Trustees of Post Office Staff Superannuation Scheme v Commissioner of Taxation

[1999] FCA 1347

FEDERAL COURT OF AUSTRALIA

Trustees of the Post Office Staff Superannuation Scheme
v Commissioner of Taxation [1999] FCA 1347

TAXATION – deductions for complying superannuation funds that self insure for death and disability benefits – application for extension of time to obtain actuarial certificates and thereby claim deductions – whether quantum of deduction and potential to amend legislation were irrelevant matters to take into account.

Income Tax Assessment Act 1936 ss 267, 279, 301

Lighthouse Philatelics Pty Ltd v Federal Commissioner of Taxation

(1991)
91 ATC 4942 cited

Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 cited
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 followed
A’hearn v Comcare (1993) 18 AAR 22 cited
Zizza v Federal Commissioner of Taxation (1999) 99 ATC 4,711 cited

THE TRUSTEES OF THE POST OFFICE STAFF SUPERANNUATION

SCHEME AND THE TRUSTEES OF THE BT PENSION SCHEME v
COMMISSIONER OF TAXATION

NG 1127 of 1998

HILL J
29 SEPTEMBER 1999
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 1127 OF 1998

BETWEEN:

THE TRUSTEES OF THE POST OFFICE STAFF SUPERANNUATION SCHEME
First Applicant

THE TRUSTEES OF THE BT PENSION SCHEME
Second Applicant

AND:

COMMISSIONER OF TAXATION
Respondent

JUDGE:

HILL J

DATE OF ORDER:

29 SEPTEMBER 1999

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The decisions under review be set aside and remitted to the Commissioner for determination in accordance with the law.

2.The respondent pay the applicant’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 1127 OF 1999

BETWEEN:

THE TRUSTEES OF THE POST OFFICE STAFF SUPERANNUATION SCHEME
First Applicant

THE TRUSTEES OF THE BT PENSION SCHEME
Second Applicant

AND:

COMMISSIONER OF TAXATION
Respondent

JUDGE:	HILL J
DATE:	29 SEPTEMBER 1999
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Background

1. The Post Office Staff Superannuation Scheme and the BT Pension scheme, (“the funds”)  are each superannuation funds organised under the laws of the United Kingdom.  Neither has members in this country but, as is not unusual in the days of international capital mobility, each has substantial investments in this country.  The former fund was established for the purpose of providing benefits on the disability, retirement or death of employees of the British Post Office Corporation.  The latter was established for the purpose of providing such benefits to, or in respect of, staff employed by the British Telecommunication Corporation.  Each corporation had originally been part of the British government. They were separately corporatised and subsequently privatised.

2. The applicants (“the Trustees”) are the respective trustees of these funds.  At relevant times each was advised on Australian taxation matters by a well-known firm of chartered accountants practising in this country.

3. Each fund duly lodged Australian income tax returns in respect of the periods of twelve months ending on 31 December 1989, 1990, 1991, 1992 and 1993, being substituted accounting periods in lieu of the years of income ending 30 June 1990, 1991, 1992, 1993 and 1994 respectively. It is common ground that in each of those years there appeared in the returns (they were not as such in evidence before me) a question directed to ensuring whether the fund wished to claim a deduction under s 279 of the Income Tax Assessment Act 1936 (“the Act”).  The question directed the mind of the person responsible for the return to the necessity to have obtained an actuary’s certificate which is a prerequisite to that deduction being allowable and asked whether that certificate had been obtained.  The returns when lodged indicated that no such deduction was being sought.

4. Some years later, and after assessments for each year of income of the funds had issued, the accountants considered the matter of whether each fund was entitled to the deduction under s 279 and formed the view, subject to the matter of the actuarial certificate that each fund was. Accordingly they set steps in train to obtain the necessary certificate.

5. Although it is clear from the terms of s 279, which I will shortly set out, that such a certificate must ordinarily have been obtained no later than the date of lodgement of the return of income for the year to which the certificate relates, s 267 of the Act makes it clear that the Commissioner may allow a fund to obtain a certificate at a later date, and in such a case the deduction, assuming that the other conditions of s 279 have been complied with, would be available.

6. In due course actuarial certificates were obtained and the accountants, on behalf of the trustees, applied to the Commissioner under s 267 for an extension of time in which to obtain the certificates. Following the applications for extension of time there were meetings and discussions held between the accountants and officers of the Australian Taxation Office. The tardiness of the accountants in appreciating that a deduction should be sought and obtaining the certificates was matched by an equally (and one might say unacceptably) tardy response from the Commissioner to the application. However, ultimately a response was received. All of the applications were refused. The present application is an application brought under the Administrative Decisions (Judicial Review) Act 1977 (and to the extent that it matters, s 39B of the Judiciary Act 1903) for judicial review of these decisions.

   The Statutory Background

7. Since 1988-9 the tax treatment of superannuation has undergone a variety of changes.  Among these was the insertion of Part IX of the Income Tax Assessment Act 1936 (“the Act”) made applicable to assessments for the year of income in which 1 July 1988 occurred and subsequent years: Act No 97 of 1989.  By virtue of that Part, funds which were complying superannuation funds were afforded special tax treatment.  A fund is a complying superannuation fund in relation to a year of income if the Insurance and Superannuation Commissioner is satisfied that the fund satisfied certain conditions or should be deemed so to do.  That satisfaction, which must be evidenced by a notice from the Insurance and Superannuation Commissioner, is required to be considered on an annual basis.

8. Trustees of complying superannuation funds were in the relevant years of income liable to pay tax on the taxable income of the fund: s 278(1) of the Act. In calculating that taxable income a deduction was available to complying superannuation funds who paid insurance premiums to fund death or disability benefits: s 279(1). However, the legislature recognised that some funds might elect to self insure the provision of such benefits. To equate the tax treatment of funds which insured and those which self-insured s 279(2) of the Act permitted a deduction for an amount equivalent to the arm’s length premium which would be payable if insurance were effected. For relevant purposes s 279(2) provides:

   “Where:

   (a)during the whole or a part of a year of income, a complying superannuation fund is subject to a current or contingent liability to provide death or disability benefits for members of the fund; and

   (b)that liability, to some extent, is not covered by an insurance policy;

   the (lowest) arm’s length premium for an insurance policy in respect of that liability, to the extent to which it is not so covered is an allowable deduction in respect of the year of income.”

   (the bracketed word was removed by an amendment in 1990)

9. Subs (3) of the same section in the form it took after Act No 58 of 1990 provided that a deduction under subs (2) was not to be available unless the trustee of the fund obtained an actuary’s certificate before the “certificate date” with respect to the operation of s 279. Prior to taking its new form the deduction was only available where the return of the fund of the year of income was accompanied by an actuary’s certificate with respect to the operation of s 279.

10. At the same time as s 279(3) was inserted in the form summarised above referring to the “certificate date” there was inserted in the interpretation provisions of s 267 of the Act a definition of those words. That definition is expressed in the following terms:

    “ ‘certificate date’, in relation to an actuary’s certificate, in relation to a fund, means the date of lodgment of the return of income of the fund in the year of income to which the certificate relates or such later date as the Commissioner allows;”

    The applications for extension of time

11. As already noted applications were made by each fund and in respect of each year of income for an extension of time pursuant to the definition of “certificate date” in s 267. On 13 October 1994 a letter was written to the Deputy Commissioner on behalf of the two funds seeking both that the Commissioner amend assessments which had already been made and allow an extension of time until 30 November 1994 to lodge the actuarial certificates, which at the time of that letter had not been obtained. The accountants had, presumably, failed to note that the law had been changed so that the certificate was no longer required to be lodged, it sufficed if it was “obtained”.  In fact the certificates were not received by the accountants until 10 May 1995.  In consequence the accountants wrote separate letters in respect of each fund for each year of income, which letters were dated 3 July 1995. These letters were in substantially identical terms.  Since it is not suggested that there is any matter special to the one fund but not the other it is useful to refer to one only of the applications – that of the Post Office Staff Superannuation Scheme for the year ended 31 December 1989.

12. If one reads together the letter of 13 October 1994 and that of 3 July 1995 the Commissioner was apprised of the fact that  the 1990 tax return had been lodged, pursuant to an extension of time on 15 October 1990.  It was pointed out that the fund was managed and administered in the United Kingdom and that:

    “those connected with these funds in Australia were not aware until very recently (that is recently to 13 October 1994) that POSS provided ‘self- insured’ death and disability benefits of the kinds contemplated by subsection 279(2) of the Act. The delay since this discovery can be explained by the necessary liaison with the United Kingdom and Australian actuaries retained…in order to obtain the relevant actuary’s certificates.”

13. The request points out that the amount of the deduction for the year would be $78,787,879.  The consequence of that deduction for the year was to reduce the taxable income of $1,360,423 to a loss of $77,427,456 and generate a refund of $197,505.15 after taking into account a small refund that had been paid on 28 February 1995.  Each other year produced enormous deductions, and generated refunds which varied, between $6,202.00 and $293,798.85 and carry forward losses.  By the end of the 1994 year these carry forward losses in the case of the Post Office Staff Superannuation Scheme would, the Accountants advised total $424,277,773.  In the case of the British Telecommunication Staff Superannuation Scheme the accumulated losses calculated to be available in consequence of the deduction were $659,510,510.

14. In response to one of the meetings held by the accountants with officers of the Australian Taxation Office, the accountants prepared written submissions which they forwarded to the Commissioner with a letter of 24 October 1997.  In these submissions the question of delay was addressed and elaborated upon as follows:

    “Our records indicate that the delay in lodging the actuarial certificates was because the fact – that the two Funds self-insured for death and disability cover – was only discovered by us on 5 July 1994, when the Funds’ Australian actuaries advised us of same.  During the course of discussions between the Funds’ Australian actuaries and their British counterparts, the Australian actuaries were told that the Funds self-insured for death and disability cover for members.

    On 26 July 1994 the funds’ Australian representatives requested advice on the availability of a deduction under subsection 279(2) of the 1936 Act in relation to self insurance for death and disability cover.  During August 1994 we provided advice on the relevant deduction to the Funds’ Australian representatives and stressed the importance of obtaining the actuarial certificates.  During September 1994 we received instructions from the Funds’ Australian representatives to proceed with requests for amended assessments, whereupon we requested the Funds’  Australian actuaries to provide us with the relevant actuarial certificates.

    We understand that given the number of members in the funds, it necessarily took some time for the Funds’ British actuaries to provide the relevant information necessary for the actuarial certificates to be issued by the Funds’ Australian actuaries.  While the Australian and British actuaries were discussing the information required to enable the actuarial certificates to be issued time was running out to amend the Funds’ Assessments for the income year ended 31 December 1989.  The Funds were not out of time then in seeking amended assessments for the income years ending 31 December 1990, 1991, 1992 and 1993.

    In light of the above, on 13 October 1994 we lodged with the ATO requests for amendments to the Funds’ assessments in respect of the year ended 31 December 1989 with an undertaking to forward the relevant actuarial certificates as soon as they were received by us…”

    The accountants pointed out that the Funds’ Australian representatives and the Funds’ UK property manger were real estate specialists, not insurance specialists.

15. The submission referred to the indication in the returns that no deduction was to be claimed and said:

    “We have reviewed all our files and conclude that the ticking of the ‘No’ box was a mistake of fact.  The tax returns were prepared based on information given by the taxpayers, ie the Funds’ Australian representatives. … Having made reasonable inquiry and relying on the honest beliefs of the Funds’ Australian representatives, the relevant box was ticked ‘No’.

    The ticking of the ‘No’ box was simply a mistake of fact.”

    The accountants reiterated that it was not unreasonable that the Funds’ Australian representatives and the UK property manager, being real estate and not insurance experts did not know that the Funds would self insure.

16. The submissions pointed to the fact that mistake of fact was an excuse making reference to the decision of the full court of this Court in Lighthouse Philatelics Pty Ltd v Federal Commissioner of Taxation (1991) 91 ATC 4942, and other cases and then turned to make submissions on the matters to which Wilcox J had referred in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 as guidelines for the exercise of discretion to extend time. I shall not repeat all that is there said. It may, however, be noted that under the heading “Prejudice to the Commissioner” the accountants pointed out that if the certificates had been lodged in time the Commissioner would have had to accept them.  In these circumstances, it was said there could be no prejudice to the Commissioner.  No prejudice to the general public was said to exist, nor, it was submitted was their any unfairness to any other party.

    The reasons for the refusal

17. On 10 July 1998 the Commissioner communicated his refusal to extend the time.    Although it is not presently relevant the Commissioner refused as well to amend the assessments he had made for the relevant years of income.  In respect of the 1990 year he expressed the reason to be that the actuary’s certificate had not been supplied within the 4 year period from the time tax became due and payable on the assessment, the supply of that certificate being information which he needed for the purpose of deciding the application for amendment.  It may be noted that the claim for a deduction and advice that a certificate was being sought had been made within this period.

18. The Commissioner’s explanation of the delay included change of case officers and “the unusual circumstances of the matter”.

19. Reasons for the Commissioner’s refusal to extend the time were requested and supplied by letter dated 23 September 1998. After setting out the objective facts and noting that the explanation given for the delay in claiming the s 279 deductions was that “the tax agents only became aware of the self-insuring status of the superannuation fund around July 1994” Mr Collins, the Director of Small Business Income at the Australian Taxation Office, being the person who had made the decision stated his reasons as follows:

    “1.The superannuation business carried on by the taxpayer is conducted solely outside of Australia.  The Australian sourced income of the taxpayer is derived from property partnership and trust investments.

    2.Due to the effluxion of time, the Commissioner cannot be certain of securing a review by the Insurance and Superannuation Commissioner of his decision that the taxpayer was a complying fund during the 1990-1994 (inclusive) income years, or that the information the Insurance and Superannuation Commissioner would require to conduct such a review is available or readily available.  Inability to obtain such a review would prejudice the Commissioner.

    3.The explanation which the taxpayer has given for the delay is not acceptable to the Commissioner. The taxpayer was advised and assisted at all relevant times by a qualified tax practitioner, and in each of the returns indicated that it was not claiming a deduction under s 279 Income Tax Assessment Act 1936.  The Commissioner has concluded that either the taxpayer failed to provide material information to its tax agents, or the tax agents failed to seek out that information.

    4.No acceptable explanation has been provided for the substantial lapse of time between the date on which the tax agents state they were advised and that the funds self-insured for death and disability cover (5 July 1994) and 3 July 1995, the date on which actuarial certificates were produced to the Commissioner, and requests were made for credit amendments.

    5.Additionally, in respect of substituted accounting period ended 31 December 1989: subsections 170(3) and 170(6) Income Tax Assessment Act 1936 require the taxpayer to supply ‘all information needed by the Commissioner for the purpose of deciding the application’ within 4 years from the date on which tax became due and payable (ie within 4 years from 23 October 1990).  The taxpayer did not comply with that requirement, as the actuarial certificate was not supplied within the prescribed time.”

20. Those reasons are fleshed out by contemporaneous notes which Mr Collins  made.  It is not suggested that these notes directly contradict the stated reasons, but they certainly supplement them.  It is common ground that they may be looked at for the purpose of determining the reasons why Mr Collins refused or recommended the refusal of the extension of time.

21. The contemporaneous notes make clear that Mr Collins was unaware of the amendment to s 279(3) eliminating the need to lodge the actuarial certificate with the Commissioner and replacing that requirement with the obtaining of the certificate. They make clear, also, that Mr Collins regarded the tests enunciated by Wilcox J in Hunter Valley Developments as the appropriate criteria against which the request for extension of time should be tested.  The notes discuss the matters considered under five headings, which may be summarised as follows:

    Whether proper

    Mr Collins saw the legislation as creating “a potential anomoly”(sic).  He found it difficult that Parliament ever envisaged a situation where a non-resident superannuation fund with a limited exposure to Australian tax should “receive the benefit of huge deductions based wholly on circumstances related to the size of the membership of the funds in their home country and unrelated to the incidence of taxation paid in Australia.”

    Prejudice 
    Mr Collins perceived prejudice to the Commissioner in at least two areas.  One of those is said to be the “uncertainty” of the ability of the Commissioner to approach the Insurance & Superannuation Commission to review the basis of the grant by him of complying status.  The second matter which Mr Collins described as “prejudice” is tied to the fact that the tax returns as lodged had stipulated that no deduction was to be claimed.   Mr Collins notes:

    “The tax agents…say that the crossing of the ‘no’ box was simply a mistake of fact,  The letter states that “Having made reasonably inquiry and relying on the honest beliefs of the Funds’ Australian representatives, the relevant box was ticked [sic] ‘No’. It defies comprehension that a leading tax firm …having turned their mind to the very issues here at hand [for that is precisely what the question on the return form forces] now state that they relied on the funds’ representatives, that is property representatives, to provide taxing information on which was based the ‘no’ answer.  This appears to have happened not once but 5 times.  To me, the negative answers to the s 279 questions on the return forms have severely constrained the Commissioner in his administration of the taxing laws.  Had the box in the 1990 return been crossed as ‘yes’, and the Commissioner’s attention drawn to the claim for net losses of $192M as a result of the purported application of s 279, he would have been in a position to examine the legislation and if found to be anomolous [sic] be then able, for example, to recommend changes to the tax law… to accept the late lodged certificates for all the years at once, severely limits the proper administration of the taxing acts and causes the Commissioner prejudice”.

    Was the explanation for late lodgment acceptable

    Under this heading Mr Collins expresses his dissatisfaction with the explanation given by the accountants, an explanation which he finds “uncompelling”.  He says that the “inadvertence” was either on the part of the funds failing to provide material information to the accountants or the accounts failing to seek out that information.  Mr Collins then continues:

    “Previously decided ‘extension of time’ cases indicate that a strong factor in favour of denying an extension is the fact that a taxpayer has been advised and assisted by a qualified practitioner.  In these circumstances it is therefore not in my view, an ‘acceptable explanation’.”

    Mr Collins notes that the suggestion of there being an unacceptable delay between the discovery of the problem noted in the accountant’s letter of 5 July 1994 and the production of the certificates in July 1995 was perhaps weaker.  He emphasises the need to act expeditiously where there is a significant amount of revenue involved.  Given the Commissioner’s own unacceptable delay, this emphasis may seem rather hollow.

    Public Interest

    Mr Collins finally refers to the public interest. However he notes that he believes there is an unintended outcome in the application of section 279, which when taking into account the “very significant potential loss to the public purse through available tax losses” demonstrates that it is in the public interest to refuse the extension of time.

    The ground advanced for judicial review

1. It was submitted for the Funds that the Commissioner had in exercising his discretion taken into account irrelevant matters, failed to take into account relevant matters and, in respect of the 1989 year erred in the interpretation of s 301 of the Act. The irrelevant matters, said to have been taken into account were said to be:

   ·The size of the potential loss carry forward

   ·The possibility of no longer obtaining a review of the decision of the Insurance and Superannuation Commissioner of his yearly determinations that the funds were in each relevant year complying superannuation funds.

   ·The delay in ability to obtain an amendment to the taxation law.

   ·The fact that the taxpayer has been assisted by a qualified tax practitioner.

2. The relevant matters which the Commissioner is said to have failed to take into account were:

   ·the certificates of compliance issued by the Insurance and Superannuation Commissioners in each of the relevant tax years.

   ·the explanation for delay given to the Commissioner, which explanation was discounted because there had been a mistake on the part of the advisors to the funds.

   The relevant legal principles

3. It is a ground of judicial review that an administrative decision may be set aside where the decision-maker took into account an irrelevant consideration, failed to take account of a relevant consideration, or that the decision involved an error of law: s 5(1) of the Administrative Decisions (Judicial Review) Act 1977, which section, so far as is relevant at least, merely restates the common law.  Where the question of relevancy of a consideration taken into account or not taken into account as the case may be arises, it will be a simple matter to decide where the statute in questions lists the considerations that are to be taken into account exhaustively.  The question will always be more difficult where the statute states only in an inclusive way considerations which may be taken into account and perhaps even more so where, as in the present case, the statute is completely silent.

4. The principles to be applied were authoritatively stated by Mason J in Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39-41 in a passage which is regularly referred to and which it is desirable to repeat here. The citations are omitted.

   “The failure of a decision-maker to take into account a relevant consideration in the making of an administrative decision is one instance of an abuse of discretion entitling a party with sufficient standing to seek judicial review of ultra vires administrative action. …

   (a)The ground of failure to take into account a relevant consideration can only be made out if a decision-maker fails to take into account a consideration which he is bound to take into account in making that decision …

   (b)What factors a decision-maker is bound to consider in making the decision is determined by construction of the statute conferring the discretion. If the statute expressly states the considerations to be take into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factors – and in this context I use this expression to refer to the factors which the decision-maker is bound to consider – are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act. In the context of judicial review on the ground of taking into account irrelevant considerations, this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard … By analogy, where the ground of review is that a relevant consideration has not been taken into account and the discretion is unconfined by the terms of the statute, the court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject-matter, scope and purpose of the Act.

   (c)Not every consideration that a decision-maker is bound to take into account will justify the court setting aside the impugned decision and ordering that the discretion be re-exercised according to law.  A factor might be so insignificant that the failure to take it into account could not have materially affected the decision.

   (d)The limited role of a court reviewing the exercise of an administrative discretion must constantly be borne in mind.  It is not the function of the court to substitute its own decision for that of the administrator by exercising a discretion which the legislature has vested in the administrator.  Its role is to set limits on the exercise of that discretion, and a decision made within those boundaries cannot be impugned. …”

5. The discretion conferred upon the Commissioner in the present case is one where no factors have been listed as relevant considerations to be taken into account. It is also one where the terms of the statute leave the Commissioner unconfined, in the sense which Mason J used the word in the extract cited above. Hence any limitation must, in accordance with authority, be found in the subject-matter, scope and purpose of the Act.

   Did the Commissioner take into account irrelevant matters?

6. There is a difficulty in saying that the effect upon the taxpayer of the failure to obtain an actuarial certificate in a timely way is irrelevant, in so far as that is a matter which operates in favour of the taxpayer.  Parliament has conferred upon taxpayers, subject to the conditions which have been enacted, the right to a deduction and the obtaining of such a certificate is one such condition.  So, it will always follow that unless there is an extension of time granted, the taxpayer will lose a deduction which Parliament has enacted.

7. It is another matter for the Commissioner to take into account the amount of the deduction as a matter counting against the taxpayer. While no doubt the Commissioner is required to protect the revenue where matters of avoidance, for example, are evident, it is not, one would think, the function of the Commissioner to wish to disallow the deduction because it would reduce the tax which a taxpayer would otherwise be required to pay. Parliament has enacted the deduction. True, for that deduction to be available to a taxpayer the taxpayer is required to act in a timely way. The reason that the taxpayer has not done so is a very significant matter for the Commissioner to take into account. But I have difficulty in seeing that the quantum of the deduction is a factor which on any view of the matter is relevant. The grant of the deduction will always reduce the tax payable and, if already paid, lead to a refund. If the deduction is greater than the tax payable otherwise in the year, the grant of a deduction will, necessarily, subject to any limitations relevant to the carry forward of losses lead to a loss available as a deduction in a later year of income. But that is not a matter, as such, which is affected by the lateness of obtaining the certificate. It is a consequence of the whole scheme of the Act. In my view the context, subject-matter, scope and purpose of the Act do not lead to the conclusion that the quantum of the deduction itself it a relevant matter for the Commissioner to take into account.

8. What seems to have concerned the Commissioner is a view taken by the decision-maker, that Parliament could not really have intended that a deduction be available to a non-resident superannuation fund where the members are all non-residents and where the notional cost of insurance to provide death benefits produces a large deduction – a consequence of the fact that the whole cost is thrown against what, one may assume, is but a small part of the fund’s income.  It is hard to conclude that Parliament was unaware that these provisions had no application to non-resident funds.  Part IX deals specifically with “foreign approved deposit funds”: see definition in s 267(1). Previously such foreign approved deposit funds were governed by s 23FA, which was repealed in 1987 consequent upon the legislature passing the Occupational Superannuation Standards Act1987 (“the Standards Act”) and removing approved deposit funds and superannuation from the supervision of the Commissioner of Taxation to the Insurance and Superannuation Commissioner appointed to administer that Act.

9. At the same time as s 23FA was repealed, so too was s 23FB, which section set out the matters to be satisfied before the income of superannuation funds generally were to be exempted from tax. Section 23FC continued in the Act until repealed effectively in respect of the year of income 1987 and subsequent tax years. Section 23(jb) continued in the Act to exempt from Australian tax the income of foreign superannuation funds to the extent that income comprised dividend or interest income. Where the income of non-resident funds comprised income other than interest or dividends the tax consequences were left to be dealt with by the provisions of the Act relevant to resident and non-resident funds alike. Put in another way, it has historically always been the case (but for s 23(jb)) that non-resident funds could obtain the same benefits as resident funds, provided they satisfied the tests which Parliament imposed. It is also relevant to note that the carry forward of losses would have been available to the funds had they obtained the certificate in time and there could have been no objection to this course on the part of the Commissioner.

10. The second matter to which senior counsel for the funds adverted was the question of the possibility of the Commissioner applying to the Insurance and Superannuation Commissioner for a review of the Certificates he had issued annually that the funds were to be treated as complying funds.  No doubt there would be nothing to prevent the Commissioner speaking to the Insurance and Superannuation Commissioner in an informal way.  However, it may be noted that the parliamentary scheme was to place the administration of matters of compliance with requirements thought applicable to superannuation funds with the Insurance and Superannuation Commissioner, not the Commissioner of Taxation.  All the Commissioner of Taxation can do is to receive notice of the Insurance and Superannuation Commissioner’s decisions.

11. Indeed the evidence shows that the Insurance and Superannuation Commissioner regarded the taxation position of the funds as irrelevant to his determination of whether there had been compliance with the legislation which he administered, and with respect rightly so.  The income tax consequences no doubt may flow from that decision, but they are a consequence of the income tax legislation as applied to funds which receive the appropriate certificate not a matter relevant to take into account in determining whether a certificate should be given.

12. Indeed, the Commissioner of Taxation would have no status under the Standards Act to seek a review of any decision of the Insurance and Superannuation Commissioner and it is difficult to see how, once the Insurance and Superannuation Commissioner had granted a certificate, the Commissioner of Taxation could intervene to have that certificate revoked, or, for that matter how the Insurance and Superannuation Commissioner could revoke it, except under s 12(5) on information that was not previously considered. The fact that a deduction was available to the fund would not be relevant information to secure a revocation. I have grave doubts, therefore, as to the relevancy in the decision making process of a suggested possibility of a review being instigated by the Commissioner of Taxation, which possibility was negated by the lateness of obtaining the actuarial certificates.

13. It was submitted for the funds that it was an irrelevant matter for the Commissioner to take into account the delay in his being alerted to the possibility of a deduction (and presumably the consequential loss carry forward) because that delay affected the possibility that he could influence a change in the law. It clearly is a function entrusted to the Commissioner as a consequence of his administration of the Act to suggest to Parliament, if he sees the need so to do, that the income tax legislation be changed to prevent an anomaly in the law. It is difficult to see that the loss of an opportunity to consider this and implement steps towards such an end would necessarily therefore, be an irrelevant matter, at least in other than the first year. Had the funds obtained the actuarial certificate in a timely way in respect of the first year in question the deduction would have been available to them and there would have been no possibility of the Commissioner having the law changed then. However, the Commissioner would have been alerted to the possibility of having the law changed, and perhaps having the law changed in the future. It is for this reason that, while I would see this to be an irrelevant factor in respect of the exercise of discretion in regard to the 1989 year of income, it could not be said to be irrelevant in respect of other years.

14. It might here be added that by the time the Commissioner came to exercise the discretion the relevant law on carry forward of losses had been changed: Taxation Laws Amendment (Trust Loss and other Deductions) Act 1998 (it received the Royal Assent in April 1998) and see too the Taxation Laws Amendment Act (No 4) 1994 (Act No 181 of 1994) which had the effect that the funds were, as and from the Royal Assent to that Act on 19 December 1994, no longer to be treated as complying superannuation funds.  No doubt it if was relevant to consider potential changes in the law, it was also relevant to consider (the decision-maker did not) these actual changes and the impact, if any, which they might have had on the taxpayer and other non-resident funds and on the potential to change legislation.  Accepting that it could be relevant for the Commissioner to consider a possible legislative amendment, but that the delay on the part of the funds had prevented this course of action being taken, one might suggest that the decision-maker should likewise have considered the problem that a considerable part of the delay that in fact occurred seems to have been occasioned by the tax office itself in coming to a conclusion.

15. I am not sure that it could be said to be irrelevant to take into account the fact that the funds were advised by a competent taxation practitioner.  It may be true that it would be wrong for the Commissioner to visit upon a taxpayer the sins of his or her adviser in many cases, cf  Lighthouse Philatelics Pty Limited v Federal Commissioner of Taxation,A’hearn v Comcare (1993) 18 AAR 22 at 26, but the fact of representation is a matter that necessarily would need to be considered when assessing the explanation given for delay.

16. I do not think that the decision-maker can be criticised for having failed to take into account the fact that the funds had received Certificates from the Insurance and Superannuation Commissioner.  Such certificates were a prerequisite to the deductions being available and so must, implicitly have been taken into account.

17. It is also suggested that the decision-maker really discounted the explanation given for the failure to obtain a certificate (and the ticking of the box that no deduction was claimed) by reason of visiting upon the funds a view about the funds taxation adviser.  In my view there is reason for complaint, but it is rather that the decision-maker took the view that there were a number of authorities (presumably court or Tribunal decisions) which led to the conclusion that an extension of time should be refused where the taxpayer was represented by a qualified adviser.  Counsel for the Commissioner could not name any such authorities and, it is true that this would be so because there are none.  Indeed, it is fair to say that the authorities, such as they are, tend in the other direction.  Lighthouse Philatelics and A’hearn represent two examples.  So it can be said that in this respect the decision-maker committed an error of law, which then affected his decision.  For myself, however, I would not say that the fact that a taxpayer had, on advice of a competent practitioners made an informed choice, for example, not to obtain a deduction would be an irrelevant matter in refusing an extension of time in the present context.   Indeed in such a case it would be a highly relevant matter.  The present case may be said to differ (but whether it does is a matter for the decision-maker) because the suggestion is that the funds did not make an informed choice.  The role of the adviser is thus not wholly irrelevant.

    Errors of law

18. Two errors of law are relied upon.  The first is the view which the decision-maker took as to the role of the competent adviser.  I need not refer to that further.

19. It is, however, conceded, by counsel for the Commissioner that in respect of the first year of income of each fund the decision-maker erred in interpreting s 301. It seems that the decision-maker concluded, by reference to the explanatory memorandum to the bill which enacted s 301, that s 301 was not intended to cover the granting of an extension of time under s 267 because s 267 was not mentioned in the explanatory memorandum. It is hardly surprising that s 267 was not mentioned in that explanatory memorandum seeing as at the time it had not been enacted. But be that as it may it is conceded now that it is a consequence of s 301 that the assessments of the funds for the 1989 year of income may be amended to take into account any extension of time granted under s 267 so that it would not in those years have been futile for the Commissioner to give a favourable decision to the taxpayer.

20. For the Commissioner, however, it is submitted that given the other factors which the decision-maker took into account, and the fact that the matter of s 301 was put as being an additional matter, I should treat the error of law as immaterial.

21. There would, if all the other factors telling against the making of the decision had been found in favour of the Commissioner, have been some merit in this argument.  And this, notwithstanding that it is possible to argue that because it was a factor taken into account it might have affected the decision, whatever weight the other matters had.  I incline to the latter view.  Since, however, I am of the view that the Commissioner did take, to the extent I have indicated, irrelevant matters into account, the error of law would merely be an additional ground for setting aside the decisions in these years.

    Conclusion

22. I am, therefore, of the view that the Commissioner made an error of law in his decision in respect of the year of income ended 1989 (the interpretation of s 301 of the Act) and in that year took into account at least two irrelevant matters, these being the potential to change the law and the quantum of the deduction to which the funds were entitled (with the consequence of a large carry forward loss).

23. In respect of the remaining years of income I am of the view that the Commissioner took into account an irrelevant matter (the quantum of the deduction) and also applied a wrong understanding of the law so far as he concluded that the fact that the taxpayer was represented by an adviser was a matter clearly adverse to the taxpayer.

24. It follows that I would set aside the decisions under review and remit them to the Commissioner for reconsideration in accordance with law.  The Commissioner shall pay the applicants’ costs of the application.

1. Before concluding this judgment I would like once more to stress the problems which may arise where the decision of Wilcox J in Hunter Valley Developments is taken as setting out criteria for determining extensions of time in areas other than those with which the judgment dealt, namely the extension of time for a person aggrieved by a decision to bring proceedings in this Court for judicial review.  Not only are the matters dealt with by Wilcox J not inflexible criteria (they are merely guidelines for consideration) they seem to me to have considerably less relevance to a case, such as the present, where the extension of time is for the purpose of having the merits of a case considered, than they do to the making of an application for judicial review of a decision out of time.  That this is so has recently been affirmed by a full court of this court which included Wilcox J in Zizza v Federal Commissioner of Taxation (1999) 99 ATC 4,711.

I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Associate:

Dated:             29 September 1999

Counsel for the First and Second Applicants:	A Robertson SC;  A Payne
Solicitor for the First and Second Applicants:	Ernst & Young Legal Services
Counsel for the Respondent:	R M Henderson
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	5 August 1999
Date of Judgment:	29 September 1999