Re Radge and Commissioner of Taxation

[2007] AATA 1317

CATCHWORDS – TAXATION – ground that Commissioner treated taxpayers in a discriminatory or unfair manner when compared with other taxpayers with like claims for deductions – principles applicable to leave applications – relevance of an error of law that might render assessment void or voidable – leave refused

PRACTICE AND PROCEDURE – summons – relevance of the documents sought to issues to be decided – summons refused.

Administrative Appeals Tribunal Act 1975 ss 2A, 25, 26, 27, 29, 33, 37, 40 and 43
Administrative Decisions (Judicial Review) Act 1977
Civil Procedure Act 2005 (NSW) ss 56, 58, 64 and 68
Freedom of Information Act 1982 ss 3 and 9
Income Tax Act 1936 s 190

Income Tax Assessment Act 1936 ss 51, 170, 177 and 177F
Income Tax Assessment Act 1997 ss 25-5, 8-1 and 8-5

Inspector-General of Taxation Act 2003 s 7
Judiciary Act 1901 s 39B
Ombudsman Act 1976 s 4
Sales Tax Assessment Act (No 6) ss 4 and 4A
Taxation Administration Act 1953 ss 14ZL, 14ZQ, 14ZU, 14ZV, 14ZY, 14ZZ and 14ZZK

Taxation Administration Act 1953 ss 14ZU and 14ZZK

Taxation Laws Amendment Act (No. 3) 1991 s 112

Alexandra Private Geriatric Hospital v Blewett (1984) 2 FCR 368; 56 ALR 265
Bellinz v Federal Commissioner of Taxation (1998) 84 FCR 154; 155 ALR 220
Bellinz v Federal Commissioner of Taxation (1998) 98 ATC 4399
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307; 2 ALD 1
Copperart v Federal Commissioner of Taxation (1993) 93 ATC 4,779; 30 ALD 377
Cosco Holdings Pty Ltd v Commissioner for Taxation & Anor [1997] FCA 1504
Creasy’s Grain Enterprises Pty Limited v Maltco Pty Limited [2006] NSWSC 531
Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168; 127 ALR 21
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; (1979) 2 ALD 60
Eldridge v Federal Commissioner of Taxation (1990) 90 ATC 4907
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; 90 ALR 341 
Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 365; [1969] ALR 369
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263
Re Bonnell and Federal Commissioner of Taxation (2003) 47 ATR 1115
Re Mann and Capital Territory Health Commission (No. 2) (1983) 5 ALN N261
Re Marnotta and Secretary, Department of Health and Ageing [2004] AATA 800
Re Norman and Federal Commissioner of Taxation (2004) 57 ATR 1248; [2004] AATA 1164
Re VBN and Australian Prudential Regulation Authority and VBT (2005) 92 ALD 455; [2005] AATA 1060
Re Wertheim and Department of Health (1984) 7 ALD 121
Senior v Holdsworth, Ex parte Independent Television News Ltd [1976] 1 QB 23
South Pacific Hotel Services Inc v Southern Pacific Hotel Corporation Ltd [1984] 1 NSWLR 710
TCN Channel Nine Pty Ltd v Australian Mutual Provident Society (1982) 42 ALR 496
Trade Practices Commission v Arnotts Ltd and Others (No. 2) (1989) 88 ALR 90
Treasurer of the Commonwealth of Australia v Canwest Global Communications Corp [1997] FCA 578 [1997] FCA 578
Wacando v Commonwealth of Australia and State of Queensland (1981) 148 CLR 1; 37 ALR 317

DECISION AND REASONS FOR DECISION [2007] AATA 1317

ADMINISTRATIVE APPEALS TRIBUNAL     )          
  )                   NT2004/265
GENERAL ADMINISTRATIVE DIVISION     )          

Re                JOHN RADGE

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

NT2005/135

Re                DAVID DAGG

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

NT2005/193

Re                IAN HARVEY

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal:                   Deputy President S A Forgie
Date:  14 May 2007
Place:  Melbourne

Decision:The Tribunal:

1.decline to give leave to the applicants to rely on a further ground of objection that the assessment or amended assessments are excessive because the respondent had treated them in a discriminatory or unfair manner when compared with other taxpayers; and

2.refuse to issue a summons to the respondent to produce three categories of documents.

S A FORGIE
  Deputy President

ADMINISTRATIVE APPEALS TRIBUNAL     )          
  )                   NT2004/265
GENERAL ADMINISTRATIVE DIVISION     )          

Re                JOHN RADGE

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

NT2005/135

Re                DAVID DAGG

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

NT2005/193

Re                IAN HARVEY

Applicant

AndCOMMISSIONER OF TAXATION

Respondent

Tribunal:  Deputy President S A Forgie

Place:  Melbourne

Date:  12 July 2007

CORRIGENDUM TO DECISION [2007] AATA 1317

The Tribunal amends its decision and reasons for decision published on 14 May 2007 as follows:

In the last line of paragraph 48 insert the word “invalid” after the word assessment.

S A FORGIE

Deputy President

REASONS FOR DECISION

The applicants, Messrs Radge, Dagg and Harvey, have applied for leave under s 14ZZK(1) of the Taxation Administration Act 1953 (TAA) to amend the grounds stated in their taxation objections.  Each seeks leave to rely upon the further ground that the assessments were excessive.  They contend that the conduct of the Commissioner of Taxation (Commissioner) has been to treat them in a discriminatory or unfair manner when compared with other taxpayers.  Ancillary to their applications for leave, each of the applicants seeks to issue a summons seeking documents that can be grouped into three categories.  The first two relate to documents related to the Commissioner’s assessment of their tax liabilities and the third to documents referring to their solicitor, Mr David Bonnell, or to the taxation treatment of controlling interest superannuation arrangements, non-complying superannuation arrangements, expenditure for managing tax affairs or fees payable to promoters of tax avoidance schemes, or for advice about a taxpayer’s involvement in a tax avoidance arrangement.

1. I have decided to refuse to give leave to amend the grounds of objection as considerations of discrimination and unfairness amongst taxpayers are irrelevant to the Tribunal’s review, on their merits, of the particular assessment and amended assessments under consideration.  The documents sought in the summons are related to the ground sought to be added.  I have decided that they are irrelevant to the resolution of the issues raised by the merits review of the assessment and amended assessments.  Consequently, I have refused to issue the summons directed to the Commissioner seeking three categories of documents. 

BACKGROUND

1. For the purposes of providing background, I set out the facts as contended by the parties and raising the issue I must decide.

1. During the financial year ending 30 June 1999 (1999 year), Messrs Radge, Dagg and Harvey each sought and received advice from a firm of solicitors, David Bonnell & Associates (Solicitors).  The advice each sought regarded the consequences of making a contribution to a non-employer sponsored superannuation fund.  On the basis of that advice, each instructed the Solicitors to establish a non-employer sponsored superannuation fund (Fund).  The Solicitors then prepared a number of documents on the basis of pro forma documents they had prepared earlier.[1]  They sent them to each of Messrs Radge, Dagg and Harvey under cover of a letter.  That letter stated:

   “As agreed, our cost in this matter is 10 per cent (10%) of the amount of your contribution.

   All and any future contributions undertaken directly or indirectly in accordance with our advice, procedures and documentation at any future time will be required to be implemented through David Bonnell & Associates on the same terms and conditions including a fee structure of 10 per cent (10%) of the contribution.

   I will provide two invoices.  The first invoice will be for $450.00, our usual costs for providing basic superannuation plan documentation and this will not be deductible.  The balance of our fee will be charged for tax advice and will be wholly deductible.”[2]

   [1] Statement of David Bonnell dated 26 February 2007, [24]

   [2] Annexure DB 3 to the Statement of David Bonnell dated 26 February 2007, see also at [29] and [32]

1. During the 1999 year, Messrs Radge, Dagg and Harvey each made a contribution to his respective Fund.  As foreshadowed in their letter, the Solicitors sent each of them two invoices.  The only variation was that the second invoice, representing fees for tax advice and sent to Mr Harvey, represented 5%, rather than 10%, of the contribution he made to his Fund.  In their income tax returns for the 1999 year, Messrs Radge, Dagg and Harvey each claimed as the amount of fees shown in the second invoice as a deduction for the cost of managing their tax affairs.

1. The Commissioner issued a notice of assessment to Mr Radge on 18 December 2000 and notices of amended assessment to Mr Harvey on 25 October 2002 and Mr Dagg on 17 September 2003 respectively.  I will refer to them collectively as the assessments.  In each, the Commissioner disallowed the amount of the deduction claimed being the amount shown in the second invoice sent to each of them. 

1. For the purpose of these proceedings, I have assumed that approximately 300 taxpayers each made contributions of the sort made by Messrs Radge, Dagg and Harvey and claimed deductions under s 25-5 of the Income Tax Assessment Act 1997 (ITAA 97) for professional advice relating to the taxation consequences of making their contributions as the cost of managing their tax affairs.  In respect of some of the taxpayers, the Commissioner issued either an assessment or an amended assessment disallowing the deduction.  Mr Bonnell deposes to the Commissioner’s allowing a deduction for the larger amount in the second invoice he gave to approximately 250 of his clients when those clients entered arrangements that were substantially the same as those entered by Messrs Radge, Dagg and Harvey.  Those amounts were allowed on the basis that they represented the cost of managing their tax affairs.[3]

   [3] Statement of David Bonnell, [35]

1. Messrs Radge, Dagg and Harvey objected to the disallowance of the deduction on the ground that it was deductible under s 25-5(1) of the ITAA 97. The Commissioner disallowed each of the objections. In so far as s 25-5(4) was concerned, the Commissioner decided that the fees in the second invoice were not deductible as s 25-5(4) provided that capital was not deductible. He also decided that they were not deductible under s 51(1) of the Income Tax Assessment Act 1936 (ITAA 36) or under s 8-1 of the ITAA 97 as they were, in his view, scheme fees payable to the promoters and marketers of tax avoidance schemes.

1. Messrs Radge, Dagg and Harvey applied to the Tribunal for review of the Commissioner’s objection decisions.  The issues that their objections raise are:

   ∙whether the amount of the fees in the second invoice is, in whole or in part, “expenditure … for managing … [Messrs Radge, Dagg and Harvey’s] … tax affairs” within the meaning of s 25-5(1)(a) of the ITAA 97;

   ∙whether that amount is, in whole or in part, “capital expenditure” incurred by each of Messrs Radge, Dagg and Harvey in connection with establishing the Fund and therefore not deductible by reason of s 25-5(4);

   ∙whether the Solicitors’ apportionment of the fees between two invoices given to each of Messrs Radge, Dagg and Harvey determines whether the amount in the second invoice is wholly for managing each of their taxation affairs;

   ∙whether the amount of the deduction claimed is, in whole or in part, deductible under s 8-1 of the ITAA 97.

APPLICATION FOR LEAVE TO RELY UPON FURTHER GROUND OF OBJECTION

1. Messrs Radge, Dagg and Harvey have applied to the Tribunal for leave to amend the grounds stated in their taxation objections.  Each seeks leave to rely upon the further ground that the assessments were excessive.  They contend that the conduct of the Commissioner has been to treat them in a discriminatory or unfair manner when compared with other taxpayers. 

LEGISLATIVE FRAMEWORK

Relevant provisions relating to deductions

1. Section 8-1(1) of Division 8 of Part 1-3 of ITAA 97 provides that a person:

   “… can deduct from … [the person’s] assessable income any loss or outgoing to the extent that:

   (a)it is incurred in gaining or producing … [the person’s] assessable income; or

   (b)it is necessarily incurred in carrying on a business for the purpose of gaining or producing … [the person’s] assessable income.”

1. There are, however, qualifications to the general position set out in s 8‑1(1) for s 8-1(2) provides that the person:

   “… cannot deduct a loss or outgoing under this section to the extent that:

   (a)it is a loss or outgoing of capital, or of a capital nature; or

   (b)it is a loss or outgoing of a private or domestic nature; or

   (c)it is incurred in relation to gaining or producing … [the person’s] exempt income or … [the person’s] non-assessable non-exempt income; or

   (d)a provision of this Act prevents … [the person] from deducting it.”

1. In addition, a provision of the Act other than Division 8 of Part 1-3 may allow a person to deduct an amount from that person’s assessable income. That is the effect of s 8-5. Provisions of that sort are found in Division 25 of Part 2.5. In so far as they are relevant to this case, s 25-5(1) provides that a person:

   “… can deduct expenditure … [the person] incur[s] to the extent that it is for:

   (a)managing … [that person’s] tax affairs; or

   (b)complying with an obligation imposed on … [the person] by a Commonwealth law, insofar as that obligation relates to the tax affairs of an entity;

   (c)…

   (ca)     …

   (d)…”

Section 25-5(4) qualifies the application of s 25-5(1) when it provides that a person:

“… cannot deduct capital expenditure under subsection (1).  However, for this purpose, expenditure is not capital expenditure merely because the tax affairs concerned relate to matters of a capital nature.

…”

Assessments, objections and objection decisions

1. The Tribunal has power to review a reviewable objection decision made by the Commissioner.[4]  A “reviewable objection decision” is “… an objection decision that is not an ineligible income tax remission decision”.[5]  An “objection decision” means the decision to allow, wholly or in part, or to disallow a taxation objection lodged with the Commissioner within the required period.[6] 

   [4] Taxation Administration Act 1953 (TAA), ss 14ZZ(a)(i) and (b)

   [5] TAA, s 14ZQ

   [6] TAA, ss 14ZQ and 14ZY(1) and (2)

1. A taxation objection is an objection made by a person who is dissatisfied with, among others, an assessment made by the Commissioner in circumstances in which a provision of an Act or a regulation provides that the person may do so.[7] It must be made in accordance with Division 3 of Part IVC of the TAA.[8]  In particular, it must “state in it, fully and in detail, the grounds that the person relies on”.[9]  If the taxation objection is made against an assessment that has been amended, the person’s right to object against the amended assessment is limited to a right to object against the amended assessment.[10]

   [7] TAA, s 14ZL

   [8] TAA, s 14ZU

   [9] TAA, s 14ZU(c)

   [10] TAA, s 14ZV

Limitations upon the Tribunal’s review

1. When reviewing a reviewable objection decision, the Tribunal is, unless it otherwise orders, “… limited to the grounds stated in the taxation objection to which the decision relates”.[11]  If the taxation decision concerned is an assessment other than a franking assessment, the applicant for review has the burden of proving that the assessment is excessive.[12]

   [11] TAA, s 14ZZK(a)

   [12] TAA, s 14ZZK(b)(i). A “taxation decision” includes an assessment against which a taxation objection has been made: TAA, s 14ZQ.

OUTLINE OF THE APPLICANTS’ SUBMISSIONS

1. Appearing for the applicants, Ms Seiden of counsel with Mr Bruckner of counsel submitted that the Commissioner had treated Messrs Radge, Dagg and Harvey differently from other taxpayers by disallowing their deductions for the amounts in the second invoice as the cost of managing their tax affairs.  The assessment issued to Mr Radge and the amended assessments issued to Messrs Dagg and Harvey are valid but are, because of their inconsistency with those issued to 250 or so other taxpayers in like circumstances discriminatory or unfair and so excessive.  

1. Furthermore, the Commissioner had issued the assessments without power.  Ms Seiden relied on the judgment in McAndrew v Federal Commissioner of Taxation[13] to support her submission that the assessments had been made without power.  She also referred to the judgment of Windeyer J in GirisPty Ltd v Federal Commissioner of Taxation[14] to the effect that to act in a capricious manner is to act without power.  Had an application been made under s 39B of the Judiciary Act 1901 (Judiciary Act), it may be that the assessments would be held to be void but that is not the remedy sought in this case.  It would be surprising if a taxpayer could be successful in proceedings under s 39B but not succeed in showing that the same assessment were excessive in the context of merits review. 

   [13] (1956) 98 CLR 263

   [14] (1969) 119 CLR 365; [1969] ALR 369

1. In Copperart v Federal Commissioner of Taxation[15], Ms Seiden submitted, Hill J concluded that the Tribunal should find as excessive two assessments when a letter annexing an assessment was itself an assessment and which is made following another assessment but both relate to the same goods.

CONSIDERATION

[15] (1993) 93 ATC 4,779 at 4790

Merits review: the Tribunal’s task

1. Putting aside the particular provisions of the TAA, the role of the Tribunal is to review the decision that is the subject of the application made to it. For the purpose of doing that, s 43(1) of the Administrative Appeals Tribunal Act 1975 (AAT Act) provides that it “… may exercise all of the powers and discretions that are conferred by any relevant enactment on the person who made the decision …”.  When it reviews a decision in this way, the Tribunal is often said to be engaged in “merits review”.  That task is an administrative task and differs in significant respects from the task facing a court engaged in judicial review of a decision.  The Tribunal’s task is not to enquire whether the decision-maker made an error in making the decision. That is the task of courts under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) or s 39B of the Judiciary Act 1901 if a person affected by the decision wants to question it on the basis that it is affected by errors within the scope of those Acts.  The Tribunal’s task is not to adjudicate upon whether the decision-maker is able to defend the decision he or she made.[16]  The task of the Tribunal is to determine the correct process it should itself follow and follow it.  That process starts with ascertaining the law that is applicable and the issues that are relevant, considering the probative material that is available to it and make findings of fact that are based on that material and relevant to the issues.  Having done that, the next step is to ascertain the decision or range of decisions that can correctly be made in light of the law and the facts.  If more than one decision can be correctly made, it should then choose the decision that is the preferable decision.

   [16] Re Mann and Capital Territory Health Commission (No. 2) (1983) 5 ALN N261 as set out and adopted in Re Wertheim and Department of Health (1984) 7 ALD 121 at 154

1. Despite their differences, the task of a court and that of the Tribunal share something in common.  Both merits review and judicial review require consideration of the law and the evidence to determine the decision or decisions that may be correctly made at law and on the basis of facts properly found on the evidence.  If only one decision may be made correctly and if there has been no error of law such as a failure to observe procedural fairness, a court engaged in judicial review and the Tribunal engaged in merits review will both make that decision.  As Bowen CJ, Smithers and Deane JJ in Drake v Minister for Immigration and Ethnic Affairs[17] said, that is an exception to the usual position in the case of a court engaged in judicial review for “… it is not ordinarily part of the function of a court … to determine what decision should be made in the exercise of an administrative discretion in a given case …”[18]  If more than one decision may be made correctly on the basis of the law and the facts properly found and in light of policy to which it is permissible to have regard, it is not the task of the court:

   “… to adjudicate upon the merits of the decision or the propriety of the policy.  That is primarily an administrative rather than a judicial function.  It is the function which has been entrusted to the Tribunal.”[19]

   [17] (1979) 24 ALR 577; 2 ALD 60

   [18] (1979) 46 FLR 409; 24 ALR 577; 2 ALD 60 at 419; 589 per Bowen CJ and Deane J and Smithers at 429-430; 607; 68

   [19] (1979) 46 FLR 409; 24 ALR 577; 2 ALD 60 at 419; 589 per Bowen CJ and Deane J and Smithers at 429-430; 607; 68

What if the decision being reviewed is made outside the limits of the decision-maker’s power?

1. A failure by a decision-maker to act within power or to exceed power does not necessarily deprive a decision of all consequence.  In particular, it does not necessarily deprive the Tribunal of the power to review it on application by a person whose interests are affected by it.  That is illustrated by the case of Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (Brian Lawlor).[20]  In that case, the Full Court of the Federal Court was concerned with a decision that had been made to cancel a warehouse licence.  There was no statutory power to make that decision. The majority of the Full Court, Bowen CJ and Smithers J, held that the Tribunal had the power to entertain an application made to it to review such a decision. Bowen CJ said:

   “       In the Administrative Appeals Tribunal Act a wide meaning is given to the word ‘decision’ by s3(3). In s25 it appears to me that the word simply refers to a decision in fact made, regardless of whether or not it is a legally effective decision. The difficulty lies in interpreting the words ‘made in the exercise of powers conferred by that enactment’. This may mean that it must be shown there was a decision made:-

   (a)in pursuance of a legally effective exercise of powers conferred by the enactment; or

   (b)in the honest belief that it was in the exercise of powers conferred by the enactment; or,

   (c)in purported exercise of powers conferred by the enactment.

   …

   Interpretation (c) appears to me to be consistent with the context in the Administrative Appeals Tribunal Act. The Acts committed to the administration of each Minister and his Department are set forth in the Administrative Arrangements Orders published from time to time in the Gazette. There might be a rare case where a decision appeared to have no relationship to one of the Acts committed to the administration of the Minister or Department concerned. However, in the ordinary course, it would be reasonably clear from the objective facts under which enactment or in the exercise of which statutory powers an official had purported to act. The adoption of this view would mean that the Administrative Appeals Tribunal would have jurisdiction to entertain an appeal from a decision in fact made, which purported to be made in the exercise of powers under an enactment. It could then proceed to determine whether the decision was properly made in fact and in law. There is nothing unusual in holding that an administrative decision which is legally ineffective or void is susceptible of appeal: see Calvin v. Carr (1979) 22 ALR 417. I would adopt interpretation (c).

   ...

   Turning to the application of interpretation (c) to the present case, it appears to me that there was a decision to revoke the warehouse licence and this decision did purport to be made in the exercise of powers conferred by the Customs Act. Accordingly, in my view, the Administrative Appeals Tribunal did not lack jurisdiction to entertain the application and deal with it.”[21]

   [20] (1979) 24 ALR 307; 2 ALD 1

   [21] (1979) 24 ALR 307; 2 ALD 1 at 315-316; 4-6

1. Smithers J reached a conclusion similar to that of the Chief Justice and, in doing so, illustrated the practical consequences of the situation:

   “         It is to be noted also that the subjects of reviews are decisions.  If an administrator makes a particular decision in the course of government administration, then whether or not he is authorized to do so, there is in fact a decision made.  The fact that that decision cannot affect legal rights or liabilities is irrelevant to that fact.

   There is a distinction also between a decision, the steps that may be taken to implement it and the legal effect thereof. It does not appear to me to be sound to regard a decision to take certain action as a nullity because such action if taken will not be legally effective. In the case under appeal the letter of 31 October 1977 was the communication of the decision which the Collector had made. The decision preceded that letter. The letter was no doubt the act of purported revocation and because of the statutory definition of ‘decision’ (see s 3(3) of the Administrative Appeals Tribunal Act set out below) that act may be a decision within the meaning of s 25. But to decide to revoke the licence was also itself a decision according to the natural meaning of that term. Such a decision may have serious results for the citizen. No doubt the officers of the department will act upon it. Thus, after the decision in question had been made they would be expected to refuse to permit goods to be entered to the defendant's warehouse. In this case, also action was taken against the licensee under s 94 of the Customs Act. That action did not necessarily depend upon revocation but in all probability it would not have been taken had the decision to revoke the licence not been made. …”[22]

   [22] (1979) 24 ALR 307; 2 ALD 1 at 335-336; 23-24

1. It is clear that in the Brian Lawlor case there was a decision in fact that was affecting rights and liabilities even though the decision had not been lawfully made.  It was a decision to revoke the applicant’s warehouse licence and that affected the applicant in that it could no longer undertake the activities that he had previously undertaken when it held the licence.  Faced with the decision and the application to review it, it was not relevant for the Tribunal to consider whether or not it had been validly made.  Its task was to review it on its merits in the way I have described above.

1. When a situation of the sort in Brian Lawlor arises, the Tribunal necessarily turns its mind to the decision’s invalidity.  Turning its mind to it does not equate with its having regard to any invalidity in the merits review process and in ultimately deciding what should, or should not, be the correct or preferable decision.  It turns its mind to the decision’s validity to ensure that it is able to proceed with merits review.  If it can, the manner of the decision’s making by the decision-maker becomes irrelevant.

The relevance of decisions other than the decision under review

1. Section 25(1) of the AAT Act provides that an:

   “… enactment may provide that applications may be made to the Tribunal:

   (a)for review of decisions made in the exercise of powers conferred by that enactment; or

   (b)for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment.”

Where an enactment contains such a provision, it must specify the person or persons to whose decision it applies.  It may be expressed to apply to all decisions of that person or of those persons or to a class of them and may specify conditions subject to which applications may be made.[23]

[23] AAT Act, s 25(3)

1. The description of the decisions in relation to which an application for review may be made is necessarily expressed in broad terms.  It is one thing to provide that an enactment may provide that applications for review of decisions may be made to the Tribunal and another to provide the corollary of that power i.e. that the Tribunal has power to review decisions in respect of which applications are made to it.  The necessary corollary of the power in s 25(1) is found in s 25(4).  It is not expressed in the broad terms of s 25(1) but instead focuses on the individual application and the individual decision when it provides:

   “The Tribunal has power to review any decision in respect of which application is made to it under any enactment.”[24] 

   [24] AAT Act, s 25(4)

1. The focus on the individual decision continues in the remaining provisions of the AAT Act.  For example, s 26 provides that, in most cases and subject to certain qualifications, “… after an application is made to the Tribunal for a review of a decision, the decision may not be altered otherwise than by the Tribunal on the review …”.[25]  Again subject to exceptions that are not relevant, where an enactment:

   “… provides that an application may be made to the Tribunal for a review of a decision, the application may be made by or on behalf of any person or persons (including the Commonwealth or an authority of the Commonwealth) whose interests are affected by the decision.”[26] (emphasis added)

Section 29(1) specifies the manner in which an “… application to the Tribunal for a review of a decision” may be made (emphasis added). The powers and discretions that the Tribunal may exercise are given by s 43(1) for “… the purpose of reviewing a decision …” (emphasis added).

[25] AAT Act, s 26(1)

[26] AAT Act, s 27(1)

1. It is clear from these provisions that the Tribunal is to have regard to the decision under review and to decide whether or not it is the correct or preferable decision.  It is not to be distracted by other decisions and is not to be distracted by processes leading to the making of the decision under review or of other decisions.  If a person is concerned about the pattern of decision-making in an agency, that is a concern that relates more to administration but not to ascertaining what should have been the correct or preferable decision that was made in the circumstances before it. 

1. That this is so is further underlined by reference to other legislation providing for examination of wider issues raised by decision-making in the Australian Taxation Office (ATO).  There is, for example, the Ombudsman or, as he may be known when exercising his functions under the Ombudsman Act 1976 in relation to the ATO, the Taxation Ombudsman.[27]  A person may make a complaint to the Ombudsman with respect to action taken by, among others, the ATO.  The Inspector-General of Taxation is also concerned with aspects of administration in the ATO.  Under the Inspector-General of Taxation Act 2003, the Inspector-General of Taxation may, among other matters, review systems established by the ATO to administer tax laws.[28]

   [27] Ombudsman Act 1976, s 4(3) and 5

   [28] Inspector-General of Taxation Act 2003, s 7(1)

The role of policy

1. Decision-makers are frequently guided in making their decisions by policy that has been developed by the agency, or perhaps the Minister, responsible for the administration of the legislation under which they are made.  In deciding the correct decision, policy can have no place.  An agency may well have a view as to the way in which an enactment should be interpreted.  The Tribunal will have regard to it in the same way as it will have regard to the parties’ submissions regarding its proper interpretation.  It will not consider it bound by any of them for it is the enactment authorising the decision and any relevant common law or equitable principles, and not policy, that determines the decision or range of decisions that can be correctly made according to law.  It is the evidence that determines the facts that can be properly be made. 

1. Where more than one decision can correctly be made on the law and the findings of fact, the decision-maker necessarily has a discretion as to which decision to make.  The discretion must be exercised according to any criteria found in the words of the enactment and in the policy underlying the enactment.  The policy underlying the enactment may be drawn from its express words or by having regard to extrinsic material such as the Second Reading Speech and the Explanatory Memorandum to the bill preceding the enactment.[29]  The Tribunal is bound by that policy.

   [29] Alexandra Private Geriatric Hospitalv Blewett (1984) 2 FCR 368; 56 ALR 265 at 375; 272 per Woodward J; Wacando v Commonwealth of Australia and State of Queensland (1981) 148 CLR 1; 37 ALR 317 at 25-26; 335-6 per Mason J; and TCN Channel Nine Pty Ltd v Australian Mutual Provident Society (1982) 42 ALR 496 at 507-508

1. The role played by policy that has been developed by the agency or the Minister responsible for the administration of the enactment is a different matter.  Bowen CJ and Deane J considered its role in Drake v Minister for Immigration and Ethnic Affairs[30].  They began by noting that:

   “… in considering whether a deportation order should be made in respect of the plaintiff in the present matter, the Minister was entitled to be guided by any general relevant government policy which was not inconsistent with the provisions or the objects of the Migration Act.  Indeed, the consistent exercise of discretionary administrative power in the absence of legislative guidelines will, in itself, almost inevitably lead to the formulation of some general policy or rules relating to the exercise of the relevant power.”[31]

   [30] (1979) 24 ALR 577; (1979) 2 ALD 60

   [31] (1979) 24 ALR 577; (1979) 2 ALD 60 at 590; 69

1. They then turned to the role of government policy in the Tribunal’s review of the decision:

   “In a matter such as the present where it was permissible for the decision-maker to take relevant government policy into account in making his decision, but where the Tribunal is not under a statutory duty to regard itself as being bound by that policy, the Tribunal is entitled to treat such government policy as a relevant factor in the determination of an application for review of that decision.  It would be contrary to common sense to preclude the Tribunal, in its review of a decision, from paying any regard to what was a relevant and proper factor in the making of the decision itself.  If the original decision-maker has properly paid regard to some general government policy in reaching his decision, the existence of that policy will plainly be a relevant factor for the Tribunal to take into account in reviewing the decision.  On the other hand, the Tribunal is not, in the absence of specific statutory provision, entitled to abdicate its function of determining whether the decision made was, on the material before the Tribunal, the correct or preferable one in favour of a function of merely determining whether the decision made conformed with whatever the relevant general government policy might be.

   It is not desirable to attempt to frame any general statement of the precise part which government policy should ordinarily play in the determinations of the Tribunal.  That is a matter for the Tribunal itself to determine in the context of the particular case and in the light of the need for compromise, in the interests of good government, between, on the one hand, the desirability of consistency in the treatment of citizens under the law and, on the other hand, the ideal of justice in the individual case.  It may be that the Tribunal concludes, on the material before it, that a particular government policy which had been applied by an administrative officer in making a decision which the Tribunal was reviewing was, in itself, unobjectionable and that the need for consistency in the particular area of administrative decision-making was such that, in the circumstances of the case, the correct or preferable decision was that which resulted from the application of that policy to the facts of the matter before it. An example of an area of decision-making where such an approach might, in the particular case, be appropriate is that involving the discretionary grant of statutory licences in circumstances where no statutory guidelines are laid down and the personal qualifications or characteristics of the prospective licensee are unimportant. Such a decision, even though it involves the application of government policy to the relevant facts, is the outcome of the independent assessment by the Tribunal of all the circumstances of the particular matter.  It is to be contrasted with the uncritical application of government policy to the facts of the particular matter which represents an abdication by the Tribunal of its functions. In practice, the borderline between the two classes of decision may well be blurred and it is inevitable that there will be cases in which it is difficult to discern, from the published reasons of the Tribunal, on which side of the border the particular decision of the Tribunal lies.  It is, however, desirable that, in any case where the Tribunal reaches the conclusion that the particular circumstances are such as to make the correct or preferable decision that which results from an application of some government or ministerial policy to the particular facts, the Tribunal makes it clear that it has considered the propriety of the particular policy and expressly indicates the considerations which have led it to that conclusion. This is particularly so in matters such as the review of a deportation order where no two cases will be identical and where personal liberty will commonly be involved.”[32]

   [32] (1979) 24 ALR 577; (1979) 2 ALD 60 at 590-591; 69-70

Reviewing objection decisions

1. While the Tribunal is engaged in merits review of the Commissioner’s objection decisions, its task is modified by the provisions of TAA to which I have referred. It must bear in mind that the taxpayer carries the burden of proving that the Commissioner’s assessment is excessive and that it is limited by the grounds of the objection unless it gives leave to amend those grounds. Foster J explained its task in the following way:

   “         It is abundantly clear, of course, that even though the Tribunal does over again the work of the Commissioner, it does it in a significantly different way.  Although it could be said to be part of an administrative hierarchy, its functions partake far more of the court than of the office desk.

   It is clearly not case in the role of the inquisitor.  Although it does not act within the confines of formal pleadings, it is constrained in its inquiries and deliberations by the ambit of the taxpayer’s objections.  Although it is not bound by the rules of evidence (sec. 33(1)(c)) in reaching its decision it must act upon the evidence which is placed before it. …”[33]

   [33] Eldridge v Federal Commissioner of Taxation (1990) 90 ATC 4907 at 4,921

1. I have already set out the course of the assessment, objection and objection decision that precede an application’s being made to the Tribunal.  The purpose behind that course is apparent from the judgment of Brennan J in Federal Commissioner of Taxation v Dalco.[34]  Brennan J observed that the purpose “… is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act.”[35]  His Honour was speaking in the context of an appeal to a court, but the principles he stated are equally apt to a review in this Tribunal:

   “… It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed … unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer.  Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong.  The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.”[36]

   [34] (1990) 168 CLR 614; 90 ALR 341 Mason CJ, Dawson, Deane, Gaudron and McHugh JJ concurred

   [35] (1990) 168 CLR 614; 90 ALR 341 at 621; 344. The case was concerned with s 190(b) of the ITA Act 1936 which was repealed and re-enacted in substance as s 14ZZK(b)(i) of the TAA 1953 Act by the Taxation Laws Amendment Act (No. 3) 1991, s 112.

   [36] (1990) 168 CLR 614; 90 ALR 341 at 621; 344

1. It is open to the taxpayer to attack the Commissioner’s power to make an assessment[37] or the calculation of the amount of an assessment.  If the taxpayer chooses to attack the calculation of the amount of the assessment:

   “… mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed.  Given the validity of the exercise of the power to make an assessment …, the ultimate question is whether the amount of the assessment is excessive.  The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. …”[38]

As Toohey J[39] explained in Federal Commissioner of Taxation v Dalco:

“… A taxpayer does not necessarily discharge the onus of showing that an assessment is excessive, merely by showing that moneys treated by the Commissioner as income are in truth not the income of the taxpayer, though that may be a step in demonstrating his or her taxable income to be less than the assessment.”[40]

[37] McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 270-271 per Dixon CJ, McTiernan and Webb JJ

[38] (1990) 168 CLR 614; 90 ALR 341at 623; 345 per Brennan J

[39] With whom Mason CJ, Dawson, Deane, Gaudron and McHugh JJ concurred

[40] (1990) 168 CLR 614; 90 ALR 341 at 631; 351-352 per Toohey J

1. It may be a case in which not all of the material facts are known.  If they are not:

   “… A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer’s taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. …”[41]

If all of the material facts were known and the amount of a taxpayer’s taxation liability turned on the application of the law to those facts, the taxpayer would discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included.[42]

[41] (1990) 168 CLR 614; 90 ALR 341at 625; 347 per Brennan J

[42] (1990) 168 CLR 614; 90 ALR 341at 625; 647 per Brennan J

1. In carrying out its functions, s 2A of the AAT Act requires the Tribunal to “… pursue the objective of providing a mechanism of review that is fair, just, economical, informal and quick.”

Amendment of grounds of objection: general principles

1. I have set out the general principles at some length in order to put the Tribunal’s power to vary the grounds of objection in context. The requirement of s 14ZU(c) of the TAA to state “fully and in detail, the grounds that the person relies on” in making the objection makes it clear that Parliament has intended that the Commissioner have all of the relevant contentions before commencing on the review process.  It is equally clear that Parliament has intended that it is, in the usual case, to be expected that the grounds of the objection and so the parameters of the dispute between the taxpayer and the Commissioner will be circumscribed by the limits drawn by the taxpayer at the outset.  In the normal case, that circumscription will extend to the review in the Tribunal.  The result is that the limits of the dispute are known between the taxpayer and the Commissioner even if there remains significant work to be done developing those grounds and gathering the evidence.  That is in contrast to the normal situation in the Tribunal where the decision is reviewed afresh and without any restriction as to the grounds on which that review may be conducted. While the grounds may be clear at the outset, it is often the case that they only become clear after the parties have been required to lodge Statements of Facts and Contentions and the issues have been explored in preliminary proceedings in the Tribunal. 

1. In considering the factors that will be relevant in considering whether the taxpayer should be given leave to rely on grounds other than those in the objection, I have turned to cases in the courts considering whether to grant leave to amend a document in the proceedings.  In Creasy’s Grain Enterprises Pty Limited v Maltco Pty Limited,[43] for example, Hall J considered s 64 of the Civil Procedure Act 2005 (NSW). Section 64 provides that, at any stage of the proceedings, the Court may order that any document be amended or that leave be granted to a party to amend any document. The Court’s power is qualified by s 68 requiring the Court to follow the dictates of justice. In addition, it must have regard to the overriding purpose of the legislation to “… facilitate the just, quick and cheap resolution of the real issues in the [civil] proceedings.”[44]  It is also required to have regard to the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction[45] and the degree of expedition with which the parties have approached the proceedings and the extent to which they have been timely in the interlocutory proceedings.[46] 

   [43] [2006] NSWSC 531

   [44] Civil Procedure Act 2005, s 56(1)

   [45] Civil Procedure Act 2005, s 58(2)(b)(vi)

   [46] Civil Procedure Act 2005, s 58(2)(b)(ii)

1. Hall J reviewed two authorities regarding the power to amend pleadings in the courts:

   “46     The general principles that apply to the amendment of pleadings was the subject of detailed consideration by the High Court in Queensland v. J.L. Holdings Pty. Limited (1996-1997) 189 CLR 146. In particular, Kirby, J. at pp.167-172, set out the relevant principles under the subheading Approach to pleading amendments.  At p.169 (point 5) Kirby, J. observed that amongst the considerations that may tend to favour the extension of an indulgence to a party applying for leave are the following:-

   ‘... that this is the only way in which the true issues and the real merits, factual and legal, can be litigated and artificiality avoided;  that the oversight which occurred is adequately explained ... as, for example, that it arose out of sudden and unexpected events ...;  that the proposed amendment is of considerable importance to the rights of a party, particularly where it provides a complete answer to a claim ...;  that any fault is that of the party’s before the legal representatives ...;  that the oversight was wholly accidental ...;  that it was simply the product of unavoidable human error ... or possibly, the outcome of the application to the case of fresh legal minds who perceive an important new point ... that the costs orders or the imposition of other conditions could adequately rebalance the competing claims to justice ... ;  and that the hearing is sufficiently in the future to permit a party to meet the amendment ...’

   47     Reference was also made in J.L. Holdings to the need, on the one hand, for the court to retain flexibility which is the hallmark of justice, whilst on the other hand, to be mindful of the risk that, through ignoring the modern imperatives of the efficient conduct of litigation, unconsciously this may work an injustice on one of the parties or the litigants generally and on the public (per Kirby, J. at 172).

   48     Similarly in McGee v. Yeomans [1977] 1 NSWLR 273 at 280, Glass, JA. stated that, on an application to amend under the general power to permit amendments to pleadings, a court is required to have regard, on the one hand, to the prejudice occasioned to a party if the amendment is granted and, on the other hand, the hardship that would flow from the refusal of an amendment. That is particularly relevant in the circumstances of the present case, for the Court is required to take into account any prejudice that would be occasioned to the plaintiff by now permitting the defendant to raise the amended defence at this late stage.”

1. His Honour applied these principles in considering the appeal before him and they seem equally apt in considering whether leave should be granted to permit Messrs Radge, Dagg and Harvey to rely on a ground of objection other than those they initially relied upon.  In resolving any dispute between parties in any forum and whether or not subject to a statutory provision of the sort in s 2A of the AAT Act or ss 56, 58 or 68 of the Civil Procedure Act 2005 (NSW), the need to resolve the substantive issues raised by the dispute must be kept in mind. Resolution of a dispute without addressing all of the relevant issues may ultimately lead to dissatisfaction with the process of the administration of the law quite apart from dissatisfaction for one or all of the parties to the particular dispute. Another relevant matter to which regard must be had is the prejudice or hardship that may be inflicted on one or other of the parties either by granting or refusing leave.

1. The need to address relevant matters and considerations of prejudice lead to a third matter to which regard must be had.  That is the matter of futility or irrelevance.  If leave is sought to add a ground on which a taxpayer cannot be successful, it is not a relevant ground.  To permit it to be added and to cause the other party or parties to incur additional expense in rebutting it is not directed to providing a mechanism of review that is fair, just or economical.

Does proof that assessments are inconsistent with comparable assessments issued to other taxpayers necessarily lead to the conclusion that they are excessive?

1. In this section of my reasons, I have assumed that the assessments issued to Messrs Radge, Dagg and Harvey may be inconsistent with those issued to other taxpayers in that their claims for the deduction of the fee in the second invoice have not been allowed as deductions, whereas, the other taxpayers have been allowed their claims for the same deductions.  I have also assumed that this reflects an inconsistent application of any policy that the Commissioner or the ATO might have developed either formally or informally in relation to the resolution of claims for deduction for expenses in relation to Funds of the sort established by Messrs Radge, Dagg and Harvey.  In relation to that inconsistent application, I have also assumed that the assessments could be found to have been made in error and to be void if appropriate proceedings were taken in a court.  It is not necessary to determine whether or not my assumptions are correct.  If it were the case that the assessment and amended assessments were void and would be set aside if proceedings for judicial review were taken in the Federal Court, the Tribunal would still have jurisdiction to review them on their merits according to the principles in Brian Lawlor.  Until set aside, they continue to affect the tax liabilities of Messrs Radge, Dagg and Harvey and the Commissioner can take steps to recover the amount of those liabilities.

1. Ms Seiden relied on McAndrew v Federal Commissioner of Taxation[47] and, in particular, on a passage from the judgment of Dixon CJ, McTiernan and Webb JJ and another from the judgment of Taylor J.  Dixon CJ, McTiernan and Webb JJ said:

   “… ‘Excessive’ is the word chosen to correspond with the word ‘amount’ in s 177(1).  The ‘amount’ no doubt reflects the ‘particulars’.  It is perhaps not a good choice. … But bearing in mind that the word ‘excessive’ relates to the amount of the substantive liability it is not difficult to see that it will extend over the are in which the conditions mentioned in s 170(2) find a place.  For the fulfilment of those conditions goes to the power of the commissioner to impose the liability by amendment.  If he cannot amend consistently with s 170(2) and so increase the amount of the assessment then it must be excessive.”[48]

   [47] (1956) 98 CLR 263

   [48] (1956) 98 CLR 263 at 271

1. Taylor J said:

   “… there is no reason for thinking that an assessment made in purported but not justifiable exercise of a statutory power, may not properly be described as excessive; it purports to impose a specified liability and, upon appeal, the claim of the appellant is that he is not liable to pay any part of it.  Whether the particular ground upon which he seeks to escape or reduce the liability merely touches the accuracy of the assessment or assails its validity as an assessment, he is, in the words of s 185, ‘dissatisfied with’ the assessment because it purports to impose upon him a liability in excess of that to which he may lawfully be subjected and I can see no reason why, in either case, his complaint may not accurately be described as a complaint that his assessment is excessive.”[49]

   [49] (1956) 98 CLR 263 at 282-283

1. In my view, these passages do not support a contention that an assessment that is not validly made because its making was affected in some way by any error of law would lead to the conclusion that the assessment is excessive.  Certainly, in McAndrew, Dixon CJ, McTiernan and Webb JJ concluded that an amended assessment issued contrary to s 170(2) of ITAA 36, and so affected by an error of law, would be excessive. That conclusion must be understood in context to understand that it does not apply to any error of law at all that would render the amended assessment in judicial review proceedings.

1. Section 170(1) of ITAA 36 had given the Commissioner general power to amend an assessment where he thought it necessary but had qualified or supplemented that general power in the following ten sub-sections. Section 170(2) applied where a taxpayer had not made a full and true disclosure of all material facts necessary for the Commissioner to make an assessment and that there had been an avoidance of tax. It limited the Commissioner’s power to amend an assessment in substance and in time. So far as substance is concerned, it limited the Commissioner’s power to making those alterations or additions that were necessary to correct an error in calculation or mistake of fact or to prevent avoidance of tax. So far as time is concerned, it did not limit the Commissioner’s power if he were of the opinion that the avoidance of tax was due to fraud or evasion. In every other case, it limited the Commissioner to exercising the power within six years of the date on which the tax became due and payable under the assessment.

1. If the Commissioner purported to amend an assessment when the conditions of s 170(2) had not been met, he was not acting in accordance with the terms of ITAA 36. As he could not issue an amended assessment in accordance with the law, any purported amended assessment he issued had to be excessive. That is the conclusion of Dixon CJ, McTiernan and Webb JJ. It is a conclusion that would also be reached in the Tribunal had it been reviewing an objection decision affirming an amended assessment in the same circumstances.

1. For all that, the conclusion in McAndrew is not a conclusion that can be extended beyond its terms and applied to any error of law that occurs in the course of making an objection decision.  That is because the making of an error of law does not of itself necessarily mean that an assessment or an amended assessment is excessive.  So, for example, the Commissioner might not have accorded procedural fairness to a taxpayer in making an assessment and that might lead to the assessment’s being set aside in proceedings for judicial review.  The fact that has not procedural fairness has not been accorded, however, does of itself not lead to the conclusion that the Commissioner made an assessment that did not represent the taxpayer’s true tax liability and so was excessive.  Whether or not it was excessive depends upon whether or not it could be correctly made according to the law and on the particular facts of the case.

1. It seems to me that Hill J was saying nothing different in Copperart Pty Ltd v Federal Commissioner of Taxation[50] when he said:

   “         There seems little doubt that if a taxpayer can show that an assessment is made without power, that taxpayer will have shown that the assessment is excessive and thus satisfied the burden of proof imposed upon it: cf McAndrew v FC of T …  The assessment should not be treated by the Tribunal as a nullity and indeed s 67(1) of the No. 1 Assessment Act applicable, inter alia, to the Act makes the production of a notice of assessment conclusive evidence of the due making of the assessment and in a review that the amounts and all of the particulars of the assessment are correct.[51]

   [50] (1993) 93 ATC 4,779; 30 ALD 377

   [51] (1993) 93 ATC 4,779; 30 ALD 377 at 4,790; [51]

1. Hill J was concerned with a case in which the Commissioner had made two assessments under the Sales Tax Assessment Act (No 6) 1930 in respect of the same goods.  One had been made under s 4A(5) and the other under s 4(2).  The Tribunal had not made any finding of fact as to which assessment had been made first.  His Honour said:

   “… On one view of the matter, if the first assessment, as a matter of temporality, was an assessment under s. 4A, then that assessment was validly made, but no further assessment could be made under s 4(2).  Conversely, if the first assessment made was that under s 4(2) then no assessment could be made under s 4A(5).”[52]

If the Tribunal concluded that the assessment was first made under s 4(2), the assessment purporting to be made under s 4A would be shown to be excessive in so far as it related to the same items. 

[52] (1993) 93 ATC 4,779; 30 ALD 377 at 4,790; [53]

1. Again, the principles underpinning this judgment cannot be used to support the wider proposition put forward on behalf of Messrs Radge, Dagg and Harvey.  Hill J was not suggesting that any error of law would lead to the conclusion that the assessment was excessive.  The assessment would be excessive if it could not have been validly issued under the specific provisions of the relevant legislation.  His Honour was not considering errors of law such as the failure to accord the taxpayer procedural fairness or engaging in discriminatory behaviour.  Senior Member Beddoe expressed the same thought in Re Norman and Federal Commissioner of Taxation:[53]

   “         Even if it were the fact that the amended assessments were made mala fides it is now for the Tribunal to decide whether those amended assessments are excessive either because the applicant did not derive the subject income, or he derived some lesser amount or the amended assessments were not authorised by the Act.  If it were the fact (I do not suggest that it is) that there was an excess of jurisdiction in the making of the amended assessments this Tribunal’s jurisdiction is to determine what is the correct or preferable objection decision in each year of income.”[54]

   [53] (2004) 57 ATR 1248; [2004] AATA 1164

   [54] (2004) 57 ATR 1248; [2004] AATA 1164 at [31]

1. Ms Seiden referred two passages from the judgment of Mason CJ in Deputy Commissioner of Taxation v Richard Walter Pty Ltd[55] but they do not lead me to any different conclusion.  Mason CJ said:

   [55] (1995) 183 CLR 168; 127 ALR 21

   “… the making of a determination by the Commissioner under s 177F of the Act is a determination going to substantive liability and, in conformity with the interpretation of s 177(1) adopted in George [v Federal Commissioner of Taxation (1952) 86 CLR 183], McAndrew, FJ Bloeman [Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360] and Dalco, is put in issue by an appeal which challenges the assessment on the ground that it is excessive.”[56]

   [56] (1995) 183 CLR 168; 127 ALR 21 at 184; 29

Section 177F of ITAA 36 provided that:

“(1)     Where a tax benefit has been obtained, or would but for this section be obtained, by a taxpayer in connection with a scheme to which this Part applies, the Commissioner may –

(a)in the case of a tax benefit that is referable to an amount not being included in the assessable income of the taxpayer of a year of income – determine that the whole or a part of that amount shall be included in the assessable income of the taxpayer of that year of income …

and, where the Commissioner makes such a determination, he shall take such action as he considers necessary to give effect to that determination.

(2)      Where the Commissioner determines under paragraph 1(a) that an amount is to be included in the assessable income of a taxpayer of a year of income, that amount shall be deemed to be included in the assessable income by virtue of such provision of this Act as the Commissioner determines.”

Section 177(1) provides that the production of a notice of assessment or of a copy:

“… shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.”

1. The second passage from Mason CJ’s judgment, to which Ms Seiden referred, is included in the following more extensive passage preceding the earlier passage:

   “          In passing, I should point out that, in George v Federal Commissioner of Taxation [(1952) 86 CLR 183 at 204], this Court decided that it was wrong to treat the formation of a judgment by the Commissioner as to the amount of the taxpayer's taxable income as if it were not a part of the process of assessment and as if it were but the fulfilment of a condition precedent to the power or authority to assess. The Court went on to say [George v Federal Commissioner of Taxation; see also Dalco (1990) 168 CLR 614 at 622, per Brennan J]

   ‘If, however, it were a condition precedent the question would at once arise whether the fulfilment of the condition was not part of “the due making of the assessment” of which s 177(1) makes the production of a notice of assessment conclusive evidence.’

   Although the Court considered that it was unnecessary to answer that question, it concluded with the comment that George v Federal Commissioner of Taxation [(1952) 86 CLR 183 at 207]

   ‘the “due making of the assessment” was intended to cover all procedural steps, other than those if any going to substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal.’”[57]

   [57] (1995) 183 CLR 168; 127 ALR 21 at 183-184; 28-29

1. Mason CJ’s reference to the “due making of the assessment” is a reference to s 177(1).  If a matter relates to that due making, the assessment cannot be questioned.  Care needs to be taken in deciding whether a step is a procedural step of the sort that can be described as being the “due making of the assessment”.  The Commissioner’s determination under s 177F that an amount shall be included in a taxpayer’s assessable income is a determination that precedes the Commissioner’s making an assessment or an amended assessment.  It has some aspects of being a procedural step but it is a step that affects a taxpayer’s liability.  The assessment or amended assessment subsequently issued by the Commissioner will be a reflection of the Commissioner’s determination under s 177F.  Therefore, the determination under s 177F will have a substantive effect on whether or not that assessment or amended assessment is excessive.

1. An inconsistent approach by the Commissioner to assessments or amended assessments he issues to various taxpayers is a matter that is concerned with the administration of his functions.  When viewed overall, his approach to the manner of making assessments and amended assessments is a matter of general administration.  An inconsistent approach might be regarded as constituting unfairness to an individual taxpayer and lead to a successful application to a court for judicial review in a court if there were a discretion involved and the Commissioner had not acted in accordance with the law.[58]  A successful application to a court for judicial review would result in the declaration of the assessment or the amended assessment as void.  It would not lead to a review of them on their merits.

   [58] Bellinz v Federal Commissioner of Taxation (1998) 98 ATC 4399 at 4417 per Merkel J and, on appeal, Bellinz v Federal Commissioner of Taxation (1998) 84 FCR 154; 155 ALR 220 at 167; 232-233 per Hill, Sunberg and Goldberg JJ)

1. When viewed in the context of merits review in the Tribunal, the outcome is different.  The Commissioner’s assessment or amended assessment of one taxpayer’s liability cannot affect his assessment of another taxpayer’s tax liability.  Only the law, correctly interpreted, and the facts, properly found, in each individual case determine whether the assessment or amended assessment is excessive.  The facts associated with each taxpayer will necessarily have some variation even if slight.  If the Commissioner were to take a different view of the law from one taxpayer to the next, it would be irrelevant to consider the inconsistency in the Tribunal’s review of the assessment or amended assessment.  That would be because the Tribunal must decide for itself the correct law to apply. 

1. In view of my conclusion, I have decided that the ground that Messrs Radge, Dagg and Harvey wish to add is irrelevant to a consideration of whether or not the assessment or amended assessments issued to them are excessive.  That is conclusive of the issue whether leave should be given to add to their grounds of objection. 

Application to issue a summons

1. Messrs Radge, Dagg and Harvey have requested the Tribunal to issue a summons directed to the Commissioner requiring him to produce the following documents:

   “1.      Separated according to taxpayer, copies of all documents taken into account when assessing the tax treatment of deductions claimed for fees paid to David Bonnell & Associates by each of the Relevant Taxpayers in their respective personal income taxation returns for income year ending 30 June 1999 (including without limitation legal advices relating to interpretation and application of the relevant law, and instructions given in relation to those advices) and determinations in relation thereto (including without limitation scheme determinations).

   2.Copies of all documents taken into account when assessing the tax treatment of deductions claimed for fees paid to David Bonnell & Associates by the Applicants in their personal income taxation returns for income year ending 30 June 1999 (including without limitation legal advices relating to interpretation and application of the relevant law, and instructions given in relation to those advices) and determinations in relation thereto (including without limitation scheme determinations).

   3.Copies of all documents comprising policy statements, guidelines, directives, circulars or information memoranda, howsoever described current from 1 July 1998 to 1 January 2000, referring or adverting to Mr David Bonnell or David Bonnell & Associates or the taxation treatment of:

   (a)controlling interest superannuation arrangements;

   (b)non-complying superannuation arrangements;

   (c)expenditure for managing tax affairs; or

   (d)fees payable to promoters of tax avoidance schemes, or for advice about a taxpayer’s involvement in a tax avoidance arrangement.

   but excluding the ‘T’ documents provided by the Respondent in this application.”

1. Section 40(1A) of the AAT Act provides that:

   “Subject to subsection (1B)^[[59]], for the purposes of the hearing of a proceeding before the Tribunal, the member presiding at the hearing, the Registrar, a District Registrar or a Deputy Registrar may summon a person to appear before the Tribunal at that hearing:

   (a)to give evidence; or

   (b)to give evidence and produce any books, documents or things in the possession, custody or control of the person or persons named in the summons that are mentioned in the summons; or

   (c)to produce any books, documents or things in the possession, custody or control of the person or persons named in the summons that are mentioned in the summons.”

Only a presidential member, senior member or authorised member may refuse a request for a summons.[60]

[59] Section 40(1B) provides that a summons may require a person to appear at a directions hearing to produce the summonsed material instead of at a hearing.

[60] AAT Act, s 40(1C)

1. In Re VBN and Australian Prudential Regulation Authority and VBT[61] I focused on one aspect of the recent law relating to subpoenas that may be issued by the courts and summonses that may be issued by the Tribunal.  That issue related to relevance:

   [61] (2005) 92 ALD 455; [2005] AATA 1060

   “Given the nature of merits review by the Tribunal, documents that are relevant in that way must be documents that are connected with or pertinent to the multi-faceted task, or a part of it, that the Tribunal must undertake.  To draw from the law relating to subpoenas, it is relevant to ask whether the material has:

   ‘… an apparent relevance to the issues in the principal proceedings, ie, is adjectival, as distinct from substantive, relevance established? …’^[[62]]

   In Trade Practices Commission v Arnotts Ltd and Others,^[[63]] Beaumont J had said:

   ‘The test of adjectival relevance is satisfied if the material has apparent relevance.  In my opinion, the documentation called for here could possibly throw light on the issues in the main case.  In my opinion, adjectival relevance is established.’^[[64]]”[65]

Spender J explained the passage from Beaumont J’s judgment in Trade Practices Commission v Arnotts Ltd and Others in his judgment in Cosco Holdings Pty Ltd v Commissioner for Taxation & Anor[66] when he said:

Notwithstanding the use of the word ‘possibly’ in this paragraph, in my opinion, that word is not used in any speculative sense.  I take his Honour’s conclusion expressed in that paragraph as an acquiescence to the correctness of the submission that the material sought could reasonably be expected to throw light on some of the issues in the principal proceedings.  It is not a question of looking at the documents to see if the documents might permit a case to be made.

…

Discovery should be controlled, and may be limited to documents relevant to particular issues, but it is a valuable weapon in the armoury of justice.  The real objection which, in some cases, justifies discovery being limited to particular issues is the objection of oppression.

…”[67]

[62] Spender J considered these principles in Cosco Holdings Pty Ltd v Commissioner for Taxation & Anor [1997] FCA 1504 at 10

[63] (No. 2) (1989) 88 ALR 90

[64] (No. 2) (1989) 88 ALR 90 at 103

[65] (2005) 92 ALD 455; [2005] AATA 1060 at 465; [31]

[66] [1997] FCA 1504

[67] [1997] FCA 1504

1. Spender J referred to a judgement by the Full Court of the Federal Court in Treasurer of the Commonwealth of Australia v Canwest Global Communications Corp[68] in which it had said:

   “A modern statement of the principle which has been repeatedly followed is that made by Brennan J (with whom Bowen CJ agreed) in W.A. Pynes Pty Ltd v Bannerman (1980) 41 FLR 175 at 181, where what is required to obtain a discovery order in a doubtful case was expressed as follows:

   sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery.”[69]

   [68] [1997] FCA 578, Beaumont, Burchett and Emmett JJ

   [69] [1997] FCA 578

1. In Re Marnotta and Secretary, Department of Health and Ageing,[70] I concluded:

   “         It is apparent from these cases that the court will take into account the relevance of documents sought to the issue in dispute before the court. Their relevance does not need to be established on the balance of probabilities. All that need be established is that the material sought could reasonably be expected to throw light on some of the issues in the principal proceedings. It is not enough if their relevance can only be speculated upon. Regard must also be had to the burden placed upon the person from whom the books, documents or things are sought and that must be weighed against the public interest in the administration of justice that requires all material relevant to the issues to be available to the parties and to the court. Given the principles, which underpin the Tribunal and to which I have referred, these principles are equally applicable to the interpretation of s 40(1A).”[71]

   [70] [2004] AATA 800

   [71] [2004] AATA 800 at [42]

1. Another factor that is relevant in considering whether a summons should be issued or whether it, or aspects of it, should be set aside is whether compliance with it would be oppressive.  This is illustrated by a passage from the judgment of Lord Denning in Senior v Holdsworth, Ex parte Independent Television News Ltd[72]:

   “… I think that, on due notice being given, the courts have the power to order the I.T.N to produce and show the untransmitted film when the course of justice so requires – of course, on all their expenses being paid just like conduct money.  But the court should exercise this power only when it is likely that the film will have a direct and important place in the determination of the issues before the court.  The mere assertion that the film may have some bearing will not be enough.  If the judge considers that the request is irrelevant, or fishing, or speculative, or oppressive, he should refuse it.

   In this particular case, it was mere speculation that the untransmitted film would contain a photograph of the incident: and it was oppressive to require the whole film to be shown when only one small incident was involved.”

   [72] [1976] 1 QB 23

1. Another illustration is found in the judgment of Clarke J in South Pacific Hotel Services Inc v Southern Pacific Hotel Corporation Ltd[73]:

   “… there is no doubt that a subpoena, particularly one addressed to a stranger must be couched in terms of reasonable particularity.  It may call for the production of such a large number of documents of doubtful relevance that it should be regarded as oppressive and an abuse of process: see the example given by Moffitt P in Waind (at 382).  If a court is called upon to rule that a subpoena is an abuse of process in this sense, it will need to carry out an exercise of judgment upon the particular facts in each case, including but not limited to the terms of the subpoena, bearing in mind the need to balance the reasonableness of the burden imposed upon the recipient and the invasion of his private rights with the public interest in the due administration of justice and, in particular, that all material relevant to the issues be available to the parties to enable theme to advance their respective cases.  There is, in every case, a clash between these competing interests and whilst the balancing exercise to which I have referred must be carried out, it is the latter interest which is predominant.
   …

   In determining whether the subpoena offends, the court will, as I have said, need to consider all the circumstances.  Quite apart from the term of the subpoena are the identity of the recipient and his connection with either the parties or the matters in issue, the extent of the burden which may be apparent from the subpoena itself or from the evidence adduced for this purpose, and the possible relevance between the documents called for and the dispute before the court.”

   [73] [1984] 1 NSWLR 710 at 719

1. The first two categories of documents described in the summonses relate specifically to Messrs Radge, Dagg and Harvey and the Commissioner’s assessment of their individual tax liability.  They ask for all documents “taken into account when assessing the tax treatment of deductions claimed for fees paid to …” Mr Bonnell by them in the 1999 year.  They include legal advices relating to interpretation and application of relevant law and instructions given for them. 

1. At the outset, I would point out that, in so far as these documents are relevant to the review of the Commissioner’s assessment and amended assessments, they should have been lodged by the Commissioner in complying with s 37(1)(b) of the AAT Act.  They will form part of what are known as the T documents.  Those T documents include the statement of reasons required by s 37(1)(a).  The statement is required to set out the findings on material questions of fact, referring to the evidence or material on which those findings are based and giving reasons for the decision.  The Commissioner’s statement is brief but it purports to do that.  Given the very confined scope of the aspect of the assessments under review, its brevity is not surprising.

1. Ms Wild has deposed to searches that the ATO has undertaken for any policy documents relied on by the decision-makers.  The searches have been undertaken during the course of the preliminary procedures in the Tribunal and have revealed no such documents.  All that was found was a letter dated 15 March 2002 expressing the Commissioner’s view at the time it was written.  The fact that those searches have already been undertaken is a relevant consideration.  If the documents have already been provided voluntarily by the Commissioner and the Tribunal can be satisfied that the searches that would follow receipt of a summons would be unlikely to reveal further documents, there is nothing to be gained by issuing a summons to produce the same documents. 

1. Of far greater relevance in this case is the relevance of the documents sought to the issues to be decided on merits review.  Given the confined nature of the issues in these cases, it would seem that all of the documents relating to factual aspects of the case have been produced in the T documents.  The documents sought extend beyond those types of documents to documents that relate to the interpretation of the law and its application.  Documents such as those may be relevant in a different context but they are not of value in these proceedings.  What are of value are the parties’ views of the correct interpretation and application of the law and, of course, any authorities in which those matters have been decided by the courts or considered by the Tribunal.  I gave my reasons for reaching that conclusion earlier in these reasons.

1. The same reasoning leads me to the same conclusion in relation to the third category of documents sought by Messrs Radge, Dagg and Harvey.  They are of a general nature relating to the Commissioner’s treatment of certain arrangements and claims for deduction.  They do not assist in the consideration of the particular matters raised by the applications for review lodged by Messrs Radge, Dagg and Harvey.  The lack of relevance of the issues sought leads me to conclude that the request to issue the summons addressed to the Commissioner must be refused.

1. Before leaving the issue of the summons, I would like to make an observation about a matter raised on behalf of the Commissioner.  It is that it has been open to Messrs Radge, Dagg and Harvey to request access to the documents under the Freedom of Information Act 1982 (FOI Act).  Mr Bonnell has previously sought access under that legislation in relation to his own taxation affairs.[74]  While I agree with the Commissioner’s next proposition that regard should be had to earlier informal requests for the documents sought in the summons, to the results of searches and the likelihood of further searches revealing relevant documents, I do not agree that it is appropriate to have regard to the avenues provided by the FOI Act. 

   [74] Re Bonnell and Federal Commissioner of Taxation (2003) 47 ATR 1115

1. The FOI Act is intended to “… extend as far as possible the right of the Australian community to access to information in the possession of the Government of the Commonwealth …”.  It has three aspects of which two are relevant in this case.  One is to make available to the public information about the operations of departments and public authorities and to ensure that their rules and practices affecting the public in their dealings are also made available.[75]  Section 9 provides that documents that can be broadly described as rules and practices used by an agency or its officers in making decisions or recommendations must be available for inspection and purchase. 

   [75] FOI Act, s 3(1)(a) and see also Part II

1. The second aspect of the FOI Act to which I refer is the creation of a right of access to information in documentary form in the possession of Ministers, departments and public authorities.  That right is not absolute.  It is qualified by exceptions related to workload considerations set out in Part III.[76]  Further, it is qualified by exemptions necessary for the protection of essential public interests and the private and business affairs of those persons about whom information is collected and held by Ministers, departments and public authorities.  They are set out in Part IV.[77]

   [76] See also FOI Act s 3(1)(b)

   [77] See also FOI Act s 3(1)(c)

1. If a person happens to have obtained access to documents under either Part II or Part III, it is a relevant consideration.  The point of the power to issue a summons is to ensure that the parties, and ultimately the Tribunal, can gain access to all material relevant to the review of the decision.  If a party already has access to documents, it is questionable whether there is any point in requesting the same documents under a summons.  If access to the documents has been provided under the FOI Act by the Minister or agency that is the decision-maker, both parties have access to them.  They will produce those that are relevant among them to the Tribunal either under section 37 of the AAT Act or else voluntarily or by means of a direction made under s 33 of the AAT Act.  If the documents have been provided under the FOI Act by a Minister or agency other than the decision-maker, they can be produced to both the other party and the Tribunal either voluntarily or by direction.

1. If a party seeking access to a document by means of a summons has not previously obtained access to it under the FOI Act, the FOI Act is, in my view, irrelevant.  It is concerned with general rights whereas a summons is concerned with rights in relation to particular documents and particular proceedings.  Access may be refused under the FOI Act for reasons that will not justify refusal to comply with a summons.  Fees and charges may be levied under the FOI Act for access and they are not consistent with the costs of issuing a summons.

1. Finally, I would observe that, generally, I do not consider it appropriate to use the Tribunals’ power to summons documents to obtain documents from the parties themselves. It is a power that should generally be reserved to obtain documents from third parties. The documents will then be available to both parties as well as to the Tribunal. In the case of the decision-maker, relevant documents will generally be produced under s 37 of the AAT Act. If they are not or if it later appears that there are other documents that may be relevant to the review, the Tribunal has power to order their production under s 37(2). That section has effect notwithstanding any rule of law relating to privilege or the public interest in relation to the production of documents,[78] and so is a more extensive power than that available to the Tribunal under the summons power.[79]      In the case of a party who is not the decision-maker, there should also be a reluctance to issue a summons.  The directions power is sufficient to require production of relevant documents by the parties.

   [78] AAT Act, s 37(3)

   [79] AAT Act, s 40(1A)

1. For the reasons I have given, I:

   1.decline to give leave to the applicants to rely on a further ground of objection that the assessment or amended assessments are excessive because the respondent had treated them in a discriminatory or unfair manner when compared with other taxpayers; and

   2.refuse to issue a summons to the respondent to produce three categories of documents.

I certify that the seventy-nine preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,

Signed:           ...............................................................

Jayne Rathjen  Associate

Date of Directions Hearing           27 April 2007

Date of Decision  14 May 2007
Counsel for the Applicants           Ms R Seiden and Mr P Bruckner

Solicitor for the Applicants           Spirefive Legal LP (formerly known as Bonnell Rowntree Solicitors)

Counsel for the Respondent         Mr S Gibb SC and Mr K Connor
Solicitor for the Respondent         Australian Government Solicitor