ROWE Applicant And COMMISSIONER OF TAXATION
[2010] AATA 341
•7 May 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 341
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/3359
SMALL TAXATION CLAIMS TRIBUNAL ) Re JOHN EDGAR ROWE Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr S E Frost, Senior Member Date7 May 2010
PlaceSydney
Decision Set aside the summons dated 7 April 2010. ....................[Sgd]...................
S E Frost
Senior Member
CATCHWORDS
PRACTICE AND PROCEDURE – summons to produce documents – requirement for “adjectival relevance” to the issues in the substantive application – relevance test not satisfied – summons set aside
CASES
Trade Practices Commission v Arnotts Limited (1989) 88 ALR 90
Commissioner of Taxation v Sleight [2004] FCAFC 94; (2004) 136 FCR 211
Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216
Re Radge and Commissioner of Taxation [2007] AATA 1317; (2007) 95 ALD 711
Re Norman and Commissioner of Taxation [2004] AATA 1164
REASONS FOR DECISION
7 May 2010 Mr S E Frost, Senior Member Introduction
1. The immediate question before the Tribunal is whether a summons to produce documents, served on the Commissioner at the request of the taxpayer, should be set aside, either in whole or in part.
Background
2. In February 2009 the Commissioner decided not to release Mr Rowe from his taxation debt (which now stands at something approaching $3.5 million). Mr Rowe’s objection against that decision was disallowed and he has now applied to the Tribunal for review of the objection decision.
3. The application for release was made under s 340-5 in Schedule 1 to the Taxation Administration Act 1953 (the TAA). Under that provision, the Commissioner (or, on review, the Tribunal) may release a taxpayer from a tax liability if the taxpayer “would suffer serious hardship if … required to satisfy the liability” (table item 1 in s 340-5(3)).
4. There are two issues in the substantive application: first, whether Mr Rowe would suffer serious hardship if he were required to satisfy his tax liability; and second, if the answer to that first question is yes, whether as a matter of discretion he should be released from the liability.
The taxation liability
5. Mr Rowe practises as a barrister, and has done so for almost 40 years.
6. Mr Rowe’s tax returns for the years 1996 to 2001, as originally lodged, disclosed assessable income ranging from a low of $307,441 in 1996 to a high of $1.85 million in 1999. However, because of the level of deductions claimed, his taxable income was shown as nil for each of the years 1996 to 1999, and reached positive numbers only in 2000 and 2001.
7. Following an audit, the Commissioner made amended assessments of Mr Rowe’s taxable income for each of the years 1996 to 2001. The amended assessments followed the Commissioner’s determination under 177F of the Income Tax Assessment Act 1936 (the 1936 Act) to cancel the tax benefits that would have been obtained through the allowance of the deductions. In short, the Commissioner had formed the view that Mr Rowe had obtained “tax benefits” in connection with a scheme to which Part IVA of the 1936 Act applies. Part IVA is often referred to as the “general anti-avoidance provisions” of the income tax law.
8. Mr Rowe objected, under Part IVC of the TAA, against the amended assessments, and his objections were disallowed in full. At that point he became entitled, still under Part IVC, either to apply to the Tribunal for review of the objection decisions, or to appeal to the Federal Court against those decisions. He did neither.
9. The only way that a person can contest the correctness of the amount of a tax assessment, or the correctness of the particulars of an assessment, is “in proceedings under Part IVC of the [TAA] on a review or appeal relating to the assessment” (my emphasis): s 177(1) of the 1936 Act. It is not open to Mr Rowe, in proceedings under Part IVC on a review relating to the decision not to release him from his tax liability, to contest the correctness of the amended assessments for the years 1996 to 2001. As a result, all the particulars of the amended assessments, including the disallowance of the deductions on the basis that Mr Rowe incurred them in connection with a scheme to which Part IVA applies, are taken for the purpose of these proceedings to be correct.
10. It is well known that the question whether a scheme is a scheme to which Part IVA applies is decided on the basis of whether “it would be concluded”, having regard to eight specified matters in s 177D(b) of the 1936 Act, that any of the persons who entered into the scheme did so for the purpose of enabling the particular taxpayer to obtain a tax benefit in connection with the scheme. In that enquiry, the subjective purpose or motivation of the particular taxpayer, not being one of the eight specified matters, is irrelevant: Commissioner of Taxation v Sleight [2004] FCAFC 94 at [67]; (2004) 136 FCR 211 at 229-230, per Hill J; Commissioner of Taxation v Hart [2004] HCA 26 at [65]; (2004) 217 CLR 216 at 243, per Gummow and Hayne JJ).
The summons
11. The summons, directed to one of the Commissioner’s officers, sought production of:
From 1 January 1999 to date
1.All reports, emails and correspondence relating to the decision to commence enquiries into applicant’s 35MM and Rapid Rigs businesses.
2.All reports, emails and correspondence relating to the preparation of position papers in relation to the businesses.
3.All reports, emails and correspondence relating to offers of settlement.
4.All reports, emails and correspondence from and to Larry Borne (sic) in relation to advice as to application for release and release of taxpayer from monthly payments.
12. The 35MM and Rapid Rigs “businesses” were two of the three schemes in respect of which the Commissioner made the determinations under Part IVA. Larry Bourne is an officer with whom Mr Rowe spoke about the difficulty he, Mr Rowe, was experiencing, in the middle of 2007, keeping up with his monthly arrears payments of $3,000.
The requirement for relevance
13. One formulation of the relevance test in the context of subpoenas and summonses was stated by Beaumont J in Trade Practices Commission v Arnotts Limited (1989) 88 ALR 90 at 103, as follows:
Does the material sought have an apparent relevance to the issues in the principal proceedings, i.e. is adjectival, as distinct from substantive, relevance established? Does the subpoena [or the summons, in the case of Tribunal proceedings] have a legitimate forensic purpose to this extent?
14. His Honour explained, also at 103, that the test of adjectival relevance is satisfied if the documents “could possibly throw light on the issues in the main case”.
15. I repeat that the issues in Mr Rowe’s substantive application are:
· first, whether Mr Rowe would suffer serious hardship if he were required to satisfy his tax liability; and
· second, if the answer to that first question is yes, whether as a matter of discretion he should be released from the liability.
Why the documents are being sought
16. The crux of Mr Rowe’s position in respect of the documents sought under summons is set out in his written submissions, as follows:
[16] In its’ (sic) submissions the respondent now submits the Commissioner would not exercise his discretion in favor of the applicant because:-
a. The applicant was involved in schemes to avoid tax;
b.The applicant did not seek a hearing in the Federal Court or the AAT and therefore cannot be heard to deny he was in schemes; and
c. The applicant ceased making payment.
[17] At no time did the applicant concede a case against him [under Part IVA]. At all times he maintained there was no scheme and the evidence supports his position. The respondent’s documents will support this position or at least show the applicant was being pursued for improper purposes or both.
[18] The documents should show the advice the applicant received for the course he took. In such a case the allegation is mischievous and in breach of the respondent’s claim of honest litigant.
[19] The documents should show the applicant c[e]ased making monthly payments with the agreement of the respondent. In such a case the allegation is mischievous and in breach of the respondent’s claim of honest litigant.
17. He summarises his position on the summons as follows:
[21] The allegations of the respondent are irrelevant to the proceedings, however
[22] If the respondent is permitted to make the allegations the applicant must be in a position to meet the factual allegations and the discretion submissions. The applicant can only do so by reference to the respondent’s unexpurgated documents. Exercise of discretion should only be done so (sic) with access to all the facts. To deny access to the Commissioner’s facts on which he purports to exercise his discretion is a manifest miscarriage of justice and a denial of justice.
Consideration
18. Having considered the matter carefully and taken into account Mr Rowe’s written submissions, the Commissioner’s written submissions and Mr Rowe’s further written submissions in reply, I have come to the view that the summons should be set aside.
19. The documents sought do not satisfy the “adjectival relevance” test. They could not possibly “throw light on” the issues in the substantive application.
20. It is evident that the Commissioner wishes to rely, in defence of his decision not to exercise the discretion to release Mr Rowe from his liability, on the fact that Mr Rowe engaged in one or more schemes to which Part IVA applies. Whether that is a relevant factor to be taken into account is a question for the Tribunal as constituted to hear and determine Mr Rowe’s substantive application. Nevertheless, it cannot now be doubted (the objection decisions not having been contested) that the schemes into which Mr Rowe entered were schemes to which Part IVA applies. Documents tending to show the background to the Commissioner’s commencing to enquire into the Part IVA question (the documents in category 1 of the summons) or progressive opinions of the Commissioner’s officers on the application of Part IVA (those in category 2) are unhelpful and irrelevant. I add that the question whether Mr Rowe was being “pursued for improper purposes” (as he suggests in [17] of his written submissions) would be an irrelevant question even in the context of the Tribunal’s administrative review of the objection decisions dealing with the amended assessments (assuming that such a review had been initiated – which, of course, it has not): see for example Re Radge and Commissioner of Taxation [2007] AATA 1317 at [54]; (2007) 95 ALD 711 at 727; Re Norman and Commissioner of Taxation [2004] AATA 1164 at [31].
21. Documents relating to offers of settlement of the tax liability (category 3) are equally irrelevant. The Commissioner’s rejection of offers to settle a tax liability (if this is what happened) can have no bearing on the question whether it is appropriate to release a person from that liability.
22. As to the documents in category 4, the Commissioner has amended his Statement of Facts Issues and Contentions so that paragraph 10 of the Statement now reads, in part:
… In June 2007 the Applicant advised a representative of the Respondent that he was unable to continue making payments of $3,000 per month and the Respondent agreed to suspend the payment arrangement until the Applicant’s financial position improved, in order to make up any shortfalls following the suspension.
23. The amendment of the Statement meets the criticism raised by Mr Rowe in [16]c. and [19] of his submissions.
24. The fact of Mr Rowe’s failure to contest the objection decisions is incontestable. The reason for the failure (which Mr Rowe suggests may be contained in the category 4 documents) is in my view irrelevant.
25. What may be relevant to the exercise of the discretion to release Mr Rowe from his liability (and again, this is a matter for the Tribunal as constituted to hear and determine Mr Rowe’s substantive application) is his subjective purpose or motivation in entering into the schemes. The category 4 documents cannot possibly throw any light on that question.
Decision
26. In the circumstances, I set aside the summons issued by the Tribunal on 7 April 2010.
I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S E Frost, Senior Member
Signed: ...................[Sgd].....................
AssociateReturn of Summons Hearing 22 April 2010
Final submissions received 4 May 2010
Date of Decision 7 May 2010
Appearance for the Applicant Self-represented
Counsel for the Respondent Ms C Burnett
Solicitor for the Respondent ATO Legal Services
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