Code of settlement practice

Legal basis for settlement

The basic duty of the Commissioner is to administer tax law. This duty includes assessing and collecting taxes and delivering entitlements arising under that law. The general rule, therefore, is that the Commissioner does not forego tax properly payable, and will, as soon as practicable, seek to collect the full amount of that tax. However, in the exercise of the Commissioner's duty, there will be circumstances in which the strictness of that general rule must be tempered by the need for reasonable and sensible administration and good management of the tax system. For example, the Full Federal Court held in Grofam Pty Ltd v Federal Commissioner of Taxation 97 ATC 4656 at 4665; (1997) 36 ATR 493 at 503:

The Commissioner's power to settle or compromise proceedings to which he is a party derives from section 8 of the Act [ITAA 1936] which provides that the Commissioner shall have the general administration of the Act.

The court cited with approval an earlier observation by Spender J in Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 at 567; 92 ATC 4549 at 4558; (1992) 24 ATR 43 at 54:

That administration has to be bona fide and for the purposes of the Act, but it is a grant of a wide power and would encompass, for instance, the power to compromise proceedings in which he was a party or to make agreements or arrangements concerning the efficient management of a dispute in which he was involved.

It is clear that, once there is a formal dispute between the parties (an objection, application to the Administrative Appeals Tribunal (AAT), or appeal to an appellant court), it is open to the parties, and at times highly desirable, to resolve the dispute by means of settlement. For instance in Grofam Pty Ltd v Federal Commissioner of Taxation 97 ATC 4656 at 4665; (1997) 36 ATR 493 at 503 the Full Federal Court urged the parties to consider a commercial settlement:

Perhaps further discussion between the parties and their legal advisers will result in a sensible adjustment of the matters... The alternative is probably further protracted litigation with its consequent delay and expense. We realise that the Commissioner is mindful of the important public duty which he has in administering the Act. Nevertheless, if this were a commercial dispute, there would be much to be said for the view that a further attempt at settlement should be made, perhaps with the aid of an appropriate mediator. We see no reason associated with the Commissioner's powers and duties which should dissuade him from that course if he thought it otherwise an appropriate one for him to follow.

Sections within Part 2: Factors affecting settlement

Last Modified: Wednesday, 15 May 2013