WLQC and Commissioner of Taxation (Taxation)

[2018] AATA 14

WLQC and Commissioner of Taxation (Taxation) [2018] AATA 14 (15 January 2018)

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL  )
  )          No: 2011/3563-6 & Ors (Schedule 1)
TAXATION AND COMMERCIAL DIVISION        )

Re: WLQC
Applicant

And: Commissioner of Taxation
Respondent

CORRIGENDUM ORDER

TRIBUNAL:              Deputy President Bernard J McCabe

DATE:   6 February 2018

PLACE:                    Sydney

Pursuant to section 43AA(1) of the Administrative Appeals Tribunal Act 1975 (Cth), the text of the decision and reasons for decision in this application is to be altered as follows:

1. The name of counsel for the applicant at page 11 is corrected from “Mr P Afshar” to “Mr D Hume”; and
2. The name of counsel for the respondent at page 11 is corrected from “Mr D Hume” to “Mr P Afshar”.

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

Deputy President Bernard J McCabe

Division:TAXATION & COMMERCIAL DIVISION

File Number(s):2011/3563-6 & Ors (Schedule 1)      

Re:WLQC & Ors

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:15 January 2018

Place:Sydney

1.The Tribunal has no jurisdiction to entertain the application for review in respect of those objection decisions, or purported objection decisions, which disclose a nil assessment.

2.Pursuant to s 42A(4) of the Administrative Appeals Tribunal Act 1975 (Cth), the application for review of the proceedings set out in Schedule 2 are dismissed.

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

Deputy President Bernard J McCabe

CATCHWORDS

TAXATION – income tax assessment – nil assessment in respect of various income years – whether a nil assessment is an assessment for the purposes of s 175A of the Income Tax Assessment Act 1936 (Cth) as applicable in the 2004 income year – whether the applicant may object to a nil assessment under s 175A(2) of the Income Tax Assessment Act 1936 (Cth) in its current form – Tribunal is satisfied that the objection decisions, or purported objection decisions, which disclose a nil assessment in the years under review are not reviewable – application for review dismissed under s 42A(4) of the Administrative Appeals Tribunal Act 1975 (Cth)

LEGISLATION

Administrative Appeals Tribunal Act 1975, s 42A(4)

Income Tax Assessment Act 1936, ss 6, 166, 166A, 170, 175A
Tax Laws Amendment (Improvements to Self-Assessment) Act (No2) 2005

Taxation Administration Act 1953, Part IVC

CASES

Batagol v Commissioner of Taxation [1963] HCA 51; (1963) 109 CLR 243

BCD Technologies Pty Ltd and Commissioner of Taxation [2004] AATA 496
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR; [1979] FCA 21
Commissioner of Taxation v BCD Technologies Pty Ltd [2005] FCA 708; (2005) 144 FCR 457
Commissioner of Taxation v Ryan (1998) 82 FCR 345
Commissioner of Taxation v Ryan [2000] HCA 4; (2000) 201 CLR 109
Craig and Commissioner of Taxation [2015] AATA
Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; (2008) 168 FCR 566
Shergold v Tanner (2002) 209 CLR 126; [2002] HCA 19

Stuart v Maloney and Federal Commissioner of Taxation [1996] FCA 810

SECONDARY MATERIALS

TR 2011/5 Income Tax: Objections against Income Tax Assessments

REASONS FOR DECISION

Deputy President Bernard J McCabe

15 January 2018

INTRODUCTION

1. These reasons consider – and to some extent revisit – an interesting technical question: what are the consequences of receiving a nil assessment from the Commissioner of Taxation?  The issue arises because the applicants sought review of a number of objection decisions in which an assessment disclosed the applicant in question did not have any taxable income or that no tax was payable in the relevant year of income.  The objection decisions in question were included amongst a much larger number of objection decisions which are before the Tribunal as part of the one review process.

2. The objection decisions were made in respect of a number of years of income as far back as 2002.  The Commissioner has sought to bring at least some of the proceedings to a head by asking the Tribunal to dismiss the applications for review of those assessments imposing a nil assessment.  If that application succeeds, the smaller number of cases that feature a positive assessment can then be dealt within.

3. The Commissioner has a relatively straight-forward argument in relation to the objection decisions for the 2004 year of income.  He says it is impossible to object against a nil assessment.  If there is no assessment, there can be no review under Part IVC of the Taxation Administration Act 1953 (the TA Act). The argument is based on:

   ·the text of s 175A(1) of the Income Tax Assessment Act 1936 (ITAA36) as it read at the time, and

   ·decisions of the High Court[1] and the decision of Heerey J in Commissioner of Taxation v BCD Technologies Pty Ltd [2005] FCA 708; (2005) 144 FCR 457.

   [1] See Commissioner of Taxation v Ryan [2000] HCA 4; (2000) 201 CLR 109 and Batagol v Commissioner of Taxation [1963] HCA 51; (1963) 109 CLR 243

4. The Federal Court’s decision in BCD was an appeal from the Tribunal’s decision in BCD Technologies Pty Ltd and Commissioner of Taxation [2004] AATA 496. In the Tribunal’s decision, I concluded the law in relation to the review of nil assessments had changed following the introduction of the self-assessment system. The Federal Court disagreed. The applicants in these proceedings want to re-agitate that issue. The Commissioner says the issue is settled and the Tribunal should accept those objection decisions are not reviewable pursuant to s 42A(4) of the Administrative Appeals Tribunal Act 1975.

5. The law in relation to objection decisions in subsequent years of income is slightly different, although the Commissioner says the outcome is the same. Those later periods are affected by amendments to s 175A(1) of the ITAA36 which occurred in 2005.[2]  The amended section permits review of nil assessments in some circumstances – but the Commissioner says those circumstances do not exist in this case.

   [2] Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005

   What happened?

6. The applicants are all involved in the broadcasting industry.  They filed income tax returns in relation to the relevant years of income.  A number of those returns (or amended returns) reported nil assessable income and “$0” tax payable.  The applicants objected to the various assessments, including the so-called nil assessments.  

7. At first glance, the attentive reader might be puzzled by the applicants’ decisions to object to nil assessments.  The applicants say the objection decisions need to be seen in their context.  They say all the applicant’s should be treated as if they were part of a tax consolidated group.  They say some of the companies with nil assessments should pay more tax while other group members should pay less – but the affairs of all the companies must be considered together.   The Commissioner had refused to treat the companies as if they were members of a tax consolidated group.  The Commissioner says each entity’s taxation affairs must be addressed in isolation. In any event, the Commissioner says there is no objection capable of being considered by this Tribunal if there is no assessment.

   The objection decisions made in relation to the 2004 years of income

8. I turn firstly to the objection decisions made in relation to the 2004 years of income where there was a nil assessment.

9. The starting point of the analysis is 175A of the ITAA36. At the relevant time, it read as follows:

   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 Taxation Administration Act 1953. [Emphasis added]

10. The expression assessment was (relevantly) defined in s 6 of ITAA36 in this way at the time:[3]

    assessment means:

    (a)  the ascertainment of: 

    (i)  the amount of taxable income;…  

    The power to issue an assessment is contained in s 166 of the ITAA36. At the relevant time, s 166 provided:

    From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon. [Emphasis added] 

    [3] The full text of s 6 reads:

    assessment means:

    (a)the ascertainment of:

    (i)     the amount of taxable income; or

    (ii)    in the case of a taxpayer being the trustee of a unit trust that is a corporate unit trust within the meaning of section 102J - the net income of the trust as defined by section 102D; or

    (iii)   in the case of a taxpayer being the trustee of a unit trust that is a public trading trust within the meaning of section 102R - the net income of the trust as defined by section 102M; or

    (iv)   in the case of any other taxpayer that is the trustee of a trust estate but excluding a taxpayer that is the trustee of a fund or unit trust referred to in paragraph (a), (b) or (c) of the definition of eligible entity in subsection 267(1) - so much of the net income of the trust estate as is net income in respect of which the trustee is liable to pay tax;

    and of the tax payable on that taxable income or net income;

    (aa) the ascertainment of the amount of interest payable under section 102AAM; or

    (b)the ascertainment of the amount of additional tax payable under a provision of Part VII. [Emphasis in original]

11. The Commissioner says the language of those provisions makes it tolerably clear that:

    3.references to specific amounts of taxable income; and

    4.a determination of the amount the taxpayer was liable to pay

    were essential features of an assessment at the relevant time.  The Commissioner relied on the decisions of the High Court in Batagol v Commissioner of Taxation [1963] HCA 51; (1963) 109 CLR 243 and Commissioner of Taxation v Ryan [2000] HCA 4; (2000) 201 CLR 109 to this effect. In Batagol, the High Court concluded an assessment within the meaning of the Act must ascertain an actual amount of tax as being due and payable: per Kitto J at p 252; see also Menzies and Owen JJ at pp 254-6. Zero is not an amount; it is, well, zero, and an assessment of zero income and zero tax payable is therefore not an assessment for the purposes of the Act.

12. The Full Federal Court questioned that understanding of the law in Commissioner of Taxation v Ryan (1998) 82 FCR 345. In that case, Merkel J (with whom French and Burchett JJ agreed) concluded (at p 368):

    Under the sections when the Commissioner has ascertained the taxable income of the taxpayer (whether nil or a positive amount) and the amount of the tax payable thereon (whether nil or a positive amount) and served notice thereof on the taxpayer the Commissioner will have made an assessment in respect of the taxpayer for the relevant year of income. Accordingly, in my view a nil assessment can be made under the Act and in particular s 166.

13. The High Court set aside the Full Federal Court’s decision on appeal although the applicants in this case suggest the High Court did not specifically repudiate the reasoning of Merkel J on this issue.  The decision of the majority in the High Court appeared to turn on the specific reference in s 170(3) to tax being ‘due and payable’.

14. The net effect of the reasoning in Batagol and in the Ryan litigation was that the assessment process was not completed (and the clock did not start to run for the purposes of s 170 as it was drafted at the time) until the taxpayer was informed in the notice of assessment how much he, she or it was required to pay.  If there was no requirement to pay, the clock did not start to run and (perhaps more controversially) there was no assessment.

15. The Tribunal reached a different view in BCD Technologies Pty Ltd and Commissioner of Taxation [2004] AATA 496 following changes in the law associated with the introduction of the self-assessment system. In that case, the focus of the dispute was on the Commissioner’s power to issue amended assessments. The amended assessments were issued more than four years after the date on which the returns were filed. The date on which the returns were filed was potentially decisive because of the operation of s 166A which lay at the heart of the self-assessment system. Sub-section 166A(1)(a) provides the Commissioner is deemed to have issued:

    …an assessment of the relevant taxable income or net income, as the case may be, and of the tax payable on that taxable income or net income, being those respective amounts as specified in the return…

    on the date upon which the return was filed by the taxpayer. The applicants argued – and the Tribunal accepted – the time for issuing an amended assessment under s 170 started running on the date the return was filed and the assessment was deemed to have issued pursuant to s 166A: at [23]. The Tribunal noted the High Court’s discussion in Ryan focused on the wording of s 170(3) which referred to the point at which tax became due and payable.  But s 170(2)(b) – the provision in question in the Tribunal proceedings – suggested the starting point was “the day on which the assessment is so taken to have been made”.  The Tribunal pointed out the majority in the High Court had warned against focusing on whether a nil assessment is an assessment per se, or if zero is a number: Ryan at [13]. Gleeson CJ, Gummow and Hayne JJ explained (at [13]):

    The central question is whether the Commissioner's power...to make an assessment of the amount of taxable income of the taxpayer, and of the tax payable thereon, is restricted.

16. Heerey J set the Tribunal’s decision aside on appeal. His Honour explained (at [21]):

    …the concept of a deemed assessment introduced by s 166A was not intended to alter the fundamental nature of an assessment under the Act, as established by Batagol. The artificial state of affairs created by the lodging of a return only extended to bringing into existence at that time of a notional assessment without the Commissioner having to actually issue and serve one. But both kinds of assessments must qualify as assessments within the meaning of the Act. It would be an irrational and asymmetrical intention to impute to Parliament that "ordinary" assessments must specify an actual amount of tax payable but with "deemed" assessments a nil or negative amount will suffice.

17. The applicants in this case criticised the reasoning of Heerey J in BCD but argued his Honour addressed a different issue in any event.  If the central question in Ryan and BCD was the extent of any restriction on the Commissioner’s power to issue an amended assessment, the central question in this case is, on its face, different.  This case is not concerned with restrictions on the Commissioner’s power to issue an amended assessment after a period of time has elapsed.  The issue here is whether an applicant should be permitted to use the mechanisms in Part IVC to challenge a decision about its taxation affairs.  The applicants say the reasoning in the Full Federal Court’s decision in Ryan was not displaced by the High Court on appeal; the High Court’s decision (and the decision of Heerey J in BCD) turned in particular on the effect of s 170 which is not in issue here.  The applicants say the uncritical application of the High Court’s reasoning in Ryan would arbitrarily attenuate rights of review in a way that parliament never intended.

18. The applicants’ argument is an interesting one although I note subsequent amendments to s 175A (discussed below) tend to suggest the parliament was less concerned about preserving appeal rights than the applicants suppose.

19. The Commissioner says BCD was correctly decided by the Federal Court.  The applicants disagree but acknowledge I am probably bound by the authority even though Heerey J did not appear to have considered whether the reasoning in the Full Federal Court in Ryan continues to have any force notwithstanding the High Court’s decision on appeal.  I am inclined to accept I am bound by the Federal Court’s decision in BCD.  If the Federal Court’s decision in that case or the reasoning in Ryan is to be challenged, that challenge should be mounted in the Federal Court – perhaps by way of appeal from this decision.

    Conclusion in respect of the nil assessments in the 2004 year of income

20. I am constrained by authority to accept the nil assessments issued with respect to the 2004 year of income were not valid assessments for present purposes, and that there is no right of review with respect to those decisions under Part IVC of the Taxation Administration Act 1953.

    Nil assessments in connection with the 2005 year of income and subsequent years

21. Sections 6 and 175A of the ITAA36 were amended in 2005.[4] Following the amendments, assessment is defined in s 6 as follows:

    (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)…

    [4] Tax Laws Amendment (Improvements to Self-Assessment) Act (No2) 2005

22. The applicants say the changes to the definition in s 6 make it clear that a nil assessment should be treated as a valid assessment. The obstacles identified in Batagol, Ryan and BCD are said to fall away. The Commissioner agrees that is the effect of the amendment to s 6: see respondent’s submissions dated 24 May 2017 at [25]; see also the Commissioner’s public ruling TR 2011/5 Income Tax: Objections against Income Tax Assessments. But the Commissioner points to the contemporaneous amendments to s 175A which create obstacles of a different kind. Section 175A was amended to include sub-section 175A(2), which reads:

    (2) A taxpayer cannot object under sub-section [175A(1)] against an assessment ascertaining that:

    (a)the taxpayer has no taxable income; or

    (b)the taxpayer has an amount of taxable income and no tax is payable;

    unless the taxpayer is seeking an increase in the taxpayer’s liability.

23. The applicants acknowledge they are not currently able to say with certainty whether any particular applicant with a nil assessment is seeking to increase its liability.  They argue the position of individual taxpayers will not become clear until all of the evidence in relation to all of the other companies in the corporate group or groups is analysed.  The applicants say income that has been assessed against some of those taxpayers was not in fact derived by them, and should be assessed against other companies in the tax consolidated group – including some entities which currently have nil assessments.  The applicants are effectively asking the Tribunal to wait and see how the proceedings unfold rather than requiring individual taxpayers with nil assessments to specify in advance whether they will seek to increase their liability.

24. The Commissioner says the answer to this argument lies in the wording of s 175A(2). The sub-section says the objection rights do not arise “unless the taxpayer is seeking an increase in the taxpayer’s liability” [Emphasis added].  The sub-section contemplates an identified taxpayer meeting the requirements of the provision at the time when it wishes to seek the review, and not at some future point.

25. The applicants’ approach strikes me as being more pragmatic.  Mr Hume, who appeared for the applicants, reminded me of the High Court’s observation in Shergold v Tanner (2002) 209 CLR 126; [2002] HCA 19 to the effect that a law should not be interpreted as withdrawing or limiting a conferral of jurisdiction unless that outcome is plainly intended: at p 136. But the legislation says what it says. There is no doubt the sub-section limits the rights of objection; there is no reason to ignore the plain words of the sub-section when seeking to ascertain the scope of that limit. An applicant will not be able to satisfy the sub-section merely by foreshadowing the possibility of an increase in liability.

    Jurisdiction

1. The applicants referred me to a number of other decisions which discuss the powers of the Tribunal to review invalid decisions.  The applicants argued the Full Federal Court’s decision in Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307; [1979] FCA 21 stood as authority for the proposition that the Tribunal had jurisdiction to review decisions purported to have been made in exercise of powers conferred by an enactment provided that decisions made under the enactment are declared to be reviewable decisions. The applicants also referred me to the Full Court’s subsequent decision in Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; (2008) 168 FCR 566 where the applicant unsuccessfully argued that assessments were invalid because they were made in bad faith. The Full Court said the Tribunal in such a case should not focus on whether the assessments were valid; it should concern itself instead with whether the assessments were excessive: at [26]-[27]. The applicants in this case say the same logic applies here: any questions about the validity of the assessment should be set to one side and the Tribunal should focus on whether the assessment was excessive: see also Kim v Minister for Immigration and Citizenship (2008) 167 FCR 578; [2008] FCAFC 73 at [21]-[29] per Tamberlin J and [37]-[39] per Gyles J.

2. I do not think the decisions in Kennedy or Brian Lawlor assist the applicants in this case.  The provisions of Part IVC go further than establishing a right of review.  They establish a review process that must be followed.  There is long-standing authority which confirms that a failure to complete a necessary step in that process will prevent the review from continuing: see, for example, Stuart v Maloney and Federal Commissioner of Taxation [1996] FCA 810 per Lee and Finn JJ; see also Craig and Commissioner of Taxation [2015] AATA 339 at [35] per DP Deutsch. If there is no assessment – and I am constrained to accept there is no assessment in the 2004 year of income where the taxpayers have received a nil assessment – or if the legislation specifically limits the right of review as it has done in s 175A(2), the Tribunal has no jurisdiction to review what has been decided.

   CONCLUSION

3. The Tribunal does not have jurisdiction to review objection decisions, or purported objection decisions, which disclose a nil assessment in the years under review.

I certify that the preceding 28 (twenty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President McCabe.

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

Associate

Dated: 15 January 2018

Date of hearing:	13 July 2017
Counsel for the Applicant:	Mr P Afshar
Solicitors for the Applicant:	Brown Wright Stein Lawyers
Counsel for the Respondent:	Mr D Hume
Solicitors for the Respondent:	Australian Government Solicitor

SCHEDULE 1

1	MXHG and Commissioner of Taxation	2011/3567-70
2	FYKX and Commissioner of Taxation	2011/3571-74
3	LQCM and Commissioner of Taxation	2011/3578-79
4	QZPG and Commissioner of Taxation	2011/3580-83
5	RHVZ and Commissioner of Taxation	2011/3584-87; 2012/4127-30
6	PMST and Commissioner of Taxation	2011/3588-91; 2012/4138-41
7	TWFP and Commissioner of Taxation	2011/3592-95
8	XYMP and Commissioner of Taxation	2011/3597-3600
9	ZNXC and Commissioner of Taxation	2011/3610-13
10	NFNZ and Commissioner of Taxation	2011/3617-20; 2012/4091-93
11	VKCB and Commissioner of Taxation	2011/3628-31
12	PSKM and Commissioner of Taxation	2011/3635-38; 2012/4094-97
13	JBSX and Commissioner of Taxation	2011/3639-42; 2012/4109-10
14	JVZF and Commissioner of Taxation	2011/3646-49; 2012/4169-71; 2013/4221-22
15	CKZJ and Commissioner of Taxation	2011/3653-56; 2012/4156-59
16	HNVL and Commissioner of Taxation	2011/3657-60
17	GGQR and Commissioner of Taxation	2011/3664-67; 2012/4117-20
18	WRHV and Commissioner of Taxation	2011/3668-71
19	YGSJ and Commissioner of Taxation	2011/3672-75
20	BWCX and Commissioner of Taxation	2011/3676-79
21	SPZT and Commissioner of Taxation	2011/3683-86
22	KJXR and Commissioner of Taxation	2011/3687-90; 2012/4150-53
23	VDLJ and Commissioner of Taxation	2011/3692-93
24	DRFD and Commissioner of Taxation	2011/3697-700; 2012/4111-14
25	FRKS and Commissioner of Taxation	2012/3953-56
26	LJCH and Commissioner of Taxation	2012/3958-61
27	CCZD and Commissioner of Taxation	2012/4104-07
28	WKHQ and Commissioner of Taxation	2012/4131-34
29	QSPB and Commissioner of Taxation	2012/4142-45
30	JTRS and Commissioner of Taxation	2012/4160-63
31	DKFY and Commissioner of Taxation	2012/4172-75
32	XRMK and Commissioner of Taxation	2012/4178-81
33	RZTV and Commissioner of Taxation	2012/4182

SCHEDULE 2

1	WLQC and Commissioner of Taxation	2011/3563-66
2	MXHG and Commissioner of Taxation	2011/3568-70
3	FYKX and Commissioner of Taxation	2011/3571-74
4	LQCM and Commissioner of Taxation	2011/3578-79
5	QZPG and Commissioner of Taxation	2011/3580-83
6	XYMP and Commissioner of Taxation	2011/3597-3600
7	HNVL and Commissioner of Taxation	2011/3657-60
8	SPZT and Commissioner of Taxation	2011/3683-86
9	NFNZ and Commissioner of Taxation	2011/3620
10	JBSX and Commissioner of Taxation	2011/3640; 2011/3642
11	JVZF and Commissioner of Taxation	2011/3647-49
12	VDLJ and Commissioner of Taxation	2011/3692-93