• Background

    The basic duty of the Commissioner is to administer tax law, but in exercising that duty the Commissioner must also provide 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 dispute between the parties, 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.

    In formulating what has been called the ‘good management rule’, the courts have recognised that it is open to the Commissioner to make sensible decisions having regard to the best use of the limited resources available. The Commissioner is not obliged to relentlessly pursue every last tax dollar where that would clearly be uneconomic or where the outcome is at best problematic. This is reinforced by Public Governance, Performance and Accountability Act 2013, which imposes an obligation on the Commissioner to manage the affairs of the ATO in a way that promotes the efficient, effective and ethical use of Commonwealth resources.

    The good management rule has broad application, extending beyond individual cases. For example, there may be occasions where the Commissioner might consider it to be in the overall interests of the administration of the tax laws not to pursue retrospective audit and/or assessing action in return for acceptance by a section of the public or group of taxpayers of the Commissioner's position for current and future years. An example of that type of action by a revenue authority can be found in Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 (the Fleet Street Casuals Case). That case involved a special arrangement to improve tax compliance amongst a group of 6,000 employees, and included a concession not to undertake retrospective investigations.

      Last modified: 21 Aug 2015QC 42816