King v Commissioner of Taxation
[2022] FCA 935
•12 August 2022
FEDERAL COURT OF AUSTRALIA
King v Commissioner of Taxation [2022] FCA 935
File numbers: QUD 718 of 2018
QUD 719 of 2018
QUD 720 of 2018Judgment of: LOGAN J Date of judgment: 12 August 2022 Catchwords: TAXATION – Taxation appeals – Part IVC Taxation Administration Act 1953 (Cth) practice and procedure – consensual resolution of taxation appeals – requirement for explanation for exercise of judicial power Legislation: Administrative Appeals Tribunal Act 1975 (Cth), s 42C
Federal Court of Australia Act 1976 (Cth), s 37N
Taxation Administration Act 1953 (Cth), Pt IVC, s 14ZO
Division: General Division Registry: Queensland National Practice Area: Taxation Number of paragraphs: 16 Date of last submission: 9 August 2022 Date of hearing: Determined on the papers Solicitors for the Applicant Holding Redlich Solicitors for the Respondent Australian Government Solicitor ORDERS
QUD 718 of 2018 BETWEEN: CHERYL ANNE KING
Applicant
AND: COMMISSIONER OF TAXATION
Respondent
ORDER MADE BY:
LOGAN J
DATE OF ORDER:
12 AUGUST 2022
THE COURT ORDERS BY CONSENT THAT:
1.The directions made on 18 July 2022 be vacated.
2.The appeal be allowed.
3.The respondent’s objection decision set out in the “Notice of Decision” dated 2 August 2018 in respect of the administrative penalties imposed for the years ending 30 June 2012, 30 June 2014, 30 June 2015 and 30 June 2016 (the Penalty Amounts) be set aside.
4.In lieu thereof, it be ordered that the applicant’s objection to the notices of assessment in relation to the Penalty Amounts be allowed.
5.No order as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
QUD 719 of 2018 BETWEEN: CHERYL ANNE KING
Applicant
AND: COMMISSIONER OF TAXATION
Respondent
ORDER MADE BY:
LOGAN J
DATE OF ORDER:
12 AUGUST 2022
THE COURT ORDERS BY CONSENT THAT:
1.The directions made on 18 July 2022 be vacated.
2.The appeal be allowed.
3.The respondent’s objection decision set out in the “Notice of Decision” dated 2 August 2018 in respect of his notice of assessment of the applicant dated 19 February 2018 for the income year ended 30 June 2016 (2016 Income Year) be set aside.
4.In lieu thereof, it be ordered that the applicant’s objection to the notice of assessment in relation to the 2016 Income Year be allowed.
5.The respondent pay the applicant’s costs in the amount of $74,911.50.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
QUD 720 of 2018 BETWEEN: CHERYL ANNE KING
Applicant
AND: COMMISSIONER OF TAXATION
Respondent
ORDER MADE BY:
LOGAN J
DATE OF ORDER:
12 AUGUST 2022
THE COURT ORDERS BY CONSENT THAT:
1.The directions made on 18 July 2022 be vacated.
2.The appeal be allowed.
3.The respondent’s objection decision set out in the “Notice of Decision” dated 2 August 2018 in respect of his notice of assessment of the applicant dated 19 February 2018 for the income year ended 30 June 2015 (2015 Income Year) be set aside.
4.In lieu thereof, it be ordered that the applicant’s objection to the notice of assessment in relation to the 2015 Income Year be allowed.
5.The respondent pay the applicant’s costs in the amount of $74,911.50.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
LOGAN J
These taxation appeals have their origins in an audit of the taxation affairs of the applicant, Ms Cheryl Anne King by the respondent Commissioner of Taxation. That audit was, as the Commissioner is entitled so to do, conducted without notice to her. The audit culminated in the issuing to Ms King by the Commissioner on 19 February 2018 of default assessments and an assessment of administrative penalties for the income years ended 30 June 2010 to 30 June 2016.
Ms King objected to these assessments. The Commissioner allowed her objections only in part by objection decisions dated 2 August 2018. The effect of the objection decisions was to decrease her taxable income for some of the income years in question but increase it for others with assessments being amended accordingly. The penalties assessment was amended correspondingly.
Ms King appealed to the Court under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) against the objection decisions. At the same time, she sought the review by the Administrative Appeals Tribunal of the remission decisions in respect of the assessment of administrative penalties (AATA 2018/5687-5690).
It is not uncommon for a taxpayer to seek the review by the Tribunal of a decision concerning remission of administrative penalties, rather than challenge such a decision in the Court. That is because, unlike the Court, the Tribunal can decide on the merits and in place of the Commissioner whether or not remission of penalty is warranted. In turn, it is not uncommon for a taxpayer to elect to have the substantive revenue law controversies determined by an exercise of judicial power by the Court. So the present case is hardly unique in there being parallel judicial and administrative review proceedings.
For most of the period during which it has been alternatively possible to challenge federal taxation decisions either by an exercise of Commonwealth judicial power or via administrative review (initially in a Board of Review but since 1986 in the Tribunal) those charged with exercising Commonwealth judicial power (initially the High Court in its original jurisdiction, then State Supreme Courts and now this Court) have not held persona designata appointments as members of the merits review tribunal concerned. However, in modern times, there was a relatively brief period, now concluded, when those on the Court who were assigned to the Court’s Taxation National Practice Area (NPA) were offered by the Executive, and chose to take up, appointments as members of the Tribunal. That presented a convenience in circumstances like the present in that a taxation appeal might be determined by an exercise of judicial power and a remission of penalty review by an exercise of executive power but by the one person, on the one occasion and, usually but not always, on one body of evidence. However, the practice did bring with it the possibility of a need for careful differentiation as between the basis for the exercise of judicial power and the basis for the exercise of administrative power, because the exercise of the latter, unlike the former, was not conditioned upon the tendering of admissible evidence, only material reasonably capable of engendering administrative satisfaction.
As is its right, the Executive chose to discontinue the practice of pervasive dual appointments.
Selective appointments to the Tribunal, and any especially related pressing for judges who hold such a dual appointment to hear parallel cases in the Court, may well be thought to carry with it the undesirable, and perhaps worse, feature of the Executive seeking, by such selective Tribunal commissioning, to determine who is to adjudicate a controversy arising from a decision made by its chief revenue officer, the Commissioner. Allocation of taxation appeals is solely a matter for the Chief Justice as head of jurisdiction. So there should be no expectation that parallel cases such as the present will be allocated to such few judges allocated to the Taxation NPA who remain members of the Tribunal.
The taxation appeals were hitherto on the docket of Greenwood J. They have had a lengthy interlocutory history, arising from the existence at one time of concurrent federal criminal proceedings brought against the applicant. As those criminal proceedings have been adjourned from time to time, so, too, has the Court been persuaded that it was in the interests of justice to adjourn the progression of the taxation appeals. The Court’s registry has kept the Tribunal appraised of the progression of the taxation appeals.
The criminal proceedings have since been wholly discontinued. In these circumstances, on 18 July 2022, shortly before he retired from judicial office, Greenwood J made directions directed to the end of progressing the taxation appeals to trial. The taxation appeals have been allocated to me by the Chief Justice upon the retirement of Greenwood J.
As it happens, the taxation appeals will not now be contested. For reasons which are set out in a memorandum jointly signed by the parties, and filed by direction, it is apparent that the Commissioner has come to accept, following the provision of further evidence and the making of related submissions, that Ms King is able to demonstrate that the assessments are excessive, that the objection decisions should be set aside and, in lieu thereof, her objections should be allowed.
Initially, the parties merely lodged what were termed in each taxation appeal a “consent” to the making of orders but no related explanation. On a taxation appeal, the Court must be persuaded that the assessment concerned is excessive and the burden of so persuading the Court falls on the applicant taxpayer: s 14ZO, TAA. The Court must therefore be persuaded that it is a lawful exercise of judicial power to set aside an objection decision. That persuasion need not be a sequel to a full hearing on the merits. It can also be engendered by an admission by the Commissioner and a related explanation consensually provided. That is what has now occurred.
The Commissioner, being an administrative official, may, but is not bound to, ground his admission in admissible evidence. All that the Commissioner needs is material which allows him in good faith and as a matter of good public administration to make a particular admission. It may be that this admission is engendered by the sure and certain knowledge that, if the admission on the basis of material informally presented in settlement discussions is not made, the taxpayer’s case will be formalised by the tendering in the taxation appeal of admissible evidence to which he has no answer in law or fact. In such circumstances, a model litigant neither puts a taxpayer to proof and related expense nor wastes public money and the time of this Court in determining that. That duty would, and did, exist in relation to the Commissioner quite apart from the overarching duty in relation to civil litigation imposed by s 37N of the Federal Court of Australia Act 1976 (Cth).
In relation to review proceedings in the Tribunal, parliament has considered it necessary to make particular provision for how proceedings may be consensually resolved in that forum: s 42C, Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). There is no need for any such formal provision in relation to a taxation appeal in this Court. All that is necessary is that the parties follow the practice adopted in the present case and file an explanation which provide a basis for a lawful exercise of judicial power.
As I mentioned at the outset, the Commissioner is entitled to conduct audits without notice. This is a matter for his value judgement in the general administration of our revenue laws. One but by no means the only occasion for proceeding in this way can be where the Commissioner apprehends prejudice to his assessment and collection of tax according to law if he does not do so. Proceeding in this way does, of course, mean that the Commissioner deprives himself, before the issuing of assessments or, as the case may be, amended assessments, of receiving an explanation from the taxpayer which might allay the Commissioner’s suspicions about his, her or its true taxable income. That disadvantage can be alleviated by a practice of rigorous detachment from auditors and assessors by those determining any resultant objections. The importance of detachment in that long ordained internal review process cannot be overstated. Equally, the importance of a taxpayer in making every effort to gain maximum advantage from the opportunity offered by that process cannot be overstated. It needs to be remembered that the reason why s 14ZO of the TAA casts the onus of proof on a taxpayer is that, unlike a taxpayer, the Commissioner is a stranger to the taxable facts.
I am well satisfied, having regard to the joint explanation filed, that the requisite basis for the making of the orders sought exists. It is also obvious from that explanation that the parties have, as is to be expected, even after the objection process after later, more formal alternative dispute resolution steps were undertaken, taken particular trouble to maintain a courteous, informal dialogue to the end of endeavouring, if possible, to compromise the proceeding. They are to be commended for doing so.
In so far as the agreement they have reached calls for a decision by the Tribunal, it will be for the parties to follow the procedure ordained by s 42C of the AAT Act.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Logan. Associate:
Dated: 12 August 2022
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