Walters and Commissioner of Taxation
[2013] AATA 151
•20 March 2013
CATCHWORDS – JURISDICTION – whether power to review objection decisions where submitted objections improperly made – objections to amended assessments found to be properly made – consideration of principles applying if objections not properly made – when Tribunal has power to review improperly made decision – whether Tribunal’s review can lead to effective outcome is a separate question from power to review an improperly made decision.
Batagol v Federal Commissioner of Taxation (1963) 109 CLR 242
Bellinz v Federal Commissioner of Taxation (1998) 84 FCR 154; 155 ALR 220; 39 ATR 198; 98 ATC 4634
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd [1979] FCA 21; (1979) 24 ALR 307
Commissioner of Taxation v Richard Walter Pty Ltd [1985] HCA 23; (1985) 183 CLR 168; 127 ALR 21; 95 ATC 4067; 29 ATR 644
Federal Commissioner of Taxation v Stokes [1996] FCA 1128; (1996) 72 FCR 160; 141 ALR 653; 34 ATR 478
Federal Commissioner of Taxation v Wade (1951) 84 CLR 105
Isaacs v Commissioner of Taxation [2006] FCAFC 105; (2006) 151 FCR 427; 230 ALR 202; 43 AAR 330; 95 ALD 530
Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500
Kim v Minister for Immigration [2008] FCAFC 73; (2008) 167 FCR 578; 248 ALR 51
Project Blue Sky Inc and Others v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490
Re Bolton; Ex parte Beane [1987] HCA 12; (1987) 162 CLR 514; 70 ALR 225
Re Phelps and Commissioner of Taxation [2009] AATA 780; [2009] ATC 10-114; (2009) 51 AAR 391; 115 ALD 20
Re Radge and Commissioner of Taxation [2007] AATA 1317; (2007) 45 AAR 318; 95 ALD 711 [2007] ATC 2,164
SGME v Minister for Immigration and Citizenship and Refugee Review Tribunal [2008] FCAFC 91; (2008) 168 FCR 487; 247 ALR 467; 102 ALD 31
Smorgon v Australia & New Zealand Banking Group Ltd [1976] HCA 53; (1976) 134 CLR 475
The King v Deputy Federal Commissioner of Taxation for South Australia; Ex parte Hooper [1926] HCA 3; (1926) 37 CLR 368
Yilmaz v Minister for Immigration and Multicultural Affairs (2000) 100 FCR 495
Administrative Appeals Tribunal Act 1975, ss 25, 37, 43
Commonwealth of Australia Constitution Act, Chapter III
Income Tax Assessment Act 1936, ss 6, , 139E, 161, 166, 166A, 167, 169, 169A, 170, 173, 174, 175, 175A, 177
Income Tax Assessment Act 1997, s 103-25
Taxation Administration Act 1953, ss 14ZL, 14ZQ, 14ZU, 14ZV, 14ZW, 14ZX, 14ZY, 14ZZ, 14ZZA
Taxation Ruling TR2011/5
DECISIONS AND REASONS FOR DECISIONS [2013] AATA 151
ADMINISTRATIVE APPEALS TRIBUNAL )
) 2012/4900
TAXATION APPEALS DIVISION )
Re:CHERYL WALTERS
Applicant
And:COMMISSIONER OF TAXATION
Respondent
ADMINISTRATIVE APPEALS TRIBUNAL )
) 2012/4902
TAXATION APPEALS DIVISION )
Re:KEVIN WALTERS
Applicant
And:COMMISSIONER OF TAXATION
Respondent
DECISIONS
Tribunal: Deputy President S A Forgie
Place: Melbourne
Date: 20 March 2013
Decision:The Tribunal decides that it has jurisdiction to review:
(1)the objection decision made by the respondent on 2 May 2012 in relation to the amended assessment and the assessment of penalty issued to the applicant, Cheryl Walters, on 8 March 2012; and
(2)the objection decision made by the respondent on 2 May 2012 in relation to the amended assessment and the assessment of penalty issued to the applicant, Kevin Walters, on 2 March 2012.
(sgd) S A Forgie
Deputy President
REASONS FOR DECISIONS
Mr and Mrs Walters are the Trustees of the K&C Walters Trust. The Commissioner of Taxation (Commissioner) issued amended assessments in relation to the taxable income of that Trust. As a consequence, he determined that Mr and Mrs Walters had received payments from the Trust but had not returned them as income in their returns. He issued amended assessments to each of them as well as assessments of tax shortfall penalty payable by each. Mr and Mrs Walters engaged a tax agent who lodged objections to the amended assessments after they had been informed those amended assessments would be issued but before they were. He objected to the assessments of penalty after they had been given to Mr and Mrs Walters but not in an approved form. The Commissioner reviewed the assessments and amended assessments in any event and affirmed them.
The issue is whether the Tribunal has power to review the objection decisions in view of what the Commissioner submits are improperly made objections. I have decided that the objections to the amended assessments of penalty were properly made and the Commissioner has conceded that they were. It has not been established that any particular form had to be followed and, taken in their context of material already known to the Commissioner, they provided sufficient detail to satisfy s 14ZU of the Taxation Administration Act 1953 (TAA). Therefore, the Tribunal has jurisdiction to review the objection decisions in so far as they relate to those objections.
There is a separate basis on which the Tribunal has jurisdiction to review the objection decisions in relation to both the assessments and the income tax amended assessments. That follows from the principles set out by the majority of the Full Court in Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd[1] (Brian Lawlor). That the objection decisions have been made is a matter of fact. The Tribunal’s power to review them comes from the fact that s 14ZZ(1)(a)(i) of the TAA provides that a person may apply to the Tribunal for their review. Section 25(4) of the Administrative Appeals Tribunal Act 1975 (AAT Act) provides that the Tribunal has power to review that decision when the application is made. It has no power to review the validity of the events that preceded them for to do that would be to exercise judicial power contrary to Chapter III of the Constitution.
BACKGROUND
[1] [1979] FCA 21; (1979) 24 ALR 307; Bowen CJ, Smithers and Deane JJ
6 April 2011: lodgement of tax return
On 6 April 2011, Mrs Walters lodged her income tax return for the 2010 income year.[2] She disclosed taxable income of $77.00 being interest.[3] Mr Walters lodged his on the same day and disclosed no taxable income.[4]
[2] Documents lodged under s 37 of the AAT Act in relation to proceedings No. 2012/4900 (CWT documents); T 3 at 32-61
[3] CWT documents; T5 at 66 and see also T6 at 71
[4] T documents in relation to proceedings No.2012/4902 relating to Mr Walters’ application (KWT documents); T3 at 30-59
14 April 2011: notices of assessment
The Commissioner issued a notice of assessment to Mr and Mrs Walters on 14 April 2011.[5] It assessed the tax payable by Mrs Walters as $0.00 and by Mr Walters as the same.[6]
[5] CWT documents; T4 at 62-63 and KWT documents; T4 at 60-61
[6] CWT documents; T4 at 62 and KWT documents; T4 at 60
16 February 2012: notice of liability to penalty issued to K&C Walters Trust
The Commissioner issued a notice of assessment of liability to penalty issued to the K&C Walters Trust on 16 February 2012.[7]
[7] T documents in relation to proceedings No. 2012/4903 relating to the application by the Trustees of the K&C Family Trust (Trust T documents); T20 at 115-117
17 February 2012: letter by Commissioner to Mrs Walters
On 17 February 2012, the Commissioner wrote a letter to each of Mr and Mrs Walters advising them that he had amended their income tax returns to reflect an increase in the distribution each had received from the K&C Walters Trust. Other than in their references to amounts, the letters are in the same terms. I have set out in square brackets the amounts referred to in the letter to Mr Walters in the following extract from the letter:
“You therefore need to pay an additional $24,919.79 [$24,888.60]. You will receive a notice of amended assessment shortly.
A penalty amount of $18,689.80 [$18,666.45] also applies. You will also receive a notice of assessment of administrative penalty.
Our decision
The reasons for our decision, including penalty considerations, were explained in the interim report sent to you on 16 January 2012. Your response was due by 13 February 2012. We have not received any further written evidence from you to quantify why your reported income is accurate and we have not changed our position.
…
Your right to object
You may object to:□the amended assessment
□a decision not to remit an amount of shortfall interest charge where the amount not remitted is more than 20% of the tax shortfall
□the assessment of a tax shortfall penalty
□a decision not to remit all of the tax shortfall penalty
How to lodge your objection
Your objection needs to:
□be in writing
□be signed and dated
□state fully and in detail the grounds you are relying on, and
□be sent via:
- the tax agent or business portals
- fax to 1300 139 031, or
- mail to:Australian Taxation Office
GPO Box 9935
SYDNEY NSW 2001
Time limits of 60 days or four years apply when lodging an objection.
Objection forms and further information about how to lodge an application, including advice on time limits, agent declarations and documents to send with your objection form, are available from our website at under Objections, amendments, reviews’ then ‘Lodging an objection’ or by phoning 13 28 66 between 8.00am and 6.00pm, Monday to Friday.
Application to the Federal Court
While you cannot object to a decision not to remit either an amount of general interest charge or a shortfall interest charge where the amount not remitted is less than 20% of the tax shortfall, you may seek a review of the remission decision by the Federal Court under the Administrative Decisions (Judicial Review) Act 1977.
Applications for a review of a written decision must be lodged with the Federal Court within 28 days of the date of this letter. If you do not lodge your review application within 28 days, you will need to apply to the Court for an extension of time to lodge the application. Fees for lodging an application with the Federal Court may apply.
…”[8]
[8] CWT documents; T5 at 64-65 and KWT documents; T5 at 62-63
The attachment to the letters set out Mr and Mrs Walters’ names and Australian Business Numbers and a heading: “Summary of 2010 income tax return amendment”. There then follows a table referring to Mr or Mrs Walters’ affairs as the case may be. I have reproduced the table included for Mrs Walters showing the Commissioner’s calculations. I have set out the figures relevant to Mr Walters in square brackets:[9]
[9] CWT documents; T5 at 66 and KWT documents; T5 at 64
| Tax period ending | Reported Taxable Income | Revised/Assessed Taxable Income | Tax on revised income | Previously Assessed Tax | Tax Shortfall |
| June 2010 | $77.00 | $92,518.00 | $24,919.79 | $0.00 | $24,919.79 |
| Total | $24,919.79 | ||||
| [June 2010] | [$0.00] | [$92,441.00] | [$24,888.60] | [$0.00] | $24,888.60] |
| [Total] | [$24,888.60] |
The letter to Mrs Walters goes on to set out the:
Administrative penalty calculation
The final result of the audit is as follows:
□ Your trust distribution for the 2010 income year is $92,441
□ Your amended taxable income is $92,518 as detailed above.
□ Your tax shortfall on $92,518 is $24,919.79□Your administrative penalty is $18,689.80 is calculated as 75% of the tax shortfall.
…”[10]
The letter to Mr Walters is in similar terms but acknowledges a mistake made in earlier correspondence and advises that his administrative penalty is $18,666.45.[11]
[10] CWT documents; T5 at 66
[11] KWT documents; T5 at 64
There then follows a passage about shortfall interest charge remission. It advised each of Mr and Mrs Walters that a decision had been made that there were no grounds to remit the shortfall interest charge but:
“… If there is delay later in the audit or in issuing the amended notice of assessment we may remit some of the SIC that accrues.
…”[12]
[12] CWT documents; T5 at 66 and KWT documents; T5 at 64
20 February 2012: notices of assessment issued to K&C Walters Trust
The Commissioner issued notices of assessment of goods and services tax (GST) net amount to the K&C Walters Trust for the 2010 income year.[13]
[13] Trust T documents T22-T25 at 119-130
1 March 2012: notice of objection in relation to K&C Walters Trust
Nair & Partners, who are Tax Agents, completed an objection form: Objection form – for tax professionals. The form showed the name of the taxpayer as the K&C Trust. It referred to an attached document when the form prompted Nair & Partners to give objection details at Section D.[14] The attached document was a letter written by Nair & Partners dated 1 March 2012 and headed:
“NOTICE OF OBJECTION
Your ref: … … …ABN … - K&C Walters Trust”[15]
[14] CWT documents; T7 at 99
[15] CWT documents; T7 at 101
There were three references shown after “Your ref” in the subject line. They are represented by the ellipses in the paragraph above. An examination of the letters written by the Commissioner shows that they were references issued on correspondence to the K&C Walters Trust, Mr Walters and Mrs Walters respectively.
2 March 2012: notice of objection sent to Commissioner
Nair & Partners sent the objection by facsimile to the Commissioner.[16] The subject line of the facsimile read: “Re: K&C Walters Trust Kevin Walters Cheryl Walters”. The substantive part of the text of the email read:
“Attached please find notice of objection form for our above clients.
The original form and other documents will be posted to you in today’s mail.
We have highlighted in pink, on the tax invoices for purchases made & these amounts have been incorrectly shown as part of stock purchases in our client’s 2010 profit & loss statement.
…”[17]
[16] CWT documents; T7 at 101; KWT documents; T9 at 101; and Trust T documents; T26 at 131
[17] CWT documents; T7 at 97 and see also KWT documents; T9 at 101
2 March 2012: notices of amended assessment and assessment of penalty issued to Mr Walters
On 2 March 2012, the Commissioner issued a notice of amended assessment to Mr Walters for the 2010 income year[18] together with a notice of assessment of shortfall penalty for the same year.[19] The notice of amended assessment showed his amended taxable income as $92,441, his tax on that taxable income as $22,577.58 and Medicare levy of $1,386.61. A total of $23,964.15 was payable. When the shortfall interest charge of $2,460.88 was added, the total payable was $26,425.03. The notice of assessment of shortfall penalty showed the amount of penalty payable to be $17,973.10.[20]
[18] KWT documents; T7 at 95-98
[19] KWT documents; T8 at 99-100
[20] KWT documents; T8 at 99
8 March 2012: notices of amended assessment and assessment of penalty issued to Mrs Walters
On 8 March 2012, the Commissioner issued a notice of amended assessment to Mrs Walters showing her amended taxable income as $92,518.00, her tax on that taxable income as $22,606.84 and Medicare levy of $1,387.77. That led to a total of $23,994.60 tax payable. When the shortfall interest charge of $2,464.01 was added, the total payable was $26,458.61.[21] On the same day, the Commissioner issued a notice of assessment to Mrs Walters regarding the shortfall penalty of $17,995.95 he had assessed.[22]
[21] CWT documents; T8 at 104
[22] CWT documents; T9 at 108
In a letter written on the same day, the Commissioner wrote to Mrs Walters to advise that the figures shown in the amended assessments had been adjusted in her favour:
“… the amendment advice in respect of your 2010 income tax return trust distribution we issued you on 17 February 2012 stated the incorrect amount of income tax and administrative penalty (income tax) payable. This change is in your favour.
We had incorrectly charged you the Medicare Levy Surcharge in our previous calculation. We apologise for this error and summarise the correct details of the assessment below. You will receive a 2010 notice of amended assessment shortly.
…”[23]
[23] CWT documents; T10 at 110
12 April 2012: letter from Mrs Walters’ Tax Agent
On 12 April 2012, Nair & Partners wrote to the Australian Taxation Office (ATO) saying, in part:
“Further to the notice of objection we lodged, dated 01/03/2012 on the above matter, we are also objecting to all the penalties imposed on the trustee and the beneficiaries.
We believe that the penalties imposed are unjust and request that all the penalties be waived.
The culpability for the income tax shortfall, if any, rests with the beneficiaries.
…”[24]
[24] CWT documents; T11 at 112 and see also Trust T documents; T28 at 487
2 May 2012: Commissioner’s objection decision
On 2 May 2012, the ATO informed Mr and Mrs Walters and the K&C Walters Trust of the objection decisions made on the objections lodged on 2 March 2012. The Commissioner had disallowed their objections in their entirety.[25]
[25] CWT documents; T12 at 113-116; KWT documents; T12 at 111-114 and Trust T documents; T29 at 488-490
15 August 2012: Commissioner’s response to applicants’ response to objection decision
In a letter dated 15 August 2012 written on behalf of a Deputy Commissioner, Mr Nair was advised that the power to make an objection decision under s 14ZY of the TAA could be used only once. Having made objection decisions, they could not be revisited other than to correct mistakes and it was not considered that any had been made.[26]
[26] Trust T documents; T31 at 498
12 September 2012: application for extension of time to lodge application for review
On 12 September 2012, Mr and Mrs Walters each lodged an application in the Tribunal for an extension of the time within which to lodge an application for review of the objection decision.[27] The Tribunal’s Registry sent notice of the application to the Commissioner who advised, on 26 September 2012, that he did not oppose the Tribunal’s granting the application. On 28 September 2012, another member of the Tribunal made an order extending the time within which Mrs Walters could apply for review of the objection decision until 31 October 2012.
[27] AAT File Nos. 2012/3990 (Mr Walters) and 2012/3995 (Mrs Walters)
31 October 2012: application for review of objection decision lodged
All three, Mr and Mrs Walters and the K&C Walters Trust, lodged applications for review of the objection decisions. They did so on 31 October 2012 when they paid the prescribed fees.
THE SUBMISSIONS
The Commissioner’s submissions
The Commissioner concedes that Mr and Mrs Walters and the K&C Walters Trust have lodged valid objections to the assessments of shortfall penalty issued to each of them. Therefore, he continues, their applications to the Tribunal for review of the objection decisions are valid in so far as they relate to them.
He takes a different position with regard to their applications for review of his objection decisions made on their objections to his amended assessment of taxable income and tax payable. The Commissioner’s position is that no valid objections were lodged and so there can be no valid applications to the Tribunal for review of any objection decisions made on those objections. He develops two bases for his submission.
The first basis is that the notice of objection form lodged on 1 March 2012 referred only to the K&C Walters Trust. It did not refer to Mr and Mrs Walters. The Commissioner acknowledges that the facsimile transmission sheet refers to the Commissioner’s reference numbers used in the adjustment notices issued to the K&C Walters Trust, to Mr Walters and to Mrs Walters. As is apparent from the passage I have quoted above, it also draws the Commissioner’s attention to the attachment which was a “… notice of objection form for our above clients.” The objection form itself, though, provided only the details for the K&C Walters Trust under Section A on the form.
The Commissioner also referred to other references in the attachment to all three taxpayers and to Nair & Partners’ “clients” rather than to their “client”. It was clearly intended to deal with the amendments for the K&C Walters Trust and for Mr and Mrs Walters, the Commissioner submitted. Mr and Mrs Walters could only be successful if the Trust’s objections were successful.
The Commissioner’s letter to the Tribunal outlining his reasons for submitting that the Tribunal does not have jurisdiction to review the decision attached a copy of Taxation Ruling TR2011/5. It is entitled “Income tax: objections against income tax assessments”. At [117], it stated:
“It is not necessary to use a printed form or electronic template published by the Commissioner. An objection by letter or other paper document will be in the approved form for the purposes of paragraph 14ZU(a) provided it:
∙is in writing;
∙contains the necessary signed declaration;
∙contains the requisite information; and
∙is lodged in the required manner.[28]”
[28] “This Ruling constitutes approval in writing by the Commissioner under subsection 388-50(1) of Schedule 1 for such objections to be in the approved form.”
Relying on the facsimile transmission sheet, the objection form and a notice of objection attached to the form, the Commissioner submits that this constitutes an objection on behalf of the K&C Walters Trust but not on behalf of Mr and Mrs Walters.
The second basis on which the Commissioner contends that there is no valid objection is that, if the facsimile and the attachments together formed a notice of objection, it was lodged before the amended assessments were issued.
At the hearing, I drew the attention of the parties to the case of Brian Lawlor and to the case of Kennedy v Administrative Appeals Tribunal[29] (Kennedy) and gave them an opportunity to make written submissions addressing the issues raised by these cases. Each made written submissions. In his, the Commissioner developed the following points:
“3. At first instance, the Tribunal held in Re Brian Lawlor v The Collector of Customs, New South Wales [1978] AATA 49 that it had power to review the decision to revoke the licence, once it got to that point it found that the decision should be set aside because it was beyond the power of the decision maker. The Collector’s appeal in the Lawlor Case was dismissed.
4. The Commissioner accepts that the Lawlor Case suggests that the Tribunal has jurisdiction to consider and determine whether there was an objection decision. However, in accordance with the legislative context outlined below, once the Tribunal determines that there is no taxation objection, it follows that that there can be no decision in relation to that taxation objection that is reviewable by the Tribunal.
5. The Commissioner’s view is that the Lawlor case does not enable the Tribunal to consider the amended income tax assessments issued to Cheryl Walters and Kevin Walters for the year ended 30 June 2010. This is consistent with the approach taken in Elizabeth Phelps v Commissioner of Taxation [2009] AATA 780.
…
20. The Commissioner’s view is that the principles in the Lawlor Case suggest that the Tribunal may consider whether it has jurisdiction to consider a matter, however, once the Tribunal determines there were no valid taxation objections for Cheryl Walters and Kevin Walters for the relevant year, and as a result can be no objection decision or reviewable objection decision, it must determine that it does not have power to consider the amended income tax assessments to Cheryl Walters and Kevin Walters for the relevant year.”[30]
[29] [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500; French, Tamberlin and Mansfield JJ
[30] Commissioner’s Further Submissions dated 14 March 2013
The applicants’ submissions
Mr Enslin submitted in his letter dated 8 February 2013 that a literal reading of s 14ZW of the TAA:
“… means an objection can only be lodged within a time period namely within the period or on the date of assessment or amended assessment until the date of expiry of the time period.
We submit that the section should be interpreted to give effect to its purpose namely that a taxpayer cannot lodge an objection after the expiry of the time limit, which is measured from the date of the issue of the assessment. The section should not be interpreted in an unduly restrictive manner prohibiting a taxpayer from lodging an objection before an assessment or amended assessment is issued.
It is our submission that there is no policy reason or manner of interpretation that supports the Commissioners [sic] point namely that the objections of Kevin and Cheryl Walters are not valid as it was prepared prior to the issue of the amended assessments. …
In any event it is also submitted that assessment to Kevin Walters was issued on 2 March 2012, that is the same date the objection was lodged. It is therefore submitted that the Kevin Walters [sic] objection, even on the interpretation of the Commissioner, was lodged within the prescribed time limits.”
Mr Enslin expanded upon his submissions both in writing and orally at the hearing. He also developed a submission that, in making his objection decisions, the Commissioner gave no indication that he regarded the objections as not having been properly made. In fact, his actions supported the applicants’ position that they had made their objections properly.
In his further written submissions regarding the issues raised by Brian Lawlor and Kennedy, Mr Enslin developed the following main points:
(1)“Under section 25 of the AAT Act there is a threshold jurisdictional requirement that there be a ‘decision’. The courts have held that if a certain state of facts has to exist before a tribunal has jurisdiction, it can inquire into the facts in order to decide whether it has jurisdiction.”[31]
(2)“A decision does not have to be a valid or legally effective decision in order for the Tribunal to have the power to review it. This was established in … [Brian Lawlor]. The Collector had revoked a licence on the ground that the company was not a fit and proper person to hold a customs warehouse licence. On the Collector’s appeal to the Federal Court from the decision of the Tribunal the argument which was rejected was that, if the Collector did not have lawful authority to revoke the licence, then the company’s application to the Tribunal for review of the decision of the Collector was not within the jurisdiction of the Tribunal conferred by the AAT Act and the Tribunal had no authority to entertain the application.
The Full Federal Court confirmed that the tribunal has jurisdiction to review decisions by an official purported to be made in the exercise of powers conferred by an enactment, whether or not on a proper interpretation of the enactment such powers are conferred. …
…
Bowen CJ’s conclusion that the AAT has jurisdiction where a decision is purported to be made under an enactment was cited with approval by the Full Court in …[Kennedy].”[32]
(3)“It is submitted that the courts have established a clear and binding principle on the basis of the judgments in … [Brian Lawlor], … [Kennedy]; Kim v Minister for Immigration [2008], Minister for Immigration and Multicultural and Indigenous Affairs v Ahmed [2005] and Zubair v Minister for Immigration and Multicultural and Indigenous Affairs v Ahmed [2004] that the AAT has jurisdiction to hear a matter regarding a decision purporting to be made under an enactment, even if that decision was invalid and that on this basis the AAT has jurisdiction to hear the applicants [sic] appeal.”[33]
[31] Applicants’ submission regarding jurisdiction of the AAT at 4
[32] Applicants’ submission regarding jurisdiction of the AAT at 4-5
[33] Applicants’ submission regarding jurisdiction of the AAT at 7
THE LEGISLATION
Although it is well-known, I will outline very briefly the process from lodgement of an income tax return to review in the Tribunal. As the Commissioner does not question that Mr and Mrs Walters lodged valid objections to the assessments of their liability to pay penalties, I will refer only to the assessments of their liability to pay tax under the Income Tax Assessment Act 1936 (ITAA36). There are a number of qualifications to the general principles but they are not relevant in this context.
Annual returns
Under s 161(1) every person must give the Commissioner a return for a year of income if required to do so by a notice published in the Commonwealth Government Gazette. Mr and Mrs Walters are not among those persons exempted from the obligation by the Commissioner when using his power under s 161(1A).
Assessment
Where a person is liable to pay tax (including a nil liability) under ITAA36, the Commissioner may make an assessment of the amount of that tax or that no tax is payable.[34] Section 166 imposes on the Commissioner the obligation to make an assessment:
“From the returns, and from any other information in the Commissioner’s possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income (or that there is no taxable income) of any taxpayer, and of the tax payable thereon (or that no tax is payable).”
[34] ITAA36; s 169
The Commissioner may choose to accept, either in whole or in part, a statement made in the return by a taxpayer of his or her assessable income and of any allowable deductions or rebates to which he or she claims to be entitled.[35] In some circumstances, the Commissioner is deemed to have made an assessment[36] and, if a taxpayer is in default in furnishing a return, the Commissioner may make an assessment without it.[37]
[35] ITAA36; s 169A(1)
[36] ITAA36; s 166A
[37] ITAA36; s 167
The validity of any assessment is not affected because any provision in ITAA36 has not been complied with.[38]
[38] ITAA36; s 175
Amendment of assessment
Section 170 permits the Commissioner to amend assessments provided he does so within the criteria it sets out. Section 173 provides:
“Except as otherwise provided every amended assessment shall be an assessment for all the purposes of this Act.”
Notice of assessment
Section 174(1) provides:
“As soon as conveniently may be after an assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.”
A notice of assessment has evidentiary significance. Section 177(1) provides:
“The production of a notice of assessment … purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.”
Objection
Section 175A of ITAA36 provides that, except in limited circumstances specified in s 175A(2), a taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the TAA. Section 14ZL(1) of the TAA complements s 175A by providing:
“This Part applies if a provision of an Act or of regulations (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part.”[39]
[39] See also TAA; ss 14ZL(2) and 14ZQ
Section 14ZU of the TAA provides for the way in which a taxation objection is made:
“A person making a taxation objection must:
(a)make it in the approved form; and
(b)lodge it with the Commissioner within the period set out in section 14ZW; and
(c)state in it, fully and in detail, the grounds that the person relies on.
Note:…”
When a taxation objection is made to an amended assessment, regard must be had to s 14ZV for it limits the taxpayer’s right to object:
“If the taxation objection is made against a taxation decision, being an assessment or determination that has been amended in any particular, then a person’s right to object against the amended assessment or amended determination is limited to a right to object against alterations or additions in respect of, or matters relating to, that particular.”
Section 14ZW provides for the time by which an objection must be made. It provides for that by reference to the provision under which the taxation objection is to be made. In this case, the taxation objections must be made under s 175A of ITAA36. Therefore, the time within which they must be made is determined by s 14ZW(1)(aa):
“Subject to this section, the person must lodge the taxation objection with the Commissioner within:
(aa)if the taxation objection is made under section 175A of the Income Tax Assessment Act 1936;
(i)if item 1, 2 or 3 of the table in subsection 170(1) of that Act applies to the assessment concerned – 2 years after notice of assessment is given to the person; or
(ii)otherwise – 4 years after notice of the assessment concerned is given to the person; …”
This proposition is qualified by other provisions in s 14ZW but none is relevant in this case. A “taxation decision” includes an amended assessment of the sort made by the Commissioner in this case.[40]
[40] A “taxation decision means the assessment, determination, notice or decision against which a taxation objection may be, or has been, made”: TAA; s 14ZQ
Even if the time within which an objection may be lodged has passed, a taxpayer may still lodge an objection with the Commissioner and ask him to deal with the objection as if it had been lodged within the period. The taxpayer’s request must be in writing and must state fully and in detail the circumstances concerning, and the reasons for, his or her failing to lodge the objection within the required period.[41] The Commissioner must decide whether to agree to the taxpayer’s request or to refuse it. He does so under s 14ZX.
[41] TAA; s 14ZW(3)
Objection decision
Section 14ZY(1) requires the Commissioner to decide whether to allow, wholly or in part, or to disallow an objection “… if the taxation objection has been lodged with the Commissioner …”. The Commissioner’s decision is an objection decision.[42]
[42] TAA; s 14ZY(2)
Review of an objection decision
Section 14ZZ provides that the taxpayer may seek review of, or appeal against, an objection decision depending on whether it is a reviewable objection decision or an appealable objection decision or both. The AAT Act as modified by Division 4 of Part IVC of TAA applies in relation to, among others, the review of reviewable objection decisions.[43] A “reviewable objection decision” is an objection decision that is not an ineligible income tax remission decision.[44]
[43] TAA; s 14ZZA
[44] TAA; s 14ZQ
CONSIDERATION
There are two ways of approaching the issue in this case. One way leads to my concluding that the Tribunal has jurisdiction to review the Commissioner’s objection decisions and the other does not. I will explore first the way that does not and then turn to the other.
The first way: a matter of statutory interpretation
A.Approach to statutory interpretation
Mr Enslin’s submission looks first at the matter from a policy point of view. That is an important factor in statutory interpretation. As McHugh, Gummow, Kirby and Hayne JJ said in Project Blue Sky Inc and Others v Australian Broadcasting Authority:[45]
“ The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute …. The meaning of the provision must be determined ‘by reference to the language of the instrument viewed as a whole’ …. In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that ‘the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed’. Thus, the process of construction must always begin by examining the context of the provision that is being construed ….
A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals …. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions …. Reconciling conflicting provisions will often require the court ‘to determine which is the leading provision and which the subordinate provision, and which must give way to the other’ …. Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.
Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision ….”[46]
[45] [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490; McHugh, Gummow, Kirby and Hayne JJ; Brennan CJ dissenting on other issues
[46] [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490 at [69]-[70]; 381-382; 509-510
Even though policy plays a central role in statutory interpretation, it is not allowed to dominate the stage. In writing of the regard to be had to a Minister’s Second Reading Speech in ascertaining the meaning of a provision, Mason CJ, Wilson and Dawson JJ said in Re Bolton; Ex parte Beane:[47]
“… But this … [i.e. the Speech], while deserving serious consideration, cannot be determinative; it is available as an aid to interpretation. The words of a Minister must not be substituted for the text of the law. … It is always possible that through oversight or inadvertence the clear intention of the Parliament fails to be translated into the text of the law. However unfortunate it may be when that happens, the task of the Court remains clear. The function of the Court is to give effect to the will of Parliament as expressed in the law.”[48]
[47] [1987] HCA 12; (1987) 162 CLR 514; 70 ALR 225; Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ
[48] [1987] HCA 12; (1987) 162 CLR 514; 70 ALR 225 at 515; 227-228
B. Interpretation and application of ITAA36 uninstructed by judicial authority
Beginning, then, with the general policy of ITAA36 and TAA, it is clear that they are intended to provide a scheme for the imposition, assessment and collection of taxation upon incomes and for the administration of that scheme as well as other schemes relating to the imposition, assessment and collection of other forms of taxation.[49] Provision is made in the overall scheme formed by ITAA36 and the TAA for a taxpayer to seek review of certain decisions affecting that taxpayer’s liability to pay tax.
[49] This is consistent with the Long Title of ITAA36
When looking at the words that have been used by Parliament in setting out the process by which a taxpayer’s liability is assessed and reviewed and doing so in light of the policy of the legislation, it is tempting to draw the conclusion that Parliament has drawn a distinction between the Commissioner’s assessment of liability to pay tax and his giving the taxpayer notice of that assessment. That would follow from an examination first of the right that is conferred on a taxpayer by s 175A of ITAA36 to object. It is a right conferred on a taxpayer who is “dissatisfied with an assessment made in relation to the taxpayer” (emphasis added). No reference is made to the notice of assessment and this stands in contrast to s 14ZW of the TAA, which sets out the time limit within which the taxpayer may exercise that right. It is a time limit calculated by reference to the time at which the person was given the notice of assessment. In the circumstances of this case, that meant that each taxpayer had to lodge a taxation objection “within … 2 years after notice of the assessment is given to the person” (emphasis added). Even the Commissioner’s obligation to serve a notice of the assessment draws a distinction. Section 174 requires notice to be served “As soon as conveniently may be after any assessment is made …” (emphasis added). Section 177 also reflects a distinction between the two when it provides, in part, that the production of “… a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment …” (emphasis added). It does not say that it is the only evidence of the making of an assessment.
If this distinction, which appears on the face of ITAA36 and would seem consistent with the policy of ITAA36, is a distinction that should be made, it would mean that, if there is evidence of the Commissioner’s having made an assessment before Mr and Mrs Walters lodged their objections then they will have exercised their right within the meaning of s 175A even though they have not received notices of the assessment. If there is no evidence of that they will not have exercised their right, for the right to object given by s 175A is dependent upon their being dissatisfied with an assessment. Although it is an obvious thing to state, they cannot be dissatisfied with an assessment unless there is an assessment.
If I look to the letter sent to Mrs Walters on 17 February 2012 and a similar letter sent to Mr Walters on the same day, I come to the view that it looks like an assessment as that term is defined in s 6(1) of ITAA36. Referring only to paragraph (a) of that definition, it reads:
“assessment means:
(a)the ascertainment of the amount of taxable income (or that there is no taxable income) and of the tax payable on that taxable income (or that no tax is payable); …”
That is what the Commissioner says that he has done when he tells them of their “Revised/Assessed Taxable Income” and the “Tax on revised income”. He has ascertained the amount of their taxable income and ascertained the tax payable on it. The letter of 17 February 2012 to Mrs Walters refers to her receiving a notice of amended assessment shortly as well as a notice of assessment of administrative penalty. It follows this with a reference to the “reasons for our decision”, which suggests that the letter is representing the contents of a decision. The reference to review rights does not suggest to the reader that they do not arise immediately or that they do not arise until a “notice of amended assessment” or a “notice of assessment” (emphasis added) has been given to them. Instead, the letter advises that Mrs Walters may object to “the amended assessment” and to “the assessment of a tax shortfall penalty”.
C. Interpretation and application of ITAA36 instructed by judicial authority
As I noted in the heading to the previous section of these reasons, I have interpreted the relevant provisions of ITAA36 without regard to authority. If a court such as the Federal Court or the High Court has interpreted an Act or a provision of an Act, I am bound to apply its interpretation. Looking at it only in the context of administrative decision-making, my being bound in that way is an essential element in a system that is intended to lead to administrative decisions that are made both on the basis of reasoning that is transparent and logical as well as on the basis of laws consistently interpreted and consistently applied to facts found according to a logical and deductive process of reasoning.
When I go to the authorities, I find that they have not interpreted an assessment and kept it as a separate process from a notice of assessment in the way that might otherwise be expected from a reading of the plain words of ITAA36. I will refer only to a couple of authorities to illustrate that the process of assessment of the sort referred to in ITAA36 is not the notice of assessment (or of amended assessment) given by the Commissioner to the taxpayer but neither is an assessment complete until that notice of assessment has been given.
This interpretation is consistent with the description given of an assessment by Isaacs J in The King v Deputy Federal Commissioner of Taxation for South Australia; Ex parte Hooper:[50]
“… An ‘assessment’ is not a piece of paper: it is an official act or operation; it is the Commissioner’s ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification thereof called ‘a notice of assessment.’ And then, says the Act (sec. 54), ‘income tax shall be due and payable sixty days after the service by post of a notice of assessment.’ … But neither the paper sent nor the notification it gives is the ‘assessment.’ That is and remains the act or operation of the Commissioner.”[51]
Service of that piece of paper is a part of the process for:
“… it is only after service of the notice that the taxable income and the tax payable are ascertained. Unless and until service takes place, the Commissioner has not discharged his statutory responsibility to make an assessment.”[52]
[50] [1926] HCA 3; (1926) 37 CLR 368; Knox CJ, Isaacs and Rich J
[51] [1926] HCA 3; (1926) 37 CLR 368 at 373 and see also Smorgon v Australia & New Zealand Banking Group Ltd [1976] HCA 53; (1976) 134 CLR 475 at [11]; 480 per Stephen J
[52] Commissioner of Taxation v Richard WalterPty Ltd [1985] HCA 23; (1985) 183 CLR 168; 127 ALR 21; 95 ATC 4067; 29 ATR 644; Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ at 186; 31; 4,074-4,075; 653 per Mason CJ
Consideration of precisely what is entailed in the process of assessment was taken a step further by the High Court in Batagol v Federal Commissioner of Taxation[53] (Batagol). Mr Batagol had made a full and true disclosure of all material facts necessary for the Commissioner to make an assessment in respect of three years of income. Incorrectly as it turned out, the assessing officers decided that Mr Batagol had no taxable income. They recorded their decision on his files. Without telling him of the decisions, they put the files for the first two years away. On their incorrect view of the law, no tax was payable and there were no PAYE deductions to refund. In the file for the third year, the assessing officers sent Mr Batagol a cheque refunding him the amount of taxation that had been deducted on a PAYE basis from his salary. Included with the cheque was a document called a “refund advice”. The Commissioner then discovered the mistake, calculated that Mr Batagol was liable to pay tax and sought to issue an assessment in respect of the three years. Mr Batagol argued that an assessment had already been made and could not, having regard to the way in which s 170(3) was then drafted and the fact he had made full disclosure of his affairs at the outset, be amended. The case turned on whether assessments had in fact been made when the assessing officers reached their decisions.
[53] (1963) 109 CLR 242; Kitto, Menzies and Owen JJ
The word “assessment” was defined in s 6 in similar terms to that we have set out at [55] above. That definition was:
“… not sufficient by itself to answer the question before us, because ‘ascertainment’ is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s 204. Thus, and only thus, there is brought about an ‘ascertainment’ of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see s 177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word ‘ascertainment’ being understood in this sense, the definition of ‘assessment’ means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case. … On this construction of the Act nothing done in the Commissioner’s office can amount to more than steps which will form part of an assessment if, but only if, they lead to and are followed by the service of a notice of assessment.”[54]
[54] (1963) 109 CLR 243 at 251-252 per Kitto J and see also Owen J at 256: “… These provisions all show that the assessment of which s 170(1) to (6) speak is something more than the completion inside the Taxation Department of the routines and processes necessary for the purpose of deciding whether or not in a particular case there is a taxable income and tax payable thereon. It includes the taking of all further steps as are necessary to create a liability to pay the tax so calculated.” Menzies J agreed with both Kitto and Owen JJ: (1963) 109 CLR 242 at 254
The practical outcome of that conclusion was that, until a notice of assessment had been served on Mr Batagol, the Commissioner did not need any statutory authority to revise the work done by the assessing officers and to correct anything considered erroneous. Furthermore, the Commissioner was not prevented from doing so by s 170 of ITAA36. Indeed, s 170 does not have any application until the assessment has been issued. Only when the notice of assessment had been served on Mr Batagol would the amount of the tax be “fixed” and variable only on appeal or review.[55]
[55] See also Federal Commissioner of Taxation v Stokes [1996] FCA 1128; (1996) 72 FCR 160; 141 ALR 653; 34 ATR 478; Spender, Burchett and Hill JJ
D. Right to object based on there being an assessment
Once it is realised that the Commissioner has not made an assessment until he has given a notice of that assessment to the taxpayer, it becomes apparent that the taxpayer has no right to object until given that assessment.
As I observed at the hearing, I cannot overlook the statutory requirement even if the Commissioner appears to have done so, albeit inadvertently, when making the objection decisions. Administrative action of that sort, though, cannot make valid what was not valid: As Kitto J said in Federal Commissioner of Taxation v Wade:[56]
“ No conduct on the part of the Commissioner could operate as an estoppel against the operation of the Act …”.[57]
This passage was expressly adopted by the Full Court of the Federal Court when considering a public ruling issued by the Commissioner after the introduction of Part IVAAA of the TAA: Bellinz v Federal Commissioner of Taxation.[58]
[56] (1951) 84 CLR 105
[57] (1951) 84 CLR 105 at 117
[58] (1998) 84 FCR 154; 155 ALR 220; 39 ATR 198; 98 ATC 4634 at 164; 229; 207; 4,642
E. Has any objection been made to an assessment?
The question I have posed in the heading requires me to look at two separate time frames. The first is the objection made on 2 March 2012 and the other on 12 April 2012.
E.1 Objection made on 2 March 2012
For the reasons I have given, the Commissioner had not made an assessment in respect of either Mr or Mrs Walters at this stage. Therefore, neither had a right to object at that stage and they did not renew their objections to the assessments that were later issued in relation to the taxable income and tax payable by each of them.
E.2 Objection made on 12 April 2012
The objection made on 12 April 2012 was made after the Commissioner had issued notices of assessment for shortfall penalties. He did that on 2 March 2012 in respect of Mr Walters and on 8 March 2012 in respect of Mrs Walters.I have set out the objection above. It is not in the form used by Mr Nair on 2 March 2012 and a form made available by the Commissioner but simply written as a letter. I have set out the requirements of an objection as set out in s 14ZU of TAA. One is that it be made in the time allowed by s 14ZW and I have set out the relevant provision at [45] above. If the objection is validly made, it is made within the time allowed.
The next issue is whether it has been made in a form approved by the Commissioner. I have set out [117] of Taxation Ruling TR 2011/5 at [27] above. The objection was in writing and the Commissioner has not questioned that it contained the necessary signed declaration or that it was lodged in the required manner. That leaves the question whether it contains the requisite information and, in particular, whether the grounds relied on by Mr and Mrs Walters were fully set out.
The grounds were briefly stated but they must be seen in context. They were objections against shortfall penalties. Although I have not accepted them as objections, Mr Nair’s earlier attempts at lodging objections are part of the context. He set out the grounds on which he made the objections against the assessments in that earlier attempt. The success or otherwise of that earlier objection, if it had been validly made, would have had an impact on the success or otherwise of the objections against penalty for tax shortfall. The two are closely connected and I think that, taken together, there was sufficient information in the objections to meet the requirement of s 14ZU of the TAA.
For these reasons, I consider that objections were properly made to the Commissioner’s assessments of shortfall penalties issued to each of Mr and Mrs Walters. Therefore, the Tribunal has jurisdiction to consider the objection decision that the Commissioner went on to give in relation to those objections.
The second way: applying Brian Lawlor
A.The principles
The second way of looking at this matter leads me to conclude that the Tribunal has jurisdiction to review the objection decisions made by the Commissioner on 2 May 2012 in relation to each of Mr and Mrs Walters in relation to the amended assessments as well as the assessments of penalty. This way of looking at the matter requires me to start from the general principle that the Tribunal’s jurisdiction is founded on there being a “… decision in respect of which application is made to it under any enactment.”[59] That is the effect of s 25(4), when read with s 25(1), of the AAT Act. Section 14ZZ provides that the taxpayer may seek review of, or appeal against, an objection decision depending on whether it is a reviewable objection decision or an appealable objection decision or both. There is no requirement that the objection decision be validly made or that the objection on which it is made be validly made. All that is required to give the Tribunal jurisdiction is that there is an objection decision. There is such an objection decision here.
[59] AAT Act, s 25(4)
It makes no difference that there may be invalidly made decisions that lead to the decision that meets the description of a “… decision in respect of which application is made to it under any enactment” i.e. an objection decision in this case. This is clear from Kim v Minister for Immigration[60] (Kim), in which Tamberlin J, with whom Besanko J agreed, expressed the principle this way:
“ The power of the Tribunal to review a ‘decision’ extends not only to the review of a decision which is in fact made lawfully, but also to the review of a decision which is only purported to be made but which is not authorised by law: see Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 41 FLR 338; 24 ALR 307; Yilmaz v Minister for Immigration and Multicultural Affairs (2000) 100 FCR 495. The expression ‘decision’ is to be given its ordinary meaning, namely, ‘the action of deciding’, which covers a situation where the decision is merely purported to be made but is in fact made without authorisation by law. …”[61]
[60] [2008] FCAFC 73; (2008) 167 FCR 578; 248 ALR 51; Tamberlin, Gyles and Besanko JJ
[61] [2008] FCAFC 73; (2008) 167 FCR 578; 248 ALR 51 at [21]; 583; 56 Gyles J expressed a similar view: “… The sole function of the Tribunal is to provide a review on the merits of the relevant decision, not to decide collateral questions of the lawfulness or validity of the decision being reviewed. …”: [2008] FCAFC 73; (2008) 167 FCR 578; 248 ALR 51 at [39]; 586; 59. These passages were approved by the Full Court of the Federal Court in Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500 at [22]; 573; 94; 245; 8; 478; 282-283; 507 per French, Tamberlin and Mansfield JJ
The case of Brian Lawlor, to which Tamberlin J referred, explains the rationale that underpins this conclusion. It is a practical one, as Bowen CJ explained:
“… It is a feature of administrative decisions that once made, even if unlawful, they have consequences which may adversely affect citizens, until such time as they are withdrawn due to a change of mind on the part of the administrative official himself or are set aside by the determination of a court or tribunal. It appears to me that the [AAT] Act is designed to give a simple remedy in all such cases. …”[62]
[62] [1979] FCA 21; (1979) 24 ALR 307 at 314
Another rationale is apparent from the judgment of Deane J in the same case. It is based on the legal principle that applies in the Commonwealth, unlike the Australian States, that there is a separation between judicial and administrative power. Courts exercise the former and bodies such as the Tribunal the latter:
“ An administrative tribunal will ordinarily have no authority to transcend the limits of the jurisdiction conferred upon it by hearing an application aimed not at invoking the jurisdiction which it possesses, but at securing authoritative determination of questions of fact or law anterior to the existence of that jurisdiction. The provisions of the Act do not purport to confer any such authority upon the Administrative Appeals Tribunal. If they did, a serious question would arise as to whether, to that extent, they purported to confer part of the judicial power of the Commonwealth upon an administrative body which was not a court for the purposes of Ch III of the Constitution.’[63]
[63] [1979] FCA 21; (1979) 24 ALR 307 at 343-344
The principles underpinning Brian Lawlor have been applied in a variety of jurisdictions including the taxation jurisdiction. The case of Kennedy v Administrative Appeals Tribunal is one example.[64] The taxpayer had submitted that the assessments that ultimately led to the objection decision, of which he was seeking review, had been invalidly made. Relying on authorities such as Brian Lawlor and Kim, the Full Court concluded:
“… The Tribunal has jurisdiction to hear and determine the present review under Part IVC of the TAA because each assessment purports to have been made in the exercise of powers conferred by that enactment. Whether or not the assessments were, as a matter of law, validly made does not attenuate this finding. …”[65]
[64] [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500; French, Tamberlin and Mansfield JJ
[65] [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500 at [22]; 573; 94; 245; 8; 478; 282-283; 507
A conclusion that the Tribunal has power to review a decision that has been invalidly made on internal review does not necessarily lead to the conclusion that it can review the operative decision that is in fact under review.[66] The operative decision must be identified and examined in order to determine whether there are any prerequisites before the Tribunal can, as permitted by s 43 of the AAT Act, exercise the powers of the person who made the decision. If its power to make a decision exercising the powers and discretions conferred by the relevant enactment on the person who made the decision, as permitted by s 43 of the AAT Act, were dependent upon there having been a valid application for whatever benefit or entitlement was in issue, then the Tribunal would arguably not be able to overcome that deficiency; it would not be able to grant the benefit or entitlement.
[66] The distinction between the two was discussed in Re Gee and Director-General of Social Services (1981) 3 ALD 132; 58 FLR 347 (Davies J, President, and Messrs Cusack and Prowse, Members) at 141; 357 cited with approval in Yolbir v Administrative Appeals Tribunal and Anor (1994) 48 FCR 246; 33 ALD 8; 19 AAR 15 at 248-249; 10; 17-18
This is the approach favoured by Gyles J, with whom Spender J agreed, in Yilmaz v Minister for Immigration and Multicultural Affairs[67] and it is the approach adopted in the majority judgment of the Full Court of the Federal Court in SGME v Minister for Immigration and Citizenship and Refugee Review Tribunal[68] when they said:
“.. [T]he well-known line of cases beginning with Collector of Customs (NSW) v Brian Lawlor Automotive pty Ltd … supported the proposition that the review process which imported merits review by an administrative body operated (subject to statute to the contrary) on valid and invalid decisions alike. It is the decision that has in fact been made that is reviewed. … The fact that some defect (even one leading to jurisdictional error) can be ascertained in the decision subject to review, does not prevent a review body exercising the powers and discretions of the persons who made the decision: …”[69]
[67] (2000) 100 FCR 495 at [93]; 532
[68] [2008] FCAFC 91; (2008) 168 FCR 487; 247 ALR 467; 102 ALD 31; Black CJ, Moore and Allsop JJ
[69] [2008] FCAFC 91; (2008) 168 FCR 487; 247 ALR 467; 102 ALD 31 at [25]; 495; 474-475; 38 per Black CJ and Allsop J
Black CJ and Allsop J then turned to the operative decision that was under review. While deficiencies invalidated the primary decision, they did not affect the authority of the review tribunal to make a fresh decision. What affected that authority were the prerequisites for the valid exercise of the power leading to that operative decision. Those differences explained the differences in the outcomes reached in a number of previous cases. Their Honours explained the differences among several cases concerned with the review of decisions under the Migration Act 1958 (Migration Act):
“30…. The Tribunal has no authority other than under the Migration Act to grant or to refuse a visa. It accedes to the powers and discretions of the delegate, which include ss 47 and 65 of the Migration Act. … The ratio decidendi of Li [Minister for Immigration and Multicultural Affairs v Li] 103 FCR 486 at [81]-[82] is that a valid application is not merely a requirement affecting the delegate’s power, it also affects the authority of the Tribunal. …
36. The essential difference between Yilmaz 100 FCR 495; Zubair 139 FCR 34; Ahmed 143 FCR 314 and Uddin 149 FCR 1, on the one hand, and Li …, on the other, is that as a matter of statutory construction, the defects in the primary decision in the former cases did not affect the power exercised by the relevant review tribunal. This was so in Yilmaz … because the defect had been cured; it was so in Zubair …; Ahmed … and Uddin …because, as a matter of construction, the defect in the authority of the delegate did not affect the authority of the tribunal on review. In Li …, on the other hand, the Full Court was of the view that the persisting lack of validity of the application directly qualified the power of the Tribunal, through ss 47 and 451. In Brian Lawlor … there was no power, at the level of the decision-maker or of the AAT. In Li the same applied. The Tribunal could only set the decision aside and make no grant or refusal itself. It could not, by affirming the decision of the delegate, refuse a visa.”[70]
[70] [2008] FCAFC 91; (2008) 168 FCR 487; 247 ALR 467; 102 ALD 31 at [30] and [36]; 497 and 498; 476 and 478; 40 and 42 per Black CJ and Allsop J
B. Re Phelps and Commissioner of Taxation
I turn now to Member Webb’s decision in Re Phelps and Commissioner of Taxation[71] (Phelps) to which the Commissioner referred. Ms Phelps requested an amendment of an assessment and an extension of time within which to apply the small business rollover concession in s 103-25 of Income Tax Assessment Act 1997 (ITAA97). The Commissioner treated her requests as an objection to the assessment and made an objection decision rejecting the requested amendment and extension of time. Ms Phelps applied for review of the objection decision. The Commissioner contended that the Tribunal did not have jurisdiction to review the decision because Ms Phelps had not lodged a valid objection to the assessment and the objection decision had been made in error. Ms Phelps submitted that the Tribunal had jurisdiction to review the decision made in relation to her request for amendment and extension of time.
[71] [2009] AATA 780; [2009] ATC 10-114; (2009) 51 AAR 391; 115 ALD 20
Member Webb accepted the Commissioner’s argument that, as Ms Phelps had not made an objection, he could not have made an objection decision. Therefore, there was no reviewable objection decision that the Tribunal could review.
He then turned to Ms Phelps’ argument that seemed to be to the effect that the Commissioner’s rejection of her request to amend his assessment enlivened her right to object and the Commissioner’s refusal of her request was an objection decision. Member Webb analysed the decisions that had been made concluding that the Commissioner’s decision was a decision made in relation to her request for amendment and extension of time. That decision was not a function of the assessment process by which Ms Phelps’ tax liability was assessed. It was a step quite separate from the assessment process. There was nothing in ITAA97 that gave a taxpayer a right to seek review of a discretionary decision such as that to extend time as sought by Ms Phelps. Member Webb explained that the two steps are separate in the following passage from the reasons for decision:
“… Thus for present purposes the Tribunal has jurisdiction to review a ‘reviewable objection decision’ pursuant to sections 14ZZ and 14ZZA of the Administration Act. There is no power conferred on the Tribunal by the … (1997 Assessment Act) to review the Commissioner’s decision not to exercise discretion under section 103-25 of that Act.
It is plain enough that the exercise of the discretion under s 103-25 in the 1997 Assessment Act is separate and distinct from the process of making an income tax assessment. The election is a matter of relevance to Ms Phelps’ taxation liability during the 2007-2008 income year, but the exercise of the Commissioner’s discretion is not a function of the assessment process. The default position established by section 103-25 is that the election is to be made before lodgement of an income tax return for the income year in which the particular capital gains tax event occurred unless the Commissioner has agreed to extend the time in which the election may be made. As it appears to me the discretion conferred by section 103-25 of the 1997 Assessment Act is not part of the process by which the tax liability of a person is assessed under the 1997 Assessment Act. The discretion concerns the extending of time in which to apply certain concessions within a particular income year. That is separate and distinct from the making of an assessment of tax liability under the 1997 Assessment Act. In Isaacs v Commissioner of Taxation … the Full Federal Court considered similar questions in relation to a discretion conferred by section 139E of the 1936 Assessment Act. While different in content, with regard to the Tribunal’s jurisdiction in these proceedings, it appears to me that the discretion conferred by section 103-25 of the 1997 Assessment Act must be approached in the manner set out by the Court in Isaacs in relation to section 139E of the 1936 Assessment Act. …
Furthermore, I note that there is no provision of the 1997 Assessment Act that gives a taxpayer a right to challenge a section 103-25 discretionary decision under Part IVC of the Administration Act. It follows, therefore, that Part IVC of the Administration Act does not apply to the Commissioner’s decision not to extend the time to apply a small business rollover concession in relation to the 2007-2008 income year.”[72]
[72] [2009] AATA 780; [2009] ATC 10-114; (2009) 51 AAR 391; 115 ALD 20 at [13]-[15]; 3,161-3,162; 394-395; 23-24 (citations omitted)
Returning to s 103-25 of ITAA97, Member Webb continued:
“…Finally, it is necessary to determine whether the Tribunal has power to review the purported objection decision even though it was made in error; a failure by a decision-maker to act within power does not necessarily deprive the Tribunal of power to review the decision on the merits…. [[73]] In a case such as this, it is necessary to consider the invalidity of the subject decision in order to determine whether the Tribunal is able to proceed with merits review…. [[74]] Presently, it appears that the Commissioner’s error was to treat Ms Phelps’ requests as an objection to an assessment. The correct course would have been to address her requests under section 170 of the Administration Act and section 103-25 of the 1997 Assessment Act. Decisions under those sections are not, of themselves, amenable to review on the merits under Part IVC of the Administration Act. It follows, therefore, that the Tribunal has no power or jurisdiction to review primary decisions of that character. As it appears to me the Commissioner’s decisions were within power under the applicable sections to which I have referred. The only error, therefore, is in the representation of the decisions as ‘objection decisions’. An error of that kind does not render the subject decisions amenable to review on the merits by the Tribunal. …”[75]
[73] “Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 41 FLR 338”
[74] “Radge v [sic] Federal Commissioner of Taxation (2007) 95 ALD 711; 45 AAR 318”
[75] [2009] AATA 780; [2009] ATC 10-114; (2009) 51 AAR 391; 115 ALD 20 at [17]; 3,162; 396; 24
Then, at the end of his reasons, Member Webb returned to his first reason for deciding that the Tribunal does not have jurisdiction when he wrote:
“ In sum, therefore, Ms Phelps accepts that her request was for amendment and for an extension of time in which to make an election under section 103-25 of the 1997 Amendment Act. Her request was not an objection against the Commissioner’s assessment of her income tax liability. In the absence of an objection under section 175A of the 1936 Assessment Act or any other similar provision under the 1997 Assessment Act. Part IVC of the Administration Act does not apply. It follows that there is no ‘objection decision’ within the meaning of section 14ZY of the Administration Act and no ‘reviewable objection decision’ to enliven the Tribunal’s jurisdiction.”[76]
[76] [2009] AATA 780; [2009] ATC 10-114; (2009) 51 AAR 391; 115 ALD 20 at [18]; 3,163; 396; 25
C. Isaacs v Commissioner of Taxation
Member Webb referred to the judgment of the Full Court of the Federal Court in Isaacs v Commissioner of Taxation[77] (Isaacs) and had earlier described it as the approach that had to be adopted in the case he was considering.[78] The Full Court was concerned with a situation in which the taxpayer had advised the Commissioner that he wished to make a late election under s 139E of ITAA36 and asked the Commissioner for an extension of time within which to make it. He made his request in relation to a right he had acquired under an employee share scheme in the 1998 income year but made it after he had received the Commissioner’s assessment for that year. If the Commissioner extended the time, the effect of the election would have been to allow the taxpayer to have a discount given in relation to rights under an employee share scheme included in the assessable income of the year in which the right was acquired rather than of the year in which it was exercised or ceased. When the Commissioner refused to extend time for the election, the taxpayer objected to the assessment previously issued by the Commissioner. The Commissioner decided that the taxpayer had not made an election under s 139E and that it was not fair and equitable to permit him to make a late election. He disallowed the objection.
[77] [2006] FCAFC 105; (2006) 151 FCR 427; 230 ALR 202; 43 AAR 330; 95 ALD 530 at [37]-[42]; 435-436; 209-210; 338-339; 537-539; Emmett, Siopsis and Rares JJ
[78] [2009] AATA 780 at [14]
The Full Court distinguished between the Tribunal’s undoubted power to review the objection decision made by the Commissioner and its ability to exercise the Commissioner’s powers on review. It said of them:
“… The application was not for review of the decision … to deny the Taxpayer’s request for further time to be allowed for making an election. The application was for review of the objection decision …. The Tribunal clearly had jurisdiction to entertain that application.
Section 43 of the Tribunal Act empowers the Tribunal to exercise all the powers and discretions conferred upon the decision-maker whose decision is under review, provided that it does so for the purpose of reviewing a decision. Provided the necessary purpose is present, the power conferred upon the Tribunal is not otherwise limited. The review of the objection decision involved the question whether the assessment of the Taxpayer’ liability for tax, in respect of the 1998 Tax Year, was correct. Accordingly, the Tribunal could exercise all of the Commissioner’s powers and discretions in relation to the making of the assessment for the 1998 Tax Year.”[79]
[79] [2006] FCAFC 105; (2006) 151 FCR 427; 230 ALR 202; 43 AAR 330; 95 ALD 530 at [35]-[36]; 434-435; 209; 338; 537
The Full Court in Isaacs went on to explain that, under s 177 of ITAA36, the notice of assessment is conclusive evidence of the due making of an assessment but:
“… Section 177 draws a distinction between the procedure by which taxable income is ascertained and a taxpayer’s substantive liability to tax. The former involves the question of the due making of the assessment, of which the production of notice of assessment is conclusive evidence. The latter is the amount and all the particulars of the assessment, which may be challenged by the objection procedure. The due making of an assessment covers all procedural steps, other than those, if any, going to substantive liability and so contributing to the excessiveness of an assessment, which is put in contest by the objection procedure. If the existence of conditions giving rise to the exercise of a power to amend an assessment were part of the due making of an assessment, a taxpayer would be denied the right to challenge the exercise of the power. The objection procedure affords a taxpayer a means of impugning an assessment that would otherwise conclusively impose liability upon the taxpayer (see FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth) [1981] HCA 27; (1981) 147 CLR 360 at 373-374).”
Applying that distinction to the facts of the case before it, the Full Court explained:
“ The exercise of discretion under s 139E(2) was quite separate and apart from the process of making assessments for the 1998 Tax Year and for the four subsequent years of income. Whether an election had been made was a fact relevant for the purposes of assessment of the Taxpayer to liability for tax for the 1998 Tax Year and each of the subsequent years of income. It had to be made prior to the assessment in relation to each year of income. It follows that the discretion conferred on the Commissioner by s 139E(2) of the Assessment Act was not a discretion that could be exercised by the Tribunal for the purpose of reviewing the Commissioner’s objection decision of 7 February 2002.
…
The Tribunal had jurisdiction to review the objection decision of 7 February 2002. Nevertheless, in the absence of an election by the Taxpayer under s 139E(1), the result of the Tribunal’s review was inevitable, namely, that it be dismissed because the assessment of 4 May 1999 was clearly correct. …”[80]
[80] [2006] FCAFC 105; (2006) 151 FCR 427; 230 ALR 202; 43 AAR 330; 95 ALD 530 at [42] and [46]; 436; 211; 339-340; 539
D. Comparison of Isaacs and Phelps
Underpinning the facts in both Phelps and Isaacs is the Commissioner’s decision to refuse to make a discretionary decision in the taxpayer’s favour followed by what purports to be an objection, or what is treated as an objection, followed by an objection decision disallowing an objection. Both cases recognise a distinction between the process of making the assessment and the assessment of the taxpayer’s liability.
The exercise or otherwise of the discretion under s 139E in Isaacs was seen as not forming part of the process by which the provisions of the tax law were given concrete application. It could not be because the assessment had already been made when the taxpayer asked the Commissioner for further time within which to make an election. Furthermore, the election had to be made before the assessment was made because, whether it had, or had not, been made was a fact relevant to the Commissioner’s assessment of liability to pay tax in the relevant income year and other income years. As the Tribunal’s task under s 14ZZK on review of a reviewable objection decision was effectively to decide whether the assessment was excessive, it could not exercise the Commissioner’s powers and discretions that might have changed the contextual facts which had to exist before the assessment could be made. The reasoning in Phelps follows a similar path in relation to a different discretionary decision to this point.
The case of Isaacs did not have to deal with a situation in which the taxpayer had not made a valid objection. The taxpayer had made a valid objection and the Full Court found that the Tribunal had jurisdiction to review the objection decision made on the objection. What it did not have was the Commissioner’s discretion under s 139E of ITAA36 to change the underlying facts. Therefore, any review that the Tribunal undertook was pointless because the taxpayer could not ask it to review the Commissioner’s discretionary decision. As it could not do that, it could not change the factual context and, in the absence of any other ground of objections, there was no basis on which the taxpayer could establish that the assessment was excessive. For all practical purposes, review by the Tribunal was pointless and it was found to have been correct to dismiss the application for review.
In Phelps, the Tribunal did have to deal with a situation in which an objection had not been properly made but had been treated by the Commissioner as an objection nevertheless. I have set out the relevant passage from the reasons for decision at [82] above. Reference is made to my decision in Re Radge and Commissioner of Taxation (Radge) for the proposition that “… it is necessary to consider the invalidity of the subject decision in order to determine whether the Tribunal is able to proceed with merits review.” No paragraph or page number is given from Radge for this proposition. I suspect it comes from the following paragraph:
“ When a situation of the sort in Brian Lawlor arises, the Tribunal necessarily turns its mind to the decision’s invalidity. Turning its mind to it does not equate with its having regard to any invalidity in the merits review process and in ultimately deciding what should, or should not, be the correct or preferable decision. It turns its mind to the decision’s validity to ensure that it is able to proceed with merits review. If it can, the manner of the decision’s making by the decision-maker becomes irrelevant.”[81]
[81] [2007] AATA 1317; (2007) 45 AAR 318; 95 ALD 711 [2007] ATC 2,164 at [25]; 327; 718; 2,170
I respectfully suggest that the paragraph has been read out of its context.[82] Regard must be had to the fact that a decision has been invalidly made but the question whether the Tribunal has power to review it must be analysed in accordance with the principles expressed by the Full Court in Brian Lawlor and applied subsequently in cases such as those to which I have referred at [71]-[78] above together with the relevant footnotes. Once it is decided that the Tribunal has power to review a decision, there is always another task. That is to identify its powers on review and that task must be undertaken because s 43(1) of the AAT Act provides: “… the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision …”. In a case such as Isaacs, that task led to the conclusion that, in reviewing a reviewable objection decision, the Tribunal did not have power to exercise a discretionary decision that had to be made by the Commissioner before the assessment, was not part of the process of making an assessment and whose existence or otherwise was simply one of the facts relevant to the assessment of the taxpayer’s liability to pay tax. In a case such Kennedy, the task leads to the conclusion that the Tribunal had power to review assessments that were purported to have been validly made in the exercise of legislative powers. The passage I have reproduced at [78] above from the majority judgment in SGME v Minister for Immigration and Citizenship and Refugee Review Tribunal illustrates different outcomes that flow from the task when undertaken in the context of decisions under the Migration Act. In a case such as Phelps, the review would also have been pointless because the discretionary decision of which Ms Phelps sought review was of the same character as that considered in Isaacs.
[82] [2007] AATA 1317; (2007) 45 AAR 318; 95 ALD 711 [2007] ATC 2,164 at [22]-[30]; 325-328; 717-720; 2,168-2,171
D.Applying the principles
Even if the objection was not properly made in this case, cases such as Brian Lawlor, Kim and Isaacs establish that the objection decision in fact made by the Commissioner is reviewable by the Tribunal. That is not an end of the matter for I then have to decide whether, when the decision is reviewed, there is any point to the review. There will be no point to the review if the decision of which review is sought by the taxpayer is not one that goes to substantive liability and so to the excessiveness of the assessment. That was the situation in which the taxpayers in Phelps and in Isaacs found themselves. It is not dissimilar from the very different factual circumstances in which the applicant found himself in SGME v Minister for Immigration and Citizenship and Refugee Review Tribunal. There will be no point to the review if a prerequisite to, in that case, the Refugee Review Tribunal’s exercising the decision-maker’s powers is absent.
In this case, the decisions of which Mr and Mrs Walters sought review were the Commissioner’s assessments. The Tribunal clearly has power to review an assessment and to decide whether it is excessive. There is nothing in the TAA that suggests that a properly made objection is an essential requirement of the exercise of the Tribunal’s power of review. Unlike a discretionary decision of the sort considered in Isaacs and Phelps, an objection does not change the factual context in which an assessment is made. The Tribunal’s power of review centres on the Commissioner’s assessment and it is a power to affirm, vary or set aside the assessment and either substitute another or remit the assessment to the Commissioner for reconsideration. It is not a power to affirm, vary or set aside the objection. The objection is simply a step on the path to review by, first, the Commissioner and then by the Tribunal and has no other role to play. What remains is an objection decision that has, as a matter of fact, been made by the Commissioner and its review would not involve the Tribunal in an exercise that would be pointless.
DECISION
For the reasons I have given, I have decided that the Tribunal has jurisdiction to review the objection decisions dated 2 May 2012 made by the Commissioner in respect of the amended assessments given to each of Mr and Mrs Walters as well as the assessments of penalty.
I certify that the preceding ninety five paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Signed: ...(sgd).........................................................
Leah Berardi Associate
Date of Hearing 7 March 2013
Date of Decision 20 March 2013
Representative of the Applicant Mr Henry Enslin
Enslin and Associates
Representative of the Respondent Mr Nicholas Kennedy & Ms Anne Smyth
Australian Taxation Office
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