Watts v Shaw

Watts (the applicant) sought to appeal a decision of the Full Federal Court of Australia concerning the validity of a notice of assessment issued by the Commissioner of Taxation. The dispute centred on whether the Commissioner had validly exercised his discretion under section 177F of the *Income Tax Assessment Act 1936* (Cth) to make a determination that certain schemes entered into by Watts were void as against the Commissioner. The Full Federal Court had previously upheld the Commissioner's assessment.

The High Court was required to determine whether the Full Federal Court had erred in law in its interpretation and application of section 177F of the *Income Tax Assessment Act 1936*. Specifically, the court considered whether the Commissioner's discretion under section 177F was conditioned upon the Commissioner having formed a belief that a taxpayer had obtained a tax benefit in connection with a scheme to which Part IVA applied, and whether that belief was a prerequisite for the valid exercise of the discretion.

Gummow and Kirby JJ, in their joint judgment, held that the Full Federal Court had correctly interpreted section 177F. Their Honours explained that the Commissioner's power to make a determination under section 177F is not contingent upon the Commissioner having formed a belief that a taxpayer has obtained a tax benefit. Rather, the Commissioner must be satisfied that the scheme was entered into for the purpose of obtaining a tax benefit, and that the Commissioner has formed the opinion that it would be reasonable to make a determination under section 177F. The court affirmed that the Commissioner's discretion is a broad one, to be exercised in accordance with the purpose of Part IVA.

The High Court dismissed the appeal.