Margaret Binetter for the Estate of Erwin Binetter v Commissioner of Taxation; Binetter v Commissioner of Taxation; Bai v Commissioner of Taxation

[2017] HCATrans 126

[2017] HCATrans 126

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S1 of 2017

B e t w e e n -

MARGARET BINETTER FOR THE ESTATE OF ERWIN BINETTER

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Sydney  No S2 of 2017

B e t w e e n -

ANDREW BINETTER

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Sydney  No S3 of 2017

B e t w e e n -

MARGARET BINETTER

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Sydney  No S4 of 2017

B e t w e e n -

TAO BAI

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Applications for special leave to appeal

KIEFEL CJ
BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 JUNE 2017, AT 9.54 AM

Copyright in the High Court of Australia

____________________

MR M. L. ROBERTSON, QC:   I appear with MS L. McBRIDE in the three Binetter matters.  (instructed by Brown Wright Stein Lawyers).  I appear with MS L. McBRIDE and MR J. W. R. FICKLING in the Bai matter.  (instructed by Bourke Legal)

MR J. T. GLEESON, SC:  May it please the Court, I appear in the three Binetter matters with MS K. C. MORGAN and MR M. A. COSGROVE for the Commissioner Respondent.  In the Bai matter I appear with MR B. C. KASEP for the Commissioner Respondent.  (instructed by Minter Ellison)

KIEFEL CJ:   Yes, Mr Robertson.  Mr Robertson, you might address these appeals seriatim.  You can deal first with S1 in its grounds and then I think S2 and S3 could probably be dealt with together because S3 takes up much the same arguments as S2, does it not?

MR ROBERTSON:   Yes, that is exactly right.

KIEFEL CJ:   Then with Bai the only other ground is the procedural fairness matter?

MR ROBERTSON:   Yes, so I will not address ‑ ‑ ‑

KIEFEL CJ:   The onus question again.

MR ROBERTSON:   ‑ ‑ ‑ the onus question, but to the extent necessary, I will identify the Bai differences.

KIEFEL CJ:   Yes.

MR ROBERTSON:   Your Honour, the estate matter, the special leave application, is at 132 of the appeal book and the court’s consideration of the matter commences at 96 of the appeal book and the relevant legislation is at 97 of the appeal book.  If I could ask your Honours to go to 97.  What we have set out there is the direct section we are concerned with, “260‑145, Unadministered estate” and at the bottom the relevant definition of outstanding tax‑related liability for the purposes of that section.

Your Honours, I would add to the relevant material – it is not there – section 260‑150.  That is the section that empowers the Commissioner to authorise the police to recover the total amount of the outstanding tax‑related liabilities by seizing and disposing of the deceased’s assets.

So this provision is within the collection regime for tax debts and where it applies it gives the Commissioner the special power to authorise the police to override what would ordinarily be his position as a creditor in an estate and it goes straight to the assets of the deceased, if the circumstances of the section are met.

Your Honour, our position is that Mr Erwin Binetter had been assessed to income tax for every relevant year and each assessment stood conclusive as Mr Binetter’s income tax liability for each year to the Commonwealth. Only if he challenged it in Part IVC proceedings could he alter it and only if the Commissioner exercised his power under section 170 of the Income Tax Assessment Act to amend it could that be changed, and the manifest policy of 170 is to balance the rights of citizens with the rights of the Commonwealth. 

The Commonwealth is of course entitled to the correct amount of tax, but the citizens are entitled to at some stage be able to say that the case is closed, and we have over the years a different regime.  The regime at the present time is that the Commissioner can go back no more than two or four years in any circumstances and, if he wishes to go back further than that to amend a taxpayer’s tax liability, he has to form an opinion that there was fraud or evasion.

Before Mr Binetter died, he had paid all the tax that had been assessed to him.  Before he died, the Commissioner had not purported to exercise his power to amend any of Mr Binetter’s assessments and he had not formed the opinion that there was fraud or evasion.  So we say that at that point in time, absent any new or special power that Parliament has conferred on the Commissioner, that was the end of the matter. 

If Mr Binetter had not paid his outstanding tax at the date of death, then of course the Commissioner could recover it from the executor, if an executor was appointed or, if not, within six months, then he could exercise this special power under section 160‑145.

GAGELER J:   So this all comes down to an argument that, in the absence of an assessment, there is no tax‑related liability?

MR ROBERTSON:   No, your Honour.  There are two issues.  In the absence of an assessment there is the question of whether there can be a tax‑related liability, an inchoate, unassessed tax‑related liability.  But the second issue is if there is an assessment, can there be standing next to that assessment an additional amount which is unassessed?

KIEFEL CJ:   And the answer of the Full Court was that an outstanding tax‑related liability is a liability not yet assessed.

MR ROBERTSON:   Yes, and we say Mr Binetter’s liability had been assessed for each of the years.

KIEFEL CJ:   On the same basis, though?

MR ROBERTSON:   We do not know because all we have is a determination.  So what we say is that Parliament has addressed this problem by allowing in circumstances where an executor has been appointed or an administrator has been appointed a special power on the Commissioner in section 260‑140, which, your Honours, if one goes to page 99 of the appeal book, applies to administered estates.

BELL J:   And the reasoning of the Full Court was it would be rather unlikely a construction of the Act that the words “outstanding tax‑related liability” might bear a different meaning under the two provisions.

MR ROBERTSON:   Yes, what they have done is they have not started with the definition of “outstanding tax‑related liability” and then looked at its context in the section we are considering.

BELL J:   What they have done is to see in the clearest terms that that concept for the purposes of an administered estate under 260‑140 plainly extends to a liability that has not been assessed.

MR ROBERTSON:   That is what they say and they reason, therefore, it must have the same meaning in the section we are considering.

BELL J:   A conventional approach, one would think.

MR ROBERTSON:   If the sections have no differences in them, but we would say that the conventional approach is to start with the definition, not with the context in which the definition sits in a different substantive provision of the Act.

Now, the exceptional difference between the two sections is that section 260‑140 contains the express power to amend.  So Parliament has put in an extraordinary power to amend assessments.  By subsection (2) it treats the trustee as the deceased person, if we go over to appeal book 100.  So the deceased person is deemed to still be alive and the trustee to be that deceased person.

GAGELER J:   In section 260‑140(1)(a) outstanding tax‑related liability can only be referring to an inchoate liability, can it not?

MR ROBERTSON:   Not at all.  I use the word “proleptic” in my submissions.  Your Honour, the court is right, with respect, at appeal book 100, paragraph 116, in saying that the section:

unquestionably empowers the Commissioner to assess the trustee of the estate for tax . . . which has not yet been assessed.

Your Honour will recall perhaps from the Australian Building Systems, the Chief Justice gave a joint judgment with Chief Justice French that section 204, which is the relevant income tax law here and is in the appeal book, creates a liability to pay tax on a taxpayer at the time that the taxpayer has to file his tax return.  So, if we have the ordinary situation of a recalcitrant taxpayer who for years had not lodged any income tax returns, then what the Act does is treat that taxpayer as liable to tax each year on the date that the tax return should have been filed.

As this Court held in Australian Building Systems, or as the Chief Justice held with Justice French, that did not mean that there was at that time a debt due to the Commonwealth because there still needed to be an assessment.  But once there was an assessment, the tax liability was deemed to arise and be due and payable from the date that the tax return had to be put in.  So “outstanding tax‑related liability” in 260‑140 is talking proleptically because, when the trustee exercises the power to assess, the deceased will be deemed to have an outstanding tax‑related liability before death.

GAGELER J:   Well, that is equating liability with debt, is it?

MR ROBERTSON:   Yes, because what this is is a collection regime and we are all about collecting amounts.  So tax will be due and payable before death by the deeming operation of section 204.  And so the section has a sensible operation which does no violence to the ordinary defined meaning of “outstanding tax‑related liability”.

KIEFEL CJ:   Well, what is the error in the Full Court’s approach, though, to read it to refer to any liability not yet assessed?

MR ROBERTSON:   Because what it does is treat (1)(a) as a strict precondition to the operation of the section, and they are saying that it is a strict precondition.  It must mean unassessed tax liability because in subsection (4) there is a power to assess and otherwise the section could not apply, which is absurd.  But it cannot be a strict precondition for this reason.  Let us say Mr Binetter had received a massive amended assessment, so big that he had a heart attack and died.  An administrator was then appointed.  Now, clearly, we are in a situation where there is an outstanding tax‑related liability at the date of death and the trustee will be Mr Binetter, the deceased, and can object against that amended assessment.

Now, let us alter that in one respect.  Let us say Mr Binetter pays all that tax under protest because he wants to object.  He then dies.  At the date of death there is no outstanding tax‑related liability because he has paid it.  If it is a strict precondition, we have the absurd position that the trustee of his estate cannot object against a protested assessment.

So section (1)(a) do not set out strict preconditions, as the Full Federal Court thought.  What they do is outline the scope of the substantive sections.  Let us take the other precondition in (1)(b).  That is telling us that it is a precondition that there be a trustee because probate has been granted or letters of administration have been granted to someone.  Now, that does not add in any way to subsection (2).  If there is no trustee, then subsection (2) just has no force.

So what one is doing is simply explaining that where there is an administrated estate the trustee must, first, pay everything that is outstanding at the date of death, and second, is to be treated for all purposes as if the deceased were still alive and the trustee were the deceased.

GAGELER J:   So, on your construction, would (4)(a) ever have any work to do?

MR ROBERTSON:   Subsection (2) is the critical section.  That is the one which clothes the trustee.

KIEFEL CJ:   That is not an answer to Justice Gageler’s question.

MR ROBERTSON:   Yes, (4)(a) is equivalent to section 167.  It is simply a default.  Section 167 was considered necessary by Parliament to allow the Commissioner to issue default assessments if there is a failure by a taxpayer to provide a return.  So all (4) does is mirror section 167.

GAGELER J:   That might be so, but what is the answer to my question?

MR ROBERTSON:   It does the same work as Parliament considers section 167 to do.

GAGELER J:   Is that any work at all, on your construction?

MR ROBERTSON:   First of all, there is work because there is an antecedent duty in (3) on a trustee to provide returns.  So the expectation is that the Commissioner will not be exercising his plenary power that he has been given in subsection (2) to assess until the trustee has provided returns.  Because remember the machinery of the provisions, sections 161 to 174, is that the Commissioner needs information before he can assess.  Now, in circumstances where someone has just died, the Commissioner has nothing and the Commissioner would not, in the ordinary course, pluck a figure out of the air and just give it to the trustee.

KIEFEL CJ:   The Commissioner has different powers of assessment, has a variety of powers of assessment.

MR ROBERTSON:   Well, and information gathering, but in the ordinary course his duty is to assess.  Section 166 says his duty is to assess from the returns and the information that he is provided by the taxpayer.  So the starting point is that a taxpayer has to give a return to the Commissioner before he assesses, and if the taxpayer defaults in giving a return to the Commissioner, section 167 is engaged.  So here, on death, the trustee is obliged to give a return.  And so the Commissioner is now exercising a 166 power and, from that return and from that information, the Commissioner shall make an assessment of the trustee.  And if the trustee does not provide that return, then subsection (4) is engaged and the assessment that is made has the same effect as if it were made under that taxation law.

So Parliament is clothing artificially the trustee with all the duties and rights that the deceased have but starting again, which is necessarily to be expected because we do in fact have a new person who is gathering fresh information that that person did not have before.  Now, that regime is carefully worked out.  It has nothing to do with the interim collection measure that Parliament has given to protect the Commissioner if this procedure is delayed more than six months.  If this procedure is delayed more than six months, we have a situation where the Commissioner is out of his money and the estate and all those State law matters involving administration have intervened and may impede the Commonwealth   collecting money.  So Parliament has said, “Commissioner, you have a special power to override all of that and get in the money that has not been paid.”

KIEFEL CJ:   That has not been assessed.

MR ROBERTSON:   That has not been paid.  If it has not been assessed, then the Commissioner must go under section 260‑140 and if he is very upset about it, as the Full Court said, the Commissioner himself can apply for letters of administration, but what he needs to do is engage 260‑140.

So, as a matter of ordinary construction of the provisions, we say that the Full Court got it wrong because they failed to appreciate the proleptic nature of unassessed tax which relates back to a period before death.  And, secondly, it treated (1)(a) as a series of strict preconditions, which just cannot be right because a taxpayer who has paid his assessment under protest cannot be denied, or the estate cannot be denied a right to object to that, whereas if the taxpayer had not paid that tax matters could proceed to objection.  Now, that deals with the statutory construction point.

The floating point is whether the meaning of outstanding tax‑related liability under section 995, which is a tax‑related liability arising before death which has not been paid, can include (a) an unassessed liability for a particular year and, if it can, whether it could include an additional amount that is unassessed in circumstances where the liability for the year has already been assessed.

KIEFEL CJ:   I am sorry, I have great difficulty following you.

MR ROBERTSON:   Strictly, there is no unassessed tax liability here because ‑ ‑ ‑

KIEFEL CJ:   Are you saying there can only be one tax liability?

MR ROBERTSON:   There can only be one tax liability.

KIEFEL CJ:   That is essentially your point.

MR ROBERTSON:   That is the point – it has been assessed. 

KIEFEL CJ:   That is just another way of saying the same thing that you have just been putting to us.  You are saying effectively the Commissioner has no power of assessment.

MR ROBERTSON:   Under 260-145?

KIEFEL CJ:   Yes.

MR ROBERTSON:   And construing the definition of outstanding related liability to include unassessed amounts does not help him, he still needs the power of assessment.  So, section 260-140 gives him the power of assessment he needs.  So, until that power is exercised, there is no amount that can be ascertained and, therefore, no amount that can be collected.  So the statutory context requires in section 260‑145, if we go back to it, your Honours, at page 97 of the appeal book and subsection (2) is the critical determination power – not assessment power but determination power:

may determine the total amount –

So a monetary figure is determined and the police are then authorised to seize assets up to that monetary amount.  So, assuming against us for the moment that there can be such a thing as an unassessed tax, unless and until the process of assessment has been undertaken, then no amount – there is no ascertained amount or ascertainable amount.

GAGELER J:   They are different things – ascertained and ascertainable.

MR ROBERTSON:   Sorry, I am wrong.  There is no ascertained amount.  There can never be any liability if the Commissioner is out of time to amend unless there is statutory pre‑condition that there is an opinion that there is fraud or evasion has been formed.

GAGELER J:   We are going over the same points, are we not?  One of your points is that the expression “outstanding tax‑related liability” does not pick an inchoate liability ‑ ‑ ‑

MR ROBERTSON:   Yes.

GAGELER J:    ‑ ‑ ‑ and another of your points is that once there has been an assessment, whatever liability there is has crystallised and is no more, absent an amended assessment.

MR ROBERTSON:   That is correct.  But the third point is if there is an inchoate tax‑related liability, then that depends on the assumption that all the jurisdictional facts under the substantive provisions of the Act are satisfied at the date of death and the only thing that is left is the piece of paper notifying the deceased of the amount of that liability.  So the Commissioner at the date of ‑ ‑ ‑

GAGELER J:   So what is this additional point?  Is it another ground of appeal – proposed ground of appeal, is it?

MR ROBERTSON:   It is in the submissions and it was the point that attracted Justices Isaacs and Rich in the Mortimer Case to say that there can be no such thing as an unassessed tax‑related liability because assessment to tax does not depend on objective factors only.  It depends on the criterion of liability we refer to in WR Carpenter where it is the Commissioner’s formation of an opinion that is itself the taxing event.  So, at the date of death of Mr Binetter, there had to be in existence that fact before there could be an unassessed tax‑related liability for Mr Binetter.

GAGELER J:   Where is this point dealt with by the Full Court?

MR ROBERTSON:   It was not dealt with by the Full Court.  If you look at the notice of appeal in the Full Court, you will see that they only answered the first question.  They did not answer any of these questions and the implication from that is that they said it was enough to answer the first question and, therefore, the taxpayer was liable.  If we go back to the grounds of appeal from the decision of – 24, I think, your Honours.  If one goes to ground 3 of the question of law ‑ ‑ ‑

KIEFEL CJ:   It is on page 26.

MR ROBERTSON:   Page 26, I am sorry, yes.  So the Court was asked this question of law. 

GAGELER J:   Well, we are concerned with item 5 in section 170 which is set out at page 174 of the appeal book.

MR ROBERTSON:   Yes.

GAGELER J:   That is simply that the Commissioner may amend an assessment at any time if he or she is of the opinion that there has been fraud or evasion.

MR ROBERTSON:   Yes.

GAGELER J:   So it is going back to the point that you need to have an amended assessment.

MR ROBERTSON:   No, no.  If we do not need an amended assessment and there can be such a thing as an unassessed tax‑related liability, then the point is that what I am saying is that all the taxable facts – if there is an unassessed tax‑related liability in a certain amount to be collected, then the only thing that is missing is the notification of the amended assessment.

GAGELER J:   Well, how does this work?  You say that the Commissioner needs to have previously formed the opinion that there has been fraud or evasion.  Is that the point?

MR ROBERTSON:   Yes.  What I mean by this is, if, for example, there is no income earned before death, there is no assessed income tax liability, or can be.

KIEFEL CJ:   But you were referring before, as Justice Gageler asked, to the Commissioner having formed an opinion at the point before death.

MR ROBERTSON:   At the point before death.

KIEFEL CJ:   And if death occurs and the opinion is not formed, no power of assessment.

MR ROBERTSON:   Not so much no power of assessment but just before death there was nothing that could be said to have been an inchoate liability of the deceased.

KIEFEL CJ:   Liability to payment?

MR ROBERTSON:   Liability to payment because we know from ‑ ‑ ‑

KIEFEL CJ:   So we are talking about a debt.

MR ROBERTSON:   No.  There is no debt.  We are talking about liability arising by reference to all the substantive provisions apart from the actual act of assessment.

GAGELER J:   The only substantive provision that is referred – it is not a substantive provision.  The only relevant provision that is referred to in ground 3 at page 26 is 170(1) item 5 which is just about the Commissioner issuing an amended assessment if he forms a certain opinion.

MR ROBERTSON:   Yes, that is right.  That is all.  Now, what I am saying is this.  Before death, we are talking about – Mr Binetter was assessed five years ago, outside the time that Parliament has allowed the Commissioner to impose any additional amount of tax on him.  So before death, the Commissioner had no power to impose any additional liability tax on Mr Binetter and if the Commissioner is right and if the Full Federal Court is right, then that express limitation that Parliament has put on the Commissioner’s powers has been sidestepped.  We now are in a regime where 260‑145 allows the Commissioner, after Mr Binetter has died, to go back five years and work out what his additional liability was with ‑ ‑ ‑

KIEFEL CJ:   Mr Robertson, I see the light is on in relation to this matter.  I think perhaps it is time to move to the next.

MR ROBERTSON:   If the Court pleases.  Do you want me to serially move?

KIEFEL CJ:   Yes, continue.

MR ROBERTSON:   Your Honours ‑ ‑ ‑

KIEFEL CJ:   The first four grounds here really relate to onus of proof.

MR ROBERTSON:   Yes, that is right, your Honours.  Your Honours would have received last week a decision of this Court, Justice Walsh in Krew v Commissioner of Taxation.

KIEFEL CJ:   Yes.

MR ROBERTSON:   If I can start by asking your Honours to go to page 238 of the Australian Tax Reports version of that case.  You will see at point 1:

If however, the appellant had sought to have the Board reconsider for itself whether any avoidance of tax found to have occurred was due to fraud or evasion, I think that the Board should have formed its own opinion on that question.

His Honour was sitting in the Court’s original jurisdiction reviewing the referral from the Board of Review and his Honour had previously in the judgment held that the onus of proof was on the taxpayer before the Board of Review to show that the assessment was excessive and the onus of proof was impliedly on the taxpayer before him in his original jurisdiction to show that the assessment was excessive and, having referred to McAndrew’s Case, and the judgment of Justice Kitto in McAndrew’s Case – this is at page 236 at point 6 ‑ ‑ ‑

KIEFEL CJ:   Is this really your ground 6, that the Tribunal is required to form an opinion?  Are your working back from that to onus of proof?

MR ROBERTSON:   Yes.  I am working back.  I am sorry:  I am dealing with the ‑ ‑ ‑

KIEFEL CJ:   They are discrete questions, are they not:  whether the Tribunal is required to form an opinion and whether the taxpayer has the onus of proving the assessment is excessive?

MR ROBERTSON:   No.

KIEFEL CJ:   You are saying they are bound up together?

MR ROBERTSON:   They are bound up together.  What we say is that it has been the historical position since the Boards of Review have commenced that the taxpayer bears the onus of proof before the Board of Review and that is to show that the assessment is excessive and the approach that has been taken ever since the Shell Case and Jolly right through to what we have just seen from Justice Walsh in Krew’s Case is that the Board is standing in the shoes of the Commissioner and doing over the assessment process as directed by the taxpayer’s objection.

So the taxpayer objects against the specific discretion, then the Board is reviewing on the merits the exercise of that discretion and itself forming its own discretion.  That has sat consistently with section 190B of the 1936 Act and its predecessor, section 39 of the 1992 Act, until 1986.  In 1986 the Taxation Board of Review’s jurisdiction was transferred over to the Administrative Review Tribunal but section 190B was retained.  In 1991, section 190B was split into sections 14ZZK and 14ZZO.  What the Court below has held at appeal book 92, starting at paragraph 97, about line 35 ‑ ‑ ‑

GAGELER J:   You do not mean 97?

MR ROBERTSON:   Are you in the Tao Bai book or in the Binetter book, your Honour?

GAGELER J:   I am in the Binetter book.  Maybe if you just give us a paragraph number.

MR ROBERTSON:   Yes.  Paragraph 90 – I have that at appeal book 92.

GAGELER J:   Yes.

MR ROBERTSON:   The argument that is put by Mr Binetter is at 89, starting at the second line of 89 – this represents the position of all three applicants:

the Tribunal, on review, ‘standing in the shoes of the Commissioner’ must itself form the opinion there was fraud or evasion to enliven the amendment power and that that opinion becomes, by operation of s 43(6) of the AAT Act and s 169A(3) of the ITTA 1936, the authority under s 170 … for making the amended assessment.

That opinion, the taxpayer then has a right of appeal but then the Federal Court is looking in its original jurisdiction at the liability of the taxpayer and it is doing a judicial review of the formation of the Tribunal’s opinion and that is what has been orthodox in Board of Review appeals and that is what this Court did in Denver Chemical. 

It said that it is considering the opinion of the Board of Review.  It is not interested in the earlier opinion of the Commissioner because the Board of Review is the Commissioner and its authority is the only authority that allows the assessment to be amended.  We are not interested in the intrinsic correctness of that opinion.  The taxpayer does not get anywhere by disproving fraud or evasion before us.  The taxpayer must show that the opinion was not formed in fact, did not conform with the statutory expression or there was no probative evidence that would allow that opinion to have been formed, so the traditional review.  That is what Justice Walsh did in Krew’s Case. 

There has been uninterrupted authority in taxation appeals where section 190 has applied.  Then matters were transferred to the Tribunal where 190 still applied. Then all that regime was transferred over to the Taxation Administration Act and became 14ZZK.  Now, for the first time the Full Federal Court has discovered a problem with this regime and that 14ZZK modifies, fundamentally alters the function of the Tribunal.

GAGELER J:   Is this not dealt with in Dalco?

KIEFEL CJ:   And McAndrew.

MR ROBERTSON:   It is dealt with in McAndrew.  In McAndrew the question was which party bore the onus of establishing the preconditions that allowed an assessment to be amended in section 170 and the Court held that the taxpayer did and Justice Kitto was the only one who specifically addressed the fraud or evasion opinion. His Honour said that the taxpayer has to show that the Commissioner’s opinion was not formed. If we go to paragraph 92 of the judgment in the Court below:

The seminal decision is McAndrew.  In McAndrew it was held that section 190 … imposed the burden on the taxpayer to show that there had not been an avoidance of tax due to fraud or evasion.

If one peruses McAndrew, we see nothing of the sort.  The words that are missing in that sentence are after the “avoidance of tax”, after the word “tax”, the words “in the opinion of the Commission” have to be inserted.

GAGELER J:   So you are saying the Full Court here misunderstood and misapplied McAndrew.

MR ROBERTSON:   That is correct, your Honour.

GAGELER J:   And it did the same with Dalco you say?

MR ROBERTSON:   Yes.

GAGELER J:   All right.

MR ROBERTSON:   Justice Brennan in Dalco said McAndrew is distinguishable from the circumstances before him because McAndrew was about the onus of proof that a condition precedent to assessment had not been formed; whereas, Dalco was dealing only with ‑ ‑ ‑

GAGELER J:   Do not use the word “assessment” – its own independent opinion and the formation of that opinion is not governed by the onus of proof that lies on the taxpayer.

MR ROBERTSON:   The taxpayer’s onus is to show that the liability to tax that has been imposed is too high.  It says the Commissioner has formed the opinion and amended the assessment.  Parliament presumes that the Executive would not form a statutory opinion unless there was probative evidence that supports that opinion.  Section 37 of the AAT Act imposes an imperative duty on the Commissioner to remit that evidence to the Tribunal.  If the Commissioner has done his job properly, the taxpayer can stand back and simply ask the Tribunal, as Justice Walsh pointed out in Krew, “Please form the relevant opinion.  I want you to review the material that has been remitted to you by the Commissioner.”

If the Commissioner has done his job properly, the Tribunal is very likely to also form the opinion or to confirm the Commissioner’s opinion, but if the Commissioner remits no material to the Tribunal, the Tribunal’s task is still the same – to review the material that has been remitted and any further material.  The Tribunal in that circumstance will properly say, “I cannot form the opinion on the material that is before me.  I do not have to form the opinion that the taxpayer is innocent.  I just cannot form the opinion that there is fraud on the material before me and because I cannot form the opinion and I am the Commissioner, the authority to amend, lying now with me, is not there.”

GAGELER J:   I think we follow that.  It is just the burden of proof.

MR ROBERTSON:   If the duty of the Tribunal is to review the material and form an opinion, the taxpayer is at risk if it does nothing.

BELL J:   This is a reviewable objection decision.

MR ROBERTSON:   Yes, that is right.

BELL J:   Is not the Tribunal’s duty the duty that is imposed by 14ZZK?  Does that not set the bounds of what it is that the Tribunal is to do?

MR ROBERTSON:   Yes.  It is to find all the facts, it is to exercise all the statutory discretions that it has been asked to exercise and then, having done that, it is to apply the substantive provisions of the Tax Act and if that produces an outcome which is less than the assessment, then the taxpayer has shown that the assessment is excessive.  So that is the ultimate journey at the end of the day.  I move to my next point ‑ ‑ ‑

KIEFEL CJ:   Is that the section 75 point?

MR ROBERTSON:   Yes.

KIEFEL CJ:   I am just conscious that we have got a yellow light.

MR ROBERTSON:   That is the 75 point.  On the scheme, as has been in place for the last 80 years, the Full Court is reviewing all the statutory criteria that give rise to liability, including the Tribunal’s opinion that there is fraud or evasion or the Commissioner’s opinion if there is a review directly from the Commissioner to the Full Court.  But on this approach there is no judicial review of the criterion of liability because it has disappeared due to the alteration by section 14ZZK of the Tribunal’s function.  The duty of the Federal Court is not merely to decide a question of law under section 44 of the AAT Act.  “Section 44” of the AAT Act, as Justice Gummow said in TNT Skypak, “was ambulatory”.

The overarching constitutional point in section 75 is that there should be a judicial review of the taxpayer’s liability to tax ultimately.  What that means is that a court must review all the criteria of liability that gives rise to liability.  In the case of an amended assessment, the criterion of liability is the Commissioner’s opinion or the Tribunal’s opinion.  Now, the Tribunal’s function is as what the Full Court has said and the Full Court has therefore not ever reviewed the taxpayer’s criteria of liability to tax.  The opinion has disappeared into thin air.

GAGELER J:   I really just do not understand this.  The opinion founds the assessment.  The assessment is subject to review in the Tribunal and then there is a question of law which gives rise to an appeal to the Full Court.  Now, there has been the administrative formation of an opinion.  That has been the subject of review in the context of what Justice Davies used to refer to as an “administrative continuum”.  You are ignoring the fact that there is this administrative process that starts with the Commissioner and continues through to the Tribunal.

MR ROBERTSON:   Your Honour will recall that the Tribunal is no different from the Commissioner.  It is an executive body and its decision is deemed by 43(6) to be the Commissioner’s executive decision.

GAGELER J:   I am not forgetting that; that is my point.

MR ROBERTSON:   Yes, and so there has been an administrative review.  But the Full Federal Court is acting in its original jurisdiction – its peculiar original jurisdiction, as Justice Walsh said, in tax appeals.  It is not an appeal.  Its function is to review the assessment and, even though it does not say so in the Act, Justice Walsh and the High Court in McCormack held that the taxpayer bears the onus of proving before the Court in its original function that the assessment is excessive and that carries with it the onus of showing that the preconditions for liability to an amendment are not there.

KIEFEL CJ:   Mr Robertson, I have not held you to the time to allow you to finish this, but I do not think we are advancing this argument very much.

MR ROBERTSON:   If the Court pleases.

KIEFEL CJ:   I think we should now go to S4 which is the Bai matter.

MR ROBERTSON:   Your Honour will – on S4, if I can just address Justice Gageler’s last point, in the case of Tao Bai, there was, and I am still dealing very quickly with fraud or evasion for Tao Bai because of her special circumstances, we say that there was an opinion formed by the Commissioner at the commencement of the of the amended assessment process, but by the time we got to the Tribunal, the Commissioner had abandoned that opinion.  The opinion was that Ms Bai had evaded – there was no fraud, it was only evasion – that there was an evasion of $2 million or so of liability.  It must be remembered from Denver Chemical that what we are looking at is specific items.  If the taxpayer has evaded $20 of tax – or fraudulently omitted $20 – then the gateway is opened to a complete amendment of everything.

The Commissioner said that Ms Bai had evaded millions and millions of dollars of tax, hundreds of items.  He formed one opinion.  He then recanted and said, “Actually, I am now satisfied about a significant number of these items”.  He never went back and identified which of the items he said still remained under any opinion about fraud or evasion.  Then the Tribunal itself said the taxpayer has gone even further and satisfied me that many, many more items are not unexplained income, they have got nothing to do with tax.  So, that distinguishes the Tao Bai situation from the Binetter situation because she ‑ ‑ ‑

BELL J:   But one is still coming back to a determination by the Tribunal of excessiveness.

MR ROBERTSON:   Excessiveness in the sense of ‑ ‑ ‑

BELL J:   So that there may be factual differences but the point that is common to each application ‑ ‑ ‑

MR ROBERTSON:   Yes.

BELL J:    ‑ ‑ ‑ is not materially affected by those factual differences.

MR ROBERTSON:   Well, we say it is because they are two separate inquiries.  Your start with, is there any amount that has been evaded?  If there is, it is a gateway and then you go to what is the taxable income?  They are not combined together as the one thing.  That is the point.  An excessiveness in McAndrew was said to be an inapt word and the previous onus of proof under section 39 was far better, which was just that the Commissioner was prima facie right.  So the Commissioner was prima facie right that there had been an evasion of tax of $2 million.  But then he was no longer prima facie right, he conceded he was wrong.  Then the Tribunal found him to be wrong.  There was never any consideration by the Tribunal of whether the remaining amounts were amounts that had been fraudulently or evasively omitted from the return.  That is what we say the difference is, your Honour.

MR ROBERTSON:   On the procedural fairness point, we obviously support the decision of the dissenting judge, Justice Siopis, which is at 90 in the appeal book.  Your Honour, Justice Siopis did not need to consider the submissions that were made on section 33(1AA) of the AAT Act and the majority did not seem to deal with it at all.  The Commissioner says that the duty the Commissioner has under 33(1AA) is itself altered or modified by section 14ZZK.  So, on this aspect of the appeal, section 14ZZK looms large.  So, we say, it is a point of public importance for this Court to determine just how section 14ZZK ‑ ‑ ‑

KIEFEL CJ:   What is the question of principle, you say, that arises?  The submissions point to a review of the considerations that the court took into account.  What is the point of principle said to warrant a ground of special leave?

MR ROBERTSON:   Here, it is the content of section 33(1AA) of the AAT Act, generally, and in relation to tax matters whether it is affected by 14ZZK as the Commissioner submits.  We say the duty that the Commissioner has ‑ ‑ ‑

KIEFEL CJ:   You just identified two sections.  What is the point of principle?

MR ROBERTSON:   Whether the duty of best endeavours requires the Commissioner to positively remit necessary documents – documents necessary for the decision‑maker to make its decision to the Tribunal. 

GAGELER J:   Where do get the duty of best endeavours from?

MR ROBERTSON:   That is section 33(1AA) which ‑ ‑ ‑

GAGELER J:   Where is that?

MR ROBERTSON:   In the back of the application for leave.

KIEFEL CJ:   Page 183.

MR ROBERTSON:   Page 183, thank you.

KIEFEL CJ:   That is best endeavours to assist the Tribunal to make its decision.

MR ROBERTSON:   In relation to the proceeding – yes, your Honour.  What we say is this ‑ ‑ ‑

KIEFEL CJ:   So what is the procedural fairness point that comes out of this?  Out of that duty? 

MR ROBERTSON:   Out of that duty – that duty is informed by the other duties that the decision‑maker has.  One of those duties is set out as Justice Siopis set out in section 37 which is just below 33.  We say that that section is modified for tax purposes by 14ZSS over the page and we go to line 22, subparagraph (v) that the Commissioner is required to have remitted to it:

every other document that is in the Commissioner’s possession or under the Commissioner’s control and is considered by the Commissioner to be necessary to the review of the objection decision concerned –

It can be accepted that when the objection application to the AAT was made, the Commissioner did not have a duty to remit the millions of documents that were sought.  But, when the proceedings started – and during cross‑examination – it became clear to the Commissioner that he considered it necessary, for the purposes of the decision, that there be a corroborative document of the taxpayer’s story.  Because he had that corroborative document in his possession, he was under a duty of best endeavours to remit that document to the Tribunal.

GAGELER J:   Justice Siopis did not decide the case on section 33A(1AA).

MR ROBERTSON:   No.  He said it was enough that section 37 itself ‑ ‑ ‑

GAGELER J:   He said it was a procedural fairness case.

MR ROBERTSON:   Yes, and he did not need to decide.

GAGELER J:   So this is a point not decided in your favour by any member of the Court below.

MR ROBERTSON:   It was not considered, it seems – it was a point which was argued and it was not considered, that is right. 

GAGELER J:   So you would have us determine for the first time, as a matter of fact, that the Commissioner failed to comply with the statutory duty.

MR ROBERTSON:   No.  We say that that has already – all three judges have found that at least one document was material to the Tribunal’s review.  The error of the majority is that they saw it as a matter of option on the part of the Commissioner.  In our submissions we extract the bit from the judgment where Justices Davies and Perram say, no doubt it would have been convenient if the Commissioner had volunteered the document which implies that it was not a matter – it was a directory matter rather than a mandatory matter.

GAGELER J:   Can you show me that passage, please?

MR ROBERTSON:   It is at 131 of the appeal book of Tao Bai.

GAGELER J:   Paragraph?

MR ROBERTSON:   Paragraph 192.  What comes out from paragraph 192 and the preceding paragraphs, is that the majority saw it as a matter of fault of Ms Bai that this document did not get to the Tribunal and, therefore, she had scored an own goal and it is her problem because she scored an own goal.  Obviously, for the purposes of this appeal and the question of public importance, we have to accept that finding.  So, assuming that Ms Bai was at fault and that she should have done what the Federal Court said she should have done which was issue a summons at that point in time to get the document ‑ ‑ ‑

GAGELER J:   There goes your procedural fairness point.

MR ROBERTSON:   No, I do not understand that.

GAGELER J:   That concession undermines a procedural fairness argument.  You cannot make that concession and maintain a procedural fairness argument, I am saying.

MR ROBERTSON:   The question is does a failure to provide procedural fairness, is the relief denied because it is taxpayers to be criticised for how the Tribunal’s failure to provide proper review.  That is a question.  We say it is irrelevant.  Who is at fault?  Justice Siopis said that the Commissioner was at fault.  The majority said that Ms Bai is at fault.  We say that either way there was a necessary document which the Tribunal was told about by Ms Bai which the Commissioner had in his possession and, contrary to the actual facts, the Commissioner said there were no corroborating documents.  So the Tribunal was inadvertently mislead – not actively mislead, of course but inadvertently mislead into error.  The remedy or the relief is denied because it was Ms Bai’s fault according to the majority.  We say that is not the law.  If there is procedural fairness, the decision is void and it does not matter whose fault it is.   

KIEFEL CJ:   By procedural fairness, you say it means generally things did not turn out fairly for her.

MR ROBERTSON:   We say, no, that the statutory requirement that the Tribunal have before it, those documents which the decision‑maker considered necessary in the decision‑maker’s possession or control, that is a statutory requirement that those documents be in the decision­‑maker’s possession.  That was not satisfied and that is the end of the matter.  We cannot complain about how things turned out but we can complain about a failure in the performance of a mandatory statutory duty. 

We say it does not matter how that failure arose but I withdraw any concession because we say Justice Siopis was right but we say that, as your Honours know, procedural fairness is informed also by the statutory regime.  Section 33(1AA) forms a part of that regime.  The Commissioner says it is to be set at nought because of section 14ZZK and that flies in the face of a Full Court of this Court in Bailey v The Commissioner which says that the onus of proof being on the taxpayer is even more important that there be procedural fairness and it is even more important that a taxpayer be given particulars of the allegations that are made against him.

That brings me to my last point.  That is, let us assume against all the applicants and that the taxpayer has the onus of disproving fraud or evasion before the Tribunal.  Our point is how is the Tribunal to commence performing that task unless it has received particulars of the fraud or evasion that have been alleged by the Commissioner.  The Commissioner says he is not required to particularise a general allegation of fraud which is invisible to every single Tribunal of fact in the world except, it seems, the AAT.  He says he does not have ‑ ‑ ‑

KIEFEL CJ:   Was this argued?  Was there a request made for particulars?

MR ROBERTSON:   Yes, that is shown in the facts.

GAGELER J:   Which of your proposed grounds of appeal is this?

MR ROBERTSON:   If we go back to the – again, there are two different matters.  They arose in different ways in the Tao Bai matter from the Binetter matter.  

BELL J:   I think it is at 143, paragraph 8, where you say that the Full Federal Court:

erred in not deciding that it was procedurally unfair for the Tribunal to address allegations of evasion within s 170 ITAA36 that were not first fully particularised by the respondent

MR ROBERTSON:   Yes.  I am grateful to you, your Honour.  That is where it is.  The point being this, let us say that particulars were given by the Commissioner and those particulars did not amount in law to fraud.  The Commissioner says you have omitted tax.  We know from Denver Chemical that a mere omission of tax is not fraud and it is not evasion.

KIEFEL CJ:   The Commissioner, in response to the written submissions on this application, says at application book 177, towards the bottom of the page with respect to ground 8.  This ground:

was not argued in the Tribunal, nor before the primary judge or the Full Court.  Before the Tribunal, Ms Bai made no request of the Commissioner or the Tribunal for particulars.

The Notice of Appeal from a Tribunal filed by Ms Bai contained no ground at all about “particulars”.

Is that correct?

MR ROBERTSON:   In the case of Ms Bai, which is different from the Binetter’s ‑ ‑ ‑

KIEFEL CJ:   We are dealing with Ms Bai.

MR ROBERTSON:   Again, it is the fraud or evasion overlap.  In the case of Ms Bai, Justice Rares was asked, after he had given reasons for his judgment but before he had entered orders, he had said that he wanted to remit the matter back to the Tribunal.  At that stage, Ms Bai made submissions that if there is remitter back to the Tribunal on the question of evasion, that the Tribunal be ordered to give particulars.

KIEFEL CJ:   What is the answer to the questions posed?  Are those statements correct or incorrect?

MR ROBERTSON:   What is said at paragraph 2 is what I just said.  It was agitated by Ms Bai only after reasons for judgment.  But it was still agitated before Justice Rares and the request was refused.

BELL J:   It was agitated before Justice Rares at the ‑ ‑ ‑

MR ROBERTSON:   But not the Tribunal.  It was never ‑ ‑ ‑

BELL J:    ‑ ‑ ‑ and only at the conclusion of the proceedings before Justice Rares on the question of remitter.

MR ROBERTSON:   That is correct, your Honour.  Yes, that is correct.  In the Binetter’s matter, as is recorded in the Full Court’s judgment, the request for particulars was made before the Tribunal and the Commissioner refused to give particulars.  So, in the Andrew and Margaret Binetter’s matter, there is no doubt that a request for particulars was made by the Commissioner and refused because he said he did not need to go into evidence.  That is set out in the judgment below.  But we are back in the other appeals, your Honour.

KIEFEL CJ:   I see the light.

MR ROBERTSON:   If the Court pleases?

KIEFEL CJ:   Thank you, Mr Robertson. 

KIEFEL CJ:   Mr Gleeson, the Court need not trouble you in these matters.

We consider that an appeal in application No S1/2017 would have insufficient prospects of success to warrant the grant of special leave.  Special leave is refused with costs.

An appeal in each of S2 and S3/2017 would have insufficient prospects of success to warrant the grant of special leave.  Special leave is refused with costs.

The application in S4/2017 involves no question of principle.  Special leave is refused with costs.

AT 11.11 AM THE MATTERS WERE CONCLUDED