Homeowner 1 and Commissioner of Taxation (Taxation)
[2016] AATA 162
•18 March 2016
Homeowner 1 and Commissioner of Taxation (Taxation) [2016] AATA 162 (18 March 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2015/4450, 2015/4588-4590
Re
Homeowner 1
APPLICANT
And
Commissioner of Taxation
RESPONDENT
File Number(s)
2015/4451, 2015/4591-4593
Re
Homeowner 2
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Professor R Deutsch, Deputy President
Date 18 March 2016 Place Sydney The applications are dismissed for lack of Jurisdiction.
................................[sgd]........................................
Professor R Deutsch, Deputy President
CATCHWORDS
Practice and Procedure – private rulings – whether Tribunal has jurisdiction to review applications – applicants do not seek review of relevant legislation set out in the question for the private ruling - Tribunal does not have jurisdiction
LEGISLATION
Income Tax Assessment Act 1997 ss 118-135, 118-145
Tax Administration Act 1953 ss 359-1, 359-5
CASES
Commissioner of Taxation v McMahon (1997) 79 FCR 127
Investa Properties Limited & Commissioner of Taxation [2009] AATA 121
REASONS FOR DECISION
Professor R Deutsch, Deputy President
18 March 2016
BACKGROUND
These proceedings involve applications made by the Applicants for the review of certain objection decisions made by the Respondent on 30 June 2015.
The sequence of events that led to those applications being made can best be summarised as follows:
On 8 December 2014, the tax agents for the Applicants, H & R Block, made what is called a “Private ruling application” on an approved form on behalf of the Applicants. That form was divided into a number of Sections being Sections A to E inclusive. Section C was headed “Questions and facts” and was itself divided into 3 parts namely parts 6, 7 and 8 which were sequentially headed as follows:
6. Questions and issues for the ruling;
7. Facts describing the scheme or circumstance;
8. Your arguments and references (optional).
Under the Heading to part 6 appeared the words “We can only give a private ruling on the application of specific tax laws. List the questions and issues you want the ruling to address.”
In the box made available for the purposes of part 6 the following somewhat inelegant and vague words were inserted:
CONFIRM TAXPAYER IS WITHIN THE LIMITS TO CLAIM 6 YEAR EXEMPTION RULE IN RELATION TO CAPITAL GAIN ON INVESTMENT PROPERTY CONSIDERING THE CIRCUMSTANCES.
On December 22 2014, the Respondent issued the Private Ruling to the Applicants. As the Applicant’s wording did not amount to a specific question upon which the Respondent could rule, the Respondent formulated a specific question which the ruling would answer. Thus the question posed in the Private Ruling was:
“Can you choose for section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply to treat the property as your main residence from May 2009 for the period it was leased?”
The one word answer given was “No”.
Attached to the Private Ruling was another single page which was headed “Reasons for decision”. Before providing those reasons the following words appear:
These reasons for decision accompany the Notice of private ruling for [the Applicants].
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
The reasons for decision made reference to and commented upon 3 different provisions as follows:
Section 118-110 of the ITAA 1997 states that you disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period.
Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. It treats a dwelling as your main residence from the date it was acquired provided you moved into it as soon as practicable to do so after it was acquired. However, the Explanatory Memorandum to the Tax Law Improvement Bill (No 1) 1998 explains that section 118-135 of the ITAA 1997 is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out.
In this case when you purchased the property an existing lease was in place. We do not consider that you will move into the property when it was first practicable to do so. Accordingly section 118-135 of the ITAA 1997 will not apply and the property will only become your residence once you have moved into it.
Section 118-145 of the ITAA 1997 provides that if a dwelling that was your main residence ceases to be your main residence you can choose to treat that dwelling as your main residence for capital gains tax purposes.
As the property has not been your main residence from May 2009, you are not eligible to make the choice under section 118-145 of the ITAA 1997 to treat the property as your main residence for the period it has been leased.
On 20 February 2015, the Applicants lodged 2 separate but largely identical objections against the Private Ruling with each such objection being accompanied by a more detailed “Notice of Objection against Private Ruling”. In that Notice the Applicants indicated that:
“In so far as the taxpayers relied upon section 118-145 in addition to section 118-135, that contention concerning section 118-145 is not pressed in this objection.”
In other words, the Applicants indicated that they no longer wished to press the argument relating to s118-145, which was the very provision about which the Applicants had asked under the heading “Questions and issues for the ruling”. By implication and then later expressly the Applicants made clear they were pursuing the contentions regarding s118-135 about which they said nothing under the heading “Questions and issues for the Ruling”.
On 30 June 2015, the Respondent issued the relevant Notices of Decision on Objection disallowing the Applicant’s objections.
On 27 August 2015 the Applicants filed formal applications for review of the objection decisions with the Tribunal.
THE ISSUE
The issue for consideration here is whether this Tribunal has jurisdiction to review the decisions identified in the applications for review.
The Applicants are of the view that the Tribunal has jurisdiction to review the Respondent’s opinion in respect of the application of s118-135. In taking that view, the Applicants contend that the Respondent has made a ruling about the way two separate provisions, namely s118-135 and s118-145, would or would not apply to the Applicants in the specified factual circumstances. The Applicants submit they are relevantly “dissatisfied” with the Private Ruling, but have limited the grounds of their objection and the scope and grounds of review in the Tribunal to the way in which s118-135 applies to them. Therefore the Tribunal has jurisdiction to review the Respondent’s decision as to how s118-135 applies to them in their specified factual circumstances.
The Respondent is of the view that the Tribunal has no jurisdiction to review the Private Ruling with respect to the application of s118-135. The mention of s118-135 appears only in the “Reasons for decision” which accompanied, but is not part of, the Private Ruling. The Respondent accepts that in considering the application of s118-145 to the arrangement specified in the Private Ruling, s118-135 is a relevant consideration and it is a relevant legislative provision. However, the Respondent submits that the Tribunal cannot make a decision on the application for review solely concerning the application of s118-135 to the arrangement identified in the Private Ruling, as this is not the provision in respect of which the Private Ruling was made.
To put it another way, the Respondent submits that the Tribunal does not have jurisdiction to review the applications as the Applicants are not dissatisfied with the subject of the objection decisions, which concerns only the application of s118-145.
THE TRIBUNAL'S CONSIDERATION
The critical Division dealing with private rulings is Division 359 of Schedule 1 to the Tax Administration Act 1953 (the TAA) which relevantly opens with a guide to s359-1 which provides that:
A private ruling is an expression of the Commissioner's opinion of the way in which the Commissioner considers a relevant provision applies or would apply to you in relation to a specified scheme.
The operative provision is in s359-5(1) which provides that:
The Commissioner may, on application, make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to you in relation to a specified scheme. Such a ruling is called a private ruling.
It is clear from the guide and s359-5(1) that the critical subject matter of the application made by the Applicants and the ruling in response made by the Respondent is "the way in which the Commissioner considers a relevant provision applies or would apply to you".
The Applicants contend in this respect that the Respondent has made a ruling in this case about the way in which two provisions, namely s118-135 and s118-145, apply or do not apply to them in the specified factual circumstances. The Applicants further contend that they are at liberty to then be dissatisfied with the objection decision in respect of the ruling but to pursue the review only in respect of the way in which s 118-135 applies to them.
With respect, it is the view of this Tribunal that the Applicants' contentions in this regard are misconceived in that the ruling made by the Respondent was a ruling only in respect of the way in which s118-145 applies or does not apply to the Applicants in the specified factual circumstances. Section 118-135 was of course referred to and elaborated upon, but only in the context of the "Reasons for decision' in much the same way as s118-110 was referred to in those reasons. The Respondent was not providing a ruling in respect of the operation of 118-135 (or in respect of s118-110 for that matter). The Respondent sought to make that point clear by inserting under the heading Reasons for decision, the caveat:
"While these reasons are not part of the private ruling, we provide them to help you understand how we reached our decision."
In other words, the discussion concerning s118-135 in the Reasons is designed to assist the Applicants in understanding the conclusions reached in regard to s118-145 but are not in themselves rulings in respect of the Respondent's views on the application of s118-135.
The decision of the Federal Court in Commissioner of Taxation v McMahon (1997) 79 FCR 127 is relevant even though it refers to an older statutory context. In that case Beaumont J said at page 140:
It is, I think, plain from the language of s 14ZAF, and from its evident purpose, that the statutory character of the private ruling is that of an advisory opinion on a particular question, that is, the way in which the tax legislation would apply to the person in respect of a year of income in relation to an "arrangement".
It is equally plain from the language of s 14 ZAZA(1), and its evident purpose, that the subject of any objection to the ruling is the same question, that is, the way in which the tax legislation would apply to the person in respect of the year of income in relation to the arrangement.
Further, in somewhat different circumstances to that which apply here, in Investa Properties Limited & Commissioner of Taxation [2009] AATA 121, this Tribunal found that it lacked jurisdiction to review a decision on objection where the Commissioner had failed to rule on an arrangement set out in the ruling application. It was determined that the Commissioner had asked a different question to the one asked by the taxpayer and had ruled upon that question (being the one formulated by the Commissioner) alone.
The question posed by the taxpayer in the ruling request was considered by the Commissioner, but was classed as an explanation which did not form part of the ruling. Senior Member Hunt concluded that the questions considered and answered as part of the explanation “were not considered in the ruling as arising from the scheme which the Commissioner identified” and took the view that “[he] would exceed the tribunal’s jurisdiction in making findings on such matters”.
In the case before me now, the Respondent has not asked a question that is different to the one posed in the ruling application. Rather, the Applicant seeks a decision from this Tribunal on a different question to the one which the Applicant asked, or more accurately was taken to have been asked, in the ruling application.
Essentially, in this case, the Respondent was asked to provide what amounts to, in the language of Beaumont J in McMahon, an advisory opinion on a particular question concerning the application of s118-145 and the Respondent provided a particular answer to that question. That is the matter in respect of which a ruling has been given.
While the Tribunal has jurisdiction in general to review private rulings, having regard to the way the relevant legislation reads and the decisions referred to above, the Tribunal would, in my view, be in error if in this case, it now sought to make a decision on a different question to the one set out in the Private Ruling.
The Tribunal would exceed its jurisdiction if it were to reframe the question asked in the Private Ruling as being only about the application of s118-135 of the ITAA 1997. Having regard to what has been said above, that section was never the subject of a specific ruling by the Respondent.
I should finally note that I take the view that the Respondent reasonably and quite properly re-cast the wording that the Applicants had used in the Ruling application so as to amount to a question to which the Respondent could provide an answer. In this, the Respondent needed to, at least partially, second guess exactly what it was that the Applicants were asking. I believe the Respondent made a reasonable, bona fide attempt to formulate what it thought the question should be, based particularly on the fact that the narrative made reference to a 6 year period which is referred to in s118-145 but not in s118-135.
Having said that, in my view the more appropriate course of action which the Respondent should have taken in such a case would have been to send the Ruling application back to the Applicants unanswered and indicated that no answer could be given unless the narrative was re-formulated by the Applicants into a formal question or issue upon which the Respondent could then rule.
DECISION
The Applicants have clearly submitted that they only seek review of the Private Ruling with regard to the way in which s118-135 applies to them. As I have found that the relevant provision addressed by the Private Ruling was s118-145, the Tribunal does not have jurisdiction to review the Private Ruling with respect to the application of s118-135.
The applications are dismissed for lack of Jurisdiction.
I certify that the preceding 34 (thirty -four) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President ................................[sgd].......................................
Associate
Dated 18 March 2016
Date(s) of hearing 12 November 2015 Counsel for the Applicants Mr I Young Solicitors for the Respondent Australian Taxation Office
0
2
0