Hickey and Commissioner of Taxation
[2009] AATA 347
•14 May 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 347
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/2855-2856
TAXATION APPEALS DIVISION ) Re KENNETH HICKEY Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr S E Frost, Member Date14 May 2009
PlaceSydney
Decision The application is dismissed under s 42B of the Administrative Appeals Tribunal Act 1975. ...................[sgd]......................
Mr S E Frost
Member
CATCHWORDS
PRACTICE AND PROCEDURE – applicant has standing at time of application for review but underlying interest which provided that standing subsequently ceases to exist – jurisdiction of Tribunal – outcome of proceedings devoid of any practical effect – whether application has become vexatious – application dismissed as vexatious
TAXATION – private ruling – applicant nominates the “scheme” to which the ruling applies – ruling specifies that it applies to two income years – applicant objects against ruling – objection disallowed – applicant applies to Tribunal, prior to the end of the second income year, for review of the objection decision – scheme not implemented by the end of the second income year – whether applicant “dissatisfied” with objection decision – jurisdiction of Tribunal – whether application has become vexatious – outcome of proceedings devoid of any practical effect – application dismissed as vexatious
Relevant Act/s
Taxation Administration Act 1953 – s 14ZY, 14ZZ, 14ZZB; Schedule 1 – s 359-25, 359-60
Administrative Appeals Tribunal Act 1975 – s 27, 42B
Relevant Case Law
CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397; 27 ATR 403; 94 ATC 4072
Re The Property Applicants and Commissioner of Taxation [2006] AATA 441; (2006) 62 ATR 1233; 2006 ATC 142
Re Williams and Australian Electoral Commission (1995) 38 ALD 366; 21 AAR 467
Attorney-General v Wentworth (1988) 14 NSWLR 481
REASONS FOR DECISION
14 May 2009 Mr S E Frost, Member Introduction
1. In February 2007, Mr Hickey applied for a private ruling from the Commissioner in relation to the capital gains tax outcome if a home unit, of which the registered proprietors were Mr Hickey’s wife and daughter, were to be sold.
2. At the time of his application, he indicated that the intention was to sell the property “this year”.
3. The Commissioner perceived from the ruling application that the question to which Mr Hickey required an answer was:
Will you make a capital gain or capital loss from the sale of the unit?
4. The answer that the Commissioner gave in the private ruling was “No”.
5. The ruling contained the following additional information:
Years of income to which this ruling applies:
Year ended 30 June 2007
Year ended 30 June 2008
Commencement date of scheme:
01 July 2006
6. Mr Hickey’s view had been, for reasons which are not necessary to explore here, that he, rather than his wife and daughter, would be the person liable to capital gains tax on the disposal of the unit. Since he disagreed with the Commissioner’s answer, he objected against the private ruling, which he was entitled to do.
7. The Commissioner disallowed his objection. Mr Hickey then applied to the Tribunal for review of that objection decision.
8. As things turned out, the home unit was not sold during either the 2007 income year or the 2008 income year.
9. The Commissioner now suggests that, because the “scheme” identified in the ruling (that is, the sale of the unit) did not occur within either of the 2007 or 2008 income years, the Tribunal has no jurisdiction to consider Mr Hickey’s application for review. That is the first question which requires determination. If I find that the Tribunal has jurisdiction, the next question is whether the Tribunal should continue to deal with the application.
The legislation
10. The provisions relating to private rulings (at least as far as income tax is concerned, including tax on capital gains) are set out in Part 5-5 in Schedule 1 to the Taxation Administration Act 1953 (“the Administration Act”). The common rules relating to public rulings, private rulings and oral rulings are contained in Division 357. The particular rules for private rulings are set out in Division 359.
11. Section 359-25 in Schedule 1, headed “Time of application of private rulings”, provides:
(1)A *private ruling may specify the time from which it begins to apply and the time at which it ceases to apply.
(2)The specified start time, or end time, may be before, when, or after the *private ruling is made and may be determined by reference to a specified event.
(3)A *private ruling that does not specify a start time applies from the time when it is made.
(4)A *private ruling that does not specify an end time ceases to apply at the end of the income year or other accounting period in which it started to apply.
12. Section 359-60 in Schedule 1 is headed “Objections, reviews and appeals relating to private rulings”. It provides relevantly:
(1)You may object against a *private ruling that applies to you in the manner set out in Part IVC if you are dissatisfied with it.
(2)The ruling is taken to be a taxation decision (within the meaning of that Part).
(3)[…]
13. Sections 14ZY and 14ZZ appear in Part IVC of the Administration Act. They provide relevantly as follows:
14ZY Commissioner to decide taxation objections
(1)Subject to subsection (1A), if the taxation objection has been lodged with the Commissioner within the required period, the Commissioner must decide whether to:
(a) allow it, wholly or in part; or
(b) disallow it.
(1A)[…]
(2)Such a decision is in this Part called an objection decision.
(3)[…]
14ZZ Person may seek review of, or appeal against, Commissioner’s decision
If the person is dissatisfied with the Commissioner’s objection decision […], the person may:
(a)if the decision is both a reviewable objection decision and an appealable objection decision—either:
(i) apply to the Tribunal for review of the decision; or
(ii) appeal to the Federal Court against the decision; or
(b)if the decision is a reviewable objection decision (other than an appealable objection decision)—apply to the Tribunal for review of the decision; or
(c)if the decision is an appealable objection decision (other than a reviewable objection decision)—appeal to the Federal Court against the decision.
14. So, in the context of private rulings, if a person is “dissatisfied” with the Commissioner’s ruling, the person may object against the ruling. If the person is then “dissatisfied” with the objection decision, the person may apply to the Tribunal for review of the objection decision, or may “appeal” to the Federal Court against the objection decision, depending on the circumstances.
When is a person “dissatisfied”?
15. In a slightly different context, in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397; 27 ATR 403; 94 ATC 4072, Gummow J (with whom Jenkinson J agreed) said at FCR 405; ATR 411; ATC 4079:
[T]he presence of a moving party who is in the relevant sense “dissatisfied” is a jurisdictional fact which determines the applicability of s 14ZZ both as regards review by the AAT and the exercise of the original jurisdiction of this Court …
16. His Honour went on to say at FCR 408; ATR 414; ATC 4082:
In my view, if regard is had to the context in which s 14ZZ appears, in its operation upon the jurisdiction of this Court, then the “dissatisfaction” of the person initiating the proceeding is of the following nature. It is a dissatisfaction with the absence of a favourable decision upon the objection which would, if now rectified by the Court, place the party in the position for the administration of the taxation laws which should have applied if the ruling had been made by the Commissioner in the terms sought. A mere curiosity or interest in having a formal ruling by the Commissioner for some collateral commercial purpose of the applicant is not sufficient to amount to “dissatisfaction” in the relevant sense. …
17. In a similar vein, Hill J said at FCR 432; ATR 435; ATC 4100:
In my opinion a person will only be “dissatisfied” in the relevant sense if that person is a person to whom the “ruling” is still capable of having legal effect. In the case of a ruling relating to a proposed arrangement, that means that the arrangement must be one which, if entered into, will fall within the ruling. If the ruling relates to a year of income which has passed before the appeal is instituted (or perhaps before the appeal has been heard) so that the ruling can not affect the taxation liability of a putative appellant, that person, no matter how discontented, will not be a “person dissatisfied”. (emphasis added)
18. The context of CTC Resources is slightly different from the one here, for two reasons:
· First, the Court was considering the position from the perspective of an “appeal” to the Federal Court, rather than an application to the Tribunal for review.
· Second, in CTC Resources, the taxpayer did not implement the scheme within the nominated income year, and did not appeal to the Federal Court until the following income year. Therefore, the taxpayer failed to meet the description “dissatisfied” from the very time that it commenced its action. That is not the case with Mr Hickey, as the following chronology shows:
5 February 2007 – Mr Hickey applies for the private ruling
12 February 2007 – Commissioner issues notice of private ruling
5 April 2007 – Mr Hickey objects against the ruling
4 May 2007 – Commissioner issues notice of objection decision
3 July 2007 – Mr Hickey applies to the Tribunal for review
19. There is an important point to note about the first of those differentiating factors. Since the Federal Court exercises the judicial power of the Commonwealth, in accordance with Chapter III of the Constitution, it may only deal with “matters” within its jurisdiction. Dealing with hypothetical questions – or those posed out of “curiosity or interest” – would not be an exercise of judicial power and would not be within the jurisdiction of the Court. This consideration seems to have been a factor in the Court’s drawing of the boundary around the limits of the word “dissatisfied”: see for example Gummow J’s discussion in CTC Resources at FCR 405-407; ATR 411-413; ATC 4079-4081, and Hill J’s extensive analysis at FCR 426-432; ATR 430-435; ATC 4095-4100, dealing with the reference in Chapter III to the word “matter”. The Tribunal, on the other hand, does not exercise the judicial power, but rather the executive power of the Commonwealth, in accordance with Chapter II of the Constitution. Because of that distinction, it may be that Hill J’s suggestion to the effect that jurisdiction is lacking in the Federal Court where a ruling relates to a year of income which ends after the institution of the appeal but “before the appeal has been heard” is not directly transportable to the case of an application to the Tribunal for review.
20. The reasoning in CTC Resources was applied by the Tribunal (Deputy President Block) in Re The Property Applicants and Commissioner of Taxation [2006] AATA 441; (2006) 62 ATR 1233; 2006 ATC 142. In that case, once again, the taxpayers did not implement, within the specified income year, the scheme which was the subject of the private ruling. Furthermore, they did not apply to the Tribunal for review of the objection decision until after the end of that income year. So, to that extent, the case is indistinguishable from CTC Resources. The Tribunal decided, in reliance on CTC Resources, that the taxpayers were not relevantly “dissatisfied” when they made the application for review, and therefore that the Tribunal lacked jurisdiction to entertain the application.
Does the Tribunal have jurisdiction?
21. As will be seen from the chronology at [18] above, when Mr Hickey applied to the Tribunal for review, it was still possible that the scheme would be implemented by the end of the 2008 income year. A decision in his favour could still affect his rights in a real sense. Accordingly, he was “dissatisfied” when he made his application. Were it not for s 14ZZB(1) of the Administration Act (by which s 27 of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) does not apply in relation to a reviewable objection decision), he would also have been, within s 27(1) of the AAT Act, a person “whose interests are affected by the decision”.
22. Therefore, at the time when the application for review was lodged, the Tribunal had jurisdiction.
Should the Tribunal continue to deal with the application?
23. The question is whether the Tribunal should deal with the application now that, the 2008 income year having passed without the home unit having been sold, Mr Hickey is no longer “dissatisfied” in the relevant sense.
24. A similar question arose in Re Williams and Australian Electoral Commission (1995) 38 ALD 366; 21 AAR 467, but in the context of s 27 of the AAT Act. Although, as noted above, s 27 is displaced in tax matters by s 14ZZB(1) of the Administration Act, the reasoning in Williams is relevant to Mr Hickey’s situation.
25. The Tribunal in Williams was constituted by the then President, Mathews J, and two presidential members, Hill and Beaumont JJ. At ALD 372; AAR 473 the Tribunal said:
The question thus arises as to whether a person who had standing under the AAT Act to apply for review of a disputed decision should be entitled to maintain the proceedings notwithstanding that the underlying interest which provided that standing has ceased to exist.
26. The Tribunal was invited to decide that s 27 of the AAT Act contemplated that a person who makes an application to the Tribunal for the review of a decision must continue, throughout the life of the proceedings, to fit the description of a person “whose interests are affected by the decision”. However, it declined to decide the case on that basis. Instead it decided that the application had become “vexatious”, and dismissed it under s 42B of the AAT Act.
27. At ALD 374; AAR 475-476 the Tribunal said:
In this case the outcome of the proceedings, whether successful to the applicant or otherwise will be devoid of any practical effect. Nor is there any reputation at stake or “face” to be saved. The interest which gave the applicant standing to commence the proceedings has long since ceased to exist. He has no legitimate interest in pursuing them further. Accordingly, in our opinion, while the proceedings were not instituted vexatiously, they have become vexatious. They have been thus ever since 22 December 1992, when the only interest of the applicant which could possibly have been affected by the disputed decision, ceased to exist. It would impose unnecessary expense and hardship upon the respondent and the [joined party] if the case were to proceed further. Accordingly, we consider that the application should be dismissed as requested. (emphasis added)
28. As I have stated, s 27 of the AAT Act has no application in relation to reviewable objection decisions under the tax law. Instead, the issue of standing is dealt with in s 14ZZ of the Administration Act. Nevertheless, the parallels between Williams and the case of a taxpayer such as Mr Hickey are clear.
29. It is the state of being “dissatisfied” with the objection decision that entitled Mr Hickey to apply to the Tribunal for review of that decision. He was “dissatisfied” because the ruling had the potential to operate in relation to his affairs in a way that he did not agree with.
30. Until the end of the 2008 income year, he had an interest in having the private ruling reviewed. If he could secure a ruling in the terms that he asked for, and the home unit was sold on or before 30 June 2008, then he would have the security of knowing that the Commissioner would assess his tax liability in the way that Mr Hickey thought it should be assessed.
31. However, once the 2008 income year had passed without the sale of the home unit having taken place, any possible interest that he had in the private ruling ceased to exist. In those circumstances, even if the ruling were to be set aside and re-formulated in a way that was consistent with Mr Hickey’s view of the law, such a re-formulated ruling could not have any effect on his tax position when the unit was eventually sold because the “time at which [the ruling] cease[d] to apply” for the purposes of s 359-25(1) in Schedule 1 to the Administration Act was at midnight on 30 June 2008. For that reason, even if the Tribunal were to decide the matter in his favour, such a decision would be “devoid of any practical effect”.
32. Mr Hickey’s state of being dissatisfied in the relevant sense ceased to exist at midnight on 30 June 2008. Like the applicant in Williams, Mr Hickey has no legitimate interest in pursuing this particular matter any further. As in Williams, whilst the proceedings were not instituted vexatiously, they have become vexatious.
33. I should add that I attribute to Mr Hickey’s actions none of the commonly negative connotations of the word “vexatious”. In Attorney-General v Wentworth (1988) 14 NSWLR 481, Roden J said at 491 (in a passage referred to in Williams at ALD 373; AAR 474-475):
It seems then that litigation may properly be regarded as vexatious for present purposes on either objective or subjective grounds. I believe that the test may be expressed in the following terms:
1.Proceedings are vexatious if they are instituted with the intention of annoying or embarrassing the person against whom they are brought.
2.They are vexatious if they are brought for collateral purposes, and not for the purpose of having the court adjudicate on the issues to which they give rise.
3.They are also properly to be regarded as vexatious if, irrespective of the motive of the litigant, they are so obviously untenable or manifestly groundless as to be utterly hopeless.
34. In Williams, the Tribunal had trouble categorising the case into any of those accepted heads of vexatiousness. At ALD 374; AAR 475 it said:
Perhaps this provides a good reason for not stultifying the situations in which proceedings will be found to be vexatious by requiring that they fall within pre-ordained categories. At the same time, it is important to re-affirm that the power to dismiss under this head must be exercised cautiously and sparingly.
35. In the particular circumstances of this case, I consider that the application has become vexatious in the sense referred to by the Tribunal in Williams. It is the passage of time, rather than any action that Mr Hickey has taken, that has caused the application to become vexatious.
36. For these reasons the application is dismissed under s 42B of the AAT Act.
I certify that the 36 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S E Frost, Member
Signed: ......................................[sgd]..........................................
AssociateDate/s of Hearing 28 March 2008, 8 April 2009
Date of Decision 14 May 2009
Appearance for the Applicant Self-represented
Counsel for the Respondent Mr J Hmelnitsky
Solicitor for the Respondent Mr R Pandey and Ms A Lai, ATO Legal Services
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