Mitab Pty Ltd (as Trustee for Lorden Number One Trust) and Commissioner of Taxation
[2007] AATA 1491
•29 June 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1491
ADMINISTRATIVE APPEALS TRIBUNAL )
) N° V200600822
TAXATION APPEALS DIVISION ) Re MITAB PTY LTD (AS TRUSTEE FOR LORDEN NUMBER ONE TRUST) Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal: The Hon Howard Olney AM QC, Deputy President
Date: 29 June 2007
Place:Melbourne
Decision:The decision under review is affirmed.
(sgd) Howard Olney
Deputy President
FREEDOM OF INFORMATION – Request for access to documents in the course of a tax audit – documents withheld as exempt under s 37(1)(a) – whether disclosure would or could reasonably be expected to prejudice the conduct of the audit
Freedom of Information Act 1982
Income Tax Assessment Act 1936
Briggs (No. 1) v Australian Taxation Office 86 ATC 2034
National Companies and Security Commission v New Corporation Ltd and Others (1984) 52 ALR 417
New Corporation National Companies and Securities Commission (1984) 5 FRC 88
News Corporation Ltd. and Ors v. National Companies and Securities Commission (1984) 57 A.L.R. 550
S v Commissioner of Taxation (Unreported AAT W88/120 16 June 1989)
REASONS FOR DECISION
29 June 2007 The Hon Howard Olney AM QC, Deputy President
THE APPLICANTION
1. The applicant seeks review of a decision made under the Freedom of Information Act 1982 (Cth) (the FOI Act) refusing access to certain documents relating to an audit being carried out by the respondent pursuant to the respondent’s powers under the Income Tax Assessment Act 1936.(the 1936 Act)
BACKGROUND
2. By request in writing dated 19 May 2006 the applicant sought access to a large number of documents relating to an enquiry being conducted by the respondent into the tax affairs of the applicant. Access was also sought to a number of other documents of general application not specifically connected to the affairs of the applicant.
3. The applicant’s request was only partially successful. By letter dated 14 June 2006 the applicant was provided with a schedule detailing the documents to which access would be granted and others which were regarded as exempt either wholly or in part.
4. On 29 June 2006 the applicant requested internal review of the decision dated 14 June 2006. The review was carried out by Mr Peter Robinson, Senior FOI Officer, Legal Services Branch, Northbridge whose decision was conveyed to the applicant by letter dated 16 August 2006. With 3 minor exceptions, Mr Robinson concluded that the remaining 26 documents were either wholly or partially exempt under either s 37(1)(a) or s 38 of the FOI Act. The present application is for review of the decision of 16 August 2006.
5. Whilst it is not the role of the Tribunal to investigate the matters that are the subject of the respondent’s audit, it is however fair to say, based on the information available to the Tribunal, that the respondent’s inquiry concerns the claiming of losses incurred by one entity against the income of another or other entities over a significant period of time and that the matter is one of some complexity.
THE LEGISLATION
6. For present purposes the relevant provisions of the FOI Act are sections 11, 37(i)(a) and 38(i) which provide as follows:
11 Right of access
(1)Subject to this Act, every person has a legally enforceable right to obtain access in accordance with this Act to:
(a) a document of an agency, other than an exempt document; or
(b) an official document of a Minister, other than an exempt document.
(2) Subject to this Act, a person’s right of access is not affected by:
(a) any reasons the person gives for seeking access; or
(b)the agency’s or Minister’s belief as to what are his or her reasons for seeking access.
37 Documents affecting enforcement of law and protection of public safety
(1)A document is an exempt document if its disclosure under this Act would, or could reasonably be expected to:
(a)prejudice the conduct of an investigation of a breach, or possible breach, of the law, or a failure, or possible failure, to comply with a law relating to taxation or prejudice the enforcement or proper administration of the law in a particular instance;
38 Documents to which secrecy provisions of enactments apply
(1) Subject to subsection (1A), a document is an exempt document if:
(a)disclosure of the document, or information contained in the document, is prohibited under a provision of enactment and
(b)either:
(i)that provision is specified in Schedule 3; or
(ii)this section is expressly applied to the document, or information, by that provision, or by another provision of that or any other enactment.
The Facts
7. Apart from the documents lodged with the Tribunal pursuant to s 37(1AB) of the Administrative Appeals Tribunal Act 1975 the evidence advanced before the Tribunal consists of an affidavit of the decision-maker (Mr Peter Robinson) affirmed on 15 December 2006 (Exhibit 1) and the oral testimony of Mr Robinson given before the Tribunal on 25 May 2006. The Tribunal was also provided with a copy of each of the withheld documents.
8. The thrust of Mr Robinson’s affidavit evidence, so far as it relates to the specific issue under consideration, is that (as at the date of the affidavit) there was an on-going and uncompleted audit being conducted by the respondent in relation to the applicant’s tax affairs and that it was unlikely to be finalised by 30 June 2007 (Exhibit 1, paras 20, 21). In paragraph 21 of the affidavit reference is made to a record of a conversation between the witness and Mr Gary Pettingill (an officer involved in conducting the audit) on 14 December 2006. The record of the conversation is annex to the affidavit (Exhibit PR-11) and is reproduced below:
I spoke with Gary Pettingill from Small Medium Enterprises in the Geelong Office.
I asked Gary whether the audit of the Lorden Number One Trust had been finalised and if not, whether there was an estimated finalisation date.
Gary advised that actions by the trustee of the Lorden Number One Trust had slowed the progress of the audit. There had been a number of actions including ADJR’s, a legal challenge in the Federal Court against the issue of section 264 notices and a request to have him removed from the case.
He advised that the substantive issue involved the acquisition of trust losses. A Position Paper had been prepared but was presently with TCN and had not issued as yet. He did not think that the case would be finalised before 30 June 2007 and if there was further actions by the trustee, it may not be finalised until the end of 2007.
Peter Robinson
14/12/06
9. At paragraphs 22-24 of his affidavit Mr Robinson stated:
22.As part of my internal review I read the withheld documents. I understood that this was an audit involving tax losses in relation to entities in the clothing/textile industries. Although I am not familiar with all of the details in the audit, it is clear that the audit is at an early stage at which the ATO is still seeking information from the taxpayers. I understand that the taxpayers have not yet provided a lot of information.
23.The documents withheld are draft documents that do not represent the final view of the ATO. I also understand that as part of the ATO processes, any Position Paper in relation to these matters will be subject to review by the Tax Counsel Network within the ATO before they are finalised and released. Before that process of review occurs, any draft Position Paper will be subject to review and amendment before it is finalised.
24.Before it is finalised the views expressed are draft, they are part of the internal decision making process within the ATO.
10. Mr Robinson was cross‑examined at some length by counsel representing the applicant who initially raised with the witness his understanding as to the currency of the audit process. As to whether the witness had made any further inquiries as to where the exercise stands the witness said:
… I spoke to Mr Pettingill on Wednesday of this week, and he said that there’s a thing (sic) as a final draft. The final draft position papers had been submitted to TCN last week, TCN being the Tax Council Network, and this is part of the process, prior to the position papers being issued to the taxpayers. The position is that once the Tax Council Network is satisfied, it is satisfied, it may not be, but it is satisfied with the position papers, they’re issued to the taxpayers, and the taxpayers are then given an opportunity to comment on our position. (Transcript p.12, L7)
And in response to a question from the Tribunal as to whether an assessment or amended assessment of tax had been issued the witness said:
No assessment or amended assessment is made until a response is received from the taxpayers and or reasonable time has expired if they don’t respond. (Transcript p.12).
11. In the context of a series of questions relating to Exhibit PR-11 to the affidavit the following exchange between the applicant’s counsel and the witness is recorded at p15 of the transcript:
MR FARROW: But Mr Robinson, that is a position paper which presumably before it went to the Tax Council Network would have been a final position paper of the people conducting the audit, would it not? --- Well, I mean, at this stage – I mean, they had only just got the documents in, as I understand it, December 2006 so – and there were other issues or other questions which they still hadn’t had answered so I wouldn’t think it would – it certainly wouldn’t have been the final one. They might have submitted it to them to get some comments and defer the direction as to whether something needed to be acquired or further avenues needed to be pursued or – for the law needed to be considered and so on.
Well, can you tell the Tribunal in your experience do position papers go to the Tax Counsel Network unless they are final? What is the general procedure in the office with position papers and the Tax Council Network? I mean, they are presumably busy people who don’t muck around with preliminary drafts and things like that, are they not? --- No, that is not correct. I mean, when you – if you have an issue that is going to escalate to the Tax Council Network you would be allocated someone on the Tax Council Network who would be the person that would be dealing with your matter and quite often they would send up, you know, even preliminary drafts to get an idea whether they are heading in the right direction or whether there is further information that needs to be acquired, and so on.
But this doesn’t say a preliminary draft, this says a position paper? --- Well, this is only a note of a telephone conversation, it is not supposed to be a, you know, legal document. (Transcript p.15, L1-22)
THE ISSUE
12. In written submissions filed in advance of the hearing of the application the applicant identified the crucial aspect of the decision under review to be whether the decision maker correctly applied the provisions s 37(1)(a) of the FOI Act (applicant’s submissions 23 May 2007, para 4). Neither the written submissions nor the submission made by counsel on behalf of the applicant at the hearing raised any issue other than the appropriateness of the application of s 37(1)(a) to the facts and circumstances of the case.
13. In the terms of s 37(1)(a) the issue for determination is whether the disclosure of the documents for which the respondent claims exemption would or could reasonably be expected to … prejudice the conduct of an investigation of ... a failure, or possible failure, to comply with a law relating to taxation. In his affidavit of 15 December 2006 the decision maker expressed the view (at para 25) that:
Release at this stage would be damaging to the audit and more generally because:
a.It would release information that is in draft and may be misleading or confusing as it does not represent the final view of the ATO in relation to the audit; and
b.It is likely to frustrate or hamper the information gathering in the audit correctly (sic, presumably, currently) under consideration.
The Tribunal is of course not bound by this assessment of the situation and must approach the issue of whether or not disclosure of the documents would or could reasonably be expected to prejudice the conduct of the audit upon the material before the Tribunal and at the time the matter falls for consideration by the Tribunal.
14. In the course of argument reference was made to a number of judicial authorities relating to the application of s 37(1)(a). In News Corporation National Companies and Securities Commission (1984) 5 FRC 88 (a decision of the Full Court of the Federal Court of Australia) Fox J observed in reference to s 37(1)(a) that:
It is convenient to turn first to the application of s 37(1)(a) of the FOI Act. The decision by the respondent that the paragraph applied is not of course conclusive. The question it poses is to be examined objectively, but in the light of the evidence. I agree that it is not sufficient that there be a mere risk of prejudice to the conduct of an investigation. I would not, however, seek to supply some paraphrase of the statutory language "could reasonably be expected to prejudice". There is no doubt that an investigation was being carried out (and still is) and that it was an investigation of the kind referred to in par (a). It does not seem to me that the Tribunal misconceived the meaning of the language in question, and there was ample evidence to enable it to reach the conclusion it did.
And at p101-2 of the same report Woodward J said (in the same context)
The argument for the applicants is that the wording of the subsection requires actual prejudice to be expected, not the mere risk or possibility of prejudice.
I think there is some force in this contention. I think that the words “would, or could reasonably be expected to ... prejudice” mean more than “would or might prejudice”. A reasonable expectation of an event requires more than a possibility, risk or chance of the event occurring. On the other hand, if the legislature had required a probability of prejudice it could easily have said so. In my view it is reasonable to expect an event to occur if there is about an even chance of its happening and, without attempting to suggest words alternative to those chosen by the draftsman, it is in that general sense that the phrase should be read.
The question then arises whether the AAT misdirected itself on this point or misapplied the law to the facts which it found. I can find nothing in its reasons to suggest that it misdirected itself as to the test it had to apply. It always used the words of the section and nowhere said that a mere possibility or risk of prejudice would meet the statutory test.
The AAT held that it was sufficient to show prejudice to the conduct, in the sense of the carrying on, of an investigation; it was not necessary to show that the outcome of the investigation would be prejudiced. On this basis it found that the conduct of the investigation would be prejudiced if the investigator were deprived of one of his techniques of inquiry -- in effect the putting of questions to persons who are not thoroughly prepared for them. However it went on to say that if it were necessary to show prejudice “in respect of the object of investigation, that is the discovery of what happened”, that would be satisfied by
… “the diminishment in assurance of the achievement of that object which attends deprivation of the investigator of one of the means whereby he would have managed the investigation to find the facts. Hindsight may sometimes demonstrate that nothing was lost by disclosure of documents to those the investigator was about to question, but not, as we believe, in this case”.
In my view this passage from the final page of the AAT's reasons for decision amounts to a clear finding that, in the present case, disclosure of the documents to the applicants could reasonably be expected to prejudice the investigation because the applicants would be forewarned and forearmed against questions. The AAT was able to reach this finding even though, as it said, it had no basis for a more positive finding that any person was presently minded to fabricate defences, set false trails or influence witnesses. Such a possibility, of course, remained open.
The AAT accepted the evidence of the respondent's executive director that "the more information the applicants had about documents in the Commission's files, the greater the likelihood that there would be frustration" of the investigation. It also accepted his view that “even the apparently meagre information which any one of the lines” of the schedule “would afford could ... enable an applicant to achieve that frustration”.
15. Reference has also been made to a number of previous Tribunal decisions involving the same issue as is presently under consideration. The facts in S v Commissioner of Taxation (Unreported AAT W88/120 16 June 1989 are indistinguishable from the present matter in that both involve an ongoing audit of the applicant’s taxation concerns. In that case Deputy President McDonald referred to, and applied, a dictum from the decision of the High Court in National Companies and Security Commission v New Corporation Ltd and Others (1984) 52 ALR 417 at p437‑8:
… It is of the very nature of an investigation that the investigator proceeds to gather relevant information from as wide a range of sources as possible without the suspect looking over his shoulder all the time to see how the inquiry is going. For an investigator to disclose his hand prematurely will not only alert the suspect to the progress of the investigation but may well close off other sources of inquiry. Of course, there comes a time in the usual run of cases when the investigator will seek explanations from the suspect himself and for that purpose will disclose the information that appears to require some comment.
16. Another similar decision of the Tribunal is Briggs (No. 1) v Australian Taxation Office 86 ATC 2034 At p 2038 of the report the Tribunal (Sir William Prentice SM and G.R. Taylor M) said:
The material in these documents indicates very clearly that the Australian Taxation Officers are engaged in the investigation of what is alleged to be a taxation evasion scheme of very substantial proportions. Investigations into that scheme were stated by Mr Wiggins in his oral evidence to be continuing and this was not challenged by counsel for the applicant.
And after referring to the Federal Court decision in News Corporation Ltd. and Ors v. National Companies and Securities Commission (1984) 57 A.L.R. 550 the Tribunal went on to say (at p 2039):
In our view, disclosure in the present instance of the documents for which exemption is claimed under sec. 37(1)(a) would disclose the nature and extent of the knowledge of the respondent as to the applicant's affairs, and could therefore be reasonably expected to result in prejudice to the conduct of its investigation into both possible breaches of the law by the applicant and other parties with whom he is or has been associated, and possible failure on their part to comply with the Income Tax Assessment Act 1936 and associated legislation. We would therefore uphold the claim to exemption under this section.
CONCLUSIONS
17. The Tribunal has had the opportunity to view the withheld documents and, without attempting to fully digest their contents, it is satisfied that each has been prepared in the context of an on‑going investigation involving the tax affairs of the applicant. For the most part the withheld documents are specifically expressed to be drafts and where this is not the case, the content of the document clearly indicates that it has been prepared as part of a decision making process. It is equally clear from the documents that finality has not been reached. This is consistent both with the evidence of Mr Robinson and with the fact, not disputed by the applicant that no amended assessment of tax has been issued nor has any position paper been referred to the applicant for comment, a step that would in ordinary circumstances indicated that the respondent’s audit had been concluded.
18. The Tribunal is of the opinion that the disclosure of the withheld documents prior to the conclusion of the audit process could reasonably be expected to prejudice the conduct of the respondent’s investigation into the applicant’s tax affairs. The factual issues involved are complex as are the legal implications. Unless and until the respondent’s investigation has been completed and a final position adopted as to the matters under investigation there is a real potential for disclosure of the respondent’s tentative views to alert the applicant to not only the strengths but also the weaknesses of the respondent’s position, thus facilitating the opportunity for the applicant to order its affairs and any further responses it may be called upon to make in the course of the investigation to its own advantage.
19. It should be understood that the Tribunal’s conclusion is in no way intended to suggest that the applicant or any person associated with it has in the past, engaged or is likely in the future to engage in any illegal or dishonest conduct. Rather it is the case that the respondent has a duty to carry out any appropriate investigation in a manner best suited to the circumstances. It is entitled to do so without (as has been said) the party being investigated looking over his shoulder.
DECISION
20.The decision under review is affirmed.
I certify that the twenty (20) preceding paragraphs are a true copy of the reasons for the decision herein of
Signed: Lauren Spragg
ClerkDate of Hearing 25 May 2007
Date of Decision 29 June 2007
Counsel for the Applicant Mr F. Farrow
Counsel for the Respondent Mr R. Niall
Solicitor for the Respondent Mr S. Sexton
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