power is exercisable when that condition is the formation of a state of mind. His Honour held that the state of mind goes to the jurisdiction of the decision-maker and is reviewable under s 75(v) of the Constitution. In that review the Court will recognise that the relevant state of mind does not exist unless it has been formed by a “reasonable man who correctly understands the meaning of the law under which he acts”: R v Connell; Ex parte The Hetton Bellbird Collieries Ltd (1944) 69 CLR 407 at 430 per Latham CJ. It was also recognised that, in reviewing the satisfaction of the condition, the Court does not substitute its own opinion for the opinion of the relevant decision-maker, but inquires into whether the opinion required by the legislation has actually been formed. As was said by Latham CJ:
If the opinion which was in fact formed was reached by taking into account irrelevant considerations or by otherwise misconstruing the terms of the relevant legislation, then it must be held that the opinion required has not been formed. In that event the basis for the exercise of power is absent, just as if it were shown that the opinion was arbitrary, capricious, irrational, or not bona fide.
In Eshetu, Gummow J (at [134]) identified that Gibbs CJ and Brennan J had approved the above passage of Latham CJ, but noted that Brennan J had cautioned:
the question for the court is not whether it would have formed the opinion in question but whether the repository of the power could have formed the opinion reasonably and that an allegation of unreasonableness in the formation of that opinion may often prove to be no more than an impermissible attack upon the merits of the decision then made in purported exercise of the power.
Gummow J also referred to the observations of Gibbs J in Buck v Bavone (1976) 135 CLR 110 (Buck v Bavone) at 118-119, where the latter had identified some of the grounds on which the formation of an opinion or belief might be susceptible to review, being an absence of good faith, misdirection at law, a failure to consider matters which are required to be taken into account or taking into account matters which ought not to have been taken into account, and that the state of mind is so unreasonable that no reasonable authority could possibly have arrived at it.
The grounds on which a subjective jurisdictional fact might be vitiated are unlikely to be closed and, indeed, seem to extend to findings of fact made by the repository of power in the course of reaching a specified state of mind. In SZMDS, the joint judgments of Gummow A-CJ and Kiefel J on the one hand, and of Crennan and Bell JJ on the other, relied on the observations of Gummow and Hayne JJ in Minister for Immigration and Multicultural and Indigenous Affairs v SGLB (2004) 78 ALJR 992 (SGLB) at 998 [38] that a court could conclude that a jurisdictional fact founded upon a person’s state of mind did not exist because it included some element of illogicality or irrationality in the fact-finding process leading to the conclusion. In SGLB their Honours opined:
The satisfaction of the criterion that the applicant is a non-citizen to whom Australia has the relevant protection obligations may include consideration of factual matters but the critical question is whether the determination was irrational, illogical and not based on findings or inferences of fact supported by logical grounds. If the decision did display these defects, it will be no answer that the determination was reached in good faith.
(footnote omitted)
In EHF17 it was explained that the grounds of jurisdictional fact review of irrationality, illogicality or illogical fact finding can arise at different places on the evaluative pathway. They may apply to a finding or conclusion of fact as well as to the ultimate exercise of power. However, it is important to observe that the ground of review has similar limitations to that of “legal” unreasonableness as a ground of jurisdictional error. If the particular impugned reasoning or conclusion is one which could have been reached by a reasonable person on the same material, the subjective jurisdictional fact will not be vitiated: EHF17 at [76]-[85].
Moreover, in the consideration of this ground of jurisdictional fact review, the reasons provided by the decision-maker ought not be over-zealously reviewed, but read with an eye to the substance of the reasoning: D’Amore v Independent Commission Against Corruption [2012] NSWSC 473, [87]. It must be kept in mind that what is being analysed is administrative fact finding, and not the analytical processes of curial determinations: Eshetu at 656 [143].
An additional difficulty in the review of a subjective jurisdictional fact is that referred to by to Gibbs J in Buck v Bavone, that:
where the matter of which the authority is required to be satisfied is a matter of opinion or policy or taste it may be very difficult to show that it has erred in one of these ways, or that its decision could not reasonably have been reached.
That comment was emphasised by Gummow J in Eshetu where his Honour said of it (at [137]):
This passage is consistent with the proposition that, where the criterion of which the authority is required to be satisfied turns upon factual matters upon which reasonable minds could reasonably differ, it will be very difficult to show that no reasonable decision-maker could have arrived at the decision in question. It may be otherwise if the evidence which establishes or denies, or, with other matters, goes to establish or to deny, that the necessary criterion has been met was all one way.
That issue becomes more acute when the subject matter of a subjective jurisdictional fact is a state of mind less than a belief. In George v Rockett (at 116), the Court identified what was required for there to be a belief in something. After referring to what is required for a suspicion, the Court said:
The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.
In reliance on that passage, Newnes JA in Bernadt v Medical Board of Australia [2013] WASCA 259 (at [173]) said “[a] ‘reasonable belief’ similarly requires the existence of facts which are sufficient to induce the belief in a reasonable person.”
The foregoing demonstrates that where a power, discretionary or otherwise, is conditioned upon a subjective jurisdictional fact, a court may examine whether the state of mind required by the legislation actually existed. It will not exist if, in the formation of the purported state of mind, one of the identified errors occurred. That includes a failure by the repository of power to have regard to the “matters” which the statute requires. If one of the errors occurs the required state of mind will not have existed and any subsequent purported exercise of the power, which was conditioned on the existence of that state of mind, will lack authority. In this case the applicants alleged a failure to take into account “relevant considerations” giving rise to a jurisdictional error, however, those allegations were misdirected to the formation of the reasonable belief rather than the exercise of the power.
The difference between “relevant considerations” and “all relevant circumstances”
Turning to the question of the matters to be considered by the Commissioner, the distinction between “considerations”, on the one hand, and “circumstances” or “evidence”, on the other, should be kept in mind. Recently, the Victorian Court of Appeal emphasised this important difference in Chang v Neill [2019] VSCA 151 (Chang v Neill) at [71], where it observed that “A ‘relevant consideration’ in the Peko-Wallsend sense is usually expressed at a significantly higher level of generality than a factual matter.” It identified that a decision-maker may pay attention to and consider a “relevant consideration” even though it does not consider all of the evidence pertaining to that consideration. In doing so it relied upon the observations of Brennan J in Peko-Wallsend (at 61) to the following effect:
A decision-maker who is bound to have regard to a particular matter is not bound to bring to mind all the minutiae within his knowledge relating to the matter. The facts to be brought to mind are the salient facts which give shape and substance to the matter: the facts of such importance that, if they are not considered, it could not be said that the matter has been properly considered.
The Court in Chang v Neill then considered the discussion in Minister for Immigration and Citizenship v SZRKT (2013) 212 FCR 99, where Robertson J considered the consequences of failing to consider material in the context of a determination by the Refugee Review Tribunal undertaking a review of a minister’s refusal to grant a protection visa. For present purposes the import of that decision is the recognition that ignoring material relevant only to fact finding does not, of itself, found jurisdictional error. However, his Honour’s careful observations in that case must be understood in the context of the statutory regime in which the decision was made. In particular, that the tribunal was obliged to undertake a review of a visa application, which involved turning its attention to the claims made and the supporting evidence. Other cases involving the omission of the tribunal to consider material which was highly relevant to the claim being reviewed were also considered by the Court of Appeal, as were others relating to whether medical panels under the Accident Compensation Act 1985 (Vic) had failed to fulfil their statutory obligation to answer questions referred to them by failing to take into account cogent evidence. It was observed that a vitiating error by a decision maker does not arise merely from overlooking relevant facts, evidence or material. The Court summarised its view as to the occasions on which a factual error of this nature will result in jurisdictional error in the following passage (at [92]):
The authorities to which we have referred establish that a factual error may constitute jurisdictional error if it amounts to a constructive failure to perform the statutory function conferred on the decision-maker. As the Full Court of the Federal Court emphasised in MZYTS, this is not a failure to take into account a relevant consideration in the Peko-Wallsend sense. Factual errors that may constitute jurisdictional error include a failure by the decision-maker to have regard to relevant factual material and the taking into account of such material in a manner that misconstrues its nature or effect (the latter may be described as a constructive failure to have regard to the material). Whether such a factual error amounts to a constructive failure to perform the statutory function conferred on the decision-maker will depend on the importance of the material to the exercise of the function and the seriousness of the error. Jurisdictional error will be committed if the subject matter, scope and purpose of the statutory function indicate that taking into account the relevant material — properly construed — is an essential feature of a valid exercise of the function.
The Court’s discussion related to factual errors occurring in the context of the actual exercise of administrative power. No distinction was made between that and an error occurring in relation to a jurisdictional fact, although a number of the decisions of this Court relied upon by the Court of Appeal concerned the latter issue rather than the former. Additionally, the Court’s recourse to the language of Mason J in Peko-Wallsend — the subject matter, scope and purpose of the statutory function — is slightly confusing. Whilst such a test is adequate for detecting the “relevant considerations”, being the more general issues or topics which must be contemplated, it is not capable of being used to identify those factual or evidential matters to which a decision-maker must have regard lest a vitiating error occur. The Peko-Wallsend test is one designed to ascertain “legality”, being whether the power has been exercised as required by the legislature and, as such, is not one of idiosyncratic application which differs on a case to case basis: Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 (Yusuf) at 347-348 [73]-[74] per McHugh, Gummow and Hayne JJ, with whom Gleeson CJ agreed; and Abebe v Commonwealth (1999) 197 CLR 510 (Abebe) at 579 [195]. Nevertheless, the very helpful discussion is adaptable to the evaluative process engaged in by a repository of power in ascertaining the existence or otherwise of a fact on which their power is conditioned.
The Victorian Court of Appeal also concluded that a factual error will only result in a jurisdictional error where it was “material” in the sense used in Hossain v Minister for Immigration and Border Protection (2018) 359 ALR 1 (Hossain) at 9 [29]-[31] and 19 [72] and Minister for Immigration and Border Protection v SZMTA (2019) 363 ALR 599 (SZMTA) at 611-612 [45]-[48] and 620-623 [84]-[95] (SZMTA). The requirement of materiality is a useful negative test of ascertaining what factors in any particular case are mandatory, in the sense that, if regard is not had to them, the statutory function will not have been performed.
The mandatory “factors” required to be considered in s 255-100(1)(b)
From the preceding discussion, it might be thought that, in the absence of the express reference to “all relevant circumstances”, the matters which the Commissioner would be required to consider are only those which the Act makes expressly or impliedly mandatory considerations. As was said by Dixon J in the following passage from Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 (Avon Downs) at 360, which has now reached the status of “received law”:
If he [the repository of power] does not address himself to the question which the [statute] formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review.
The requirement that the person whose state of mind is relevant must take into account those “factors” which “should affect [their] determination” is substantially the same as requiring they take into account the relevant considerations. This correlation was adverted to in Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 (Saeed), in which the High Court considered the operation of, inter alia, s 65 of the Migration Act 1958 (Cth), which is structured such that the power to grant or refuse a visa is conditioned upon the formation of a state of satisfaction as to fulfilment of specified criteria. At 270 [54], the plurality said:
The question which arises, by reference to s 65(1), is whether the Minister can reach a state of non-satisfaction about the criteria if the Minister puts out of consideration whether there was an answer to the information contradicting the employment history put forward by the appellant. An analogy may be drawn with material, or relevant, considerations. In Avon Downs Pty Ltd v Federal Commissioner of Taxation the Commissioner was required to be satisfied as to the state of voting power at the end of the year of income in question. Dixon J said that the Commissioner’s decision was subject to review, inter alia, if he “excludes from consideration some factor which should affect his determination”. Where a decision-maker is bound to take a factor into account but does not, the requisite state of satisfaction is not reached.
(footnotes omitted)
For the latter proposition, reliance was placed on Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Applicants S134/2002 (2003) 211 CLR 441 at 471 [85], which suggests that the matters to be considered are those which the Act expressly or by necessary implication requires the repository of power to take into account. Reference was also made to Foster v Minister for Customs and Justice (2000) 200 CLR 442 at 447 [7]-[8] per Gleeson CJ and McHugh J, which is of not dissimilar effect.
Putting aside for one moment the words “all relevant circumstances”, the “factors” which the Commissioner or his delegate is required to take into account fall to be identified by an application of a test similar to ascertaining what are “relevant considerations” which, if there is a failure to consider them, in the exercise of a power, will give rise to a jurisdictional error. If the person whose state of mind is relevant fails to take into account those factors which the Act either expressly or impliedly mandates, the state of mind formed will not accord with the legislative prerequisite. The consequence of that conclusion may well be that, had the submissions of the parties on this issue — that the Peko-Wallsend test applies to ascertaining what are the “relevant circumstances” referred to in (1)(b) — been correct, it would follow that the phrase “having regard to all relevant circumstances” was merely a statutory exposition of the duty which would otherwise exist. Whilst a construction to that effect might occasionally be accepted, it is perhaps not entirely appropriate in the present case.
In s 255-100(1)(b), the issue of what “factors” require consideration is not referable to the exercise of a power or discretion. It concerns the formation of the reasonable belief that requiring a person to give security for the due payment of a future tax-related liability is appropriate. Necessarily, in reaching the prescribed state of mind, the “factors”, as referred to by Dixon J in Avon Downs, of which the decision-maker must take account, will be those which are expressly or impliedly required by the Act. As is identified later in these reasons, those factors may be: first, the existence of a tax-related liability; secondly, the risk that the person to be required to give security will not comply with their obligation to pay the liability; and, thirdly, that the security required will be efficacious in ensuring the obligation is fulfilled. On the other hand, rather than being “relevant factors” of which account has to be taken, these may be no more than the constituent elements of the state of mind to be formed and to which attention must necessarily be directed. For present purposes no issue turns on this distinction and, if they are taken into account, the state of mind which accords with the legislative prescription might exist.
“all relevant circumstances” refers to the evidence germane to the mandatory factors
What then are “all relevant circumstances”, to which the Commissioner is to have regard? It is not likely that the expression refers to “relevant considerations” as that expression is understood in the reasons of Mason J in Peko-Wallsend. Neither is it likely to refer to the cognate concept of a relevant “factor” identified by Dixon J in Avon Downs. If either were the case, the requirement to have regard to “all relevant circumstances” would seem to be superfluous.
Rather, the expression more likely refers to the material, evidence and information — that is, the “circumstances” — which are germane to the belief that requiring the giving of security is appropriate or, more specifically, germane to the “factors” which the Commissioner must consider in forming that belief. In that sense they can be seen as the evidence germane to the “relevant factors”, in an Avon Downs sense, which the Commissioner is implicitly required to consider, being the existence of a tax-related liability, the risk of non-compliance, and what will be effective security. Adapting the concept which found favour in Chang v Neill, the circumstances which must be considered are those which are important or significant to the function of forming the reasonable belief, and without consideration of which there would be a constructive failure to perform the statutory function. In that sense it, will be a vitiating error not to have regard to a circumstance which is essential to the consideration. Necessarily, the circumstances which must be considered will vary from case to case, and will differ each time the Commissioner is called upon to exercise the power. Whether the failure to consider a circumstance will nullify the state of mind will depend upon the significance of the information and its relative importance in the circumstances of the case. Expressed another way, the required state of mind will not exist if the Commissioner fails to have regard to facts, material or evidence which are essential, significant or important to the formation of the reasonable belief in the circumstances of the case, in the sense that it can be said the omission to regard such facts, material or evidence discloses a failure to perform the statutory function.
It might alternatively be said that the expression “all relevant circumstances” is wider than as identified, but that the required state of mind will only be vitiated if regard was not had to a circumstance which was essential, significant or important. Either way, the same result will ensue.
The obligation to “have regard to”
The applicants submitted that the requirement of “having regard to” the various circumstances was the equivalent of an obligation to “consider” those matters, such that the delegate had to give proper, real and genuine consideration to the various circumstances. Reliance was placed on the decision of the Full Court in He v Minister for Immigration and Border Protection (2017) 255 FCR 41 at 51 [51]-[52], where it was said:
The matters set out in reg 1.15A(3) are relevant considerations which the decision-maker is bound to consider: see Minister for Immigration and Border Protection v Angkawijaya (2016) 236 FCR 303 at [51]. This requires a decision-maker to bring an active intellectual process to each of those matters: Tickner v Chapman (1995) 57 FCR 451 at 462, 476, 495; Carrascalao v Minister for Immigration and Border Protection (2017) 252 FCR 352 at [45] (and the authorities cited therein). In other words, the decision-maker must actively think about each such matter. Further, the term “consider” imports an obligation to give proper, genuine and realistic consideration to the relevant matters: Bondelmonte v Bondelmonte (2016) 259 CLR 662 at [43]. The requirement to give proper, genuine and realistic consideration to a matter necessarily incorporates the application of an active intellectual process. These authorities do not suggest that a requirement to “consider” a matter may not require a decision-maker to do more in an appropriate statutory context.
There the requirement was to consider particular matters which were enumerated in the legislation. No such specification exists in the present case, where the requirement is expressed as “having regard to all relevant circumstances”. The general rule of construction appears to be that, where the legislative requirement is to consider or to “have regard to” particular facts and matters, the repository of power is required to give them “proper, genuine and realistic consideration”, and such matters are to become fundamental and a focal point in the decision-making process: Bare v Independent Broad-Based Anti-Corruption Commission (2015) 48 VR 129, 217-218 [275]. As was said by Spigelman CJ (with whom Beazley and Giles JJA agreed) in Insurance Australia Ltd trading as NRMA Insurance v Motor Accidents Authority of New South Wales [2007] NSWCA 314 at [40]:
The Appellant relied on a number of authorities which indicate the approach that ought to be adopted by a decision-maker exercising a statutory power which requires that decision-maker to have regard to particular facts and matters. The Guidelines in the present case were so expressed. This line of authority establishes that a reference of this character requires a decision-maker not only to take the relevant matters into account but to give them weight as a fundamental and focal element in the decision-making process. The authorities relied upon in this regard were The Queen v Toohey; Ex parte Meneling Station Pty Limited (1982) 158 CLR 327 at 333 and 338; R v Hunt; Ex parte Sean Investments Pty Limited (1979) 180 CLR 322 at 329; Parramatta City Council v Hale (1982) 47 LGRA 319 at 338, 339, 340 and 342; Centro Properties Limited v Hurstville City Council (2004) 135 LGERA 257 at 266-267; Weal v Bathurst City Council (2000) 111 LGERA 181 at [82]; Zhang v Canterbury City Council (2001) 51 NSWLR 589 at 602, [71] – [73].
The crucial element in these cases is that the considerations to which the decision-maker was required to have regard were specified or particularised and, that being so, the legislation was construed as requiring those matters receive weight as being fundamental in the evaluative process. That principle cannot apply where the requirement is to have regard to “all relevant circumstances”, as all such matters cannot become fundamental or focal points. If the principle did apply in such cases it would impose a super-added burden on the decision-maker in reaching the stipulated state of mind. It would require much more than an appreciation of the existence of the relevant surrounding circumstances, and would require detailed consideration of every possibly relevant fact. That would impose an unduly onerous obligation as well as being administratively unworkable.
At this point it is appropriate to repeat the admonition of the Court of Appeal in Chang v Neill to maintain the distinction between “relevant considerations” on the one hand and evidence or circumstances on the other. The cases just referred to were essentially concerned with “considerations” of which the decision-maker was to have regard, which are at a higher level of generality than facts or circumstances. It may well be that mandatory “factors” or “considerations” have to be given “proper, genuine and realistic consideration”. That is consistent with the nature of jurisdictional error, ensuring legality in the administrative decision making process. It is not, however, appropriate to apply the same standard of deliberation or analysis to every piece of evidence within the scope of the broad expression “all relevant considerations”.
The requirement that the Commissioner reach the relevant state of mind “having regard to” the broad range of matters described as “relevant circumstances” indicates that the legislature intended that no special weight need be given to them. So long as they are taken into account or considered in the process of reaching a reasonable belief, the requirement is satisfied. They do not have to be regarded as fundamental, or a focal point of the decision. It cannot be said that the legislature has ascribed particular weight to be given to those circumstances. The weight to be given to them is a matter for the repository of power.
Consequences of an omission to consider a relevant circumstance
It is appropriate to consider at this point the consequence of a failure by the Commissioner to have regard to one of the “relevant circumstances” when formulating his state of mind for the purposes of s 255-100. As mentioned previously, the applicants submitted that the “relevant circumstances” were those identified by an application of the Peko-Wallsend test for relevant considerations. Not only was that submission wrong, it was ignored by the applicants, in that they proceeded to identify a wide range of facts and circumstances relating to the taxation affairs of Ms Bazzo and her companies and asserted the Commissioner was in error in failing to give each of them “real and genuine consideration”. Although these matters were said to fall under the rubric of a failure to take into account matters favourable to the applicants, that was a short-hand way of asserting that each of the myriad matters was germane to the issue of whether requiring security was appropriate, was not considered, and jurisdictional error ensued.
The applicants’ approach highlights the difficulty of construing the expression “all relevant circumstances” too widely or, at least, accepting that the consequence of an omission to consider a “circumstance” is, without more, a vitiating error. If it were the case that “all relevant circumstances” referred to everything that related to the issues at hand and that an omission to consider any one fact rendered the putative state of mind invalid, a taxpayer who received an SBD would be able to make an exhaustive list of every fact and circumstance which may conceivably be relevant to the required state of mind and attack the decision to issue it on the basis that one was not considered: cf Sean Investments Pty Ltd v Mackellar (1981) 38 ALR 363 at 370-371 per Deane J. To some degree this is what the applicants have done in the present matters. For instance, in the course of cross-examination, the applicants sought to criticise the delegate for not having regard to a statement in a report prepared by the Administrator of one of Ms Bazzo’s companies to the effect that she might be able to raise a defence to what was identified as a potential insolvent trading claim. Although that was not articulated as a ground in either application, it demonstrates how unlikely it is that the reasonable belief underlying a decision to issue an SBD will be vitiated merely because regard is not had to every conceivably relevant circumstance.
It is a most unlikely proposition that the legislature intended that a failure to take into account every fact which related to the issue under consideration would necessarily render the decision invalid. It is more probable that the legislature intended that a failure to have regard to a “relevant circumstance” will only invalidate the subsequently formed belief when that circumstance was of such a nature that the failure to consider it is indicative of a failure to perform the statutory function. In that sense, regard only needs to be had to those circumstances that are essential, significant or important to the formation of the state of mind. Whether they have that quality is to be ascertained in the circumstances of the case: cf Chang v Neill.
Further, the omission to take into account a relevant circumstance will not invalidate the state of mind if the circumstance was not “material”, in that there was no possibility that its consideration would have led to a different result: Chang v Neill at [93]-[100] referring to Hossain and SZMTA. It may be doubtful whether that adds anything to the condition referred to in the previous paragraph, although it gives some colour to the type of circumstance which, if not considered, is indicative that the statutory task has not been performed.
Bringing the above concepts together, it can be said that a failure by the Commissioner to have regard to a “relevant circumstance” will be an error which will vitiate the reasonable belief formed under s 255-100 where:
(a)the Commissioner fails to have regard to a circumstance which is germane to the issues of the formation of the relevant belief; namely, whether a tax-related liability exists with respect to the taxpayer, whether there is a risk the taxpayer will not pay that liability, and whether the security required is effective;
(b)the circumstance is so essential, significant or important to the formation of the reasonable belief in the particular case that the failure to have regard to it indicates the Commissioner’s statutory function has not been fulfilled, because there has been no real and genuine consideration of the crucial issues on which the state of mind must exist; and
(c)to the extent to which it adds anything to (b), the circumstance is material to the formation of the reasonable belief in the sense that there is a realistic possibility of a different outcome if regard were had to it.
The applicants submitted that the matters specified in the Commissioner’s Practice Statement PSLA 2011/14, which include instruction on the exercise of power under s 255-100, were also matters which the delegate had to be consider. Whilst that document identifies some matters which may, in some cases, be important, it is not definitive of those matters which may or must be considered.
The exercise of the discretion in s 255-100(1)
If, after having regard to the relevant circumstances and taking into account the relevant factors, the Commissioner reasonably believes that the requirement to give security is appropriate, the condition on which the discretion is exercisable will have been satisfied, and the power to issue an SBD is enlivened. That discretion is conferred in unconfined terms and, as is discussed below, so are the matters which are relevant to its exercise. The only considerations which must be taken into account are determined by the well-established principles derived from Peko-Wallsend. The identification of “relevant considerations”, if any, to be taken into account in the exercise of the discretion, are also discussed below. However, it is apt to keep in mind that the satisfaction of the jurisdictional fact goes some considerable way to influencing the exercise of the discretion. Once the Commissioner, having taken into account the relevant factors and having had regard to the “relevant circumstances”, reasonably believes the giving of security is appropriate, there must necessarily be some inclination towards exercising the discretion to require it of the taxpayer.
The applicants’ submissions as to how the power was to be exercised
Mr Hack QC (who led Mr Fickling), for the applicants, submitted that the lineal approach to the decision making process in s 255-100, which is outlined above, is somewhat artificial, and the Commissioner will necessarily consider all matters at once. In that way, so it was said, the Commissioner will identify some form of security which, in the circumstances, he considers is appropriate and which, in the exercise of discretion, ought to be required from the taxpayer. It was submitted that, in the course of this process, the consideration of “all relevant circumstances” is simultaneously undertaken in relation to both the formation of the reasonable belief and the exercise of discretion. This appears to have been the foundation for the submission that the “relevant circumstances” in subs (1)(b) are to be ascertained by an application of the Peko-Wallsend principles.
Whether, as a matter of pragmatism, the power in s 255-100(1)(b) is conveniently exercised by the Commissioner in the one step, its valid exercise involves a two-step process, requiring the satisfaction of the jurisdictional fact in subs (1)(b) and then the subsequent exercise of the discretion. Those twin stages are important, and different considerations are applicable to each. Additionally, the principles through which a vitiating error might be identified at each stage are quite different.
A result of the lack of attention paid to the structure and operation of s 255-100 was that the applicants’ attack on the delegate’s decision was somewhat directionless. On some occasions it was directed to the exercise of discretion and, at other times, towards the formation of the reasonable belief as to the appropriateness of requiring the giving of security. The originating application (in its final form) did not seek to differentiate between these two disparate exercises. (In its pleaded form, in the 3FAOA— but not in the Holmes Road FAOA — the ultimate attack appeared to be that the decision was an improper exercise of power: s 5(1)(e) of the AD(JR) Act; seemingly on the basis of s 5(2)(b) — although reference is not made to either provision and the argument proceeded in a less particularised manner, in relation to failure to take into account a relevant consideration. It is appropriate to deal with the argument in that way.) The written and oral submissions further conflated the respective principles. (See, for instance, paragraph 93 and following of the applicants’ submissions.)
The case as advanced by Fastbet
Although he may not have taken into account or had regard to the terms of the letter of 12 December 2017 concerning the Tribunal proceedings, it was not a circumstance the consideration of which was essential, significant or important to the fulfilment of the statutory function.
The necessary consequence of the above is that the delegate did not err in reaching the reasonable belief that the requirement that Fastbet give the identified security was appropriate.
Materiality of alleged omissions
No submission was made that if the matters not specifically referred to in the delegates’ reasons were not considered by him there was a real possibility of a different outcome. The applicants’ submissions were advanced on the basis that the failure to consider the factors resulted, ipso facto, in some form of jurisdictional error. That was based on the erroneous understanding of the operation of the section and the nature of the errors which might vitiate it.
Even if it were the case that a fact was a “relevant circumstance” which ought to have been taken into account and was not, it is not likely that the reasonable belief would be vitiated if the omission was not material: cf Hossain at [27].
Here, in light of the significant risk that the applicant companies would not comply with their tax obligations, it would require a failure by the delegate to consider a countervailing circumstance of a most unusual nature for it to have had the potential for a different outcome. The history of non-compliance with taxation obligations by Ms Bazzo and her companies was of such significance and duration it is likely that the appropriateness of requiring Fastbet and Holmes Road to provide security in relation to their future tax-related liabilities from their respective businesses was almost obvious. In that context a number of the matters relied upon by the applicants as having not been considered were trivial at best. That was particularly so in relation to the complaint that regard had not been given to the fact that several companies had been wound up before their dispute of their assessments had been determined. In those cases the companies’ liability had crystallised but they failed to fulfil their taxation obligations, and there was not a scintilla of evidence to suggest that any ground of objection had the slightest merit.
It follows that even if the matters relied on by the applicants were not considered, their relevance was so insignificant it could not be said that there was a real possibility of a different outcome had reference been made to them. Any omission to consider some or all of the alleged “relevant circumstances” could not be said to be a material error in the formation of the delegate’s reasonable belief.
An alternative construction of s 255-100
It is possible that the construction of s 255-100 which has been relied upon above is overly generous to the applicants. The alternative construction is that the reference to “all relevant circumstances” is a reference to the “factors which would affect the decision”, in the sense used in Avon Downs. If that were so, it would follow that the only mandatory factors which the Commissioner was required to consider were: the existence of the tax-related liability, the existence of risk the liability will not be met and that the security required is effective for the purposes of lessening or removing that risk. Those “factors” were considered in the present case, and there was no ground of review suggesting to the contrary.
Conclusion with respect to Grounds 3 to 6
It follows that Grounds 3 to 6 of Fastbet’s application fail. The grounds were misdirected to the exercise of discretion, whereas they ought to have been directed to the formation of the “reasonable belief”, as did the occasional submission. However, even if they were considered as errors which were said to vitiate the subjective jurisdictional fact of the Commissioner’s reasonable belief, they would not succeed. To a large extent the matters enumerated in Ground 3 of the 3FAOA and the FAOA were taken into account by the delegate. Even had they not been, no error would have occurred, as they were not within the scope of the expression “all relevant circumstances” in that they were not matters the consideration of which was essential, significant or important, in the sense that a failure to consider them would have indicated that the delegate had not performed the statutory task. Additionally, in the circumstances of the present case, where the circumstances relied upon by the delegate weighed so heavily in favour of requiring the giving of security, it cannot be said that, had they been considered, there was a possibility of a different outcome.
Ground 7 — taking without just compensation
Although Fastbet made no submission in support of its constitutional ground, it appears that it asserts that the power in s 255-100 is beyond the legislative competence of the Parliament, as it amounts to a taking without just compensation. This is the same argument as was advanced before the Full Court in Keris. There (at [132]), the Court identified the submission on this issue as being that the section “enables the Commissioner to arbitrarily select the amount of the security he or she requires the addressee of the section to give for the due payment of an existing or future tax-related liability and the nominated amount of the security is rendered “incontestable”. That was rejected on the basis that the power is not at large and is concerned with the integers of the collection and due payment of tax-related liabilities. Further, the power was conditioned on the Commissioner’s state of mind properly formed and, as such, the Commissioner is not able to act arbitrarily. The submission that the power imposed a tax on the addressee of the notice was also rejected. The Court concluded (at [137]):
[137] Thus, there is no acquisition of property within s 51(xxxi) by reason of the requirement to give, or the giving of, the mortgage interest to the Commissioner. For the reasons identified by McHugh J, because the provision is properly characterised as a law with respect to taxation, the challenged law falls outside the operation of s 51(xxxi) of the Constitution: Mutual Pools, McHugh J, 219, 220, 224; Suntory (Aust) Pty Ltd v FCT (2009) 177 FCR 140 at 149 [40].
The applicants did not address the Court on the foundation of its constitutional ground. They submitted that this Court was bound to follow the Full Court in Keris on this topic. That being so, I am prepared to accept the correctness and applicability of that decision and there is no need to address it further here.
The necessary consequence is that Ground 7 of the 3FAOA must also fail.
Ground 8 — money had and received claim
The complaint in this ground did not relate to the decision of the Commissioner to issue the SBD to Fastbet. Nor, apparently, was it consequential upon the determination of the invalidity of the SBD. It concerned the validity of the receipt of money by the Commissioner on the sale of the individual parcels of land by Fastbet, in return for which the Commissioner released part of his security.
It is apparent that, when Fastbet sought to sell a parcel of developed land, it would necessarily require the Commissioner to release the mortgage over that parcel so that it might transfer the land to the purchaser. To date there have been a number of sales of parcels of land, and they are listed in the 3FAOA. The evidence discloses that, at the settlement of the sales, the Commissioner had released his security over the relevant parcel in consideration for the payment of a sum of money. The amounts received by the Commissioner are also set out in the 3FAOA.
The applicants submitted that the money now in the hands of the Commissioner is held to their use as money had and received. The foundation of this submission is that the power to require security is spent once the security is granted. Therefore, so the argument goes, the Commissioner had no power to require a payment of money in substitution for the release of the mortgage or any part of it. It was further submitted that the mortgage secured the payment of a future tax-related liability which had not yet arisen, and that if the Commissioner wishes to obtain security by receiving cash from the sale of the land, then he must issue a new SBD affording him a right to such security, as he is entitled to do as often as he reasonably believes is appropriate. It was said that this is his only remedy, and he is not entitled to demand money as the price of partially releasing the security. It was then submitted that, as the Act does not give him power to demand the payment of money, he is not entitled to it or to retain it.
Despite some superficial attraction to the applicants’ submission, it ought not to be accepted. The legislature has given to the Commissioner the power to require an entity to provide security for future tax-related liabilities. It permits him to obtain that security and to hold it. In other words, it entitles him to cause a security arrangement to exist between him and the taxpayer in which he receives rights of security for the payment of existing or future tax liabilities. Neither the section, nor Division 255, nor even Part 4-15 imposes any restriction on the Commissioner as to the manner in which he may deal with the security once it has been provided. There is nothing which suggests that the Commissioner’s rights which are established by the exercise of s 255-100 are immutable. Indeed, it would be peculiar if they were, particularly in relation to security for future tax-related liabilities, where the apprehended future liabilities will likely arise over a period of time through the conduct of a business. So much is readily apparent from the terms of s 255-100(1)(a). It would be a strange or perverse reading of the section to suggest that, once the security rights are established the Commissioner is prevented from dealing with them as the circumstances require. Having allowed the Commissioner to avail himself of the contractual rights of a security holder, save where there exists some express or implied limitation, there is no apparent reason why he should not be entitled to deal with those rights for the purposes of ensuring the tax-related liabilities are met. In this case, where the Commissioner has validly exercised the power to require security, there is nothing which suggests that he is not able to exchange it for better security in the form of money.
The effect of the applicants’ submission is that, once a security is given for a future tax-related liability, the person giving the security could not request that it be partially released on the payment of a sum of money or that such request could not be acted upon. They would say that the Commissioner, if he were minded to agree to accommodate the request, would be required to revisit the power in s 255-100 and repeat the exercise on the basis of the information as it existed at that time. It is apparent by s 255-100 that the Commissioner is entitled to exercise the power at his discretion, and there are every good administrative reasons why, having exercised it, he would not undertake to exercise it again purely because it is of assistance to the taxpayer.
If the Commissioner is prepared to partially release the security which he has validly acquired, on the receipt of funds, he is not exercising the power under s 255-100. All that occurs is the alteration of existing rights on a consensual basis between the grantor and grantee of the security. Although the applicants submitted that Fastbet had no real choice at all, that is not a correct analysis. It may well have been that in the circumstances the balance of commercial power is with the Commissioner, however, that did not mean the company did not have a real choice as to whether it put itself in a position to convey the land to purchasers. It is the nature of a security that its holder is entitled to demand consideration for its release.
It follows that the funds in the hands of the Commissioner were received for good consideration, being the partial release of the security held. As between the Commissioner and Fastbet, the former was entitled to hold the proceeds given in release for the security in substitution for it and to apply it, if and when the time arrives, in the discharge of the tax-related liability for which the security was granted.
It follows that the claim for money had and received must fail.
Conclusion
The necessary consequence is that Fastbet’s application fails. None of the grounds of review were made out and the claim for money had and received also fails. The application should be dismissed.
HOLMES ROAD PTY LTD
Introduction
There was very little attempt to differentiate the position of Holmes Road from that of Fastbet and, despite the decisions relevant to each being different, the parties seemingly treated the evidence before the Court as being applicable to both proceedings. One point of differentiation was that no constitutional ground was advanced in the Holmes Road matter, and it is not necessary to consider that issue in this context. Another difference is that there is no claim for money had and received in the Holmes Road proceeding.
In relation to the substantive point, as to what matters the delegate had regard to when reaching the decision to issue the SBD, Holmes Road seemed to rely on the same matters raised in the Fastbet proceedings. In the cross-examination of the delegate it was put:
Am I correct, then, to say that when it came to the decision you made in January 2018, your conclusions regarding Ms Bazzo remained exactly as they had been in September 2017?---Look, I don’t know about exactly the same, but I’m sure there were - well, I imagine there were - there were things that had - that had happened. But in terms of material, their impact on the decision I was now going to make, yes, I would say no difference.
By this it seemed to be accepted that the points made in relation to Fastbet about the circumstances of Ms Bazzo and her companies and, particularly, the matters in Ground 3 of the 3FAOA, were similarly advanced in relation to Holmes Road, to the extent to which they were relevant. That is certainly the assumption which underlies the applicants’ submissions on those topics. In the above discussion concerning those matters, the minor differences in the two proceedings have been considered, and it has been concluded that there was no operative failure by the delegate to consider any relevant circumstance in formulating his belief which enlivened his power to issue the SBDs.
It should be observed that the analysis undertaken by the delegate in relation to the issuing of the SBD to Holmes Road included additional matters which heightened the risk of non-payment of any future tax-related liability. They were that Holmes Road had not lodged its 2016 or 2017 income tax returns, nor its May 2016 Business Activity Statement and that, as at the date of the decision, Ms Bazzo’s personal tax liability had increased to $14,285,589.30. The existence of these differences does alter the conclusions reached above. If anything, the non-compliance by Holmes Road with its lodgement obligations renders it more likely that, had the delegate failed to have regard to any of the matters alleged, no error would have ensued.
Grounds 3.1 and 3.2 of the Holmes Road FAOA replicated the cognate grounds in the Fastbet proceeding. However, as the facts which it was alleged were not taken into account did not exist, there is no substance in those grounds.
Acceptance of auditors’ calculation of future tax-related liability
In the course of cross-examination it was specifically put to the delegate that, in his determination to issue the SBD to Holmes Road, he had regard to the ATO auditors’ determination as to the amount of the future tax-related liability, and he accepted that was correct. In reliance on this, it was submitted the delegate did not appropriately consider that Holmes Road was pursuing the development as a trustee of a discretionary trust. In particular, he was cross-examined on the issue of whether he was aware that, if the trustee distributed the trust’s income (or the beneficiaries had become presently entitled to it), the beneficiaries would be liable to be taxed on it, and not the trustee. It was further suggested to him that a trust company would not pay tax at a rate of 30% (or 30 cents in the dollar). The point advanced was that the delegate could not merely accept what was put to him by the accounting and tax experts in the Commissioner’s office. Although he had identified that Holmes Road operated its business as trustee, the applicant’s real concern was that he did not apply that consideration in the assessment of the quantum of the likely tax which might be payable in the future.
As has been discussed above, the reliance by the Commissioner, through his delegate, on estimates as to future tax liabilities, from officers in his office who are expert in such matters, gives rise to no error which might vitiate the reasonable belief which the Commissioner forms. The applicants’ attempted artificial bifurcation of the Commissioner on the one hand and his delegates and agents on the other in relation to the formation of a reasonable belief that the giving of security is appropriate cannot be accepted. In any event, in relation to the decision to issue an SBD to each company, the delegate gave evidence that he believed the amounts were reasonable from his understanding of the circumstances of each case.
The quantum of the security required
The applicants made a further submission in the Holmes Road matter to the following effect:
114. Additionally, in the case of Holmes Road, and as Mr Burns expressly noted in paragraph b) of the circumstances recited in the Notice of 24 January 2018, it was ‘the Holmes Road Trust [that intended] to develop the Property’ for subdivision. The email of 17 January 2018 that Mr Burns accepts he received (annexure RB22 [being the tax calculation completed by another officer]) calculated the income tax liability at $1.2 million on the basis of assuming a tax rate of 30%. A trustee could never be liable to pay income tax at such a rate – it was either not liable to pay tax at all because the beneficiaries were presently entitled and liable to pay the tax or it was liable to pay tax at 45% if no beneficiaries were presently entitled.
The binary nature of the premise to that submission is not correct. The submission is founded upon the assumption that either all of the income of the trust company will be subject to an appointment, such that the discretionary beneficiaries become presently entitled and liable to be taxed on the income under s 97 of the Income Tax Assessment At 1936 (Cth), or none of it will be. If no beneficiary is presently entitled to any of the income in the relevant year it is subject to tax at a rate of 45%: see s 99 of that Act. If part of the income is distributed or the beneficiaries become presently entitled to that part, the remainder of the income will be taxed at the rate of 45%. Necessarily the rate of tax paid on the total amount of the trusts income will be less than 45%, because only part of the total income is taxed at that rate.
The document RB22, referred to in the submissions above, was an email attaching the method of calculation of the expected profit on the development being undertaken by Holmes Road. The calculation was based upon assumptions as to the revenue likely to be received and the likely profit, based upon national averages and statistics. The officers of the Commissioner identified that to be $4.1 million. To that they applied an “assumed tax rate of 30%” to reach the rounded-down figure of $1.2 million. In other words, there is an expectation or the acknowledgment of the possibility that, for whatever reason, the total amount of the trust’s income will not be taxed at the rate of 45%. As was said in Keris at [28], the amount of a future tax-related liability is very much a matter of estimation.
There is also no requirement that the Commissioner demand security for the whole amount of the anticipated future tax-related liability. Had the Commissioner reached a state of mind that it was appropriate for security for an amount representing 45% of the trust’s income ($1,845,000) be given by Holmes Road, it might have been difficult to say the state of mind was not appropriately formed. As it was, the amount considered to be appropriate was two thirds of the way between the least amount that might be payable, being nothing, and the most which might be paid. It must always be kept in mind that the quantum of any future tax-related liability will necessarily be a broad concept. The precise events which may give rise to the liability will not have occurred when the time arrives for ascertaining the possible quantum. It can only be a broad-based estimate founded upon assumed factors. There is nothing in s 255-100 which requires the Commissioner to make an assessment of every possible outcome from the taxpayer’s operations. In this context, the highest amount of the future tax-related liability that it might be expected the recipient of the SDB will pay will be the uppermost limit of the amount for which security is reasonably appropriate. However, as the amount of tax which might be paid may well be less due to unanticipated or unforeseen events, requiring security in a lesser amount cannot be considered unreasonable or arbitrary. Save in the most exceptional circumstances, it cannot be said that requiring security for an amount less than the anticipated future tax-related liability would not be appropriate.
Holmes Road also complained that the delegate did not give any real and genuine consideration to the existence of a future tax-related liability, because he gave no independent consideration to the likely amount of that liability. That was not correct. He had before him evidence of what that liability may have been, as calculated by ATO officers who were experts in calculating income tax liabilities. In addition, he had the basic facts on which the calculation was made, including the size of the land, the likely sale prices of the parcels intended to be subdivided and the methodology of calculation. As he said in his evidence, he made the assumption that that Holmes Road was going to be selling property and that there would be a profit. There is nothing in the Act or the section which requires him to undertake the precise calculation of the anticipated future tax-related liability by himself. In any event, he was exercising the Commissioner’s power and, in doing so, the acts of the Commissioner’s agents, including those in the audit department, are his acts for the purposes of the section. Finally, it might be mentioned that Holmes Road’s argument in this respect was somewhat artificial. It suggested that the delegate, who was not familiar with the provisions relating to the taxation of trusts nor the method of the calculation of assessable income, was required to reconsider the work undertaken by those in the ATO with expertise in both of those areas. To articulate the argument reveals its fallacy.
By a similar submission it was said that the reasons of the delegate did not explain how the figure of $1.2 million was arrived at as being the value for which security was required. A similar submission was made in relation to Fastbet, where the figure given by the auditors of $6.8 million was not used as the amount of required security, but rather the amount was $6.5 million. Although this submission did not appear to relate to any ground of review, it is appropriate to deal with it. In the first instance it can be said that its premise is erroneous. The delegate relied upon the calculation of income tax estimated as becoming owing by the ATO auditors. The work undertaken by them was adopted by him and became his calculation of the amount of the future tax-related liability. However, there was no need for him to require security for the total amount of the future tax-related liability. All that he has to conclude is that the requirement to give security for the payment of that amount is appropriate and, in doing that, there are many reasons why he would not require security for the full amount. That is particularly so in light of s 255-100(3), which enables him to require further security at any time and as often as he believes is appropriate. The question of what is “appropriate” within s 255-100 is necessarily subjective and involves matters of opinion or policy. It is a broad concept on which reasonable minds might differ. In relation to each SBD, the delegate adopted a figure not higher than the anticipated tax-related liability. As he said in his evidence, in relation to amount of security required from Fastbet, he assumed that the amount of $6.5 million would be sufficient to mitigate the risk at the time. Although he adopted the amount of the anticipated tax-related liability in the Holmes Road matter as the amount for which security was required, there is no error in him doing so. Self-evidently, requiring security in that amount is appropriate to ensure payment of the tax as is the object of the section. Were he to have required more than the amount calculated by the officers of the audit department, the position might well have been very different. However, in each matter before the Court the amount required was less than the maximum and it cannot be said, by that fact alone, there was a failure to take into account a relevant circumstance.
It can also be added that the applicants’ submissions on this topic tended to stray somewhat from the grounds found in the originating applications. The ground apparently agitated was that the delegate simply adopted the figures reached by the audit department and failed to take into account the manner of calculation. However, it is clear that in the Fastbet matter the amount calculated by the audit department was not used, but the lesser amount of $6.5m was.
Finally, to the extent to which it was said that there was a failure to take into account a relevant consideration, namely that the land being developed by Holmes Road was held by it as a trustee of a discretionary trust (being ground 6 in the FAOA), the error of that approach has been considered above. If the allegation were accurately stated as being that there was a failure to have regard to that matter as a “relevant circumstance”, the result would not change. The delegate did have regard to the fact that Holmes Road was a trustee, as his reasons demonstrate. To the extent to which it is alleged that this was not taken into account or considered in the calculation of the amount of the future tax-related liability, Holmes Road has failed to establish that to be the case.
Conclusion with respect to the Holmes Road proceeding
The consequence of the above is that all of the grounds relied upon by Holmes Road also fail, and largely for the same reasons the similar grounds in the Fastbet matter fail. To the extent to which there are minor differences in the two proceedings, they have been dealt with above. The application by Holmes Road should be dismissed.
I certify that the preceding two hundred and twenty-one (221) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. Associate:
Dated: 9 December 2019
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