Griffith and COMMISSIONER OF TAXATION

[2011] AATA 400

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 400

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2011/0819-21

TAXATION APPEALS DIVISION		)
Re		JAMES GRIFFITH

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Senior Member S E Frost

Date10 June 2011

PlaceSydney

Decision The Applicant’s application for an extension of time until 4 March 2011 to lodge an Application for Review of the objection decision of the Respondent dated 4 December 2009 is granted.

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S E Frost
  Senior Member

CATCHWORDS

TAXATION – extension of time for review of an adverse objection decision – Applicant previously unable to access critical piece of evidence – coercive powers of the Tribunal – disclosure of a case which is arguable – extension of time granted.

PRACTICE AND PROCEDURE – extension of time – manifest injustice – coercive powers of the Tribunal – merits of the application – disclosure of a case which is arguable – extension of time granted.

Administrative Appeals Tribunal Act 1975: s 29(7)

Taxation Administration Act 1953: Part IVC

Brown v Federal Commissioner of Taxation (1999) 42 ATR 118

Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344

REASONS FOR DECISION

10 June 2011 Senior Member S E Frost  

1.Once the Commissioner of Taxation determines a tax objection, the taxpayer (if dissatisfied with the objection decision) has 60 days to apply to this Tribunal for its review. That period of 60 days may, however, be extended “if the Tribunal is satisfied that it is reasonable in all the circumstances to do so”: s 29(7) of the Administrative Appeals Tribunal Act 1975 (AAT Act).

2.The Applicant had his tax objections disallowed in December 2009.  The 60-day appeal period expired in February 2010.  His application to the Tribunal for review was not lodged until March 2011, some 13 months out of time.  The Applicant has asked that he be granted an extension of time to the date of lodgment of the application, namely 4 March 2011.

3.I am satisfied that it is reasonable in all the circumstances to grant the extension of time requested.  I accept the submission of the Applicant’s counsel that it would be a “manifest injustice” not to grant the extension of time. 

4.Before explaining why I have come to this view, I note the following.

5.The application for an extension of time is supported by an affidavit sworn by the Applicant on 29 April 2011, and by two affidavits sworn by his solicitor – the first on 8 April 2011 and the second on 29 April 2011.  Because of the confidential nature of some of the material in those affidavits, and in accordance with an application made by the Applicant’s counsel, Mr Young, which was not opposed by Mr de Santis for the Commissioner, I made orders under s 35(2)(b) of the AAT Act to preserve the confidentiality of that material.  It will therefore be necessary for me to disguise the names of the Applicant and his solicitor, and also that of the Applicant’s former tax agent, to whom reference will be made later in these reasons.  I will refer to the Applicant as Mr Griffith and to his solicitor as Mr Barton.  The tax agent will be referred to as Mr O’Connor.

Why does Mr Griffith want the objection decisions reviewed?

6.Mr Griffith claims that the Commissioner’s assessments of his income and tax payable for the 2001, 2002 and 2003 tax years are grossly overstated.  He makes this claim despite the fact that the assessments were made in accordance with his returns as lodged.  He and Mr Barton have come to the view that the tax agent, Mr O’Connor, wilfully falsified the returns by:

·grossly overstating Mr Griffith’s assessable income (represented by salary or wages);

·grossly overstating the Pay As You Go (PAYG) amounts claimed to have been withheld from Mr Griffith’s gross income; and

·grossly overstating deductions in respect of the “costs of managing tax affairs” and “work related expenses”.

7.They allege that the false figures provided in the returns generated large tax refunds which Mr O’Connor intercepted and applied for his own purposes. 

8.Mr O’Connor, they say, is notorious for having used this modus operandi in relation to the tax returns of a very large number of his clients – to such an extent, in fact, that he was prosecuted, convicted of various offences and sentenced to several years in prison.  The fact of Mr O’Connor’s conviction and sentence is accepted by the Commissioner.

9.In providing this summary I do not overlook the fact that the 2001 and 2002 returns were actually lodged in the name of a tax agent who appears to have no connection whatsoever with Mr O’Connor.  It is suggested that this use of alternative tax agents was also part of Mr O’Connor’s modus operandi, designed to prevent or delay the Commissioner’s identification of these returns as having been prepared by Mr O’Connor.

10.Mr Griffith says that his true assessable income for each of 2001 and 2002 is only about one-third, and for 2003 only about one-sixth, of the amount declared in the respective tax returns.  He says that he could prove that his assessable income was a much more modest figure than was declared in the returns, if only he could get his hands on the wages book for the company that employed him (and of which he was, incidentally, a director).  Unfortunately, he says, the wages book is in the possession of Mr O’Connor, who refuses to hand it over, apparently because there are fees owed to him by Mr Griffith.  Mr Griffith says he would pay those fees if Mr O’Connor would provide him with an itemised account.  This is something that Mr O’Connor refuses to do.

Why was the application to the Tribunal made so late?

11.Mr Barton explained that after the objection decisions were made, he spoke to the case officer, Mr MacGibbon, and explained Mr Griffith’s circumstances to him.  He said that Mr MacGibbon told him that if Mr Griffith or Mr Barton could show him the wages book then the Commissioner may be prepared to review the adverse objection decisions.  There was also, Mr Barton thought, the possibility of arranging meetings between the Commissioner’s officers and Mr Barton (on behalf of Mr Griffith) and one of Mr O’Connor’s partners who appeared willing to help the clients of Mr O’Connor’s firm (including Mr Griffith) who had been the victims of Mr O’Connor’s practices. 

12.Mr Barton said that he felt that Mr Griffith’s problem might be capable of being resolved “administratively” in this way, and he did not at first think of lodging an application with the Tribunal.  He eventually spoke to counsel in February 2011, after a bankruptcy notice was served on Mr Griffith.  It was only then that he became aware that if an application were made to the Tribunal, then it might be possible to have Mr O’Connor produce the wages book to the Tribunal under summons.  (He had not previously been aware of the Tribunal’s coercive powers to require production of documents in this way.)  That led to the making of the application to the Tribunal in March 2011.

How should extension of time applications be dealt with?

13.The Tribunal generally deals with extension of time applications under s 29(7) of the AAT Act by reference to the guidelines summarised by Wilcox J in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344. Here, the parties have also referred in their submissions to what Hill J said in Brown v Federal Commissioner of Taxation (1999) 42 ATR 118, a case dealing with an appeal from a decision of the Tribunal to refuse the taxpayer an extension of time to lodge an objection against an assessment with which the taxpayer was dissatisfied. Mr Young in particular has noted Hill J’s comment in Brown at [41], page 128, that the “guidelines” in Hunter Valley Developments:

will often have no relevance to an inquiry such as the present for they are framed by reference to a quite different context. Too slavish an adherence to them should, in my view, be avoided.

14.Although Brown dealt with an application for an extension of time to lodge an objection against an assessment (a refusal of an extension of time in those circumstances is itself reviewable in the AAT) rather than, as here, an application for an extension of time to seek a review of an adverse objection decision, it seems to me that Hill J’s comments in that case provide equally useful guidance for the latter category of case as for the former.

15.Hill J’s instruction in Brown is to have regard, as appropriate, to the “guidelines” in Hunter Valley Developments, but to bear in mind the particular context of Part IVC of the Taxation Administration Act 1953 (which governs the administrative review of tax assessments) in considering those guidelines.

16.I turn now to the factors that I consider relevant in this case.

Is there an acceptable explanation for the delay?

17.Mr Barton initially thought that it would be futile to apply to the Tribunal if he could not produce the wages book.  On reflection, he now realises that it might have been preferable, if only to keep his client’s options open, to apply to the Tribunal without delay once the objection decision was made.  But at the time, he thought that the matter could be resolved “administratively”.  He was not aware until well after the expiry of the 60-day period that Mr O’Connor might be compelled to produce a critical piece of evidence, the wages book, if proceedings were commenced in the Tribunal.  Armed with that advice, he moved quickly to lodge the application.

Did Mr Griffith rest on his rights?

18.Resting on one’s rights may be a relevant factor where the passing of time may make it difficult for the decision-maker to recall all the circumstances surrounding the making of the decision.  However, as Hill J notes in Brown at [48], page 129:

That is no doubt important where what is being challenged is the making of an administrative decision. It has much less relevance where the substance of the challenge which a taxpayer wishes to make is the excessiveness of an assessment of the taxpayer’s taxable income, a question which requires an investigation of the taxpayer’s assessable income and the allowable deductions to be put against that assessable income. It is not as if the Commissioner has made a decision based on facts known to him at the time of decision where those facts may fade from the Commissioner’s recollection if subsequently required to be recalled in the light of a court challenge to the making of that decision. Almost always the facts surrounding a particular transaction said to give rise to assessable income or to generate allowable deductions will be peculiarly within the knowledge of the taxpayer rather than the Commissioner. True it is that other witnesses may with the effluxion of time be unavailable to give evidence or become forgetful. But where the onus of proof is on the taxpayer to show that an assessment is excessive, delay in instituting the objection and appeal procedure may well more often prejudice the taxpayer than the Commissioner.

19.There is no suggestion that, in the circumstances of this case, the Commissioner would be prejudiced if an extension of time were granted.

The merits of Mr Griffith’s case

20.Hill J warns in Brown at [29], page 126, that it is inappropriate for the Tribunal to embark on a trial of the merits when it is considering whether to grant an extension of time. Rather, the question is whether a taxpayer’s version of events “on its face discloses a case which is arguable” (Brown at [56], page 131) or, by way of contrast, one which is “frivolous or which in law must fail” (Brown at [58], page 131).

21.Mr Griffith’s evidence is that he signed the returns as drafted by Mr O’Connor without paying attention to the contents of them.  He denies that he received anything like the income declared in his returns.  He claims that the wages book records his true income for the relevant years, and that the amounts in the wages book are very much less than the amounts that were declared in the tax returns.

22.Mr Griffith also says that when queries were initially raised by the Commissioner about the contents of the returns, either the correspondence went direct to Mr O’Connor, as his tax agent, or, if it went to the taxpayer himself, he would refer it straight to Mr O’Connor’s firm to deal with it.  Mr O’Connor and his colleagues had repeatedly told Mr Griffith that they had everything under control, although undoubtedly this was not the case.  On Mr Griffith’s version, of course, Mr O’Connor would have been unable to resolve the issues raised by the Commissioner.

23.Mr Griffith clearly has an arguable case.  If he can produce the wages book, and it is accepted as a reliable record of his income, then he may very well be able to prove the assessment excessive.  He should be given that opportunity.

Conclusion

24.The justice of this case requires that the extension of time be granted.

I certify that the 24 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S E Frost, Senior Member.

Signed: ...................................................................................
  Christian Taylor, Associate

Date of Hearing   11 April 2011 and 10 May 2011
Date of Decision   10 June 2011
Counsel for the Applicant                Ian Young
Appearance for the Respondent    Benjamin de Santis