Merchant and Commissioner of Taxation
[2021] AATA 915
•19 April 2021
Merchant and Commissioner of Taxation [2021] AATA 915 (19 April 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2020/6932 & 2020/6937
Re:Gordon Merchant
APPLICANT
Re:Colette Paull
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President I R Molloy
Date:19 April 2021
Place:Brisbane
The Tribunal refuses the Applicants’ application.
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Deputy President I R Molloy
Catchwords
SUPERANNUATION – Self Managed Superannuation Fund – responsible officers of corporate trustee – Applicants disqualified from acting as trustee or responsible officers of a trust – Applicants applied for adjournment pending separate taxation review – adjournment refused
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessments Act 1936 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
Superannuation Industry (Supervision) Regulations 1994 (Cth)
Taxation Administration Act 1953 (Cth)
Cases
Sunshine Auto Ltd v Deputy Commissioner of Taxation (1995) 61 FCR 446
Federal Commissioner of Taxation v Jackson (1990) 27 FCR 1
REASONS FOR DECISION
19 April 2021
The applications for review in these proceedings are to review the decisions of the Commissioner of Taxation (“Commissioner” or “Respondent”) to disqualify Mr Merchant and Ms Paull (“Applicants”) from acting as trustees or responsible officers of corporate trustees of superannuation entities, under the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”).
This is an application by the Applicants for the adjournment of the proceedings pursuant to section 41(1)(c) of the Administrative Appeals Tribunal Act 1975 (Cth) (the “AAT Act”). The Respondent opposes the application. The Respondent contends that, if the application for an adjournment is granted, then stay orders dated 24 December 2020 (“stay orders”) should be discharged.
Reviewable Decisions
The following background is taken substantially from the Applicants’ outline of submissions dated 12 February 2021.
Mr Merchant is the sole member of his self-managed superannuation fund (“SMSF”), Gordon Merchant Superannuation Fund (“GMSF”). Ms Paull is the sole member of her SMSF, CP Staff Superannuation Fund (“CPSSF”).
On 21 July 2020, the Commissioner notified Mr Merchant and Ms Paull of his decisions (“Initial Decisions”) amongst other things, to disqualify each of them from acting as trustees or responsible officers of corporate trustees of superannuation entities, under subsections 126A(2) and 126A(3) of the SIS Act.
The disqualifications under the Initial Decisions relied on the Commissioner’s view that GSM Superannuation Pty Ltd (“trustee”) as trustee for GMSF contravened:
(a)section 34(1) of the SIS Act because Mr Merchant and Ms Paull, did not give effect to GMSF’s investment strategy and regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (“SIS Regulations”) when GMSF acquired 10,344,828 shares in Billabong International Limited (“BBG”) from the trustee for Merchant Family Trust (“MFT”) on 2 September 2014 (“BBG Share Transfer”);
(b)section 62(1) of the SIS Act because it maintained GSMF for the collateral purpose of obtaining a tax benefit for MFT and maintaining confidence in BBG;
(c)section 65(1) of the SIS Act because it used GMSF’s resources for a member of the fund or their relatives.
On 11 August 2020, Mr Merchant, Ms Paull and GMSF requested the Commissioner reconsider the Initial Decisions under section 344 of the SIS Act.
On 9 October 2020, the Commissioner reconsidered and varied the Initial Decisions (“Reviewable Decisions”). The Commissioner decided that:
(a)Mr Merchant and Ms Paull are fit and proper persons to act as responsible officers of a corporate trustee of a superannuation entity;
(b)the disqualification decisions that were made under section 126A(3) of the SIS Act were therefore incorrect;
(c)the trustee contravened ss 34(1), 62(1) and 65(1) of the SIS Act by completing the BBG Share Transfer (“Relevant Contraventions”); and
(d)as a result of the Relevant Contraventions, Mr Merchant and Ms Paull are disqualified from acting as trustees or responsible officers of corporate trustees of superannuation entities under section 126A(2) of the SIS Act (“Disqualification Decisions”).
Income tax dispute
Contemporaneously with the Initial Decisions under the SIS Act, the Commissioner issued amended income tax assessments and penalty assessments (“Income Tax Assessments”) to Mr Merchant, the trustee of MFT and a related entity GSM Pty Ltd (“GSM”).
The Commissioner, in arriving at the Income Tax Assessments, which followed an income tax audit, reasoned that Part IVA of the Income Tax Assessment Act 1936 (“ITAA”) applied to the BBG Share Transfer.
On 22 October 2020, Mr Merchant, the trustee of MFT and GSM lodged a notice of objection under Part IVC of the Taxation Administration Act 1953 (Cth) (“TAA”) in respect of the Income Tax Assessments (“Income Tax Objection”).
The Commissioner has not yet decided the Income Tax Objection.
Once the Commissioner has made an objection decision, the taxpayers have the right, within 60 days after being served with the Commissioner’s notice of decision, either:
a. to appeal to the Federal Court; or
b. to apply for a review of the objection decision in the Tribunal (“Income Tax Review”).
Consideration
The Applicants contend that the within proceedings (“Disqualification Review”) should be adjourned until Mr Merchant, MFT and GSM have exhausted their rights of review under Part IVC of the TAA in respect of the Income Tax Assessments.
The Applicants contend that the Commissioner’s decision that the trustee breached section 62(1) of the SIS Act (the sole purpose test) and section 65(1) (the prohibition on providing financial assistance to a fund member) relies to a significant extent on the Commissioner’s contention that Part IVA of ITAA applies to the BBG Share Transfer.
The Applicants submit that the Disqualification Decisions rely on the correctness of the Commissioner’s decision in the income tax audit as to the purpose of the BBG Share Transfer. It is argued that the Disqualification Review depends upon the determination of whether Part IVA applies to the BBG Share Transfer.
I do not accept these submissions. It is true that some of the same facts and circumstances by which the Commissioner arrived at the Income Tax Assessments were also of significance in reaching the Reviewable Decisions and at times in the course of the reasoning the Commissioner referred to the findings on Part IVA of the ITAA.
The issues, however, are not the same. A decision whether or not Part IVA of the ITAA applies to the BBG Share Transfer is not determinative of any of the matters the subject of the Disqualification Review. The Commissioner may have relied on his findings in respect of Part IVA to arrive at the Reviewable Decisions. The Disqualification Review, however, is a fresh merits review.
It was submitted that it is not open to the Applicants in these proceedings to contest the correctness of the Commissioner’s contention that Part IVA of the ITAA applies to the BBG Share Transfer.
Reliance is placed upon section 350-10(1) of Schedule 1 of the TAA. Reference is made to the decisions of the Full Court of the Federal Court in Sunrise Auto Ltd v Federal Commissioner of Taxation (1995) 61 FCR 446 (“Sunrise Auto”) at page 472 and Federal Commissioner of Taxation v Jackson (1990) 27 FCR 1 (“Jackson”) at pages 15-16.
It was submitted that it would be a denial of procedural fairness to the Applicants if they were required to have the issues under ss 62(1) and 65(1) of the SIS Act resolved on the basis of evidence that Part IVA of the ITAA applies which the Tribunal must treat as conclusive.
It was submitted that the substantive issue as to the correctness of the amended assessment raised, for instance, against GSM, both as to the correctness as to the amount of tax and the particulars (including whether Part IVA of the ITAA applies to the BBG Share Transfer) is upon tender of the assessment foreclosed to the Applicants even though they are not the taxpayer to whom the amended assessment was issued.
It was submitted that if the Tribunal proceeds on the basis that Part IVA of the ITAA applies to the BBG Share Transfer in determining the Disqualification Review, and the taxpayers are ultimately successful in the Income Tax Review (either because the income tax objection is allowed or, if disallowed the taxpayers’ appeal to the Tribunal or the Court under Part IVC of the TAA is successful), this would result in a decision by the Tribunal being based on an erroneous premise.
I do not accept these submissions. As I have said, whether Part IVA of the ITAA applies in respect of the BBG Share Transfer is not determinative of any of the matters the subject of the Disqualification Review.
Section 350-10(1) is an evidentiary provision of the TAA. It is prefaced by section 350-1 which states relevantly “The rules in this Division deal with the evidentiary effect of official tax documents for the purpose of taxation laws.”
Section 350-10(1) schedule 1 of the TAA provides relevantly that:
“The production of a notice of assessment under a taxation law is conclusive evidence that
(a)the assessment was properly made; and
(b)except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment – the amounts and particulars of the assessment are correct.”
The case of Jackson, particularly those parts of the decision of Hill J to which I was referred, was not concerned with the evidentiary issues dealt with by section 350-10(1) of schedule 1 of TAA. His Honour was referring to particulars of an assessment in a different context.
In Sunrise Auto it was held (in relation to a previous provision) that upon tender of a notice of assessment a party (not just the taxpayer) is bound to accept its correctness, in amount and particulars, preventing a collateral attack upon the assessment. It is not apparent how this has any relevance to the Disqualification Review.
I accept the Commissioner’s submission that he is neither contending in the Disqualification Review, nor is it necessary to show in these proceedings, that Part IVA of the ITAA applies, to establish a breach, including in respect of section 62 of the SIS Act, by the superannuation trustee.
Alternatively, it was submitted on behalf of the Applicants that if the Tribunal were to proceed to resolve the Disqualification Review on the basis that it can determine for itself whether Part IVA of the ITAA applies to the BBG Share Transfer, there is the risk of a conflicting decision of the Tribunal and the Court or Tribunal in the Part IVC appeal relating to the income tax review which is not efficient or cost effective and would involve a waste of time and resources of the Tribunal.
This argument proceeds on the same false premise. The Tribunal in the Disqualification Review is not determining whether Part IVA of the ITAA applies to the BBG Share Transfer.
I accept the Commissioner’s submission that the conclusion to be drawn in the Income Tax Review in respect of whether the Commissioner was entitled to issue amended assessments because of the operation of Part IVA of the ITAA is different to the conclusion to be drawn in the Disqualification Review as to whether there has been a breach of the SIS Act.
It is accepted by the Applicants that whether an adjournment should be granted is to be resolved by the overall interests of justice in the particular circumstances. I am not satisfied the Applicants will be prejudiced by the refusal of an adjournment.
There are also other good reasons why an adjournment should not be granted. The Income Tax Review is obviously not going to be resolved in the short-term. There is unchallenged affidavit evidence of Guy Edgecombe, solicitor, dated 26 February 2021, that he expects the process would take more than eighteen months. Monitoring or periodically reviewing its progress will not change that.
There is a public interest, and of course the Respondent has an interest, in having the Disqualification Review brought to finality within a reasonable time and without unnecessary delay or expense.
I note from Mr Edgecombe’s affidavit that the Commissioner has incurred legal costs in the Disqualification Review in excess of $50,000. Mr Edgecombe deposes that if the proceedings are stayed, a large portion of these costs will be thrown away or wasted because solicitors and counsel will need to refamiliarize themselves with the matter.
Conclusion
I conclude for the reasons set out above that the interests of justice do not favour the granting of an adjournment of the Disqualification Review.
The application for an adjournment should therefore be refused. In consequence there is no reason to consider the operation of the stay orders.
| I certify that the preceding 38 (thirty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy |
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Associate
Dated: 19 April 2020
| Date(s) of hearing: | 22 March 2020 |
| Applicant Solicitor: | Sarah Lancaster |
| Applicant Counsel: | Mark Richmond SC |
| Respondent Solicitor: | Taylor Green |
| Respondent Counsel: | Richard Schulte |
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