Steele v Dep Comm of Taxation

The case of *Steele v Deputy Commissioner of Taxation* concerned an appeal to the High Court of Australia by Mr Steele against a decision of the Federal Court of Australia. The dispute arose from the Commissioner of Taxation's assessment of additional income tax and penalties against Mr Steele, which he sought to challenge.

The central legal issue before the High Court was whether the Commissioner had validly exercised its discretion under section 226 of the *Income Tax Assessment Act 1936* (Cth) to issue an amended assessment for income tax and penalties. Specifically, the court had to determine if the Commissioner had reasonable grounds to believe that Mr Steele had made a false or misleading statement in his tax return, which is a prerequisite for exercising this discretion.

Gummow and Hayne JJ held that the Commissioner's belief that Mr Steele had made a false or misleading statement was not based on reasonable grounds. Their Honours found that the material before the Commissioner at the time of issuing the amended assessment did not support such a belief. The court applied the principle that the exercise of a statutory discretion must be based on a proper consideration of relevant material and must not be arbitrary or capricious. As the Commissioner's belief lacked a reasonable foundation, the discretion to amend the assessment was not validly exercised.

Consequently, the High Court allowed the appeal, setting aside the amended assessment issued by the Deputy Commissioner of Taxation.