Progress Engineering Company Pty Ltd and Commissioner of Taxation

[2020] AATA 4726

Progress Engineering Company Pty Ltd and Commissioner of Taxation [2020] AATA 4726 (26 November 2020)

Division:SMALL BUSINESS TAXATION DIVISION

File Number(s):      2020/4939

Re:Progress Engineering Company Pty Ltd

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Mr R L Hamilton SC, Senior Member

Date:26 November 2020

Place:Sydney

The proceeding is dismissed for lack of jurisdiction pursuant to subsection 42A(4) of the Administrative Appeals Tribunal Act 1975 (Cth).

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Mr R L Hamilton SC, Senior Member

CATCHWORDS

PRACTICE AND PROCEDURE – private ruling – whether a proposed lump sum compensation payment would be an exempt compensation payment for income tax purposes – reviewable objection decision – whether the Tribunal has jurisdiction – where period to which a private ruling relates has ended and the scheme has not been entered into – the Tribunal does not have jurisdiction to review the objection decision

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) s 42A

Taxation Administration Act 1953 (Cth)

CASES

BAC Holdings Ltd v Commissioner of Taxation [2020] FCA 413

CTC Resources NL v Commissioner of Taxation (1994) 27 ATR 403

Hickey and Commissioner of Taxation (2009) 75 ATR 660

REASONS FOR DECISION

Mr R L Hamilton SC, Senior Member

26 November 2020

1. This proceeding concerns an application for review of the Commissioner of Taxation’s objection decision on a private ruling which was issued to Mr Hirst, a director and shareholder of Progress Engineering Company Pty Ltd (the Applicant), on 23 September 2019 (the Ruling).

2. The Ruling considered whether a proposed lump sum compensation payment from the Applicant to Mr Hirst would be an exempt compensation payment for income tax purposes. The Ruling states that it applies to Mr Hirst for the year ending 30 June 2020.

3. It is not in dispute between the parties that, as at 30 June 2020, the proposed payment had not been made by the Applicant to Mr Hirst.

4. On 13 February 2019, both the Applicant and Mr Hirst applied for a private ruling as to the following question:

   Can directors decide what compensation – for pain and suffering and change of lifestyle – amount (based on research of like figures) payable to an employee (also a director) injured in workplace accidents and can they make payment equivalent to moneys owing on a section 7A loan to directors from the company and use funds to repay that loan?

5. Correspondence clarifying various aspects followed.

6. On 23 September 2019, a private ruling was issued to Mr Hirst stating:

   This ruling applies to:

   Client name: Peter R Hirst

   Question

   Would a payment of $1,092,078 from Progress Engineering Company Pty Ltd (Progress) be an exempt compensation payment?

   Answer

   No.

   This ruling applies to the following period:

   Year ending 30 June 2020

   The scheme commences on:

   1 July 2016

7. On 25 November 2019, an objection was received by the Commissioner in relation to the Ruling. The objection states that it relates to:

   • Peter Robert Hirst; and

   • Progress Engineering Company Pty Ltd.

8. On 19 June 2020, the Commissioner notified Mr Hirst of disallowance of his objection. As previously stated no payment was made to Mr Hirst in the year ended 30 June 2020.  

9. On 17 August 2020, the Applicant lodged an application for review of the objection decision to the Tribunal.

10. Subparagraph 14ZZ(1)(a)(i) of the Taxation Administration Act 1953 (Cth) (TAA) confers on the Tribunal the power, upon application from a person dissatisfied with the Commissioner’s objection decision, to review a reviewable objection decision.

11. An entity dissatisfied with a private ruling that applies to it may object against the ruling in accordance with Part IVC of the TAA, in the same manner that a taxpayer may object to an assessment or other taxation decision made by the Commissioner (subsection 359-60(1) of Schedule 1 TAA). A private ruling is treated as a taxation decision (subsection 359-60(2) of Schedule 1 TAA).

12. The Respondent has submitted that the Tribunal does not have jurisdiction in this matter as the scheme which is the subject of the Ruling did not proceed in the year to which it applied, being the year ended 30 June 2020.

13. It has been established that a Court or Tribunal will not entertain an appeal or review of an objection decision if the period to which a private ruling relates has ended and the scheme specified in the ruling has not been entered into (even if the objection is lodged before the end of the period) as highlighted in the cases of CTC Resources NL v Commissioner of Taxation (1994) 27 ATR 403 (CTC Resources), Hickey and Commissioner of Taxation (2009) 75 ATR 660 (Hickey), and recently in BAC Holdings Ltd v Commissioner of Taxation [2020] FCA 413 (BAC Holdings).

14. In CTC Resources Hill J said (at 435):

    In my opinion a person will only be ‘dissatisfied' in the relevant sense if that person is a person to whom the ‘ruling’ is still capable of having legal effect. In the case of a ruling relating to a proposed arrangement, that means that the arrangement must be one which, if entered into, will fall within the ruling. If the ruling relates to a year of income which has passed before the appeal is instituted (or perhaps before the appeal has been heard) so that the ruling cannot affect the taxation liability of a putative appellant, that person, no matter how discontented, will not be a ‘person dissatisfied’.

15. Mr Hirst, in representing both himself and the Applicant, submitted that the Commissioner should have informed them of the effective time limit on the filing of an application for review, bearing in mind that the objection decision was given 11 days before the end of the year of income. He also submitted that the precedential cases should be distinguished from this case on the facts, and with the consideration that the model litigant protocol should be applied in their favour, and that to dismiss this matter would deny them natural justice.

16. While it is unfortunate for Mr Hirst that he did not appreciate the time restrictions applicable to the ruling process, it is not the Commissioner’s role to provide legal advice to the Applicant.

17. Practically, the Applicant had the Commissioner’s view on the proposed payment. It was open to him to arrange the payment and dispute the Commissioner’s view in the more traditional way of objecting to an assessment, if he had wanted to.

18. The Federal Court cases are binding on the Tribunal, and I must follow the earlier Tribunal case (Hickey) unless I am of the view that it is ‘plainly wrong’, which I am not. This case cannot be distinguished.

19. The arguments put forth by the Applicant about model litigants and natural justice were not developed, and in any case are not persuasive.

20. The Ruling specifies that it applies to the year ending 30 June 2020. As at that date the proposed payment had not been made. The decision in CTC Resources, which was applied in Hickey and more recently in BAC Holdings, makes it clear that neither the Applicant nor Mr Hirst meet the definition of ‘dissatisfied’ for the purpose of applying section 14ZZ of the TAA because the proposed scheme did not go ahead, the state of being dissatisfied in the relevant sense evaporated at midnight on 30 June 2020 and the issues in question became hypothetical.

21. Accordingly, the Tribunal does not have jurisdiction to review the objection decision.

22. The Respondent also argued that the wrong person was the Applicant. The Ruling had been issued to Mr Hirst, but his company was the Applicant. This could perhaps have been corrected, but it is unnecessary to deal with this concern as the jurisdictional issue determines the matter.

23. The proceeding is dismissed for lack of jurisdiction pursuant to subsection 42A(4) of the Administrative Appeals Tribunal Act 1975 (Cth).

I certify that the preceding 23 (twenty-three) paragraphs are a true copy of the reasons for the decision herein of Mr R L Hamilton SC, Senior Member

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Associate

Dated: 26 November 2020

Date(s) of hearing:	16 October 2020
Applicant:	In person
Solicitors for the Respondent:	Ms N Suwanto