Issa and Commissioner of Taxation (Taxation)

[2023] AATA 3067

Issa and Commissioner of Taxation (Taxation) [2023] AATA 3067 (11 August 2023)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:          2023/2978

Re:John Issa

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President McCabe

Date:11 August 2023

Place:Sydney

The request for an extension of time to apply for review is refused.

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Deputy President Bernard J McCabe

Catchwords

PRACTICE AND PROCEDURE – Application for Extension of Time – Objection Decision – Income Tax Assessment Penalty – Delay – Application for Extension of Time not granted

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

Income Tax Assessment Act 1936 (Cth)

Taxation Administration Act 1953 (Cth)

Cases

Hunter Valley Developments Pty Ltd v Minister for Home Affairs and Environment [1984] FCA 176

Mulheron and Australian Telecommunications Corporation (1991) 23 ALD 309

REASONS FOR DECISION

Deputy President Bernard J McCabe

11 August 2023

INTRODUCTION

1. Mr John Issa applied to the Administrative Appeals Tribunal (“the Tribunal”) to review an objection decision made by the Commissioner of Taxation (“the Commissioner”) in relation to the 2015 year of income. Given the objection decision was made on 17 December 2019, the applicant has necessarily filed an application for an extension of time (“EOT”) under section 29(7) of the Administrative Appeals Tribunal Act 1975 (Cth) (“the AAT Act”) on 22 May 2023. These reasons relate to the extension of time application.

The history

1. The Commissioner issued a default assessment pursuant to section 167 of the Income Tax Assessment Act 1936 (Cth) (“ITAA”) against Mr Issa in respect of the 2015 year of income. The assessment was issued on 8 July 2016. Mr Issa did not lodge an objection to that default assessment (which included a penalty assessment) until 19 June 2019. That objection was lodged out of time and required the Commissioner to agree to an extension of time. Mr Tsianakis, who appeared for the Commissioner, says the (late) lodgement of the objection appeared to be prompted by the Commissioner’s decision at the time to undertake recovery proceedings against Mr Issa – specifically, the Commissioner had recently issued a bankruptcy notice.

2. The extension of time was given and the objection decision was made on 17 December 2019. The objection was disallowed.

3. Mr Issa says he did not receive a copy of the objection decision. The Commissioner says it was sent to a post office box connected with Mr Issa’s tax agent at the time. Mr Issa said he did not recognise the post office box but I note that address was provided by the tax agent to the Commissioner in the objection form.

4. In the ordinary course, the applicant should have applied to the Tribunal for a review of that objection decision within 60 days (ie, by 19 February 2020). The applicant missed that deadline, giving the following reasons:

   (a)he was unaware of the objection decision having been made and delivered, perhaps because his tax agent did not tell him that occurred; and

   (b)he was distracted by his wife’s illness and his own ill-health. In the meantime, the Commissioner had paused the recovery proceedings against Mr Issa (and the bankruptcy notice eventually became stale) because of the onset of Covid-19.

5. Mr Tsianakis acknowledged a tax agent for the applicant (a different agent to the one who lodged the objection in the first place) asked the Commissioner for a copy of the objection decision late last year. But there were no further steps taken towards progressing the dispute until Mr Issa applied for a review in the Tribunal on 7 February 2023, nearly three years after the objection decision was made. Mr Tsianakis pointed out the application for review appears to have been prompted by renewed recovery proceedings: a fresh bankruptcy notice was issued in January 2023. 

6. The application for review was necessarily accompanied by an extension of time application. The Tribunal granted the request for an extension of time on 15 March 2023 when the Commissioner indicated he neither consented to nor opposed an extension. Mr Issa also sought review of several other decisions made by the Commissioner in relation to other years of income. It turns out those other decisions were not reviewable by the Tribunal.

7. Mr Issa could have progressed his application in relation to the 2015 year of income, but he did not pay the required application fee. After correspondence with the Tribunal, the application was dismissed without proceeding to a review pursuant to section 69C of the AAT Act on 27 April 2023. Mr Pigott, who is representing Mr Issa, provided a statement in which he explained he was given to understand Mr Issa could effectively allow the application to lapse and thereafter lodge a fresh application. He says he derived that understanding from comments made by the Tribunal officer who spoke with him on the phone.

8. The applicant has now lodged a fresh application for review in respect of the same objection decision relating to the 2015 year of income. He has also lodged a fresh extension of time application as required. Whatever view the Commissioner took in relation to the previous application for an extension of time, he says this latest request for an extension of time should be refused.

The extension of time application

1. The issue before me today is the extension of time, not the correctness of the Tribunal’s decision to dismiss the earlier proceedings. If the applicant was dissatisfied with or disagreed with that outcome, the correct course was, or is, to appeal to the Federal Court. I do not presently have jurisdiction to reinstate that application and there is no application before me to that effect.

2. I must decide whether to grant an extension of time under section 29(7) of the AAT Act. That section permits me to extend the deadline for lodging an application for review provided I am satisfied it is reasonable in all the circumstances to do so. The Courts and the Tribunal have discussed the circumstances that are typically relevant to that inquiry in cases like Hunter Valley Developments Pty Ltd v Minister for Home Affairs and Environment[1] at [18]-[23] per Wilcox J and Re Mulheron and Australian Telecommunications Corporation (‘Mulheron’)[2] at [17] per O’Connor J. (O’Connor J was the President of the Tribunal at the time.) Those authorities make clear the timelines set out in the legislation are intended to apply, and an application for review lodged out of time can only proceed if the discretion to make an exception is exercised for appropriate reasons. I should add that compliance with deadlines is regarded as particularly important in taxation reviews where some taxpayers might otherwise prefer delay in the face of revenue collection processes.

   [1] [1984] FCA 176.

   [2] (1991) 23 ALD 309.

3. In cases such as this, it would ordinarily be appropriate to consider:

   (a) The explanation for the delay. The Tribunal is particularly concerned where an applicant appears to have rested on his rights. O’Connor J noted in Mulheron that, in a case like the present where an earlier application for review was dismissed, the circumstances attending that dismissal might be relevant;

   (b) Any prejudice that would be experienced by the respondent if the substantive matter were to proceed at this juncture. That prejudice might arise because delay can make it harder to ascertain the facts because documents are lost and memories fade. I must also consider any prejudice to the applicant if he is prevented from progressing the application for review;

   (c) The public interest, which includes ensuring the review process and the revenue recovery processes are fair, orderly and efficient;

   (d) The merits of the substantive application for review.

4. The list is not exhaustive. Indeed, it is nothing more than an indication of what circumstances might be relevant. Section 29(7) of the AAT Act requires that I consider what is reasonable in all the circumstances. Having said that, I am satisfied the list provides a suitable framework for resolving the dispute in this application.

The applicant’s explanation for the delay: has he rested on his rights?

1. Mr Issa said at the interlocutory hearing that he had difficulty pursuing his rights because he and his wife have both been ill and he has faced other distractions arising out of a criminal investigation. (Mr Issa surmised the police investigator was the source of information the Commissioner used when making the default assessment.) Mr Issa also said he had been diligently engaging with the Commissioner’s staff in relation to his tax affairs over a long period through different tax agents. He said he had provided a lot of documentation that supported his case. He lamented what he took to be the Commissioner’s unwillingness to respond.

2. I note the decision-making process commenced in 2016 when the Commissioner filed a default assessment. A default assessment was filed because Mr Issa did not provide a return as required. While he may have been in contact with the Commissioner through his tax agents thereafter, he was only prompted to lodge an objection – the formal process for disputing the assessment – after a significant delay and after recovery proceedings were commenced against him. The timing of the objection does not bespeak a vigorous assertion of rights so much as a belated attempt to forestall adverse consequences.

3. The Commissioner’s objection decision was thereafter made and communicated in a timely way. Mr Issa says he did not receive it because it was sent to an address he did not recognise. I note the objection decision was apparently sent to the address nominated by Mr Issa’s agent. Even if I accept Mr Issa was unaware the decision arrived in December 2019, the first evidence that he made any enquiries as to the outcome of the objection comes in the form of an enquiry from his new tax agent addressed to the Commissioner sometime in late 2022. Once again, that delay of nearly two years does not bespeak a vigorous assertion of rights even as the applicant benefitted from the pause in recovery proceedings during Covid-19.

4. A fresh bankruptcy notice was issued earlier this year in January. It seems that development prompted the application for review in February. The time to comply with the bankruptcy notice has since been extended to July. The Commissioner is yet to submit a creditor’s petition. The applicant did not take steps to progress the matter - by paying the filing fee, for example - after the Tribunal granted an extension of time.

5. Mr Pigott provided evidence of a conversation he had with a Tribunal officer about the application for review and the need to pay a fee. Mr Pigott says he understood the application for review could be dismissed and reinstated later. It seems likely he misunderstood whatever he was told since that advice makes no sense: the application in respect of the 2015 year of income was valid and ready to progress subject to payment of the fee, whatever the fate of the related applications in respect of (unreviewable) decisions relating to other years of income.

6. Mr Tsianakis pointed out the applicant is not assisted by the suggestion in Mulheron that the reasons for dismissal of the earlier application should be considered. In Mulheron, the application was being progressed but it was dismissed for non-appearance following a communication failure that did not indicate the applicant was resting on his rights. Mr Tsianakis says the situation is different in this case: the applicant did not even clear the first hurdle in the review process by paying the application fee. I agree.

7. I also note Mr Pigott’s statutory declaration confirms he has experienced difficulty obtaining instructions from Mr Issa.

8. I am satisfied the applicant has rested on his rights to an unacceptable degree. I accept he has experienced other pressures, in particular arising out of health issues, but he has a history of only asserting his rights when the Commissioner commences or progresses recovery action. This factor counts against the exercise of the discretion in section 29(7) to grant an extension of time.

Prejudice to the applicant and respondent

1. The applicant will be prevented from disputing the objection decision which includes significant penalties if he is not given an extension of time. That may result in the Commissioner resuming recovery action. The stakes for the applicant are high, although – as I shall explain – it is not clear whether he has a strong case on the merits. The assessment of prejudice needs to be seen in that light.

2. There is potentially some prejudice to the Commissioner if the review proceeds. Default assessments in relation to years of income that have long since passed always present evidentiary difficulties. While the taxpayer bears the onus and thus the risk upon review, the cases tend to be messy and they can be arduous for everyone involved. There is no reason to doubt this case might fall into that category: Mr Pigott makes clear the applicant has not yet assembled his case, and a measure of reconstruction will be required. I am satisfied this consideration counts against the exercise of the discretion.

The public interest

1. There is a public interest in a fair and efficient review process that affords taxpayers an appropriate opportunity to challenge revenue decisions. They are already given extra time do to so given the nature of the challenge: whereas most (non-revenue) applications for review must be lodged within 28 days of the reviewable decision, taxpayers are given 60 days under section 29 of the AAT Act as amended by s 14ZZC of the Taxation Administration Act 1953 (Cth) (“the Administration Act”). But the review regime in Part IVC of the Administration Act also includes provisions which make clear taxpayers are expected to act expeditiously. They must identify the basis of the dispute at an early opportunity and progress the review application. The provisions include:

   (i)Section 14ZU, which requires the taxpayer to “state…fully and in detail, the grounds that the person relies on” to object in the objection form lodged at the outset of the process;

   (ii)Section 14ZV, which limits objection rights in respect of amended assessments; and

   (iii)Section 14ZZK(a) which requires leave to raise fresh grounds of objection.

2. There is a strong public interest in finalising these matters expeditiously, particularly given some taxpayers have an incentive to put off what may otherwise be for them an awful day of reckoning. It would be grossly unfair if some taxpayers were able to delay meeting their obligations through delay tactics or simple inertia. The same considerations apply where a taxpayer is faced with recovery proceedings. There is a public interest in the orderly collection of revenue. That process will be frustrated if taxpayers do not assert their rights in a timely way. Allowing this process to drag on would be unfair to those taxpayers who comply with their obligations and inconvenient for the Commonwealth as it attempts to manage its budget which includes funding for public services, social welfare and defence. Undue delay is not consistent with the requirements of good public administration.

3. The taxpayer in this case has had ample opportunity to assert his rights, but he has persistently failed to do so. The public interest weighs against the exercise of the discretion.

Merits of the substantive application

1. An obviously strong case is likely to weigh in favour of the exercise of the discretion, whereas an obviously weak case will count for less. But assessing merit can be difficult because of the paucity of information about the case. The assessment typically occurs at an early stage of the proceedings before the applicant’s case is fully formed. The Tribunal will make its assessment with that state of preparation in mind, and it will not insist on a sort of ‘mini-trial’ which would be unduly burdensome. Having said that, the applicant taxpayer has already gone through an objection process in which he was required to identify grounds of objection and explain his case to the Commissioner. An applicant before the Tribunal will almost always have – or should have – a sense of the metes and bounds of his case when he files the application for review. An applicant would surely be reluctant to commence proceedings unless they have a sense of how they are going to succeed.

2. Mr Tsianakis pointed out the Commissioner was not saying the applicant’s case was meritless. The point is well made since the Commissioner is effectively guessing about Mr Issa’s affairs. (Such is the nature of default assessments.) Mr Tsianakis said the problem was that Mr Issa had not demonstrated (at least in outline) how he was going to discharge the onus imposed under s 14ZZK(b) of the Administration Act. Without that indication from the applicant, it was simply impossible for the Commissioner to make meaningful submissions as to merit.

3. Mr Pigott said the applicant had not gone far in assembling his case precisely because he did not want to incur the expense of doing so if he was not going to receive an extension of time. Mr Issa insisted he had already provided large amounts of material to the Commissioner but it was ignored. He also hinted darkly at the Commissioner’s motivations in issuing the default assessment in the first place.

4. It is unclear whether the applicant’s substantive claim has merit. It might, but – as Mr Pigott made clear when he said the applicant had not yet gone to the expense of assembling his case – there is no basis for me to opine the applicant has a strong case at this point. It follows I am not satisfied this consideration weighs heavily in favour of the exercise of discretion.

Conclusion

1. On balance, I am not satisfied it would be reasonable in all the circumstances to extend time under section 29(7) of the AAT Act. The applicant has had ample opportunity to lodge and progress a review. The decision-making process has reached its end.

32.     I certify that the preceding 31 (thirty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 11 August 2023

Date/s of hearing:	6 and 8 August 2023
Advocate for the Applicant:	Mr B Pigott
Solicitor for the Respondent	Australian Government Solicitor