Kilgour and Commissioner of Taxation (Taxation)

[2024] AATA 3562

Kilgour and Commissioner of Taxation (Taxation) [2024] AATA 3562 (9 October 2024)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:2022/2491, 2022/2492          

Re:Sarah Alice Kilgour  

APPLICANT

AndCommissioner of Taxation

RESPONDENT

File Number:2022/2493 & 2022/2495          

Re:Tamara Louise Isterling  

APPLICANT

AndCommissioner of Taxation

RESPONDENT

File Number:2022/2496          

Re:Raymond Gordon Pty Ltd as Trustee for the Pettett Family Trust  

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION                 

Tribunal:Senior Member R Olding

Date:9 October 2024

Place:Brisbane

The respondent must advise the Tribunal in writing, copied to the applicants, of any case management directions hearings that are scheduled, or directions that are made, by the Federal Court in the appeal against his Honour Justice Logan’s judgement of 26 June 2024 in Kilgour v Commissioner of Taxation [2024] FCA 687, with such advice to be provided within five (5) business days of the respondent being notified of the listing of the hearing or the making of the directions.

.

............................[SGD]............................

Senior Member R Olding

Catchwords

PRACTICE AND PROCEDURE – whether applications for review of administrative penalties and shortfall interest charges should be held in abeyance pending decision of Full Federal Court concerning associated appeals against primary tax assessments – held matters to be held in abeyance

Legislation

Administrative Appeals Tribunal Act 1975 (Cth), s 2A

Cases

Kilgour v Commissioner of Taxation [2024] FCA 687

Shi v Migration Agents Registration Authority [2008] HCA 31

REASONS FOR DECISION

Senior Member R Olding

9 October 2024

1. Following a recent case management directions hearing, I directed that these applications for review continue to be held in abeyance pending resolution of related appeals to the Full Federal Court against the decision of Logan J in Kilgour v Commissioner of Taxation [2024] FCA 687.

2. The applicants sought written reasons for that decision. My reasons follow. Additionally, for the reasons discussed in paragraph 25 below, I have decided to make the further direction set out above.

   BACKGROUND

   The Federal Court proceedings

3. The Federal Court proceedings concern primary tax liabilities relating to the sale of shares in a company.

4. The controversy concerns net capital gains said to have been derived by three shareholders upon the sale of their shares in the same company. Each of the former shareholders is a company that held the shares in its capacity as trustee for a trust and distributed the gains to individual beneficiaries of the trusts: Ms Kilgour, Ms Isterling and Mr and Mrs Pettett. Those beneficiaries appealed against assessments of income tax relating to the amounts distributed to them.

5. Although dismissing the appeals, Logan J was critical of the Commissioner’s valuation guidelines, stating:

   The irony in this case is that a feature of the acceptance of the Commissioner’s submission that the disposal of the shares in Punters has not been proved not to have been at market value has been exposure of an error in the valuation guidelines published by the Commissioner. If there be any issue as to penalty, and such an issue is not before the Court, that might be thought to have obvious, benign consequences for the vendor shareholders.[1]

   [1] [2024] FCA 687, [151].

6. Ms Kilgour and Ms Isterling have appealed Logan J’s judgement to the Full Court. The appeals are against the whole of Logan J’s judgement. The Commissioner filed a notice of contention indicating an intention to support his case on other grounds.

7. Mr and Mrs Pettett have not appealed the judgement dismissing their appeal.

8. Mr Bickford, who appeared for the applicants, advised that no case management hearing or other event relating to the Federal Court proceedings had yet been scheduled and that the earliest the appeal would be likely to be heard would be in the 3 to 28 March 2025 sittings. Ms Wheatley, who appeared for the Commissioner, did not suggest otherwise.

   The Tribunal proceedings

9. In respect of two of the shareholders, the Commissioner assessed administrative penalties at the rate of 25% of the alleged shortfalls against the beneficiaries, Ms Kilgour and Ms Isterling. In respect of the third, the Commissioner assessed a 25% penalty against the trustee/shareholder, i.e. Raymond Gordon Pty Ltd as Trustee for the Pettett Family Trust. Review of shortfall interest charges is also sought.

10. Because of the commonality of evidence and issues, on 1 June 2022 the Tribunal directed, by consent, that:

    (a)the three applications for review be heard together;

    (b)all evidence and documents filed in each of the matters be taken to be evidence or documents in the other matters;

    (c)the matters be placed in abeyance pending the outcome of the Federal Court proceedings.

11. There the matters sat until the afternoon before the directions hearing when the applicants emailed draft directions for consideration by the Tribunal.

    SHOULD THE APPLICANTS’ PROPOSED DIRECTIONS BE MADE?

12. The applicants proposed directions to prepare the matters for hearing, calling for the exchange of statements of facts, issues and contentions (SFICs) and submissions, and the provision of hearing certificates and a hearing book, as follows:

    1.    The evidence filed in Federal Court proceedings QUD 99 of 2022 be evidence in these proceedings.

    2.    On or before 29 November 2024 the Applicant must file with the Tribunal and serve on the Respondent a Statement of Facts, Issues and Contentions and any further evidence the Applicant seeks to rely on.

    3.    On or before 24 December 2024 the Respondent must file with the Tribunal and serve on the Applicant a Statement of Facts, Issues and Contentions and any further evidence the Respondent seeks to rely on.

    4.    On or before 14 February 2025 the parties are to confer and provide the Tribunal with an agreed Hearing Book, along with hearing certificates indicating mutual availability for a hearing in the period March to June 2025.

    5.    28 days prior to the date set down for hearing, the Applicant must file with the Tribunal and serve on the Respondent any outline of submissions which the Applicant seeks to rely on.

    6.    14 days prior to the date set down for hearing, the Respondent must file with the Tribunal and serve on the Applicant any outline of submissions which the Respondent seeks to rely on.

    7.    7 days prior to the date set down for hearing, the Applicant must file with the Tribunal and serve on the Respondent any outline of submissions in reply which the Applicant seeks to rely on.

    8.    The matter be set down for hearing for one (1) day on a date to be set by the Tribunal.

    9.    Each party have liberty to apply on two (2) clear business days’ notice in writing.

13. The Commissioner proposed that the matters remain in abeyance pending the outcome of the Full Court appeal. If the Tribunal were minded to have all of the matters proceed, or just the Pettett matter with the Kilgour and Isterling matters held in abeyance, the Commissioner would want to be heard regarding the timing, having indicated that the Commissioner would be unable to meet the timetable proposed by the applicants. That is perhaps not surprising having regard to the disparity between the amount of time that would be allowed for the applicants’ SFICs relative to the Commissioner’s and to the proximity of the Christmas period, noting the proposed directions called for the Commissioner’s SFIC by 24 December 2024.

14. In considering the appropriate course with this matter, I am mindful of a number of factors.

15. In carrying out its functions, the Tribunal is subject to the statutory command that it must pursue its objective of providing a mechanism of review that:

    (a) is accessible; and

    (b) is fair, just, economical, informal and quick; and

    (c) is proportionate to the importance and complexity of the matter; and

    (d) promotes public trust and confidence in the decision‑making of the Tribunal.[2]

    [2] Administrative Appeals Tribunal Act 1975 (Cth), s 2A.

16. It is said that the objective of a review is to determine what is the ‘correct or preferable’ decision of the Tribunal.[3]

    [3] For example, see Shi v Migration Agents Registration Authority [2008] HCA 31, [140].

17. The starting point must be that an applicant for review is ordinarily entitled to have their application for review considered without undue delay. A desire on the part of one party to delay a hearing or decision is not a basis for proceeding other than with an expedition consistent with the importance and complexity of the matter. That is a powerful reason in favour of the applicants’ desire to proceed with the applications, perhaps especially so in respect of the Pettett matter since Mr and Mrs Pettett have not appealed Logan J’s judgement.

18. So, too, are the substantial amounts of penalty and interest at stake which Mr Bickford advised have been paid. The sooner a decision is made, the sooner the applicants will have certainty regarding their financial position and, if successful, return of the amounts paid or part of those amounts, plus whatever statutory interest on overpayments might be payable.

19. However, I am not persuaded that proceeding as the applicants have proposed will necessarily result in a final decision on these matters substantially earlier than awaiting the decision of the Full Court. As foreshadowed by counsel in oral submissions, there is every likelihood, if the Tribunal were to proceed to a hearing in advance of the Full Court’s decision, it would be necessary to call the parties back for submissions on the impact of the Full Court’s decision. That would add to costs, and having regard to the availability of counsel with busy schedules and the Tribunal’s resources, would almost inevitably cause some delay in the finalisation of decisions on the matters.

20. Against that background, it seemed to me that the better course would be for the Tribunal to make its decision with the benefit of the reasoning of the Full Court. As noted, the appeals are against the whole of Logan J’s judgement. One potential outcome is allowance of the appeals with the result that Ms Kilgour and Ms Isterling would have no shortfall to which administrative penalty could apply. That would also be highly relevant to the Pettett application, particularly in relation to whether remission of penalties is warranted. Another is that the Court may provide guidance regarding concepts underlying the Commissioner’s valuation guidelines which Logan J addressed at length and which his Honour indicated would be relevant to decision-making on administrative penalties.

21. Acting with the benefit of such guidance would likely assist the Tribunal in reaching the correct or preferable decision. Proceeding to a decision when a judgement of an intermediate appellate court directly relevant to the matters before the Tribunal is pending may lead to error and might be regarded as not promoting public trust and confidence in the Tribunal’s decision-making.

22. However, and I wish to emphasise, this reasoning should not be thought to encourage an approach to resolution of matters before the Tribunal other than as soon as reasonably possible in the circumstances. The issues in these cases are quite confined. Subject to the Commissioner’s views, it seems likely the single day required for hearing proposed by the applicants is adequate. It should be possible for the parties to prepare and proceed to a hearing efficiently once the Full Court’s judgement is available.

23. In that regard, Mr Bickford indicated the applicants wished to get on with preparing their SFICs. There is no reason why the Tribunal’s decision to await the decision of the Full Court before hearing the reviews should prevent the applicants undertaking whatever preparatory work they consider appropriate. I would encourage both parties to do so.

24. I would also encourage the parties to reflect upon whether the lengthy preparatory steps indicated in the draft directions are all necessary or appropriate for a matter of this kind. In that regard, a number of questions might be considered. Will it be necessary to allow a further six weeks for the applicants to prepare SFICs given that the issues are relatively confined and well known? Is it necessary, as the draft directions propose, for the parties to sequentially exchange both SFICs and written submissions or would SFICs or submissions, but not both, suffice, in the circumstances? Or could written submissions be provided shortly before the hearing rather than exchanged over a period of weeks? Removing this potential duplication of effort alone could reduce preparation time by around two months and thus help mitigate any delay caused by awaiting the Full Court’s decision.

25. Finally, I note that at the suggestion of Mr Bickford and Ms Wheatley agreeing, I provided for liberty of either party to apply on short notice. If, after consideration of these reasons and as the timetabling of the Full Court appeal becomes clearer, either party considers alternative or additional directions should be made, the parties may request a further directions hearing be held or that consent orders may be made. Further, so the Tribunal may actively monitor progress with a view to ensuring these applications for review proceed as expeditiously as possible, I will add a direction that the Commissioner advise the Tribunal in writing of any case management hearings that are scheduled, or directions made, by the Court.

I certify that the preceding 25 (twenty-five) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

..............................[SGD]...............................

Associate

Dated: 9 October 2024

Date of hearing:	12 September 2024
Counsel for the Applicant:	P Bickford
Solicitors for the Applicant:	Small Myers Hughes Lawyers
Counsel for the Respondent:	A Wheatley KC
Solicitors for the Respondent:	McInnes Wilson Lawyers