Oak Arrow Pty Ltd v Deputy Commissioner of Taxation
[2004] FMCA 980
•15 December 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OAK ARROW PTY LTD & ORS v DEPUTY COMMISSIONER OF TAXATION | [2004] FMCA 980 |
| ADMINISTRATIVE LAW – Review of decision by Deputy Commissioner of Taxation – applicants applied for extension of time after expiry of s.162 Notice – whether the Deputy Commissioner has the power to extend time to comply with notice after it has expired pursuant to s.388-55 of Schedule 1 of Taxation Administration Act. |
Taxation Administration Act 1953
Income Tax Assessment Act 1936
Administrative Decisions (Judicial Review) Act1977
May v FCT (1999) FCA 287; Knaggs v Commonwealth DPP (2003) NSWSC 3
| Applicants: | OAK ARROW PTY LTD AS TRUSTEE FOR OAK ARROW SUPER FUN, MICHAEL J HART, MICHAEL J HART AS THE TRUSTEE FOR THE OUTLOOK FINANCE TRUST AND THE OUTLOOK HOLDING TRUST, JANLEVIT PTY LTD AS TRUSTEE FOR THE RVJF TRUST, OAK ARROW PTY LTD AS TRUSTEE FOR THE OAK ARROW TRUST, OUTLOOK CRESCENT PTY LTD AS TRUSTEE FOR THE OUTLOOK NO 2 FINANCE TRUST, RIO VILLA PTY LTD AS TRUSTEE FOR THE RIO VILLA TRUST AND OAK ARROW PTY LTD AS TRUSTEE FOR THE OAK ARROW INVESTMENT TRUST |
| Respondent: | DEPUTY COMMISSIONER OF TAXATION |
| File No: | BZ 622 of 2002 |
| Delivered on: | 15 December 2004 |
| Delivered at: | Brisbane |
| Hearing date: | 24 April 2003 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Davis |
| Solicitors for the Applicant: | Damien Bourke & Associates |
| Counsel for the Respondent: | Mr Gotterson SC |
| Solicitors for the Respondent: | Australian Government Solicitor |
ORDERS
That the Application for Review filed on 17 December 2002 be dismissed.
That the Applicants file and serve any written submissions in respect of costs within 28 days.
That the Respondent file and serve any written submissions in reply within 21 days thereafter.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BZ 622 of 2002
| OAK ARROW PTY LTD & ORS |
Applicant
And
| DEPUTY COMMISSIONER OF TAXATION |
Respondent
REASONS FOR JUDGMENT
Introduction
The Applicants received Notices issued by the Deputy Commissioner of Taxation (“the Respondent”) on 25 September 2002 in accordance with section 162 of the Income Tax Assessment Act1936 (“ITAA”).
On 26 November 2002, Oak Arrow Pty Ltd (“Oak Arrow”) requested an extension of time to comply with the notices and this request was refused by the Respondent on 28 November 2002 (“the decision”).
By application for an order to review filed on 17 December 2002, Oak Arrow sought review of this decision pursuant to section 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“ADJR Act”). Although the application also sought to review another decision made on 28 November 2002, that part of the application was withdrawn in light of the Respondent’s later decision made on
14 March 2003 not to refer the Applicants for prosecution.
Grounds
The grounds of the Application are that the making of the decision constituted:-
a)A breach of the rules of natural justice (section 5(a)).
b)The procedures that are required by law to be observed in connection with the making of the decision were not observed (section 5(b)).
c)The decision was an improper exercise of a power conferred by the enactment in pursuance of which it was purported to be made (section 5(e)).
d)There was no proper material before the decision maker to justify the making of the decision (section 5(h)).
e)The decision was otherwise contrary to law (section 5(j)).
Section 13 Reasons
Under s.13(1) of the ADJR Act, a request was made by the Applicants for a Statement of Reasons for the said decision. A Statement of Reasons was delivered on 3 February 2003 and are Annexure “E” to the Affidavit of Adrienne Maher filed on 19 March 2003. I do not recite the fill reasons in the text of this judgment but I will refer to the Statement of Reasons where appropriate.
Background
In March 1999 the Respondent established a committee to provide high level organisational leadership on what the Commissioner described as “aggressive tax planning”. By August 2002 the respondent had caused a list of promoters and associated entities involved with aggressive tax planning, to be drawn up.
One of the Applicant’s, Mr Hart, was on that list.
Although the lodgement of returns by taxpayers through a tax agent would have allowed tax returns for the Applicant’s to be lodged for the 2001/02 fiscal year by 15 May 2003 (or perhaps even 3 June 2003), a taxpayer to whom a notice is issued pursuant to section 162 of the ITAA, must lodge its return within the time prescribed in that Notice.
Consistent with the strategy adopted by the Respondent, Notices were issued to the Applicant’s requiring them to lodge their tax returns for the year ended 30 June 2002 by 22 November 2002. It is common ground that the returns were not lodged by 22 November 2002.
A letter dated 26 November 2002 from Messrs Geldard & Drinan Accountants requested on behalf of the Applicants, extensions of time to 31 January 2003. The request for the extension was received on
28 November 2002 – after the time for compliance with the s.162 Notices had expired.
The refusal to grant the extension was the catalyst for the Application to Review, which in any event was filed before the actual taxation returns were lodged on 17 January 2003.
Evidence
Before turning to the effect of the well considered submissions made by Mr Davis for the Applicants and Mr Gotterson SC for the Respondent. I record some of the relevant evidence given by or on behalf of the Applicant’s as follows:-
a)Mr Paul Geldard is a certified practising accountant, practising in Rockhampton and the accountant/tax agent appointed by the Applicants. He has practised as an accountant for 35 years.
b)Mr Geldard said that prior to the issue of the Notices he had relied upon the representation of the Respondent contained within the “general lodgment list” which approved that the subject tax returns could be filed by 15 May 2003. The notices under section 162 brought forward that “previous agreed lodgement date some six months.”
c)One of the Applicants, solicitor, Michael Hart (an alleged “promoter” of the aggressive tax planning schemes), relied upon Geldard to conduct any dealings with the ATO. Mr Geldard said:-
“In this case I simply forgot to request an extension of time for the lodgement of the returns prior to 22 November 2002. This oversight on my part was due to the work demands within my office at this time.”
Mr Geldard was the subject of cross-examination. I regard him as a truthful witness, although I gained the impression that he may have been out of his depth in his role in the tax affairs of Mr Hart. Certainly, his admission that he “didn’t look at the section 162 notices” and that “all hell broke loose when I knew I was refused the extension” gave a ring of credibility to the testimony.
d)When it was brought to his attention that he had missed the due date, he immediately sent a letter dated 26 November 2002 (Annexure “PG-2”) which sought from the ATO “a liberal extension of time for lodgment. I shall endeavour to lodge by
31 January 2003”. He gave four reasons for seeking the extension of time, all essentially related to the size of his firm (2 Principals and 4 staff) and the complexity of the subject returns and other client workload. Very little had been done on the tax returns as at 26 November 2002.e)
Chartered Accountant Lyn Davies of Brisbane, a practising accountant for over 30 years, was called to give evidence,
I suspect as some form of independent expert. He says that the time given by the Respondent to Mr Geldard in which to comply with the notices was:-
“insufficient and onerous, particularly given that the requirement to supply such information was brought forward by some six months” at a notoriously difficult and busy time of year”.
f)Whilst Mr Davies said that:-
“in my experience and dealings with the Australian Taxation Office (“ATO”) over the years, the ATO have provided me with some latitude in terms of complying with notices and requests out of time, irrespective of whether I have applied for extensions pre or post the due date.”
he conceded during cross examination that:-
a)He has no experience, to the best of his recollection with s.162 Notices;
b)He has no knowledge of these taxpayers affairs;
c)He would regard the receipt of a s.162 Notice as an “important matter”, and by implication would do something about it immediately;
d)He would speak with the ATO before the due date, if he felt he had difficulty in complying.
Did the Commissioner have the Power to Extend the Time for Compliance with the s.162 Notice After Expiry
This became the seminal issue. The decision-maker Adrienne Maher, in her statement of Reasons (at paragraph 27) says:-
“First and foremost, I noted that the taxpayers were in breach of section 162 Notices, that is, that the times for compliance specified in the Notices had expired prior to the receipt of applications for extensions of time. I formed the view that in these circumstances I did not have the power to extend time for compliance. The taxpayers were already in breach of the Notices.”
Section 162 of the ITAA provides that:-
“162. A person must, if required by the Commissioner, whether before or after the end of the year of income, give the Commissioner, within the time required and in the approved form:
a) a return or a further or a fuller return for a year of income or a specified period, whether or not the person has given the Commissioner a return for the same period; or
b) any information, statement or document about the person’s financial affairs.”
The ‘approval’ referred to by Mr Geldard to file returns by 15 May 2003 appears to be in compliance with a general time limit imposed under s.161 and published in the Gazette.
Section 388-55 of Schedule 1 to the Taxation Administration Act 1953 provides that:-
“(1) The Commissioner may defer the time within which an approved form is required to be given to the Commissioner or to another entity.
(2)A deferral under subsection (1) does not defer the time for payment of any amount to the Commissioner.”
Mr Gotterson SC for the Respondent submits that:-
a)Section 162 does not invest the Commissioner with an express power to extend time for compliance with a s.162 Notice;
b)The power conferred by s.388-55 is not expressed to be one that may be exercised once the time sought to be deferred has already expired.
c)Sections 388-55 is not expressed to be a power that the Commissioner can be compelled to exercise in circumstances where an application for deferral is made after expiry.
d)The decision maker’s conclusion as to the absence of power to extend time in the circumstances was fairly open.
Before turning to the Applicant’s submissions, I can say that I agree that the decision by the Commissioner to issue the s.162 Notice and set a time limit of 22 November 2002, are not decisions which are the subject of Application for Review. As a result submissions raised by the Applicants which extend to an alleged right to be heard “not only before the notice is issued but also as to the particular time constraints within the Notice”, are not required to be considered by me.
Had it been necessary to deal with those decisions, I would have dismissed the Applicant’s contention. Reliance upon the Full Court authority in May v FCT (1999) FCA 287 would have been sufficient to dispose of the argument advanced.
In respect of this issue under consideration, the Applicant submits that:-
a)There is nothing in with the legislation or the regulations which would restrict a decision maker extending time “nunc pro tunc” (in circumstances where it was otherwise reasonable to do so).
b)The purpose of s.388-55(1) is to allow the Commissioner to Regulate lodgement of an approved form. Because there is no provision in section 388-55(1) to say when the Commissioner may defer the time, the Court should not “read down” the provision by finding no power to extend exists.
It seems clear that the purpose of s.162 is to re quire taxpayers to comply out of the ordinary course of the general time limit set by gazette under s.161 and/or to require specific information about the person’s financial affairs to be provided “within the time required”.
Penal sanctions for non-compliance can be imposed and strict compliance with the Act, when criminal proceedings are commenced is required (see Knaggs v Commonwealth DPP (2003) NSWSC 3). It is clear that Mr Geldard, the Applicant’s agent, did not understand the seriousness of the Notices.
I have formed the view that the decision maker did not in the circumstances of this case have the power to extend the time for compliance with the notice for the following reasons:-
a)The purpose of s.162 is to give an additional (and continuing) power to the Commissioner to require a return or information to be provided, in addition to the general power under s.161.
b)Non compliance with the notice exposes the taxpayer to:-
(i)administrative penalties under Division 286 of the TAA 1953; and
(ii)criminal prosecution.
c)Where sanctions of this nature are imposed, the time limits to be complied with in the Notice should be strictly determined.
d)No specific power to extend time is expressed in s.162, however the clear intent of s.388-55, is to give a general power of deferral for lodging an ‘approved form’ however that time requirement is set – that is either by s.161 or by s.162.
e)The general power to ‘defer’ in s.388-55 can not have the effect of curing the breach created by non-compliance with a s.162 notice. Any request made prior to the expiration of the time limit imposed is, in effect, a request for the Commissioner to extend the time for compliance with the Notice and if approved, operates to defer the time when strict compliance is required. I am satisfied the power in s.388-55 can only be exercised prior to the expiration of the s.162 Notice.
f)A request received after the time set for compliance is in my view tantamount to:-
(i)A request not to prosecute for the breach which has already, prima facie, occurred. Such a request may ultimately require the concurrence of the Commonwealth DPP, who alone exercises the power to grant immunity from prosecution; and
(ii)A request for the issue of a further Notice under s.162 with a later time requirement.
g)The power given to the Commissioner under s.388-55 is, according to the evidence, regularly exercised when compliance with the general time limits imposed by s.161 has expired. That does not necessarily mean, in my view, that the power can be exercised after a specific notice pursuant to s.162 has been issued and has expired.
For the reasons given, the decision maker had no power to extend time for compliance, and therefore the decision can not be a decision subject to judicial review, namely a decision of an administrative character and made under and enactment (s.3(1) of the ADJR Act).
If I am wrong about the decision maker’s power to make a decision to extend the time for compliance, then for completeness, I find that:-
a)I was not satisfied that any of the grounds asserted by the Applicant to impeach the exercise of statutory power has been made out.
b)
I would adopt the submissions of Mr Gotterson at paragraphs
20 and 21. It was reasonable, in circumstances where the Applicant’s had sought no extension of time before 22 November 2002, to infer that the time limit would be capable of compliance. The reasons given show an appropriate balance of the relevant factors in the exercise of discretion. I had the benefit of seeing
Ms Maher (the decision maker) under cross examination and regarded her as a truthful witness.
I have no doubt, as she said, that in effect a hard line approach was being adopted by the Commissioner in respect of alleged promoters of aggressive tax planning schemes. It seems that the decision maker had no obligation to be overly generous to the taxpayers. Certainly the evidence from Mr Geldard shows that even in a difficult time of year, he was able to complete the returns within 60 days. I draw this conclusion by accepting his evidence that “little had been done” by
26 November, but that all returns were lodged bon 17 January (52 days later). The grounds under s.5 of the ADJR Act are not made out.
Finally, there is much merit in the submission of Mr Gotterson at paragraph 24, that:-
“there would be no utility in making an order under s.16 of the ADJR Act, having the effect of requiring the respondent to “remake” an extension of time decision. All the tax returns were lodged by 17 January 2003”.
Conclusion
For the reasons given, I dismiss the application for review filed on
17 December 2002.
Mr Gotterson contends costs, as usual, should follow the event and be taxed on the Federal Court Scale. I will give the Applicant, who has not actually provided any submissions on costs, 28 days to file and serve such submissions. Thereafter the Respondent shall have 21 days to reply.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
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