THE TRUSTEE FOR THE DALBY FAMILY TRUST and COMMISSIONER OF TAXATION (Taxation)

[2019] AATA 5241

THE TRUSTEE FOR THE DALBY FAMILY TRUST and COMMISSIONER OF TAXATION (Taxation) [2019] AATA 5241 (27 November 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:           2019/0408

Re:THE TRUSTEE FOR THE DALBY FAMILY TRUST

APPLICANT

AndCOMMISSIONER OF TAXATION

RESPONDENT

DECISION

Tribunal:Senior Member R Olding

Date:27 November 2019

Place:Brisbane

1. The Applicant’s application to amend grounds of objection is refused.
2. Unless the Tribunal directs otherwise, the application for review is to be listed for a Directions Hearing as soon as possible.

.............................[sgd]...........................................

Senior Member R Olding

Catchwords

TAXATION – income tax – taxation of trust – discretionary trust – application by Applicant for leave to rely on grounds not in objection – nature and importance of the amendment to the party seeking it – extent of delay and effect a grant of leave would have on the hearing – no explanation given for delay - prejudice to respondent - application for leave refused

Legislation

Income Tax Assessment Act 1936 (Cth), ss 97, 99A, 170
Taxation Administration Act 1953 (Cth), ss 14ZZA, 14ZZK(a)

Cases

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175
Douglas Stuart McLean and Douglas Thomas Dean v Commissioner of Taxation [1996] FCA 1459
Lewski v Commissioner of Taxation [2017] FCAFC 145
Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148
Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146

REASONS FOR DECISION

Senior Member R Olding

1. Consequent upon disallowance of a claimed deduction of $900,000, the Commissioner of Taxation (the Commissioner) assessed the Dalby Family Trust (the Trust) for income tax for the 2013 income year on the basis that no beneficiary was presently entitled to the Trust’s net income.[1]

   [1] Income Tax Assessment Act 1936 (Cth), s 99A.

2. The Applicant, Mr Terrence Dalby, in his capacity as trustee for the Trust, objected to the assessment, specifying as his sole ground of objection that the Commissioner had wrongly disallowed the deduction.

3. On 3 June 2019, after the objection had been disallowed and following an application for review of the objection decision made to the Tribunal on 21 January 2019, Mr Dalby produced for the first time what on its face appeared to be a resolution of the trustee of the Trust dated 28 June 2013 distributing all of the net income of the Trust to various beneficiaries (the Resolution). The Applicant’s tax agents subsequently advised that they prepared the Resolution on 27 June 2013 and that it was signed by Mr Dalby on 28 June 2013.

4. Mr Dalby now seeks leave to include a new ground of objection that the Trust could not be assessed because the beneficiaries nominated in the Resolution were presently entitled to the net income of the Trust.[2] He also seeks to add other grounds relating to penalties and interest.

   [2] Income Tax Assessment Act 1936 (Cth), ss 97, 99A.

5. By the time Mr Dalby first raised the existence of the Resolution, the time for the Commissioner to issue reassessments against several of the nominated beneficiaries had either expired or was about to within a matter of days. The application raises an issue concerning the significance, if any, of this factor in the exercise of the Tribunal’s discretion to grant leave to amend the grounds of objection.

   FACTS

6. The following facts are not in contention:

   (a)The Applicant lodged its income tax return for the 2013 income year through its tax agent on 27 March 2014, returning a total income of $849,984 and a loss of net income of $4,523.

   (b)The return reported no distribution of income to any beneficiary.

   (c)On 15 February 2018, the Commissioner’s officers advised the Applicant that an audit of the return would be conducted and sought various information.

   (d)The Commissioner made further information requests in March 2018.

   (e)On 10 April 2018 the Commissioner provided an audit position paper to the Applicant and invited submissions from the Applicant.

   (f)The position paper included, in summary form, the following issue and ATO position:

   Issue two

   5. Have you correctly distributed all trust income within the meaning of Division 6 of the ITAA1936?

   6. ATO Position: No. You have not distributed any trust income. We have formed the view that there is no beneficiary presently entitled as at 30 June 2013.

   (g)Additional comments in the position paper included:

   44. Your income tax return for 2013 income year reported no distribution to any beneficiary. You have not provided us with a trustee declaration or resolution for the year ended 30 June 2013 in regards to the distribution of the trust’s net income.

   . . .

   46. We have formed the view that there was no beneficiary presently entitled, as at 30 June 2013. The income of the trust has been determined to be $420,874.19[3] and therefore an assessment under section 99A of the ITAA 1936 will be made to the trustee of the Dalby Family Trust. . .

   [3] This appears to be an erroneous reference to the alleged tax shortfall rather than, as stated, the income of the trust.

   (h)No comments relating to the distribution of the income of the Trust were made by the Applicant or his agent in response to the position paper.  In particular, there was no mention of the existence of the Resolution or any other trust declaration or resolution.  The responses focussed on the deductibility of the alleged loss of an amount of $900,000 said to have been advanced to a third party.

   (i)The Commissioner issued an assessment of income tax for the year ended 2013 against the Applicant on 12 June 2018 in the amount of $416,396.80.

   (j)On 28 June 2018, the Applicant’s tax agents lodged an objection to the assessment, stating:

   OUR CLIENT CLAIMED A DEDUCTION FOR MONIES LOST AS PART OF GOLD TRADING ACTIVITIES. THE TAX OFFICE HAS DISALLOWED THE DEDUCTION. OUR CLIENT’S MONIES WERE LOST DUE TO FRAUD AND FEELS THAT THE DEDUCTION IS VALID.

   (k)The objection contained no reference to the Resolution or any other trustee’s resolution or declaration.

   (l)On 14 August 2018, a further ‘objection’ form was lodged on behalf of the Applicant. It contained further assertions why the amount of $900,000 should be allowed as a deduction, but again made no reference to the Resolution or any other trustee’s resolution or declaration.

   (m)Both the objection lodged on 28 June 2018, and the further document lodged on 14 August 2018, answered ‘No’ to the question whether the taxpayer was objecting to penalties and interest.  This is not surprising since the Commissioner’s separate assessment of an administrative penalty did not issue until 30 August 2018. It appears that the Applicant did not object against that assessment. In any case, there is no application before the Tribunal for review of any objection decision relating to penalties or interest.

   (n)During the process of considering the objection against the income tax assessment, the Commissioner sought further information and agreed to an extension of the time for the Applicant to respond until 29 October 2018. No response was received.

   (o)On 3 January 2019, the Commissioner issued a notice of objection decision, disallowing the objection in full.

   (p)In relation to income, the trust deed for the Trust allows the trustee, before the expiration of each financial year, to ‘pay apply or set aside the same for any one or more of the General Beneficiaries living or in existence at the time of the determination’ of the Trust’s income for the year.

   (q)The Applicant’s application for review, filed on 21 January 2019, under the heading ‘Why do you claim the decision is wrong?’, states:

   The Commissioner is seeking to disallow legitimate deduction in spite of evidence proving the deduction is correct and valid. The Commissioner is also seeking to have the Trustee assessed instead of the Trust as part of an attempt to harass, intimidate and bankrupt me.[4]

   [4] There is no evidence of, or from which an inference might be drawn of, any such attempt.

   (r)However, the application for review does not mention the Resolution.

   (s)In accordance with standard directions of the Tribunal in taxation matters made on 7 March 2019, the Applicant was required to lodge a Statement of Facts, Issues and Contentions (SFIC) and supporting material by 2 May 2019. At the Applicant’s request, the Tribunal extended the date for compliance with this direction to 3 June 2019.

   (t)On 3 June 2019, the Applicant filed its SFIC, which included as one of the issues identified by the Applicant for determination:

   [12] Whether the Commissioner erred by issuing the assessment in the name of the Trustee only in breach of the Distribution Statement in place for that year (and previous years).

   (u)The Applicant also produced the Resolution (and other material) to the Commissioner and the Tribunal on 3 June 2019.

   (v)The Resolution provides:

   RESOLVED THAT the income for the trust for the year ending 30 June 2013 is hereby set aside the whole income (sic) of the trust for the benefit of the beneficiaries as follows:

   The first $80,000 to [Beneficiary 1]

   The next $47,000 to [Beneficiary 2]

   The next $80,000 to [Beneficiary 3]

   The next $3,640 to [Beneficiary 4]

   The next $2,080 to [Beneficiary 5] [5]

   The Balance to Mango Reef Pty Ltd

   (w)None of these beneficiaries returned any net income from the Trust for 2013.

   (x)The Commissioner’s SFIC, filed on 26 July 2019, identified that if the Applicant wished to agitate the issue regarding the Resolution, leave of the Tribunal would be required for the Applicant to add to its grounds of objection, and summarised the relevant considerations for any application for such leave.

   (y)Although the need for leave was raised, the Applicant did not immediately lodge an application for leave. Following a directions hearing, on 30 August 2019 the Tribunal directed the Applicant to lodge any application for leave and supporting material by 27 September 2019.  On that date, the Applicant sent an email seeking to amend the Trust’s grounds of objection, but has not produced any supporting material.

   [5] The Commissioner anonymised references to Beneficiaries 1 to 5 in this way in his submissions and evidence, pending any application for a confidentiality order. No such application was forthcoming, but since the Applicant is self-represented and there was no specific evidence regarding the identity of  Beneficiaries 1-5 before me, I have followed this practice in these reasons. From the terms of the trust deed, I infer that Beneficiaries 1-5 are members of Mr Dalby’s extended family.

   APPLICATION TO AMEND GROUNDS

7. In respect of the income tax assessment, the Applicant’s email seeking leave to amend his grounds of objection makes various assertions regarding the deductibility of the alleged loss. These seem to be in the nature of submissions or further particulars regarding the deductibility issue and, as the Commissioner submitted, do not require a grant of leave since the deductibility of the alleged loss is encompassed by the original grounds of objection.

8. The focus of the hearing was on the Resolution issue in respect of which the Applicant sought to add the following grounds of objection:

   (1)  The Principal assessment by the Respondent is excessive and incorrect due to the following facts:

   . . .

   (g) That the Respondent has also failed to correctly assess the Beneficiaries of the Trust under the Mandatory Annual Trust Resolution Declarations. The Trust made the resolution in accordance with all requirements which “made beneficiaries entitled to trust income for the income year” and that “this is effective for determining who is assessed on the trust’s net (taxable) income” for that year.

   (h) The Respondent’s denial of the tax deduction increases the Trusts (sic) Net Taxable Income for that year and therefore requires the Commissioner to issue assessments to the beneficiaries of the Trust based on the Resolution for that year.

   (i) Instead the Trustee has been assessed personally which is inconsistent with the legislation and in contradiction of the Resolution of the Trust.

9. The Applicant’s email also sought to raise grounds relating to the administrative penalties and interest assessed by the Commissioner. As will appear from the reasons that follow, it is not necessary to set out these proposed additional grounds in full.

   THE TRUST RESOLUTION GROUND

   Legal framework

10. Section 14ZZK(a) of the Taxation Administration Act 1953 (Cth) states:

    14ZZK Grounds of objection and burden of proof

    On an application for review of a reviewable objection decision:

    (a)  the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; . . .

11. Thus, since the Applicant did not raise the Resolution issue in the notice of objection, he cannot do so in the Tribunal unless the Tribunal permits him to do so.

12. Until an amendment to a predecessor provision in 1986,[6] taxpayers were confined to their grounds of objection. That amendment introduced the exception ‘unless the Tribunal otherwise orders’.  Before the amendment, there was no power vested in the Commissioner, the Tribunal or the Court to allow a taxpayer to argue matters outside the grounds included in the taxpayer’s objection. As a Full Court of the Federal Court observed in Lighthouse Philatelics Pty Ltd v Commissioner of Taxation,[7] this gave rise to injustice.  The Court went on to note that:

    37. The decision whether to allow an amendment [to grounds of objection] ought to be made on the same considerations of justice upon which such decisions are regularly made in litigation. It was in the past a reproach to the law that the real issues in taxation appeals could be refused a hearing for a defective objection, and Parliament has legislated to remove that reproach; an amendment under [the predecessor provision, the amended section 190(a) of the Income Tax Assessment Act 1936] should not be considered with reluctance, but on its merits.[8]

    [6] Income Tax Assessment Act 1936 (Cth), s 190, amended by Act No. 48 of 1986.

    [7] (1991) 32 FCR 148, [12].

    [8] (1991) 32 FCR 148, [37].

13. It is clear that the Tribunal has the power to permit, as sought in this case, an entirely new ground of objection. Further, I take the comment that an amendment ‘should not be considered with reluctance’ to mean that one does not start from a default position or rebuttable presumption that the limitation in section 14ZZK should be upheld. Such an approach could perpetuate the vice intended to be addressed by the 1986 amendment – taxation controversies not being decided on their substantial merits due to shortcomings in objections.

14. Conversely, though, nor is there a presumption that an amendment to grounds of objection a review should be allowed where declining to do so would prevent the review addressing on its merits a substantive issue arising under the relevant taxation law. An application to amend grounds commonly will be attended by that feature. 

15. In accordance with the Full Court’s judgement in Lighthouse Philatelics, and as recently reiterated by another Full Court in Lewski v Commissioner of Taxation,[9] the discretion to permit amendment of grounds of objection must be exercised by reference to considerations of justice on which such decisions are regularly made in litigation.

    [9] [2017] FCAFC 145, [125].

16. In Aon Risk Services Australia Limited v Australian National University,[10] the High Court restated the considerations in respect of when late amendments to pleadings should be permitted. The Court reiterated that a ‘just resolution’ of proceedings remains paramount, but speed and efficiency, in the sense of minimum delay and expense, are essential to just resolution of disputes. [11] 

    [10] (2009) 239 CLR 175.

    [11] (2009) 239 CLR 175; see, for example, Gummow, Hayne, Crennan, Kiefel and Bell JJ at [93].

17. This does not mean that an application for amendment of pleadings must be refused because it involves some delay and waste of costs, as it inevitably will. As Gummow, Hayne, Crennan, Kiefel and Bell JJ stated in Aon:

    102. . . . Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. . . It is the extent of the delay and costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case.  Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made.  There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates . . . Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment.[12]

    [12] (2009) 239 CLR 175, [102].

18. In relation to the explanation for the delay, their Honours went on to note that ‘[G]enerally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for.’[13]

    [13] (2009) 239 CLR 175, [103].

19. While these considerations were discussed in the context of particular court rules, the principles stated in Aon have been taken to generally guide the exercise of the discretion under court rules to allow amendment of pleadings. This may be contrasted with what has been described as the ‘more permissive approach’[14] reflected in the earlier High Court decision in Queensland v JL Holdings Pty Ltd.[15]

    [14] Lewski v Commissioner of Taxation [2017] FCAFC 145, [126]

    [15] (1997) 189 CLR 146

20. The Full Federal Court in Lewski opined that, subject to adjustments to reflect the particular context of an application for review, the considerations outlined in Aon are relevant in determining an application for an order under section 14ZZK(a).[16]

    [16] [2017] FCAFC 145, [131]

    Applicant’s submissions

21. The Applicant was not represented at the hearing of the application to amend his grounds of objection. However, he did have the benefit of the Commissioner setting out, both in his SFIC and in written submissions for the hearing, the factors stated by the Full Federal Court in Lewski to be relevant to the application.  Additionally, with the agreement of the parties, I asked Ms Wheatley, who appeared for the Commissioner at the hearing, to outline her submissions first and these included reference to the factors for consideration.

22. Nevertheless, Mr Dalby did not address the factors in his submissions.  He largely confined himself to complaining that the Commissioner either knew about the Resolution or failed to ask for it.  There is no evidence that the Commissioner knew about the Resolution before it was mentioned in the Applicant’s SFIC and produced to the Tribunal. To the contrary, the Commissioner’s audit position paper specifically raised the absence of a trustee resolution. This submission does not assist the Applicant.

23. Mr Dalby also seemed to suggest that the Commissioner must have known there would be a trustee resolution for 2013 because there were distributions to beneficiaries in previous years. Examination of prior year income tax returns, which were put in evidence by the Commissioner, reveals that distributions were made to beneficiaries by the Trust in previous years.  However, it does not support the proposition that there was any pattern of distributions, even if that were relevant to consideration of the application for leave. In any case, as already observed, the Commissioner noted in the audit position paper that no resolution had been produced and, having invited comment from the Applicant, received no response in this respect. 

1. Mr Dalby concluded his submissions by asking that leave be granted ‘so we can actually have a fair and just fight’.  I take that to mean so that the Tribunal’s review may consider the impact of the Resolution. The potential significance of the Resolution is a relevant and important factor which I take into account in considering the application for leave, as discussed further below.

   Respondent’s submissions

2. The Respondent’s submissions referred to four key factors relevant to the application for leave, extracted from the Full Federal Court’s observations in Lewski, along with what is said to be a relevant public interest in taxpayers paying the correct amount of tax.  I address these factors individually below.

   Nature and importance of the amendment to the party seeking it

3. I accept that the amendment is of considerable importance to the Applicant.  It is potentially a complete answer to the assessment. Permitting the Resolution to be raised as an additional ground of objection potentially may lead to the Tribunal setting aside the objection decision and substituting a decision allowing the objection in full. In that case, the administrative penalty, assessed at the rate of 50%, would also fall away, along with any interest assessed. The financial impact upon the Trust would be substantial. 

4. The Respondent’s submissions did not deny the potential significance of the amendment, but observed that this is but one of several factors to be taken into account. That is so, but the potential for these substantial assessments to be set aside if the Resolution is taken into account weighs heavily in favour of allowing the amendment.

   Extent of the delay and effect a grant of leave would have on the hearing

5. As noted earlier, the Full Court in Lewski opined that the factors discussed in Aon are relevant, subject to adjustments for the context of an application for review. 

6. Delay and associated costs arise for consideration in civil disputes in the context of a party failing to properly plead its case when pleadings are due. In the context of an application for review of an objection decision, the analogous step is the lodging of the notice of objection. It is at this point that grounds must be specified and, as with later changes to pleadings in litigation, amendments to grounds require leave of the Tribunal.

7. Measured in that way, there is a considerable delay between the time when the grounds of objection were required to be stated – upon lodgement of the objection on 28 June 2018 – and the application for leave to amend on 27 September 2019. The delay is substantial, some 15 months. This weighs against granting leave, although the extent to which it should depends upon the impact that granting leave would have.

8. In that regard, the Commissioner points out that but for the current application the review would be ready to set down for hearing.  The parties have exchanged SFICs and had an opportunity to produce material on which they propose to rely at the hearing. The Commissioner goes on to submit that granting leave ‘would effectively require these steps to be taken again’.

9. That may be so but the magnitude of the task should not be overstated.  The proposed new ground and the evidence supporting it are relatively straightforward. Nevertheless, there would be a delay in finalising the review once allowance is made for time for the Applicant to file any additional evidence and the Respondent to file any material in response. As Aon underlines, there is a public interest in timely resolution of litigation beyond the interests of the parties to the litigation.

10. Overall, the delay weighs against a grant of leave.  I give this factor some but limited weight in view of the limited additional work and delay that would arise from granting leave.

    Explanation for the delay

11. Because of the approach taken in his submissions, Mr Dalby offered no real explanation for the delay in raising the Resolution issue.  On the face of the matter, this factor should, as Ms Wheatley submitted, weigh heavily against a grant of leave.

12. However, as the Trust was represented by tax agents in the preparation and lodgement of the return; at the audit; and in lodging the objection, I am mindful of the comments of the Full Federal Court in Lighthouse Philatelics that:

    To refuse to allow the amendment of the grounds of objection on the basis that the failure to [in that case, claim deductions otherwise properly allowable] was a mistake of the taxpayer’s accountant would, involve an error of law.[17]

    [17] (1991) 32 FCR 148, [38].

13. Norththrop J stated in Douglas Stuart McLean and Douglas Thomas Dean v Commissioner of Taxation that this passage makes clear:

    ‘that the Tribunal, and the Court, are required to dispense justice according to law as between the litigants and not according to the abilities of those representing them.’[18]

    [18] [1996] FCA 1459, [37].

14. Mr Dalby’s submissions indicated that he relied on his tax agents for tax matters.  That does not absolve him from responsibility for lodging accurate returns. Nor is it clear, in the absence of direct evidence, why the tax agents did not raise the Resolution in the context of the audit and objection. I infer that the tax agents failed to do so.

15. It is less surprising that the Resolution was not reflected in the Trust’s and beneficiaries’ returns when, on the view of the deductibility of the disputed loss taken by the Applicant, there was no net income to distribute.

16. Against that background, I do not accept, as the Respondent’s submissions suggest, that the absence of an explanation for the delay is fatal. Nevertheless, it would presumably have been a simple matter for Mr Dalby to seek an explanation from his tax agents as to why the Resolution was not raised in response to the audit or in the objection. There is no evidence that he did so despite prompting in the Commissioner’s SFIC and submissions.

17. The weight to be attributed to this factor may be less than in a case involving a taxpayer competently represented in an application for review. Nevertheless, the Applicant has been on notice regarding the importance of providing an explanation for the delay at least since receiving the Commissioner’s SFIC and instead chose in his submissions to endeavour to divert blame to the Commissioner. On balance, the absence of a proper explanation for the delay in raising the ground weighs against a grant of leave though I attribute less weight to this factor than would be expected to be the case if the Applicant was not unrepresented.

    Prejudice to the Respondent

18. Apart from additional cost in preparing for the hearing, the Commissioner does not suggest that there would be prejudice to the Commissioner by, for example, relevant evidence no longer being available if the grounds were to be extended to permit reference to the Resolution.

19. However, the Respondent asserts that there would be prejudice from the expiry of the statutory time for re-assessing most of the beneficiaries who would have had significant tax liabilities if they are found to have been presently entitled to a share of the net income of the Trust. That is to say, if the Resolution ground is able to be raised, and it is established that the Trust should not have been assessed, most of the income would go completely untaxed because of the expiry of the time limits for re-assessing the beneficiaries.

20. Based on information provided by the Commissioner and not challenged by Mr Dalby, the position may be summarised as follows:[19]

    [19] The time limits for re-assessing are specified in the Income Tax Assessment Act 1936 (Cth), s 170. There is an exception where fraud or evasion is involved but Ms Wheatley advised that the current matter had not been escalated for the close attention required when an allegation of fraud or evasion is under consideration. There is no evidence of fraud or evasion.

Beneficiary	Amount of income distributed according to the Resolution	Date notice of assessment served	Time for re-assessment expired on or about . . .
1.	$80,000	8 June 2015	8 June 2019
2.	$47,000	26 February 2015	26 February 2019
3.	$80,000	4 April 2014	4 April 2018
4.	$3,640	‘Return not necessary’ form submitted	Time for re-assessment has not expired.
5.	$2,080	No return submitted	Time for re-assessment has not expired.
6.	Balance	27 March 2014	27 March 2018

1. Additionally, Beneficiary 6 – Mango Reef Pty Ltd - has been in liquidation since 9 November 2018. Mr Dalby was the sole director and shareholder. The liquidators’ Statutory Report to Shareholders indicated assets were limited to cash of $7,525, while the sole creditor, the Australian Taxation Office, was owed $4,113,631. The company unsuccessfully challenged an assessment made by the Commissioner in this Tribunal and, according to the Report, ‘[T]his ultimately led the Company to be wound up by the Director’. It is clear that, even if an assessment were now able to issue against this beneficiary, which would be entitled to the largest portion of the net income under the Resolution, there would be no prospect of recovery.

2. Recalling that the Applicant first mentioned the Resolution in its SFIC lodged on 3 June 2019, the position is that, by then, the time by which the Commissioner could re-assess Beneficiaries 2, 3 and 6 had already expired and the time for re-assessing Beneficiary 1 would expire in five days. The time for re-assessing Beneficiaries 4 and 5 has not expired, but as can be seen the proportion of the income said to be distributed to those two beneficiaries is relatively minimal.

3. The upshot is that if leave is granted and the Resolution is accepted as validly made, it is likely that: (1) the assessment against the Trust would be set aside; and (2) it would be too late for the Commissioner to assess the beneficiaries, other than for relatively small amounts against Beneficiaries 3 and 4. In other words, assuming the Applicant is unsuccessful in its initial argument that the $900,000 loss is deductible, income in excess of $800,000, which would otherwise have been properly subject to tax in the hands of the beneficiaries, would escape tax because of the inability of the Commissioner to assess and recover tax from the beneficiaries.

4. The Commissioner says that amounts to prejudice to the Commissioner which should be taken into account in the exercise of the discretion to grant leave. An analogous issue arose before the Full Court in Lewski.  The context was whether leave should be granted to raise new objection grounds relating to the effectiveness or disclaimer of resolutions purporting to distribute income to beneficiaries, such that, if the arguments were accepted, there would be no beneficiary presently entitled to the net income of the trust and the trustee would be liable to be assessed on the income.

5. In the end, it was not necessary for the Court to rule upon the issue.  Nevertheless, the Court made the following observations, which are not binding on the Tribunal but to be given great respect:

   . . . the Tribunal suggested that there was an “open question” as to whether the Commissioner could recover any tax sought from the trustees if they were to be assessed and that granting leave to rely upon the Deeds of Disclaimer could “prejudice the Commissioner in carrying out his statutory functions”. While it is appropriate, and necessary, to take into account prejudice in the conduct of the proceeding before the Tribunal (for example, the Commissioner’s ability to gather relevant evidence or to test the evidence may be prejudiced by a late amendment), we doubt that an inability to issue an assessment against another taxpayer or an inability to recover tax from another taxpayer should weigh heavily against a grant of leave. This would seem to be ordinarily outside the range of considerations referred to by the High Court in Aon, as adapted to the present context.[20]

   [20] [2017] FCAFC 145, [131].

6. The Commissioner makes two submissions in relation to these observations. First, he says that the Court did not say that no weight should be given to the inability of the Commissioner to recover from other taxpayers, but merely doubted that this should “weigh heavily” against a grant of leave. The difficulty with this submission is that the Court went on to say that this factor would ordinarily be outside the range of considerations referred to by the High Court in Aon, as adapted for the current context, suggesting that ordinarily this factor would be outside the range of factors permissible for the Tribunal to take into account. Further, if it were permissible to do so, the expiry of the time limit, in the particular circumstances in which that issue arises in the current matter, is a factor to which I would attribute considerable weight and which, while not determinative, having regard to my observations regarding the other factors might well tip the balance in favour of denial of leave to amend.

7. Secondly, the Commissioner seeks to distinguish this case from Lewski.  The Commissioner points out that in Lewski there was said to be an “open question” regarding whether the Commissioner could recover from other taxpayers, whereas in this case it is clear that he is out of time to re-assess the beneficiaries. There is, as the Commissioner submits, no speculation required in this case.

8. So much is true, and would be relevant if the matter for consideration were whether the Tribunal is bound by the Full Court’s comments. But here the issue is whether the Full Court’s observations, although not binding, should be applied by the Tribunal and those observations explicitly direct attention to a circumstance, such as arises in the current matter, in which the Commissioner is precluded from re-assessing. The Court’s observations are not based on the speculative nature of the potential barrier to recovery against other taxpayers.

9. Ms Wheatley also submitted that there is a further public interest that should be weighed in this matter beyond whether the Commissioner is able to assess and recover from the beneficiaries. That is, Ms Wheatley submitted, the public interest in being able to ‘maintain and collect the revenue that should be appropriately collected’. In that regard, Ms Wheatley submitted that, in addition to the case management considerations emphasised in Aon, the ‘public interest in people – can I put it bluntly – of properly paying the right amount of tax is a matter which actually can be considered in these circumstances.’

10. That submission emphasises a public interest in the correct amount of tax being paid.  Implicit in the submission is that the correct amount will not be paid if the assessment against the Trust is set aside and the Commissioner cannot assess the beneficiaries. Clearly, the ‘correct’ amount, in the sense of the amount that would have been payable by law if, assuming the deduction of the alleged loss was properly disallowed and re-assessments had issued within time, would not be paid.  It is patently not in the public interest for substantial amounts of tax, properly payable at law, to go unpaid.

11. However, it is not the case that simply denying leave to amend would necessarily mean the ‘correct’ amount is paid, while granting leave would not.  Denial of leave would also potentially result in the correct amount of tax, in the sense mentioned, not being paid.  If the Applicant’s argument on deductibility of the alleged loss fails, and leave to amend is not granted, the assessment against the Trust would remain. That assessment would not reflect the ‘correct’ amount of tax if the Resolution is accepted as valid. The Trust would not have been assessed at all if the Resolution had been known, accepted and taken into account. 

12. Further, since the assessment is at the highest marginal rate, the amount assessed to the Trust would - assuming, as is likely, the beneficiaries would not have been assessed on all of the distributed income at the highest marginal rate - exceed the aggregate of the amounts that would have been assessed if the income were treated as distributed in accordance with the Resolution. Additionally, the Commissioner being now aware of the Resolution may feel duty bound to issue assessments against Beneficiaries 4 and 5 for whom the time for re-assessment has not expired.

13. Thus, while it may seem abhorrent that a family may escape tax altogether on a significant amount of income by obtaining leave to make a very late amendment to grounds of objection, denial of leave, while addressing that vice, could also result in outcomes that are at odds with the underlying tax policy.  For these reasons, I find it difficult to give any weight to an alleged public interest in ensuring the ‘right’ amount of tax is paid as a factor separate from consideration of the Commissioner’s inability to re-assess the beneficiaries.

14. Returning, then, to the Full Court’s observations in Lewski, I confess that, in the absence of the benefit of those observations, I would have regarded the Commissioner’s inability to re-assess the beneficiaries as a significant factor.  The Full Court has noted that the factors in Aon are to be adjusted to the current context. I would have thought that context would include the Commissioner’s statutory duties in relation to the assessment of taxes, and that prejudice to the effective discharge of those duties would be a relevant factor to be taken into account when the prejudice arises directly out of the circumstances leading to the application for leave to amend – in this case, the failure, despite various prompting, to produce a highly relevant Resolution until after the expiry of the time by which the Commissioner could properly assess in accordance with the Resolution. There is widespread use of discretionary trusts in Australia and their taxation treatment is a key feature of the income tax system. But the Full Court’s observations seem to indicate that it is only prejudice of the Commissioner as a litigant, rather than as the statutory officer charged with administration of the tax laws, that is relevant.

15. It is clear that I must, and I do, give the observations great respect. It certainly would or should be a rare case indeed in which an administrative decision-maker such as the Tribunal would not apply dicta of a superior court, let alone an appellate court. However, the observations in this case were not expressed unequivocally; the Court did not categorically state that such considerations are irrelevant, but rather expressed ‘doubt’ regarding whether the Commissioner’s inability to assess another taxpayer should weigh heavily against leave being granted. Nor were the observations made in the unusual circumstances that arise in this case.

16. Further, I do not read the earlier-referenced comments in Lighthouse Philatelics, cited in Lewski, regarding the requirement to weigh the considerations of justice regularly applied in litigation, as precluding other considerations of justice arising out of the statutory context in which taxation matters, and particularly those involving controversies about the existence or effectiveness of trust distributions, arise. My attention was not drawn to any judgement or judicial observation expressly to that effect.

17. With considerable hesitation in light of, and with the greatest respect for, the Full Court’s observations, I have come to the view that in the particular circumstances of this matter the inability of the Commissioner to now assess the beneficiaries is a significant relevant factor.  The particular matrix of circumstances which was not before their Honours in Lewski includes that:

    (a)The existence of the Resolution is a matter that was or should have been within the knowledge of the Applicant and his representatives at all times.

    (b)This is not a case where the Commissioner overlooked the existence of the Resolution as Mr Dalby seemed to suggest.  Rather, the Commissioner explicitly referred to the absence of the Resolution in the audit position paper and invited comment from the Applicant.

    (c)The Applicant had multiple opportunities over an extended period to bring the existence of the Resolution to the attention of the Commissioner but despite prompting failed to do so.

    (d)If he had done so at the time the objection was lodged, there would be no prejudice to the Commissioner of this kind.

    (e)Instead, the Resolution was provided only after the time for re-assessing most of the substantial beneficiaries had expired or, in the case of one such beneficiary, but a few days[21] before such expiry would occur, making it a practical impossibility for the Commissioner to assess most of the income in accordance with the Resolution.

    (f)Taking into account the Resolution at this late stage would result in Mr Dalby’s family and related entities enjoying a substantial financial benefit at the expense of the general body of taxpayers, as a direct consequence of the Applicant’s own delay and, despite Mr Dalby’s submission to the contrary, no identified relevant lack of diligence on the Commissioner’s part.

    [21] There was unchallenged evidence from the Commissioner’s solicitor, which I accept, that the materials provided by the Applicant were in a form that made review of the materials unusually time-consuming. In any case, it would not be reasonable to expect the Commissioner to review the materials and make an assessment within five days. Further, the Resolution purports to distribute only a part of the income to this beneficiary, with most going to Beneficiary 6.

1. Having regard to these factors, and weighing up the other considerations discussed in these reasons, I have concluded that it is not in the interests of justice for leave to be granted to allow the Applicant to amend his grounds of objection to include argument regarding the Resolution.

   THE PENALTIES AND INTEREST ISSUE

2. At the hearing of the application for leave, I explained to Mr Dalby that the Tribunal’s jurisdiction is not at large but rather, so far as relevant to this matter, is confined to reviewing ‘reviewable objection decisions’.[22] Since the objection decision before the Tribunal is concerned only with the income tax assessment and there is no objection decision relating to penalty or interest, I could not see any basis on which the Tribunal could amend the grounds of objection to include grounds relating to the administrative penalty or interest. 

   [22] Taxation Administration Act 1953 (Cth), s 14ZZA.

3. Mr Dalby did not press the application in respect of these issues and Ms Wheatley agreed that these issues are not currently within the Tribunal’s jurisdiction. To the extent that the application for leave sought to have such grounds added, it must be refused.

   DISPOSITION OF THE APPLICATION FOR LEAVE

4. The application for leave to amend grounds will be refused.

5. By direction of the Tribunal on 30 August 2019, the application for review is to be listed for any further directions that may be necessary directly after delivery of this decision on the application for leave to amend. Given the outcome of the application for leave, the application for review may now be ready to be set down for hearing, but that is a matter for the Deputy President who is to hear the application for review. The appropriate direction is that, unless the Tribunal orders otherwise, the application for review be listed for further directions as soon as possible.

I certify that the preceding 65 (sixty-five) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding

............................[sgd]...........................................

Associate

Dated: 27 November 2019

Date of hearing:	11 November 2019
Representative for the Applicant:	The Applicant was self-represented
Counsel for the Respondent	Ms A. L. Wheatley
Solicitors for the Respondent:	McInnes Wilson Lawyers Pty Ltd