Re Ivan Sop v Commissioner of Taxation

[2007] AATA 1746

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(Decision by: Deputy President S A Forgie)

Re Ivan Sop
vCommissioner of Taxation

Tribunal:

Member: Deputy President S A Forgie

Subject References:
TAXATION
jurisdiction
whether other tax debts notified in an assessment part of the assessment of tax payable
whether jurisdiction to review assessment, determination, notice or decision regarding PAYE instalments
no jurisdiction

Legislative References:
Administrative Appeals Tribunal Act 1975 - 25; 43
Taxation Administration Act 1953 - 170; 14ZL; 14ZQ; 14ZU; 14ZV; 14ZX; 14ZY; 14ZZ
Judiciary Act 1901 - 39B
Acts Interpretation Act 1901 - 8
Income Tax Assessment Act 1936 - 6; 17; 161; 221A; 221C; 221E; 221F; 221H; 221N
Administrative Decisions (Judicial Review) Act 1977 - 8; 10

Case References:
Re Mann and Capital Territory Health Commission (No. 2) - (1983) 5 ALN N368
Re Wertheim and Department of Health - (1984) 7 ALD 121
Stuart (No 2) v Federal Commissioner of Taxation - (1996) 96 ATC 4942; 44 ALD 519

Hearing date: 9 February 2007, 9 May 2007
Decision date: 10 September 2007

Melbourne

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Decision by:
Deputy President S A Forgie

REASONS FOR DECISION

The Commissioner of Taxation (Commissioner) issued an assessment to the applicant, Mr Ivan Sop, for the year of income ending 30 June 2005. That assessment showed Mr Sop's taxable income together with the tax on that taxable income and various credits to which he was entitled. The assessment also showed the sum of $3,972.97 next to the entry " Other amounts payable ". That amount was in respect of tax debts arising from Mr Sop's Pay as You Earn Account (PAYE account) between 7 October 1992 and 7 October 1993. Mr Sop sought review of the decision to raise a debt in that amount but the Commissioner submitted that the Tribunal does not have jurisdiction to review the application. I agree with the Commissioner and, for the reasons I set out below, have decided that the Tribunal does not have jurisdiction to review the Commissioner's decision to raise the debt of $3,972.97.

BACKGROUND

2. On 19 July 2006, the Commissioner issued a notice of assessment to Mr Sop for the year ended 30 June 2005. It showed the sum of $3,972.97 against the heading of " Other amounts payable ". On the second page of the assessment, the Commissioner explained that " Other amounts payable includes - Other tax debts " being $3,972.97. A further explanation followed in the Commissioner's letter dated 10 August 2006. The " other amounts payable " were in relation to Mr Sop's PAYE account between 7 October 1992 and 7 October 1993. The amount of $3,972.97 included an amount by way of administrative penalties and General Interest Charge (GIC).

3. Mr Sop objected to the assessment on 14 September 2006. On 24 October 2006, the Commissioner remitted the administrative penalties amounting to $1,635.77. The notice advising of the remission was headed " Group Account Refund ". The Commissioner issued the notice to Mr Sop, trading as Sop & Associates, Accountants. That figure represented the Commissioner's remission of penalty for late payment. That left an amount of $2,337.20 representing, the Commissioner claimed, the taxation instalment deductions that Mr Sop had failed to remit in his capacity as a group employer during the year ending 30 June 1993. On 27 November 2006, Mr Sop lodged a supplement to his first objection on the basis that the Commissioner should have remitted the whole amount of $3,972.97 together with statutory interest.

4. In a letter dated 21 December 2006, Ms Saltnes set out a Summary of Account showing the PAYE and GIC amounts the Commissioner claimed that Mr Sop had withheld during the period but had not remitted to the Commissioner. She summarised it in even more concisely in her letter of 17 January 2007:

THE SUBMISSIONS

5. On behalf of the Commissioner, Mr Nicholas submitted that the Tribunal does not have jurisdiction because neither the Income Tax Assessment Act 1936 (ITA Act) nor the Taxation Administration Act 1953 (TA Act) has given it jurisdiction. Furthermore, the notation of the debt on the 2005 assessment issued to Mr Sop does not mean that it is part of that assessment. His objection must be taken to be an objection to the assessment of his taxation liability in a year prior to 2005 and not in respect of the assessment of his taxation liability in relation to the 2005 year of income.

6. Mr Sop submitted that he had paid all of his taxation liabilities and that the Tribunal does have jurisdiction. With regard to his taxation liabilities, he made a detailed submission in a document described as " Taxation claim - Reply No 2 ". Mr Sop gave details of the amount of tax deducted from the employees during the 1993 financial year. That was an amount of $6,698.20. Mr Sop also set out a table showing four cheques totalling $6,698.10 and paid to the Commissioner. They were dated 20 and 30 April 1993 and 8 September 1993. The two cheques in April 1993 totalled $4,674.10 and were paid after the Commissioner had written to Mr Sop on 23 March 1993. He had been unable to trace the remaining two cheques but submitted that he had established that there was sufficient evidence to establish that he had paid them. It is not beyond the realm of possibility that the Australian Taxation Office had lost the two cheques he sent in September 1993.

7. Mr Sop based his submission regarding jurisdiction on two bases. The first is that he had been subject to an excessive tax burden under s 17 of the ITA Act. The second is that the Commissioner had acted in bad faith and had abused his official powers and had acted recklessly and maliciously for an improper purpose. As a result of the Commissioner's actions, Part IVC of the TA Act has been triggered. So too have s 170 of the ITA Act, ss 8-10 of the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) and the Taxpayer's Charter. In his fourth submission, Mr Sop said:

"... It is not the isolated causes that determine jurisdiction (eg, PAYE legislation) but primarily the Commissioner's behaviour and the precipitative results of that behaviour that are in question here . The Applicant is at a loss to understand as to what on earth possessed the Commissioner to issue this PAYE Tax Assessment in the first place, some 14 years after the fact ?"

8. Mr Sop sought exemplary damages from the Commissioner on the basis that his reckless behaviour had levelled a slur against him. The slur is inherent in the view taken by Mr Sop that the Commissioner's decision means that his honesty has been called in question.

CONSIDERATION

The Administrative Appeals Tribunal Act

9. The starting point for my consideration is the Administrative Appeals Tribunal Act 1975 (AAT Act) by which the Tribunal was created. More particularly, the starting point is s 25. That section establishes the framework in which an enactment, other than the AAT Act itself these days, provides that an application may be made to the Tribunal for the review of a decision. Section 25(1) provides:

" An enactment may provide that applications may be made to the Tribunal :

( a ) for review of decisions made in the exercise of powers conferred by that enactment ."

Section 25(4) provides the necessary corollary to this sub-section when it provides that the "... Tribunal has power to review any decision in respect of which application is made to it under any enactment ." The general powers of the Tribunal are found in other provisions of the AAT Act.

10. The remaining seven sub-sections of s 25 go on to refine the general proposition made in s 25(1) and to provide that an enactment may modify the operation of any particular provision of the AAT Act. Of particular interest in this case is s 25(6)(a) which provides:

" Where an enactment provides for applications to the Tribunal :

(a)

that enactment may also include provisions adding to, excluding or modifying the operation of any of the provisions of sections 21, 21A, 22, 27, 29, 32, 33 and 35 or of subsection 41(1) or 43(1) or (2) in relation to such applications, and

(b)

those sections and subsections have effect subject to any provisions so included ."

11. It is clear from s 25 generally and from ss 25(1) and 25(2) that Parliament intended that the Tribunal's power of review be defined and circumscribed by the enactment providing for that review. This interpretation is consistent with the statements made by the Attorney-General in his Second Reading speech in the House of Representatives. ^[1]

12. The Tribunal's role is to review the decision that is the subject of the application made to it. For the purpose of doing that, s 43(1) of the AAT Act provides that it "... may exercise all of the powers and discretions that are conferred by any relevant enactment on the person who made the decision ...". When it reviews a decision in this way, the Tribunal is often said to be engaged in " merits review ". That task is an administrative task and differs in significant respects from the task facing a court engaged in judicial review of a decision. The Tribunal's task is not to enquire whether the decision-maker made an error in making the decision. That is the task of courts under the ADJR Act or s 39B of the Judiciary Act 1901 if a person affected by the decision wants to question it on the basis that it is affected by errors within the scope of those Acts. The Tribunal's task is not to adjudicate upon whether the decision-maker is able to defend the decision he or she made. ^[2] The task of the Tribunal is to determine the correct process it should itself follow and follow it.

13. It becomes apparent from the AAT Act creating it that the Tribunal is a creation of statute and that its jurisdiction or authority to review decisions comes entirely from statute. The statutory restrictions on the Tribunal mean that it is not a Tribunal of general review. That is to say, it is not a Tribunal that can review any administrative decision or any action.

The Tribunal's jurisdiction : did Mr Sop lodge a taxation objection against the 2005 assessment ?

14. The effect of s 25 is that regard must be had to the terms of the enactment to decide whether or not the Tribunal has been given jurisdiction. In this case, regard must be had to the ITA Act and the TA Act.

15. In so far as it is relevant, s 14ZZ of Part IVC of the TA Act provides that:

" If the person is dissatisfied with the Commissioner's objection decision ... the person may :

(a)

if the decision is both a reviewable objection decision and an appealable objection decision - either :

(i)

apply to the Tribunal for review of the decision ; or

(ii)

...

(b)

if the decision is a reviewable objection decision (other than an appealable objection decision ) - apply to the Tribunal for review of the decision ; or

(c)

..."

16. Who is the " person " and what is a " reviewable objection decision " that the person may apply to the Tribunal about? Starting with the " person ", the " person " is the person who has made a " taxation objection " under Division 3 of Part IVC of the TA Act. A " taxation objection " has the meaning given by s 14ZL. ^[3] That section provides that Part IVC of the TA Act 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 as set out in this Part ."

17. Section 14ZL raises two issues. The first relates to the words " assessment, determination, notice or decision ". Is the Commissioner's notification of " Other amounts payable " being " other tax debts " in his assessment for the year ending 30 June 2005, an " assessment, determination, notice or decision " made on 19 July 2006 or notification of an " assessment, determination, notice or decision " previously made? Having regard to the Running Balance Account statement for the period 19 March 1994 to 7 February 2007, it would seem that the Commissioner's determinations or decisions were made at various times during that period but before the assessment was issued.

18. The first issue is a factual issue but the second issue raises the proper characterisation of the reference to the other tax debts in the assessment. That is relevant because Mr Sop's notice of objection was against the Commissioner's assessment for the year ending 30 June 2005. It can only be a valid taxation objection within the meaning of s 14ZL if the other tax debts formed part of that assessment. That is because s 14ZL provides that " a person who is dissatisfied with an assessment ... may object against it ..." if a provision of an Act or of regulations provides that the person may do so. Is Mr Sop " dissatisfied with an assessment " being the Commissioner's view that he owes " other tax debts " being $3,972.97?

19. Section 6(1) of the ITA Act defines the word " assessment ". It was amended with effect from the 2004-2005 year of income. In so far as it is relevant, it 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 ); or

(b)-(e)

...

(f)

the ascertainment of the amount of additional tax under section 128TE ; or

(g)

the ascertainment of an amount of tax under section 159GZZZZH ."

20. In Stuart (No 2) v Federal Commissioner of Taxation , ^[4] Lee and Finn JJ, with whom Northrop J agreed, considered the definition of " assessment " as it had been defined before its amendment. At that time, s 6(1) defined an " assessment ", again in so far as it is relevant, as " the ascertainment of ... the amount of taxable income " and " the ascertainment of the amount of additional tax payable under a provision of Part VII ". ^[5] Their Honours considered an assessment presented in a format similar to that presented to Mr Sop. They said:

" It is clear that amounts made due and payable by prior notices of assessments are not part of the assessment of taxable income or of tax payable in a later year of income and accordingly details of those amounts, described as ' Other amounts payable', are not part of a notice of assessment ." ^[6]

21. Applying this principle to the sum of $3,972.97 shown against the heading " Other amounts payable " being " other tax debts ", I have concluded that the Commissioner did not make an " assessment, determination, notice or decision " on 19 July 2006 in relation to that amount. In his assessment for the year ending 30 June 2005, the Commissioner did not make an assessment regarding the sum of $3,972.97. Therefore, Mr Sop could not lodge a taxation objection seeking review of the Commissioner's decision to include that sum as a tax liability when he issued the assessment in respect of the year of income ending 30 June 2005.

The Tribunal's jurisdiction : does the Tribunal have jurisdiction to review the decision relating to Mr Sop's PAYE liability ?

22. The Commissioner did, however, make an " assessment, determination, notice or decision " sometime before 19 July 2006 and there remains a question whether that is reviewable by the Tribunal.

23. The effect of ss 14ZW, 14ZY and 14ZZ is that the Tribunal has jurisdiction to review the Commissioner's objection decision if the following circumstances exist:

•

an enactment provides that the person the right to lodge a taxation objection; ^[7]

•

the person has lodged a taxation objection within the time specified in s 14ZW of the TA Act or within such further time as the Commissioner allows under s 14ZX;

•

the Commissioner makes an objection decision on that taxation objection; ^[8]

•

the objection decision is a reviewable objection decision ^[9] i.e. it is not an ineligible income tax remission decision; ^[10] and

•

the person applies to the Tribunal for review of the objection decision within the time specified in s 14ZZC of the TA Act or within such further time as the Tribunal allows. ^[11]

24. The TA Act does not provide that a person may lodge a taxation objection to the Commissioner's decision regarding the recovery of a taxation instalment. This means that the first of the circumstances I have listed has not been satisfied. Therefore, having regard only to the TA Act, none of the others can be satisfied as each is dependent on the circumstance preceding it.

25. Is the first circumstance satisfied when I look to the provisions of the ITA Act? As Mr Sop is said to have failed to remit taxation instalment deductions for the year ending 30 June 1993, I must have regard to the provisions of the ITA Act as in force during that period. ^[12] That is the effect of s 8(b) and (c) of the Acts Interpretation Act 1901 . They provide:

" Where an Act repeals in the whole or in part a former Act, then unless the contrary intention appears the repeal shall not :

(a)

...

(b)

affect the previous operation of any Act so repealed, or anything duly done or suffered under any Act so repealed ; or

(c)

affect any right privilege obligation or liability acquired accrued or incurred under any Act so repealed ; ...

(d)

...

(e)

...

and any such investigation legal proceeding or remedy may be instituted continued or enforced, and any such penalty forfeiture or punishment may be imposed, as if the repealing Act had not been passed ."

26. A " group employer " was a person who was registered as a group employer under s 221F of the ITA Act. ^[13] Generally, a person was required to register if employing ten or more employees in any year or making ten or more eligible termination payments in the same period. ^[14] Section 221C(1A) of the ITA Act required an employer paying salary or wages to an employee, at the time of paying them, to make a deduction from them at the rate specified in the regulations made under s 221C(1). The Commissioner might issue a certificate to an employee that no deductions need be made from the salary or wages paid to that employee. ^[15] There is no suggestion in this case that the Commissioner had issued a certificate to any of Mr Sop's employees.

27. Once a group employer had withheld tax instalment deductions from the salary or wages of an employee, the group employer was required to pay them to the Commissioner. ^[16] The group employer was also required to give the employee a group certificate setting out the total amount of salary or wages paid to that employee and the amount of tax instalment deductions withheld by the group employer. ^[17] The group employer was also required to send a copy of the group certificate to the Commissioner. ^[18]

28. If the Commissioner credited a payment of tax, or made a payment in respect of, an amount shown in a group certificate and that amount was greater than the amount actually deducted, the group employer was liable to pay the Commissioner the amount of the excess. ^[19] The group employer might sue for and recover from the employee as a debt any amount paid to the Commissioner or recovered by the Commissioner. ^[20] Where the Commissioner had made a credit or payment in these circumstances, the Commissioner was required to serve a notice on the group employer. The notice must specify the amount payable by the group employer to the Commissioner. ^[21] The group employer had to pay the amount to the Commissioner by the day specified in the notice. ^[22] The group employer was required to pay a penalty at the rate specified in s 221F(12). In certain circumstances specified in s 221N, the Commissioner might remit the late payment penalty.

29. If an employee had received a group certificate issued in relation to salary or wages received in a particular year, that employee had to give it to the Commissioner with the return required under s 161 in respect of that year of income. ^[23] Once the Commissioner had received the group certificate and assessed the tax payable in respect of the income, he was obliged to credit the amount shown on the group certificate in payment or part payment of the tax payable. If the amount shown on the group certificate exceeded the amount of tax payable, the Commissioner was required to pay the employee the amount of the excess. ^[24]

30. In none of these provisions is there any provision that the taxpayer might lodge a taxation objection in respect of any of the Commissioner's decisions. That again means that the first of the circumstances I have set out in [23] above has been satisfied. Therefore, there can be no objection decision let alone a reviewable objection in relation to decision taxation instalment deductions.

Review on wider bases

31. Mr Sop has sought to have the decision reviewed on wider grounds. The Tribunal, however, is limited to the grounds of review set out in the AAT Act as modified by the particular enactment giving it jurisdiction to review a particular decision. Neither the AAT Act nor, in this case, the ITA Act or the TA Act gives the Tribunal a general power to review the manner in which the decision-maker has made a decision. It cannot, as Mr Sop would have it do, review the Commissioner's conduct surrounding the making of the decision in order to decide whether the Commissioner acted in bad faith and had abused his official powers and acted recklessly and maliciously for an improper purpose. It is engaged in merits review and must decide whether the decision under review is the correct decision or, if more than one correct decision is open on the law and the evidence, the preferable decision of those correct decisions. For the reason I gave in [12] and [13] above that I have no authority or jurisdiction to embark on a consideration of the behaviour of those who made the assessment or decision of which Mr Sop complains.

32. For the reasons I have given, I have decided that the Tribunal does not have jurisdiction to review the " assessment, determination, notice or decision " made at some uncertain time to recover an amount of $2,337.20 representing the taxation instalment deductions that the Commissioner claims that the applicant failed to remit in his capacity as a group employer during the year ending 30 June 1993.

I certify that the thirty-two preceding paragraphs are a true copy of the reasons for the decision herein of

Deputy President S A Forgie,
Signed: ...............................................................

Jayne Haydon Associate
Solicitor for the Applicant Mr M. Sop
Sop & Sop Pty Ltd
Counsel for the Respondent Mr P. Nicholas