FEDERAL COURT OF AUSTRALIA
Millar v Commissioner of Taxation [2015] FCA 1104
Citation: Millar v Commissioner of Taxation [2015] FCA 1104 Appeal from: Morrison and Commissioner of Taxation [2015] AATA 114 Parties: GAYE MILLAR and GRAHAM MILLAR v COMMISSIONER OF TAXATION File numbers: NSD 276 of 2015 Judge: GRIFFITHS J Date of judgment: 19 October 2015 Catchwords: TAXATION – appeal from a decision of the Administrative Appeals Tribunal (‘AAT’) affirming the respondent’s decision to disallow the applicants’ objections against amended assessments and notices of assessment of shortfall penalty – where the AAT found the existence of sham – whether the AAT erred in not confining its assessment of whether sham existed to an inquiry into the applicants’ subjective intentions – whether the AAT erred in determining, under s 170 of the Income Tax Assessment Act 1936 (Cth), whether there had been ‘fraud or evasion’ instead of whether it was of the opinion there had been ‘fraud or evasion’ – whether the AAT failed to provide adequate reasons pursuant to s 43(2B) of the Administrative Appeals Tribunal Act 1975 (Cth) – whether the AAT denied the applicants procedural fairness Legislation: Administrative Appeals Tribunal Act 1975 (Cth) ss 43(2B), 44
Income Tax Assessment Act 1936 (Cth) ss 26AFB, 26AFB(3), 26AFB(4), 170, 221YK(3)
Income Tax Assessment Act 1997 (Cth) s 26-25
Superannuation Industry (Supervision)Regulations 1994 (Cth) Pt 6
Supervision Industry (Supervision) Act 1993 (Cth) ss 19, 62
Tax Administration Act 1953 (Cth) ss 14ZZK, 14ZZK(b)(iii), Sch 1, 11-5, 2-254, 12-245, 12-250, 12-255, 26-25, 298-20, Div 12
Cases cited: 3D Scaffolding Pty Limited v Commissioner of Taxation [2009] FCAFC 75
3D Scaffolding Pty Limited v FCT [2008] FCA 1477
AG Securities Limited v Vaughan & Ors [1990] 1 AC 417
Allsene Pty Limited v Commissioner of Taxation 89 ATC 5333
Australasian Jam Co Pty Limited v Federal Commissioner of Taxation [1953] HCA 52; (1953) 88 CLR 23
Bennett & Ors v FCT [2015] ATC 10-397
Blatch v Archer (1774) 98 ER 969; (1774) 1 Cowp 63
Calvista Australia Pty Ltd v Administrative Appeals Tribunal [2013] FCA 860; (2013) 216 FCR 32
Certain Lloyd’s Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378
Civil Aviation Safety Authority v Central Aviation Pty Ltd [2009] FCAFC 137; (2009) 179 FCR 554
Clyne v Federal Commissioner of Taxation 83 ATC 4508
Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd [1994] FCA 293; (1994) 49 FCR 576
Commissioner of Stamp Duties (Qld)v Jolliffe [1920] HCA 45; (1920) 28 CLR 178
Coppleson v Commissioner of Taxation (Cth) (1981) 52 FLR 95
Denver Chemical Manufacturing Company v Commissioner of Taxation (NSW) [1949] HCA 25; (1949) 79 CLR 296
Dornan v Riordan [1990] FCA 383; (1990) 24 FCR 564
Ekinci v Civil Aviation Safety Authority [2014] FCAFC 180; (2014) 227 FCR 459
Emanuele & Anor v ASC & Ors [1997] HCA 20; (1997) 188 CLR 114
Fitzroy Services Pty Ltd v Commissioner of Taxation [2013] FCA 471
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- AGLC
- Millar v Commissioner of Taxation [2015] FCA 1104
- Case
- [2015] FCA 1104
- Decision Date
CaseChat Overview and Summary
In Millar v Commissioner of Taxation, the applicants sought to appeal a decision of the Administrative Appeals Tribunal (AAT) which upheld the respondent's decision to disallow their objections against amended assessments and notices of assessment of shortfall penalty. The applicants challenged the AAT's determination that the loan from HWBB was a sham, arguing that the AAT did not correctly assess whether a sham existed by focusing on their subjective intentions, rather than the objective reality. They also contended that the AAT erred in applying the wrong legal test under section 170 of the Income Tax Assessment Act 1936 (Cth) and failed to provide adequate reasons as required by section 43(2B) of the Administrative Appeals Tribunal Act 1975 (Cth). Additionally, the applicants argued that they were denied procedural fairness.
The court examined whether the AAT erred in not confining its assessment to the applicants' subjective intentions and whether it applied the correct legal test under section 170 of the Act. The court found that the AAT was not required to limit its inquiry to the applicants' subjective intentions, but rather to determine the objective reality of the loan transaction. The court also held that the AAT applied the correct legal test under section 170, as it was not necessary for the AAT to be of the opinion that there had been fraud or evasion, but rather to determine whether such fraud or evasion occurred. Furthermore, the court held that the AAT provided adequate reasons for its decision, as it sufficiently explained its findings on material questions of fact and referenced the evidence on which those findings were based. The court also found that the applicants were not denied procedural fairness.
The appeal was dismissed, and the applicants were ordered to pay the respondent's costs of the proceedings as agreed or assessed.
The court examined whether the AAT erred in not confining its assessment to the applicants' subjective intentions and whether it applied the correct legal test under section 170 of the Act. The court found that the AAT was not required to limit its inquiry to the applicants' subjective intentions, but rather to determine the objective reality of the loan transaction. The court also held that the AAT applied the correct legal test under section 170, as it was not necessary for the AAT to be of the opinion that there had been fraud or evasion, but rather to determine whether such fraud or evasion occurred. Furthermore, the court held that the AAT provided adequate reasons for its decision, as it sufficiently explained its findings on material questions of fact and referenced the evidence on which those findings were based. The court also found that the applicants were not denied procedural fairness.
The appeal was dismissed, and the applicants were ordered to pay the respondent's costs of the proceedings as agreed or assessed.
Orders
Orders of the court
1. The appeal be dismissed.
2. The notice of contention dated 16 April 2015 be dismissed.
3. The notice of objection to competency dated 28 May 2015 be dismissed.
4. The applicants pay the respondent’s costs of the proceedings as agreed or assessed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
The respondent filed a notice of objection to competency, as well as a notice of contention. Summary of background facts The parties substantially agreed with the AAT’s description of the background facts, which may be summarised as follows. In mid-June 2000, the applicants wanted to buy an apartment on the Queensland Sunshine Coast for $1.1m. To finance the purchase they borrowed $600,000 from the St George Bank. A further $600,000 came to them by way of a “loan” from the HWBB. One of the key issues in dispute in the proceedings is whether there truly was a loan. The dispute arises from the circumstances in which the loan was obtained. The taxpayers asked their trusted long-term accountant and financial advisor, Mr Vanda Gould, as to whether he could recommend any further funding sources to provide funds in addition to the loan from St George Bank to enable the apartment to be purchased. Mr Gould had previously arranged for them to obtain a loan from HWBB. Mr Gould advised the applicants that they should be able to borrow a total of $600,000 from HWBB and at a lower interest rate than was then available from local Australian banks. Mr Gould told the applicants that a condition of the loan was that they had to place an equivalent amount of $600,000 on deposit with HWBB. He told them that such a deposit would earn 5 percent simple interest per annum. Significantly, he also told them that they could use money from their Australian superannuation fund to make the deposit. Mr Gould further advised that they would not need to provide any security in respect of the loan but they would need to give a personal guarantee to secure the loan. On 11 October 2000, $600,000 was transferred from the applicants’ Australian superannuation fund to HWBB. Shortly thereafter, on 14 October 2000, HWBB transferred $600,000 to the trust account of the solicitors who were acting for the applicants on the property purchase. The applicants did not deal directly with anyone at HWBB in relation to these arrangements. All their dealings were through Mr Gould. The loan from HWBB was said to be recorded in a Loan Facility Agreement (Agreement) between HWBB and the applicants as Borrower. The Agreement was said to be effective from 1 July 2000. It provided a Facility Limit of $750,000. Under cl 5.1, the applicants were required to pay interest on each Interest Payment Date, which fell on 30 June after the payment of any advance by HWBB. However, under cl 5.4, HWBB could capitalize any part of interest not paid on the due date. In fact, that is what occurred because no interest was in fact paid. It was all capitalized over the life of the loan. As at the AAT hearing date, the outstanding balance was about $1.5m. On 1 June 2005, which was shortly before the nominated Repayment Date under the loan, the applicants were supplied with a letter on HWBB letterhead which informed them that the bank was prepared to roll-over the existing loan and increase the facility amount to $1m, with the new loan repayable on 30 June 2010. That offer was accepted.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Section 43(2B) of the AAT Act provides:43 Tribunal’s decision on review…(2B)Where the Tribunal gives in writing the reasons for its decision, those reasons shall include its findings on material questions of fact and a reference to the evidence or other material on which those findings were based.… I recently identified and discussed some of the relevant principles relating to this obligation in Garry Kelly v Australian Postal Corporation [2015] FCA 1064 at [40]-[44]. It is unnecessary to repeat those matters here, save to emphasise that two of the central purposes for which reasons are required to be given are:(a)to assist the parties to understand the result; and(b)to enable an aggrieved party to consider whether to take advantage of any right of appeal or review. As Mortimer J acknowledged in Holden at [77], the AAT is a busy administrative tribunal, and:…the content of the obligation in s 43(2B) must be approached with due appreciation of the circumstances in which the obligation must be discharged, including the obligations contained in s 33 of the AAT Act. I also respectfully agree with her Honour’s additional observation that the obligation must be applied “with a view to the materiality and significance of particular findings on material questions of fact in each review”: citing Willis v Repatriation Commission [2012] FCA 399; (2012) 202 FCR 323 at [17]-[18] per Bromberg J. In Holden at [78], Mortimer J added the following relevant observations:Where findings on material questions of fact are in issue, or are significant, it has been held that s 43(2B) requires the Tribunal to explain what evidence it has accepted or rejected in making those findings: TelePacific Pty Ltd v Commissioner of Taxation (2005) 218 ALR 85; [2005] FCA 158 at [50] per Sackville J, and the authorities there cited. The text of s 43(2B) requires the Tribunal to “refer” to the evidence or other material on which its material findings of fact were made, but this element is no more than an inclusive aspect of the general reasons obligation in s 43(2), rather than exhaustive of it. I accept that, at least on matters which are centrally in issue or significant, some level of explanation by the Tribunal in the manner suggested by Sackville J will usually be required for compliance with s 43(2B). As to the second issue, the Full Court held in Ekinci v Civil Aviation Safety Authority [2014] FCAFC 180; (2014) 227 FCR 459 at [116] and [119] that a failure to provide reasons as required by the relevant provisions of the AAT Act involves an error on a question of law, at least where the failure is substantial (see Dornan at 573 and CASA at [49]). That approach should be applied here. As to the third issue, namely what relief, if any, should be given if there is non-compliance with s 43(2B), the relevant principle is that stated by the Full Court in CASA at [55]:Notwithstanding the divergence in authority, a failure to comply with s 43(2) of the AAT Act should not inevitably lead to an order pursuant to s 44(5) that the Tribunal's decision should be set aside in its entirety or, alternatively, lead to the reasons alone being set aside and an order being made for reasons to be provided. The appropriate order to be made pursuant to s 44 will depend upon the facts and circumstances of each individual case and the exercise of the discretion thereby conferred.
Ratio Decidendi
Legal Principle Established
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