The Taxpayer and Commissioner of Taxation - [2006] AATA 1013

Administrative

Appeals

Tribunal

DECISION AND REASONS FOR DECISION [2006] AATA 1013

ADMINISTRATIVE APPEALS TRIBUNAL TAXATION APPEALS DIVISION		) ) NT2005/171 )
Re	THE TAXPAYER
Applicant
And	COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal	The Hon R N J Purvis AM QC, Deputy President
Date	28 November 2006
Place	Sydney
Decision	The decision under review is affirmed.

____________________________
The Hon R N J Purvis AM QC
Deputy President

CATCHWORDS

TAXATION – fringe benefits tax – full and true disclosure of material facts in Return – self assessment – time at which full and true disclosure is to be made – principles applicable to full and true disclosure – insufficient disclosure – decision under review affirmed.

Fringe Benefits Tax Assessment Act 1986 (“the Act”); sections 20(b), 23, 24, 72, 73, 74

Income Tax Assessment Act 1936 (“ITAA”); sections 23L, 25-5, 82AAE, 170, 267(1)

Harris v Federal Commissioner of Taxation (2001) 189 ALR 61; (2002) 125 FCR 46

Prebble v Federal Commissioner of Taxation (2002) ATC 5045; (2003) 131 FCR 130

Federal Commissioner of Taxation v Swann Brewery Co Limited (1991) 30 FCR 553

Foster v Federal Commissioner of Taxation (1951) 82 CLR 606

Stamp v Federal Commissioner of Taxation (1988) 19 FCR 423

Levy v Federal Commissioner of Taxation (1961) 106 CLR 448

Federal Commissioner of Taxation v Broken Hill Pty Co Limited (2000) 179 ALR 593

Federal Commissioner of Taxation v Riverside Road Lodge Pty Limited (in liq) (1990) 23 FCR 305

Australasian Jam Co Pty Limited v Federal Commissioner of Taxation (1953) 88 CLR 23

Stapleton v Federal Commissioner of Taxation (1989) 88 ALR 606

MIM Holdings Limited v Federal Commissioner of Taxation (1997) 97 ATC 4420

W Thomas & Co Pty Limited v Federal Commissioner of Taxation (1965) 115 CLR 58

Re Boral Resources (WA) Pty Limited and Deputy Commissioner of Taxation (1998) 39 ATR 1173

Austin Distributors Pty Limited v Federal Commissioner of Taxation (1964) 13 ATD 429

REASONS FOR DECISION

28 November 2006	The Hon R N J Purvis AM QC, Deputy President
the application

The present application seeks review by the Tribunal of a decision made by a delegate of the Commissioner of Taxation (“the Respondent”) to issue to the Applicant an amended fringe benefits tax assessment in respect of the year ended 31 March 2000 (“the Relevant Year”) (“the Amended Assessment”).
It is maintained by the Applicant that the Respondent is precluded from issuing the Amended Assessment.
The Applicant bases its position on a contention that it made to the Respondent a full and true disclosure of all the material facts necessary for an assessment of tax payable by it to be made and pursuant to section 74 of the Fringe Benefits Tax Assessment Act 1986 (“the Act”) and the Respondent was able to issue an amended assessment only within a period of three years after the original assessment date in relation to the assessment (“the 3-year Limitation Period”). The Respondent issued the subject Amended Assessment on a date beyond the 3-year Limitation Period. The Respondent maintains that a full and true disclosure was not made.

background to the lodging of the fringe benefits tax return

The Applicant was registered on 30 April 1992, all of its shares being owned by N. Pty Limited. The ordinary shares in N. Pty Limited were owned by Mr D. J. O and members of his family, he being a director of the Applicant and N. Pty Limited.
On 7 May 1999 Mr D. J. O made a contribution of $5,000,000 to O. Nominees Pty Limited as trustee of the O. Superannuation Fund. The O. Superannuation Fund was a non-complying superannuation fund within the mean of subsection 267(1) of the Income Tax Assessment Act 1936 (“ITAA”). On 18 June 1999 Mr D. J. O paid $249,550 to a firm of solicitors for advice referrable to the structuring of the O. Superannuation Fund and other taxation issues. On 30 June 1999 the Applicant paid $5,249,550 to Mr D. J. O as a reimbursement of the amounts that he had paid. At the time of such payment it was believed by the Applicant and Mr D. J. O that the payment was an allowable deduction to Mr D. J. O pursuant to sections 25-5 and 82AAE of the ITAA.
There is now, and in the context of this application, no issue that the amount of $5,249,550 reimbursed by the Applicant to Mr D. J. O is a fringe benefit for the purposes of the Act, being a benefit provided to an employee by an employer in respect of his employment. By reason of section 20(b) of the Act reimbursement is an external expense payment fringe benefit, being an expense payment fringe benefit other than an in-house expense payment fringe benefit. The taxable value of the fringe benefit was $5,249,550 (section 23 of the Act) unless the section 24 “otherwise deductible” rule applied.
Under date of 26 May 2000 the Applicant lodged a fringe benefits tax return for the year ended 31 March 2000 (“the FBT Return”) with the Respondent. The FBT Return disclosed, as here relevant:
·That the Applicant had provided benefits described as “expense payment” with a gross taxable value of $5,249,550 with an equivalent value of reductions and “0” taxable value of the benefit. The stated nil taxable value of the “expense payment” was based upon the belief that it was an “expense payment fringe benefit” to which section 24 of the Act applied.
On 20 October 2004, the Respondent issued the Amended Assessment to the Applicant by which the amount of $5,249,550 was included in the aggregate fringe benefits for the purposes of the Act.
The Applicant on 15 December 2004 objected to the Amended Assessment. The objection was disallowed. The Applicant has applied to the Tribunal for review of the refusal decision.
The bases upon which the Applicant relies are:
·The Respondent is precluded from amending the original assessment and issuing the Amended Assessment by reason of the provision of section 74(1) of the Act and the issue of the Amended Assessment being beyond the 3-year Limitation Period allowed under section 74(3) of the Act.
·The Applicant made full and true disclosure of all material facts in order for an assessment to be made of the fringe benefits tax payable by the Applicant on the contribution and expenses.
By reason of the decisions in Harris v Federal Commissioner of Taxation (2001) 189 ALR 611; (2002) 125 FCR 46 and Prebble v Federal Commissioner of Taxation (2002) ATC 5045; (2003) 131 FCR 130, there is no issue that in the event of the Respondent being able to issue the Amended Assessment the Applicant is liable to pay in accord with it. That is, within the meaning of subsections 74(3)(b) and (c) of the Act, the Commissioner made an assessment and there was an avoidance of tax. The issue in this respect, for determination by the Tribunal, is whether the Applicant made full and true disclosure of all the material facts necessary for an assessment of the tax payable by it. The onus to so demonstrate is on the Applicant (Federal Commissioner of Taxation v Swann Brewery Co Limited (1991) 30 FCR 553, 562).
Thus it is maintained on behalf of the Respondent that the Applicant did not at or before the time of lodgement of its FBT Return make a full and true disclosure of all the material facts necessary to enable the Commissioner to determine whether the “otherwise deductible” rule in section 24 of the Act applied to reduce the taxable value of the expense payment fringe benefit of $5,249,550 to nil. This for the following reasons:
·The disclosure that was made in the FBT Return was inadequate.
·There was insufficient indication in the FBT Return to direct the Commissioner to the other material now relied on by the Applicant.
·Even if regard may be had to that other material, it does not disclose all the material facts necessary for the correct assessment of the fringe benefits tax payable by the Applicant for the relevant year.

full and true disclosure

Under the Income Tax Assessment Act 1936 (“ITAA”)

The provision of the ITAA referrable to “full and true disclosure” is contained in section 170 of that Act. This section, taken as at the time of the relevant High Court authorities and as is here relevant, provides to the following effect:
…
Section 170 Amendment of Assessments
(1)The Commissioner may, subject to this section, at any time amend any assessment … as he thinks necessary notwithstanding that tax may have been paid in respect of the assessment …,
(2)Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary of his assessment, and there has been an avoidance of tax, the Commissioner may
(a)Where he is of the opinion that the avoidance of tax is due to fraud or evasion – at any time; and
(b)In any other case – within six years from the dated on which the tax became due and payable under the assessment, amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax as the case may be.
(3)Where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment is made after that disclosure, no amendment of the assessment increasing the liability of the taxpayer in any particular shall be made except to correct an error in calculation or a mistake of fact.
…

Under the Fringe Benefits Tax Assessment Act 1986 (“the Act”) and self-assessment

The Act provides, as relevant to these reasons, that:
…
24.Reduction of taxable value—“otherwise deductible” rule
(1)Where:
(a)   the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;
(b)   if the recipient had, at the time when the recipients expenditure was incurred, incurred and paid unreimbursed expenditure (in this subsection called the “gross expenditure” ), in respect of the same matter in respect of which the recipients expenditure was incurred, equal to:
(i)in the case of an in‑house expense payment fringe benefit--the amount that, but for this subsection and Division 14 and the recipients contribution, would be the taxable value of the expense payment fringe benefit in relation to the year of tax; or
(ii)in the case of an external expense payment fringe benefit--the amount of the recipients expenditure;
a once‑only deduction (in this subsection called the gross deduction), other than a foreign income deduction, would, or would if not for section 82A and subdivisions F, GA and G of Division 3 of Part III, of the Income Tax Assessment Act 1936 , and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient under either of those Acts in respect of the gross expenditure;
…
(c)   in the case of an expense payment fringe benefit that is not an eligible incidental travel expense payment benefit or an eligible overtime meal expense payment benefit:
…
(ii)in any other case--documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date;
(d)   …
(e)   except where the expense payment fringe benefit is:
(i)an exclusive employee expense payment benefit;
(ia)covered by a recurring fringe benefit declaration (see section 152A);
(ii)an eligible overtime meal expense payment benefit;
(iii)an eligible incidental travel expense payment benefit;
(iv)an extended travel expense payment benefit; or
(v)a car expense payment benefit;
the recipient gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, in respect of the recipients expenditure;
…
72.First return deemed to be an assessment
Where:
(a)at a particular time, a return under this Act in relation to an employer in relation to a year of tax is furnished; and
(b)before that time, no return has been furnished, and no assessment has been made, in relation to the employer in relation to the year of tax;
the following provisions have effect:
(c)the Commissioner shall be deemed at that time to have made an assessment (in this section referred to as the “deemed assessment”) of:
(i)     the fringe benefits taxable amount (including a nil amount) of the employer of the year of tax; and
(ii)    the amount (including a nil amount) of tax payable on that fringe benefits taxable amount;
being those respective amounts as specified in the return referred to in paragraph (a);
(d)the return referred to in paragraph (a) shall be deemed to be a notice of the deemed assessment and to be under the hand of the Commissioner;
(e)the notice referred to in paragraph (d) shall be deemed to have been served at that time on the person liable to pay the tax.
73.Default assessments
…
74.Amendment of assessments
(1)The Commissioner may, at any time within a period of 3 years after the original assessment date in relation to an assessment, amend the assessment by making such alterations or additions to it as the Commissioner thinks necessary.
(2)Subject to this section, the Commissioner may, after the end of 3 years after the original assessment date in relation to an assessment, amend the assessment by making such alterations or additions to it as the Commissioner thinks necessary.
(3)Where:
(a)   An employer does not make a full and true disclosure of all the material facts necessary for an assessment of the tax payable by the employer;
(b)   The Commissioner makes an assessment; and
(c)   There is an avoidance of tax,
the Commissioner may:
(d)   Where the Commissioner is of the opinion that the avoidance of tax is due to fraud or evasion – at any time; and
(e)   In any other case – within 6 years after the original assessment date in relation to the assessment,
amend the assessment by making such alterations or additions to it as the Commissioner thinks necessary.
…
Unlike the position under the ITAA the above provisions of the Act deem the FBT Return as lodged by the employer to be the assessment. Thus when the subject FBT Return was lodged an assessment was deemed to have been made by the Respondent. It is the “original assessment” as referred to in the section. The “original assessment” was then made on 26 May 2000 the 3-year Limitation Period expiring on 26 May 2003 and the 6-year Limitation Period on 26 May 2006.
In a self-assessment regime it is not for the Commissioner to examine the material provided and then on the basis of such material with or without qualification or clarification issue an assessment. The obligation resting upon a taxpayer is not lessened with self-assessment. If anything it is heightened.

Principles applicable to full and true disclosure

The proper construction to be applied to the words “full and true disclosure” in the context of the above legislation and as relevant to the present application has been considered in a number of decided cases. The following relevant principles emerge:
(a)“…it is not possible, according to the ordinary use of language to disclose to a person a fact of which he is, to the knowledge of the person making a statement as to the fact, already aware” (Foster v Federal Commissioner of Taxation (1951) 82 CLR 606, 615).
(b)“…a taxpayer can hardly be said to fail to disclose to the commissioner a fact that is not only within the commissioner’s knowledge in connection with the exercise of his functions in the very matter, but which the taxpayer knows so to be within his knowledge” (Foster (supra) at 619). Thus a “taxpayer is excused from disclosure of facts in the Commissioner’s possession if he or she knows that the Commissioner has them” (Stamp v Federal Commissioner of Taxation (1988) 19 FCR 423, 431). But “no construction…can be advanced which saves a taxpayer who has simply told the Commissioner nothing about the facts necessary for assessment” (Stamp (supra) at 431).
(c)“Disclosure consists in the statement of a fact by way of disclosure so as to reveal or make apparent that which (so far as the “discloser” knows) was previously unknown to the person to whom the statement was made” (Foster (supra) at 615).
(d)“The limitation upon the commissioner’s power of amendment arise under s 170(3) where a taxpayer has made to the commissioner a full and true disclosure of all the material facts necessary for the assessment, and an assessment is made after the disclosure” (Foster (supra) at 618).
(e)Every material fact necessary for the assessment is to be disclosed to the Commissioner before he makes the original assessment. It is the incompleteness in the department’s information at the time of the assessment that is relevant (Levy v Federal Commissioner of Taxation (1961) 106 CLR 448, 457).
(f)It is not open to the Commissioner to elect to treat the figures shown in a taxpayer’s return as correct “knowing full well what the true facts were and that in the light of those facts the figures might not be correct” (Levy (supra) at 470).
(g)The requirement is not met by anything less than full disclosure of all the material facts and a disclosure which leaves the Commissioner to speculate as to some of the material facts is not sufficient. The matter can be tested in this way: If advice were to have been sought by the taxpayer whether or not the sum in question was for example a taxable premium, would the person from whom the advice was sought have required more information than the FBT Return disclosed to the Commissioner? The latter is subject to the qualifications that:
-A prudent adviser might require further information but the receipt of which might prove immaterial;
-Disclosure might not only come from a return but also material such as correspondence with the Commissioner, a different return or even a different taxpayer;
-A taxpayer is not required to disclose that which is already known to the Commissioner (Federal Commissioner of Taxation v Broken Hill Pty Co Limited (2000) 179 ALR 593, 607); and
-There is no full and true disclosure “where a taxpayer has left the Commissioner uninformed or incorrectly informed up to the time of assessment of a material fact. However once the true facts have been made known to the Commissioner there is a full and true disclosure.” Oral disclosure is sufficient to enable an item to be fully understood (Broken Hill (supra) at 607).
(h)“…it is of the essence of a “full and true” disclosure that it be made without any accompanying misrepresentation” (Broken Hill (supra) at 615).
(i)“The mere simultaneous lodgement of returns will not enable a taxpayer to gain support from another return. At the very least the taxpayer’s return must make mention of the other return in such a way as to incorporate by reference material in the other return” (FederalCommissioner of Taxation v Riverside Road Lodge Pty Limited (in liq) (1990) 23 FCR 305, 317).
(j)“…what must be disclosed fully and truly are all the material facts necessary for the assessment of the taxpayer”; that is the assessment of “the amount of taxable income and the tax payable thereon” (Riverside (supra) at 318).
(k)“Where further information of a material kind must be forthcoming before the quantum of tax can be assessed, it cannot be said that there is a full disclosure of the material facts necessary for the assessment” (Riverside (supra) at 318).
(l)“…even a merely inadvertent omission of a material fact may be enough to enable the Commissioner to maintain that the full and true disclosure required has not been made” (Australasian Jam Co Pty Limited v Federal Commissioner of Taxation (1953) 88 CLR 23, 33).
(m)“Any omission must be a material one, for the full and true disclosure of which the section speaks is a full a true disclosure of all the material facts” (Stapleton v Federal Commissioner of Taxation (1989) 88 ALR 606, 618; MIM Holdings Limited v Federal Commissioner of Taxation (1997) 97 ATC 4420, 4431).
(n)The purpose of section 170(2) is to ensure that the Commissioner is given an adequate opportunity to consider properly whether a particular receipt is assessable or a particular outgoing is an allowable deduction (Stapleton (supra) at 4829, MIM Holdings (supra) at 4431).
(o)“The mere fact that there has been a submission in a return as to the character of a payment which turns out not to be accepted by a Court does not bring about a lack of full and true disclosure if otherwise all relevant facts have been disclosed” (MIM Holdings (supra) at 4431).
(p)Would non-disclosure of a particular fact render it impossible for the Commissioner or anyone else to determine the character of a payment or receipt (MIM Holdings (supra) at 4431).
(q)A broad construction should be given to the words “so as to encompass inter alia any reasonable, express or implicit indication by the taxpayer as to where the material facts may be found” (Stamp (supra) at 431).
(r)What must be disclosed are the material facts concerning a particular receipt or expenditure and the nature of the purpose for which it was incurred (W Thomas & Co Pty Limited v Federal Commissioner of Taxation (1965) 115 CLR 58, 76).

time at which full and true disclosure is to be made

The primary submission of the Applicant is that the Respondent knew or had in its possession all of the relevant information at the time of the assessment. Under the self-assessment regime the lodgement of the return has the effect of making the assessment, and a full and true disclosure had been made by the Applicant at that time.
In the alternative, the Applicant contends, that under the fringe benefits tax regime the full and true disclosure does not have to be made before the assessment as long as it is made before the end of the three-year period referred to in section 74(1) of the Act. If it be not so, it is said then that the full and true disclosure provisions in the context of self-assessment has nothing to operate on and “that can’t be right” (Transcript of Proceedings, The Taxpayer v Commissioner of Taxation (Administrative Appeals Tribunal, The Hon R N J Purvis AM QC, Deputy President, 22 August 2006) at 37).
The Respondent on the other hand refers to section 74(3) and submits that the sequence of the subsections (a), (b) and (c) evidences their need for the full and true disclosure referred to in (a) to precede the making of the assessment referred to in (b) which is the deemed assessment referred to in section 72(c). Thus the full and true disclosure required under (a) “is the full and true disclosure necessary for an assessment” (Transcript of Proceedings (supra) at 49) and the Respondent then makes the assessment the deemed assessment. Supportive of this position is the declaration made by an employer on the FBT Return, namely:
…
We … declare that the particulars shown in this return, and any accompanying documents, are true and correct in every detail and disclose a full and complete statement of the net amount of all taxable fringe benefits provided to current, future and former employees and associates.
…

The form contemplates that a taxpayer “in accompanying documents to the form” could disclose other material that was felt necessary to a correct making of the assessment (Transcript of Proceedings (supra) at 49).
Needless to say, a taxpayer prior to, as well as at the time of lodging a return, may provide information to the Respondent. Full and true disclosure is then to be made prior to the assessment. If this was not so, a taxpayer consistent with the Applicant’s argument could continue to lodge material referrable to the return up until the end of the three year period.
I am of the opinion that section 74 is explicit in its terms and in the sequence of events. It is where the employer does not make a full and true disclosure (section 74(3)(a)), an assessment is made (section 74(3)(b) and section 72), and there is an avoidance of tax (section 74(3)(c)) that an amended assessment is able to be issued. It is clearly not a matter of looking to “a disclosure after the date of the deemed assessment” (Transcript of Proceedings (supra) at 49).
I am satisfied that it is as to the information provided to the Respondent at or prior to the lodgement of the return that the words “full and true” refer. No information provided subsequent to the deemed assessment will preclude the six-year period running for the issue of an amended assessment.

material facts necessary for an assessment of whether the applicant was liable to pay the fbt on the “expense payment” of $5,249,550

According to the Applicant, the material facts necessary for the assessment to issue, rendering the Applicant liable to pay the fringe benefits tax as per the Amended Assessment were:
(a)Mr D. J. O was a director and hence an employee of the Applicant;
(b)Mr D. J. O was a controlling shareholder of the Applicant;
(c)The existence of a non-complying superannuation fund established by Mr D. J. O;
(d)Mr D. J. O had made a contribution of $5,000,000 to the O. Superannuation Fund; and
(e)The Applicant had reimbursed Mr D. J. O for the contribution and treated the payment as an “expense payment”.
It is further submitted on behalf of the Applicant that in assessing whether full and true disclosure was made, regard is to be had to the information in the Applicant’s FBT Return, the income tax return of the Applicant and Mr D. J. O as well as other information in possession of the Commissioner concerning Mr D. J. O. In the latter context I would have thought that information concerning the Applicant was the more important.
This submission, it is said, arises from the “limited nature of the requirements for disclosure within the FBT return forms” (Re Boral Resources (WA) Pty Limited and the Deputy Commissioner of Taxation (1998) 39 ATR 1173, 1184). Even be this so, it is noted that on the FBT Return form reference is made to “accompanying documents”. It is also contended that in assessing whether full and true disclosure was made account is to be taken of material in the Commissioner’s knowledge even if the relevant taxpayer fails to advert to it. However, I am of the opinion that explicit or implicit reference to other material is necessary, the same being thereby then incorporated into the FBT Return by such reference.
The Applicant also maintains that when the Applicant’s FBT Return was combined with the Applicant’s income tax return, it was disclosed to the Commissioner that the “expense payment” in the Applicant’s FBT Return was the “employee remuneration” of $5,249,550 referred to in the Applicant’s income tax return. The amounts it is said were precisely the same and there was no other item in the Applicant’s income tax return which could account for it. However, as I see it, this could only be so by the Commissioner noting identical amounts in the two documents and then speculating as to the identity of the two amounts.
It is further maintained, that in its tax return, the Applicant disclosed that the “employee remuneration” of $5,249,550 had been paid to Mr D. J. O and therein made reference to his tax file number. The Commissioner, it is said, was thereby explicitly directed, in order to ascertain the nature of the “expense payment”, to the information contained in Mr D. J. O’s income tax return including, it is also said, information in the application for a private ruling which accompanied that return. Information contained in the questionnaire was also in the possession of the Commissioner.
On the other hand it is maintained on behalf of the Respondent that:
(a)In order for the Respondent to determine whether section 24 of the Act applied to reduce the taxable value to nil, as stated in the FBT Return, it was necessary to have regard separately to each of the components of the amount of $5,249,550; that is the $5,000,000 paid to the O. Superannuation Fund and the $249,550 paid to the solicitors.
(b)In order for each of the prerequisites referrable to the reimbursement of the $5,000,000 to be satisfied the following facts need to be established, namely that:
(i)The Applicant reimbursed Mr D. J. O the $5,000,000 during the Relevant Year in respect of the contribution made by Mr D. J. O to a non-complying superannuation fund (section 24(1)(a)).
(ii)Mr D. J. O was an employee of the Applicant (section 24(1)(a)).
(iii)That if Mr D. J. O had incurred and paid un-reimbursed expenditure of $5,000,000 in respect of the above contribution a once-only deduction of $5,000,000 would have been allowed to him in respect of that expenditure. In this event the relevant facts needed to be established would be:
· The amount of $5,000,000 was paid by Mr D. J. O in the 2000 FBT year as a contribution to a non-complying superannuation fund (section 82AAE of the ITAA);
·        That contribution was made for the purpose of making provision for superannuation benefits for Mr D. J. O (section 82AAE);
·        That Mr D. J. O was a taxpayer, a director of the Applicant and engaged in the business of the Applicant (an employee of the Applicant); and
·        That Mr D. J. O had a controlling interest in the Applicant.
(iv)That Mr D. J. O obtained documentary evidence of the contribution made by him to the non-complying superannuation fund and that documentary evidence, or a copy of it, was given to the Applicant before the date of lodgement of the FBT Return (section 24(1)(c)(ii) of the Act).
(v)That Mr D. J. O gave to the Applicant before the date of lodgement of the FBT Return, a declaration in the approved form in respect of the contribution of $5,000,000 (section 24(1)(e) of the Act).
(c)In order for the prerequisites referrable to the reimbursement of the $249,550 to be satisfied, the following facts need to be established:
(i)That the Applicant reimbursed to Mr D. J. O the amount of $249,550 during the 2000 FBT year in respect of tax advice provided to Mr D. J. O and that Mr D. J. O was an employee of the Applicant.
(ii)That if Mr D. J. O had incurred and paid un-reimbursed expenditure of $249,550 in respect of the tax advice a once-only deduction of $249,550 would have been allowed to him under either the ITAA 1936 or the ITAA 1997 in respect of that expenditure. To the extent that any deduction would be available for the tax advice, it would be under section 25-5 of the ITAA 1997. The relevant facts for a deduction to be available under section 25-5 it is maintained are:
·        That the amount of $249,550 was paid by Mr D. J. O for advice about managing his tax affairs or about complying with an obligation imposed on him by a Commonwealth law that relates to the tax affairs of an entity;
·        That the advice was provided by a solicitor or registered tax agent; and
·        That the payment was not capital expenditure.
(iii)That Mr D. J. O obtained documentary evidence of the payment of the amount of $249,550 and that documentary evidence or a copy was given to the Applicant before the date of lodgement of the 2000 FBT Return.
(iv)That Mr D. J. O gave to the Applicant before the date of lodgement of the FBT Return a declaration in the approved form in respect of the amount of $249,550.

fbt return 31 march 2000 – material information disclosed

The disclosures made by the Applicant as relevant to this decision in the FBT Return are:
(a)One employee only received an expense payment fringe benefit of $5,249,550;
(b)There were not less than five employees of the Applicant;
(c)The taxable amount of the benefit was $5,249,550;
(d)The value of deductions was $5,249,550;
(e)The taxable value of the benefit was nil;
(f)The particulars shown in the FBT Return are true and correct in every detail; and
(g)The particulars shown in the FBT Return disclose a full and complete statement of the net amount of all taxable fringe benefits provided.

application for a private ruling – material information disclosed

As maintained by the Applicant the above application disclosed to the Commissioner:
(a)“the Rulee” (identified as Mr D. J. O) “has made a contribution to a non-complying superannuation fund in his capacity as a shareholder with a controlling interest in a private company”;
(b)The Rulee had made the contribution for the purpose of making provision for superannuation benefits for an eligible employee of the company – the Rulee;
(c)The Rulee was a director of the company and was therefore employed by the company as a common law employee;
(d)The “amount of income, deduction, rebate and/or credit” which the application for ruling applied to was $5,000,000.
The application for a private ruling sought rulings as to whether a contribution to a non-complying superannuation fund was deductible under section 82AAE of the ITAA. The application also asked “if an employer of the Rulee reimburses the Rulee for the expense of making the contribution is the receipt of the reimbursement assessable to the Rulee”. The Applicant maintains that the raising of the enquiry in the request for a private ruling informed the Respondent of the fact that the Applicant reimbursed Mr D. J. O in the amount of $5,000,000 during the period in respect of the contribution made by him to a non-compliant superannuation fund. “The question is pointless”, it is said, “if not in the context of the very thing” the Respondent “now says needs to be asked” (Transcript of Proceedings (supra) at 45).
As to the “once only deduction” information, it is said that a reasonable person (viz the Respondent) could only construe the request as so relating.
The Respondent says that the material disclosed in the request for private ruling cannot be relied upon as it was third-party material to which the Respondent’s attention was not drawn in the context of the FBT Return. The Tribunal agrees with the submission made on behalf of the Respondent.

high wealth individual questionnaire – material information disclosed

The information contained in the completed questionnaire was that Mr D. J. O was a shareholder in the holding company of the Applicant and an officer of the Applicant.
The DJO group of companies is identified together with their inter-relationship and shareholdings. There is not however a disclosure that Mr D. J. O is a controlling shareholder or has a controlling interest and shareholding in a particular private company. There is not a disclosure of the company in which there might be such an interest. It could have been one of a number of companies.

mr d. j. o income tax return lodged 31 march 2000

It was disclosed to the Commissioner in the income tax return:
(a)That Mr D. J. O’s occupation was a “company director” of the Applicant and his income from that was $30,000;
(b)That Mr D. J. O claimed total deductions of $13,334;
(c)That Mr D. J. O had sought a private ruling identified as “controlling interest superannuation fund contribution”;
(d)In an asset and liability statement annexed to Mr D. J. O’s income tax return, it was disclosed that he had $5,000,000 invested in the O. Superannuation Fund;

applicant’s income tax return lodged 20 april 2000

It is maintained on behalf of the Applicant that the abovementioned return disclosed the following relevant material facts to the Commissioner:
(a)Detail of expenses incurred relating to associated persons or entities being “employee remuneration” to Mr D. J. O in the amount of $5,249,550. His tax file number was disclosed;
(b)N. Pty Limited was shown as the sole shareholder of the Applicant;
(c)Loans to directors including Mr D. J. O; and
(d)In the Applicant’s trading account for the year ended 30 June 1999 “employee remuneration” was shown as an “expense” in the amount of $5,249,550.

factual material available to or disclosed to the respondent at the time of lodgement of the fbt return

Consistent with the principles enunciated above in assessing whether full and true disclosure was made, regard can be had to the information in the FBT Return itself, together with such other material as had prior to the date of the FBT Return, to the knowledge of the Applicant, been disclosed to the Commissioner. The latter included the income tax returns of the Applicant and Mr D. J. O lodged on 20 April 2000 and 31 March 2000 respectively. The income tax return of the Applicant disclosed to the Commissioner that the expense payment in the FBT Return was in the same amount as the item “employee remuneration”, the recipient stated as having been Mr D. J. O in the Applicant’s return. The tax file number of Mr D. J. O, as has already been noted, was stated on the Applicant’s return.
It is then contended that in order to ascertain the nature of the “expense payment” the Commissioner could refer to Mr D. J. O’s return item 9 where under the heading “private rulings” mention is made of a question being raised in the request for a private ruling as to “controlling interests superannuation distribution”. Reference could also have been made by the Commissioner to information provided earlier in answer to a “high wealth individual” questionnaire of 20 October 1998.
On the basis of the above it is submitted on behalf of the Applicant that:
(a)It had been disclosed to the Commissioner that Mr D. J. O was a director (and therefore employee) of the Applicant and through his shareholding in N. Pty Limited a controller of the Applicant;
(b)It had been disclosed to the Commissioner that Mr D. J. O had established a non-complying superannuation fund and contributed an amount in the order of $5,000,000 to that fund for the benefit of an employee (namely, himself) of a company of which he was a controller;
(c)It had been disclosed to the Commissioner that the Applicant was the company which was the subject of the contribution disclosed in the application for private ruling. On the information in the possession of the Commissioner the only company which fitted that description of being one of which Mr D. J. O was at once an employee and controller was the Applicant;
(d)It had been disclosed to the Commissioner that the Applicant reimbursed Mr D. J. O for the amount of the contribution to the non-complying superannuation fund and that this reimbursement was the “expense payment” in the Applicant’s FBT Return. This arose, it was said, from:
(i)The fact that the reimbursement had been adverted to in the application for private ruling;
(ii)Exact coincidence in the particular amounts between the “expense payment” in the Applicant’s FBT Return and the particular amount of the contribution; and
(iii)The failure of Mr D. J. O to claim a deduction for the contribution to the O. Superannuation Fund in his income tax return.
A rhetorical question is then asked on behalf of the Applicant, namely “why … would [Mr D. J. O] having sought a ruling in respect of the deductibility of the contribution to the [O. Superannuation Fund] fail to claim a deduction in respect of it unless [the Applicant] had reimbursed him for it?” It may be that the very raising of this question illustrates what might have been the need of the Commissioner to speculate or seek further material facts.
It is then maintained that an adviser being in possession of the above information would have been able to inform the Applicant of its liability to pay fringe benefits tax. Further provision of additional information by the Applicant to the Commissioner would merely have been “explanatory detail confirmatory of a conclusion that he could and should have reached on the facts before him” in accord with W Thomas & Co (supra) 58, 75.

enquiries made by the respondent and information obtained after the 2000 return was lodged

Counsel on behalf of the Applicant maintained that as at 8 May 2002 “the Commissioner had all the information he thought he needed to raise the assessment that he thought he needed to make and … by that date there had been on any view full and true disclosure …” (Transcript of Proceedings (supra) at 14) It is of interest, if not moment, in this decision to note the information that came to the Respondent’s attention after the lodging of the return and up until 8 May 2002. Was it relevant information that should have been disclosed prior to lodging the return? That if so, there clearly was a failure to make full and true disclosure. The information that became available was contained or detailed in the following material:
(a)Letter from the Respondent to Mr D. J. O dated 30 March 2001;
(b)Letter from the Respondent to Mr D. J. O dated 15 May 2001;
(c)Letter from the Respondent to Ms Deborah Cartwright re income tax Mr D. J. O dated 22 February 2002;
(d)Letter from chartered accountants to the Respondent dated 12 April 2002; and
(e)Audit report dated 8 May 2002.
In addition to the material contained in the above Respondent’s documents the Respondent was, subsequent to this lodgement of the FBT Return, provided with documentation referrable to the Superannuation Fund, Deed of Contribution and Company resolutions.

insufficiency of disclosed material

The Respondent accepts that there is not a failure to make a full and true disclosure where a material fact is already known to the Commissioner in connection with his functions in the very matter at issue and of which the taxpayer knows the Commissioner is aware (Foster (supra) 619). And, that disclosure may be made through another return or document provided to the Commissioner where there is a reasonable express or implicit indication by the taxpayer that the material facts are to be found there (Stamp (supra) 431). But neither situation exists in the present instance.
It was submitted that a taxpayer’s return must make mention of the material so as to incorporate it by reference to the taxpayer’s return (Riverside (supra) at 317). Clearly, there can be material disclosed to the Commissioner in the course of, for example, correspondence which by implication can be relevant to the information in a return. It is not necessary for the taxpayer’s return itself to make mention of the material. It can be provided by explicit or implicit reference to another document.
The reason why there is to be a reasonable indication of where material facts are to be found is in order that the Commissioner be given an adequate opportunity of considering the correctness or otherwise of the deemed assessment which arises on lodgement of the return. I do not consider that this indication need be on the face of the return or that there must be some reference in a return to other relevant returns or material. However, it is necessary for a taxpayer to give reasonable indication to the Commissioner of a need on the Commissioner’s part to have regard to material other than the return in order that the correctness or otherwise of the assessment can be ascertained. The indication must be reasonable and it must be express or implicit.
The Respondent contends that the Commissioner did not have the other information relied on by the Applicant concerning the Applicant’s liability for fringe benefits tax in the 2000 fringe benefits tax year. Nor did the Applicant indicate in any document accompanying the FBT Return that the Commissioner should have regard to the Applicant’s income tax return and/or to Mr D. J. O’s income tax return. Again the reference in the FBT Return to “one” employee only receiving the benefit, when the Applicant retained not less than five employees, did not implicitly indicate that Mr D. J. O was the employee who had received the expense payment fringe benefit. Moreover, at the time the return was lodged on 26 May 2000 the Applicant and Mr D. J. O were aware by reason of media releases in 1999 (Exhibit 1) referrable to employee benefit arrangements of the Commissioner’s concern and position.
Even if the material relied upon by the Applicant was available to the Commissioner this was not such as would enable a determination to be made of whether the amount claimed was otherwise deductible (section 24 of the Act). The only material fact referrable to the $5,000,000 amount was that Mr D. J. O was a taxpayer, a director of the Applicant engaged in its business and an employee. As to the amount of $249,550 no one of the material facts identified under the heading “material facts necessary for an assessment of whether the Applicant was liable to pay the fringe benefit tax on the “expense payment” of $5,249,550” above detailed were disclosed.
It is maintained that the Respondent was required on the basis of the material that was disclosed to speculate as to some of the material facts and this is not sufficient. Thus even if the material relied upon by the Applicant is taken into account there is not a full and true disclosure of all the material facts at or before lodgement of the FBT Return.
It is said on behalf of the Respondent that a key matter for determination with respect to fringe benefits tax is; what is the taxable value of the fringe benefit? As relevant to the present application concern is with expense payment fringe benefits and where a person reimburses another person in whole or in part in respect of an amount of expenditure incurred by a recipient. It is the reimbursement that is taken to be the provision of a fringe benefit.
Thus, one has to determine that there was an expense payments fringe benefit, and determine who was the recipient and who was the employer. Then the “otherwise deductible” rule is to be applied; that is whether the recipient had incurred un-reimbursed expenditure at the time the reimbursement occurred (section 24(1)(b) of the Act). There is then the provision of documentary evidence (section 24(1)(c)) of the recipient’s expenditure and a declaration as to such expenditure. In order for the Respondent to be able to determine whether the “otherwise deductible” rule applies, there needs to be a determination as to satisfaction with each of these prerequisites.
Because there was a reimbursement of two separate items of expenditure incurred by the Applicant (viz the $5,000,000 contribution and the $249,550 account for tax advice), section 24(1)(b) has to be applied to each of the un-reimbursed expenditures. There needs to be disclosure of the fact that the requirements of the section were satisfied; this to be shown in material accompanying the return in the form of a statement as to those matters relevant to a calculation of the fringe benefits taxable amount. But further, there is not anything in the ruling document to indicate that the money was paid for tax advice. Even though mention is made of advice being given it is a matter of speculation that this payment was in respect of such advice.
The Respondent needs to have before him at the time of the deemed assessment sufficient information to determine if the assessment is correct. He needs to be able to satisfy himself that the prerequisites to the application of section 24; that is the making of the expense payment by an employer to an employee, the application of the “otherwise deductible” rule and the provision of the two forms of documentary evidence. That is, the Applicant needed to disclose facts which would enable the Respondent to do the analysis required to be done to determine the application or otherwise of section 24.
Whilst it is apparent from the Applicant’s tax return that an amount was paid, it was not known that this was paid in reimbursement of the two amounts of $5,000,000 and $249,550 to satisfy the “otherwise deductible” rule. There was no disclosure of this fact or facts that would lead to a relevant conclusion. As submitted, “It doesn’t go anywhere near … providing facts on which the Commissioner can assess whether the “otherwise deductible” rule applies so as to reduce the taxable value to nil”. Overall it is said that looking at all of the material available to the Respondent as at 26 May 2000, the Respondent was still led to speculate as to key facts that go to whether section 24 of the Act was satisfied. More specifically in the sense of the words used in Austin Distributors Pty Limited v Federal Commissioner of Taxation 13 ATD 429 if advice had been sought as to whether the taxable value of the two payments were reduced to nil there was not enough information to give any such advice. More information would need to be sought. Alternatively, one would have to speculate as to such additional information in order to determine whether the prerequisites of the section had been satisfied. It is the material facts necessary for the assessment of the taxpayer that need to be disclosed; that is the ascertainment of the amount of the fringe benefits, the taxable amount and the tax payable.
The Respondent had the FBT Return and the income tax return. They can be read together. Remuneration had been provided to a single taxpayer, Mr D. J. O. The Respondent was not informed as to the components of the reimbursement and did not have sufficient information to ascertain the taxable value (section 24). The abovementioned prerequisites need to be known before the section 24 calculation can be made.
A deduction is claimed pursuant to section 82AAE of the ITAA. As outlined on behalf of the Respondent:
“…
… It is a deduction for contribution to a non-complying fund for the purpose of making provision for superannuation benefits for an eligible employee. So there are three key elements to this action [sic]. There has to be a contribution to a non-complying fund. That contribution must be the purpose of making provisions of superannuation benefits.
… It must be for making the benefits for [an] eligible employee …
…
…the person concerned [must] be engaged in producing assessable income, be a resident of Australia and be engaged in the business of the taxpayer. So there are all these limbs that must be satisfied in order for the otherwise deductible rule to be satisfied in relation to the $5 million. Then if one considers the other component of the reimbursement … there isn’t a blanket deduction for payment for tax advice. … The mere fact that you pay an amount for tax advice doesn’t make it deductible under Section 25(5).
You have to comply with the requirements of A, B or C from 25(5)(1). The payment must be for managing the tax affairs or for complying with an obligation imposed by Commonwealth law etcetera. … we had no inclination that the figure $229,550 was a payment for advice …
So the point is that was a key element of the application of the otherwise deductible rule that the reimbursed expenditure was in respect of advice provided by a recognised tax adviser. The fact that it was not drawn to our attention until the relevant time.” (Transcript of Proceedings (supra) at 59 - 60).

The ITAA requires that in order for a determination to be made as to the reduction of an otherwise taxable value to zero, the statutory test is to be applied separately to each of the two component payments.
There was an insufficient disclosure in the answer to the questionnaire that Mr D. J. O was a controlling shareholder of any of the designated three companies. One might speculate to this effect but it was not disclosed. Further the income tax return of Mr D. J. O lodged on 31 March 2000 was at the least misleading when it, in effect, stated in answer to question 7(m) that Mr D. J. O did not derive any income exempt from Australian income tax even be it that section 23L of the ITAA provides that the provision of fringe benefits gives rise to exempt income being derived by a taxpayer. As submitted on behalf of the Respondent (with which submission the Tribunal agrees):
“… it’s in fact essential to the scheme that [Mr D. J. O] entered into, integral to that scheme that the reimbursement of the amount to be paid was a fringe benefit so that it was exempt from tax and under section 23L but subject to tax under the FBT regime to the employer subject to the application of the otherwise deductible rule which was expected to reduce the tax to nil. So it’s the key element of the scheme that the taxpayer would derive a benefit that would be in fact exempt income and in fact as we have seen earlier the taxpayer derives what is referred to as employee remuneration, the figure of $5,249,550 which is clearly income. The only reason it’s not income is that its exempt income under section 23L but notwithstanding that the taxpayer has answered the question, no.
So if anything was calculated to put the Commissioner off the scent, that this was all to be read together with the FBT return, it’s the answer to question 7(m). We say that really asked the question 7(m), if one gets to this tax return of [Mr D. J. O,] one doesn’t go any further because the Commissioner has really told – the taxpayer has told the Commissioner that he need look no further, he did not derive any exempt income throughout that year. … the question of section 23L applies is not affected by whether the fringe benefit is taxable in the hands of the employer. The provision of a fringe benefit is subject to tax on the employer, subject to the otherwise deductible rules we saw a moment but that doesn’t affect the taxpayer’s admission. He is exempt from tax on the fringe benefit irrespective of whether the employer is subject to tax on the fringe benefit.
Section 23L is not conditioned on whether the employer is subject to tax on the fringe benefit. It is sufficient and a necessary condition merely that the provision of the income that is concerned is the provision of a fringe benefit. So the answer to that question was not affected by the question whether fringe benefits tax was payable by [the Applicant]. So we say it was an incorrect answer to the question and at the very least it led the Commissioner to stop…” (Transcript of Proceedings (supra) at 66 - 67)

As to the application for a private ruling, no one of the questions indicated that the anticipated event had in fact occurred or that the reimbursement had likewise actually occurred. For the Respondent to apply the “otherwise deductible” rule to the relevant facts there needs to have been a reimbursement of both the contribution to the superannuation fund and the payment for the tax advice. There was not any information to this effect provided to the Respondent up until the time of lodgement of the return. Whilst there may be a statement as to an expense to the Applicant by way of employee remuneration of Mr D. J. O, this is inconsistent with the individual return where there is not a disclosure of an employee remuneration of that amount being derived.
As to the Applicant’s tax return, when answering the question as to whether the company or any person on the company’s behalf applied to the Respondent for a private ruling on the way in which the law applies to the company, the answer given was “No”. The ruling request was in respect of the affairs of Mr D. J. O. As was submitted on behalf of the Respondent, with which submission this Tribunal concurs:
“… but so far as there is some suggestion that the ruling request is going to the affairs of the taxpayer, [the Applicant] in some way assisting in drawing to the Commissioner’s attention that there’s a fringe benefit provided by [the Applicant] and that is of course what this case is about, it’s not about whether [Mr D. J. O] is entitled to tax deduction for his superannuation contribution or the amount he paid for tax advice or whether he had disclosed those matters to the Commissioner, it’s about whether [the Applicant] is liable to fringe benefits tax on the reimbursement it made to [Mr D. J. O] and whether it has made a full and true disclosure of the facts that the Commissioner would need to know in order to determine whether the otherwise deductible would apply.
… What you might have expected if the taxpayer [the Applicant], was truly trying to draw the Commissioner’s attention to the material facts about the reimbursement is evidence said …, no, we haven’t sought a ruling but [Mr D. J. O], the person to whom we’ve made a reimbursement of 5,249,550 has sought a ruling and you can find his ruling request here. … Some cross referencing in response to that very direct question would have been at the very least informative …” (Transcript of Proceedings (supra) at 71 - 72).

The Tribunal is satisfied on the basis of the evidence before it that, as at 26 May 2000, the Respondent did not have sufficient material facts upon which he could make a correct assessment. Accordingly, the Respondent was able to issue the subject amended assessment. The decision under review is affirmed.

I certify that the 64 preceding paragraphs are a true copy of the reasons for the decision herein of

Signed: .................[Emily Gadsby]................
Associate

Date/s of Hearing  22 August 2006
Date of Decision  28 November 2006
Counsel for the Applicant         Mr G Pagone
Solicitor for the Applicant          Mr AJ Payne
Counsel for the Respondent     Mr M Richmond
Solicitor for the Respondent     Ms K Deards