Phelps and Commissioner of Taxation
[2009] AATA 780
•9 October 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 780
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/3747
TAXATION APPEALS DIVISION ) Re ELIZABETH PHELPS Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr S. Webb, Member Date9 October 2009
PlaceCanberra
Decision The Tribunal has no jurisdiction in this matter and the application is therefore dismissed.
.................[sgd].............................
Mr S. Webb, Member
CATCHWORDS
PRACTICE AND PROCEDURE - taxation - request for amendment of assessment and extension of time in which to make a CGT Small Business election treated as an objection – no objection - Tribunal has no jurisdiction
Taxation Administration Act 1953 ss 14ZL, 14ZQ, 14ZU, 14ZV, 14ZW, 14ZY, 14ZZ, 14ZZA
Income Tax Assessment Act 1936 ss 139E, 170, 173, 175A, 177
Income Tax Assessment Act 1997 ss 103-25
Administrative Appeals Act 1975 ss 33, 43
Isaacs v Commissioner of Taxation [2006] FCAFC 105
Minister for Immigration & Multicultural Affairs v Eshetu (1999) 197 CLR 611
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1
Re Radge and Federal Commissioner of Taxation [2007] ATC 2164
REASONS FOR DECISION
9 October 2009 Mr S. Webb, Member 1. Elizabeth Phelps obtained a taxation assessment for the 2007-2008 income year. Subsequently, she requested an amendment of the assessment and an extension of time in which to make an election in relation to certain capital gains tax provisions. The Commissioner treated her requests as a taxation objection and issued an objection decision rejecting the requested amendment and extension of time. Ms Phelps applied for review of that decision.
2. The Commissioner asserts that the Tribunal has no jurisdiction to review the purported objection decision as Ms Phelps had not lodged a valid objection to the original assessment and the objection decision was made in error.
3. The sole issue for determination, presently, concerns the jurisdiction of the Tribunal.
4. The following facts are not controversial. Ms Phelps was a member of a number of partnerships with other members of her family. The partnerships operated a number of holiday cottages at Jervis Bay in New South Wales. Ms Phelps was co-owner of two such cottages. Those properties were sold in the 2007-2008 income year. A capital gain of $213,584 was realised. For taxation purposes Ms Phelps applied the general 50% discount ($106,274) and the 50% active asset small business concession ($53,387). In April 2008 Ms Phelps lodged an income tax return in respect of the 2007-2008 income year that included the discounted capital gain amount ($53,387). At that time Ms Phelps did not make an election to apply a retirement exemption or a rollover concession. A notice of assessment was issued on 17 April 2008. On 22 May 2009 Ms Phelps wrote to the Commissioner requesting an extension of time to apply the small business rollover concession and to amend her taxation assessment accordingly. The Commissioner treated her request as an objection and on 2 July 2009 issued a Notice of Decision on Objection, denying the request for an extension of time and amendment of the 2007-2008 assessment. On 10 August 2009 Ms Phelps lodged an application for review of that decision.
5. Ms Phelps says that the Tribunal has jurisdiction to review the Commissioner’s objection decision concerning her request for “an extension of time to choose the small business rollover concession, in conjunction with [a] request for an amendment of her 2008 income tax assessment”.[1]
[1] Taxpayer submissions, 2 October 2009, p1.
6. I do not agree.
7. The manner in which a taxation objection is to be made and dealt with is governed by Part IVC of the Taxation Administration Act 1953 (the Administration Act). Part IVC applies “if a provision of an Act or of regulations (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part”.[2] Section 175A of the Income Tax Assessment Act 1936 (the 1936 Assessment Act) provides that a taxpayer who is dissatisfied with an assessment may object against it in the manner set out in Part IVC of the Administration Act. Under section 177 of the 1936 Assessment Act, the 17 April 2008 notice of assessment is conclusive evidence of the due making of the assessment. The amount and particulars of that assessment are correct unless challenged by the objection procedure contained in Part IVC of the Administration Act. The objection must be made in a manner that is consistent with section 14ZU of that Act. Section 14ZW sets out the periods of time in which taxation objections are to be lodged. Once a taxation objection has been properly made, the Commissioner must make an ‘objection decision’ under section 14ZY. Under sections 14ZZ and 14ZZA of the Administration Act an application may be made to the Tribunal for review of a ‘reviewable objection decision’. That term is defined to mean ”an objection decision that is not an ineligible income tax remission decision”.[3] When reviewing a reviewable objection decision the Tribunal is “limited to the grounds stated in the taxation objection to which the decision relates”.[4]
[2] Section 14ZL Taxation Administration Act 1953.
[3] Section 14ZQ Taxation Administration Act 1953.
[4] Section 14ZZK Taxation Administration Act 1953.
8. The difficulty in this case is that Ms Phelps has not exercised her right to make an objection against the 17 April 2008 assessment under section 175A of the 1936 Assessment Act. She concedes that her original request for an extension of time to make a small business rollover election and her related request for amendment of the 17 April 2008 income tax assessment were not objections against that assessment. Thus, prima facie, there was no taxation objection and Part IVC of the Administration Act does not apply.
9. It follows that the Commissioner’s decision is not an ‘objection decision’ within the meaning of section 14ZY of the Administration Act and it is not a ‘reviewable objection decision’ for the purposes of sections14ZZ and 14ZZA of that Act.
10. Ms Phelps asserts that this difficulty is overcome by the Commissioner’s rejection of her request for an amendment of the 17 April 2008 assessment. That is not correct, however. A taxpayer has a right to request amendment of an assessment in accordance with subsection 170(1) of the 1936 Assessment Act. Amendment of an assessment triggers fresh objection rights: an amended assessment is taken to be an assessment for all purposes of the 1936 Assessment Act,[5] thereby enlivening objection rights under section 175A of that Act. The right to object to an amended assessment, however, is limited to the particularity of the amendment by section 14ZV of the Administration Act. As can be seen, requesting amendment of an assessment is not synonymous with lodging an objection against an assessment.[6]
[5] Section173 Income Tax Assessment Act 1936.
[6] Isaacs v Commissioner of Taxation [2006] FCAFC 105 at para 41.
11. In this case it appears that the Commissioner decided not to amend the 17 April 2008 assessment. Even proceeding on the basis put for Ms Phelps, that a refusal to amend an assessment under section 170 of the 1936 Assessment Act is sufficient to trigger objection rights under section 175A of that Act - and that is a matter attended by controversy, which it is not necessary to resolve for present purposes - it appears that no objection to the refusal to amend the subject assessment was made by Ms Phelps. The only purported objection to that decision is contained in Ms Phelps’ application to the Tribunal for review. That purported objection has not been considered by the Commissioner under section 14ZY of the Administration Act. Thus, even on the construction contended for by Ms Phelps (which I do not accept), Part IVC of the Administration Act does not apply and there is no reviewable objection decision to enliven the Tribunal’s jurisdiction.
12. Ms Phelps asserts that the Tribunal has jurisdiction to review the Commissioner’s decision concerning the request for an extension of time in relation to the small business rollover concession. It appears that this is put on the basis that “it is difficult to imagine it as the intent of the Legislature that [the only opportunity to debate a discretionary determination by the Taxation office would be by way of an appeal to the Federal Court]”.[7] Support for that proposition is purportedly drawn from paragraph 28-085 of the CCH Australian Master Tax Guide:[8]
If the dispute concerns the way in which the Commissioner has exercised a discretion it would normally be advisable to apply for review by the AAT as the AAT can exercise all the powers and discretions of the Commissioner.
[7] Taxpayer submission, 2 October 2009, p2.
[8] CCH Australian Master Tax Guide, 44th Edition, 2009, 28-085, p1471.
13. This extract, however, must be read in its proper context: “factors to bear in mind when deciding whether to apply to the AAT for review of, or to appeal to the Federal Court against, the Commissioner’s decision on an objection”.[9] As can be seen, the Tribunal’s power to exercise the powers and discretions of the Commissioner are for the purposes of reviewing that decision and are, therefore, confined. The Tribunal does not exercise power at large and may only exercise the powers and discretions that were conferred upon the person who made the decision under review for the purpose of reviewing that decision.[10] Generally, the Tribunal’s jurisdiction is conferred upon it by enactments other than the Administrative Appeals Tribunal Act 1975 (the AAT Act) concerning, but not limited to, the review of a decision pursuant to subsection 43(1) of that Act. I note in passing that even though the Tribunal has discretion to determine its own procedure, subsection 33(1)(b) of the AAT Act cannot confer jurisdiction which is excluded by the express terms of legislation.[11] Thus, for present purposes the Tribunal has jurisdiction to review a ‘reviewable objection decision’ pursuant to sections 14ZZ and 14ZZA of the Administration Act. There is no power conferred on the Tribunal by the Income Tax Assessment Act 1997 (the 1997 Assessment Act) to review the Commissioner’s decision not to exercise discretion under section 103-25 of that Act.
[9] CCH Australian Master Tax Guide, 44th Edition, 2009, 28-085, p1470.
[10] Isaacs v Commission of Taxation [2006] FCAFC 105 at para 36.
[11] Minister for Immigration & Multicultural Affairs v Eshetu (1999) 197 CLR 611 at [49] to [51].
14. It is plain enough that the exercise of discretion under section 103-25 of the 1997 Assessment Act is separate and distinct from the process of making an income tax assessment. The election is a matter of relevance to Ms Phelps’ taxation liability during the 2007-2008 income year, but the exercise of the Commissioner’s discretion is not a function of the assessment process. The default position established by section 103-25 is that the election is to be made before lodgement of an income tax return for the income year in which the particular capital gains tax event occurred unless the Commissioner has agreed to extend the time in which the election may be made. As it appears to me the discretion conferred by section 103-25 of the 1997 Assessment Act is not part of the process by which the tax liability of a person is assessed under the 1997 Assessment Act. The discretion concerns the extending of time in which to apply certain concessions within a particular income year. That is separate and distinct from the making of an assessment of tax liability under the 1997 Assessment Act. In Isaacs v Commissioner of Taxation[12] the Full Federal Court considered similar questions in relation to a discretion conferred by section 139E of the 1936 Assessment Act. While different in content, with regard to the Tribunal’s jurisdiction in these proceedings, it appears to me that the discretion conferred by section 103-25 of the 1997 Assessment Act must be approached in the manner set out by the Court in Isaacs in relation to section 139E of the 1936 Assessment Act.[13]
[12] [2006] FCAFC 105.
[13] Issacs v Commissioner of Taxation [2006] FCAFC 105 at paras 37 to 42.
15. Furthermore, I note that there is no provision of the 1997 Assessment Act that gives a taxpayer a right to challenge a section 103-25 discretionary decision under Part IVC of the Administration Act. It follows, therefore, that Part IVC of the Administration Act does not apply to the Commissioner’s decision not to extend the time to apply a small business rollover concession in relation to the 2007-2008 income year.
16. It should be noted that this approach does not mean that Ms Phelps has no right to challenge the Commissioner’s decision. In all likelihood the decision not to exercise discretion under section 103-25 of the 1997 Assessment Act is one to which the Administrative Decision (Judicial Review) Act 1977 may apply.
17. Finally, it is necessary to determine whether the Tribunal has power to review the purported objection decision even though it was made in error; a failure by a decision-maker to act within power does not necessarily deprive the Tribunal of power to review the decision on the merits.[14] In a case such as this, it is necessary to consider the invalidity of the subject decision in order to determine whether the Tribunal is able to proceed with merits review.[15] Presently, it appears that the Commissioner’s error was to treat Ms Phelps’ requests as an objection to an assessment. The correct course would have been to address her requests under section 170 of the Administration Act and section 103-25 of the 1997 Assessment Act. Decisions under those sections are not, of themselves, amenable to review on the merits under Part IVC of the Administration Act. It follows, therefore, that the Tribunal has no power or jurisdiction to review primary decisions of that character. As it appears to me the Commissioner’s decisions were within power under the applicable sections to which I have referred. The only error, therefore, is in the representation of the decisions as ‘objection decisions’. An error of that kind does not render the subject decisions amenable to review on the merits by the Tribunal. As I understand it the Commissioner has remedied the error and it is open for Ms Phelps to challenge those decisions by other means.
[14][15] Re Radge and Federal Commissioner of Taxation [2007] ATC 2164 at 2170.
18. In sum, therefore, Ms Phelps accepts that her request was for amendment and for an extension of time in which to make an election under section 103-25 of the 1997 Assessment Act. Her request was not an objection against the Commissioner’s assessment of her income tax liability. In the absence of an objection under section 175A of the 1936 Assessment Act or any other similar provision under the 1997 Assessment Act, Part IVC of the Administration Act does not apply. It follows that there is no ‘objection decision’ within the meaning of section 14ZY of the Administration Act and no ‘reviewable objection decision’ to enliven the Tribunal’s jurisdiction.
19. In conclusion therefore, the Tribunal has no jurisdiction to hear Ms Phelps’ application.
I certify that the 19 preceding paragraphs are a true copy of the reasons for the decision herein of Member S. Webb.
Signed: .................[sgd].....................................
J. Lakin, AssociateDate of Hearing 6 October 2009
Date of Decision 9 October 2009
Advocate for Applicant Mr R. J. RedenbachAdvocate for the Respondent Legal Services Branch, Australian Taxation Office
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1 at pp 4-6 and
23-24.