REMUNERATION PLANNING CORPORATION PTY LTD v FC of T

Judges:
Gyles J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2001] FCA 255

Judgment date: 15 March 2001

Gyles J

On 3 August 2000 Remuneration Planning Corporation Pty Limited (``the applicant'') filed an application against the Commissioner of Taxation for the Commonwealth of Australia (``the Commissioner'') seeking the following relief:

``1. A declaration that Taxation Ruling 99/5 is invalid;

2. Alternatively, a declaration that Taxation Ruling 99/5 is invalid to the extent that it purports to apply to years of income prior to May 1999;

3. A declaration that Taxation Ruling 99/5 does not apply to the Applicant and its clients for the years of income prior to May 1999.

4. Costs.

5. Such further or other order as the Court considers appropriate.''

A statement of claim was filed on the same day.

2. On 4 December 2000 the Commissioner filed a notice of motion for the following orders:


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``1. That the proceeding be dismissed or permanently stayed

  • (a) for want of jurisdiction or for want of standing on the part of the applicant;
  • (b) in the alternative, pursuant to Order 20, Rule 2 of the Federal Court Rules;
  • (c) in the further alternative, in the discretion of the Court.

2. In the alternative to Order 1, that the Statement of Claim be struck out pursuant to Order 11, Rule 16 of the Federal Court Rules.

3. That the applicant pay the respondent's costs.''

3. During the course of hearing that motion an amended application was tendered and the argument proceeded on the basis that the amendment would be made in due course. The additional relief sought is as follows:

``4. A declaration that the law applicable to the Applicant and its clients for the years of income commencing prior to May 1999 is by virtue of Public Ruling 92/20 and the continuous course of conduct engaged in by the Commissioner that expressed in the Advance Opinions provided to the Applicant.

5. A declaration that the Commissioner is estopped from applying to the Applicant and its clients for the years of income commencing prior to May 1999 the tax law other than in the manner expressed in Advance Opinions provided to the Applicant.

6. An order prohibiting the Commissioner from applying to the Applicant and its clients for the years of income commencing prior to May 1999 the tax law other than in the manner expressed in Advance Opinions provided to the Applicant.''

4. Taxation Ruling TR 99/5 (``the Ruling'') purports to be a public ruling within Pt IVAAA of the Taxation Administration Act 1953 (Cth) (``the Administration Act''). Sections 14ZAAE, 14ZAAF and 14ZAAG are as follows:

``SECTION 14ZAAE PUBLIC RULINGS - CLASS OF ARRANGEMENTS

14ZAAF The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to any person in relation to a class of arrangements.

SECTION 14ZAAF PUBLIC RULINGS - CLASS OF PERSONS

14ZAAF The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to a class of persons in relation to an arrangement.

SECTION 14ZAAG PUBLIC RULINGS - CLASS OF PERSONS AND CLASS OF ARRANGEMENTS

14ZAAG The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to a class of persons in relation to a class of arrangements.''

5. A public ruling is made by the Commissioner publishing it and notice of it in the Gazette (s 14ZAAI).

6. Section 74A(2) of the Fringe Benefits Tax Assessment Act 1986 (Cth) (``the Fringe Benefits Act'') provides as follows:

``74A(2) [Assessment and amount of tax] Subject to section 74C if:

  • (a) there is a public ruling on the way in which a fringe benefits tax law applies to a person in relation to an arrangement ( `ruled way' ); and
  • (b) that law applies to that person in relation to that arrangement in a different way; and
  • (c) the amount of fringe benefits tax under an assessment in relation to that person would (apart from this section and section 74C) exceed what it would have been if that law applied in the ruled way;

the assessment and amount of fringe benefits tax must be what they would be if that law applied in the ruled way.''

7. Section 74A is included in Div 2 of Pt V dealing with assessments (including amended assessments). The validity of any assessment is not affected by reason that any provision of the Act has not been complied with and an employer who is dissatisfied with an assessment may object against it in the manner set out in Pt IVC of the Administration Act (ss 78 and 78A).

8. The Commissioner argues that the proceeding as originally framed was misconceived for a number of reasons. Before


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considering that submission, it is convenient to refer to the system of private rulings pursuant to the Administration Act, provision for which was introduced in 1992 at the same time as that for public rulings. They are covered by Pt IVAA of the Administration Act, which provides for applications for and the giving of private rulings and the way in which, in the Commissioner's opinion, a tax law would apply to the person in respect of a year of income in relation to an arrangement or, with the written consent of another person, as to how the law would apply to that other person. Sections 14ZAZA, 14ZAZB and 14ZAZC are as follows:

``SECTION 14ZAZA OBJECTIONS, REVIEWS AND APPEALS RELATING TO PRIVATE RULINGS

14ZAZA(1) [Objection] Subject to subsection (2), a rulee who is dissatisfied with a private ruling may object against it in the manner set out in Part IVC and such a ruling is a taxation decision for the purposes of that Part.

14ZAZA(2) [Objection not allowed] A rulee may not object against a private ruling if:

  • (a) an assessment has been made in relation to the rulee in respect of the year of income, and in relation to the arrangement, to which the ruling relates; or
  • (b) the ruling relates to withholding tax that has become due and payable.

SECTION 14ZAZB SUCCESSFUL OBJECTION DECISION ALTERS RULING

14ZAZB(1) [Interpretation] In this section:

`objection decision' and `taxation objection' have the same meanings as in Part IVC.

14ZAZB(2) [Commissioner's objection] If:

  • (a) the Commissioner makes an objection decision allowing, wholly or in part, a taxation objection against a private ruling; and
  • (b) the period in which an appeal against, or an application for the review of, the decision may be made has ended; and
  • (c) neither such an appeal nor application has been made;

the ruling is taken to be the ruling as altered by the decision.

SECTION 14ZAZC APPLICATIONS AND OBJECTIONS NOT TO AFFECT OBLIGATIONS AND POWERS

14ZAZC The fact that there has been:

  • (a) an application for a private ruling; or
  • (b) an objection against the ruling;

does not in the meantime affect:

  • (c) a taxpayer's obligation to lodge a return or do any other act; or
  • (d) the Commissioner's power to make or amend an assessment.''

9. Sections 74B(2) and 74C of the Fringe Benefits Act provide as follows:

``74B(2) [Assessment and amount of tax] Subject to sections 74C, 74D and 74E, if:

  • (a) there is a private ruling on the way in which a fringe benefits tax law applies to a person in respect of a year of tax in relation to an arrangement ( `ruled way' ); and
  • (b) that law applies to that person in respect of that year in relation to that arrangement in a different way; and
  • (c) the amount of fringe benefits tax under an assessment in relation to that person would (apart from this section and section 74C) exceed what it would have been if that law applied in the ruled way;

the assessment and amount of fringe benefits tax must be what they would be if that law applied in the ruled way.

SECTION 74C ASSESSMENT WHERE CONFLICTING RULINGS

74C(1) [`ruling'] In this section:

`ruling' means:

  • (a) a public ruling; or
  • (b) a private ruling.

74C(2) [Expressions used as in sec 74A and 74B] Expressions used in this section have the same meanings as in section 74A or 74B.

74C(3) [Assessment and amount of tax] If:

  • (a) there are rulings of different ways in which the same fringe benefits tax law

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    applies to the same person in relation to the same arrangement; and
  • (b) apart from this section, because of there being those different ways, there are conflicting requirements under section 74A or 74B, or both, of what the assessment and amount of fringe benefits tax in relation to that person are to be;

the assessment and amount of fringe benefits tax must be what they would be if that law so applied in whichever of those ways would result in the lowest amount of fringe benefits tax.''

10. The following paragraphs of the statement of claim give a sufficient indication of the interest claimed by the applicant in challenging the Ruling:

``2. In about 1988 the Applicant developed an employee savings plan structure known as the Employee Benefits Trust whereby a trustee of a unit trust received contributions from an employer to be invested and the investments held on trust for employees who purchased units in the trust.

...

13. From about July 1988 until July 1998 the Commissioner adopted the position that contributions to Employee Benefit Trusts were not subject to fringe benefits tax.

14. On the basis that the Commissioner had adopted this position, the Applicant:

  • (a) commenced to market Employee Benefit Trusts to large and medium sized companies including through accountants and tax advisers;
  • (b) entered into contracts with a number of companies to set up Employee Benefit Trusts;
  • (c) entered into contracts with other persons for those other persons to set up Employee Benefit Trusts for companies.

...

16. From about 1988 the Applicant set up Employee Benefit Trusts for various companies totalling in excess of 200 in the years of income 1988, 1990-1998.

17. Prior to July 1998 employer/companies made payments of sums of money to the trustees of Employee Benefit Trusts set up by the Applicant (the `Applicant's Employee Benefit Trusts') as part of the remuneration arrangement of their employees.

18. Prior to July 1998 many employees of those employer/companies have purchased units in the Applicant's Employee Benefit Trusts and have become unitholders.

19. In respect of the said contributions to the Applicant's Employee Benefit Trusts the employer/companies have not treated the payments to trustees as liable to fringe benefits tax and have not paid fringe benefits tax on those contributions.

...

24. Pursuant to his power to make public rulings the Commissioner has purported in Ruling 99/5 to apply the Ruling to steps taken prior to the date of the ruling under arrangements set up prior to the date of the ruling, which arrangements were made in accordance with the position adopted by the Commissioner from about July 1988 until July 1998.

25. Officers of the Australian Taxation Office have issued notices of intention to audit with a view to issuing amended assessments to the Applicant and to persons for whom the Applicant has set up Employee Benefit Trusts in respect of alleged fringe benefits tax liabilities for contributions made by each of those persons to its Employee Benefit Trust.''

Section 39B of Judiciary Act 1903 (Cth)

11. The instrument concerned is general in operation. It is not directed to any particular person or persons. Its operation is purely advisory in the sense that it notifies the public of the opinion of the Commissioner upon the question of taxation involved. It does not affect rights or liabilities in a sense necessary to found curial intervention. It cannot work to the disadvantage of any taxpayer because if a correct application of the law would lead to greater tax than would be assessed pursuant to the Ruling, the Ruling applies, whereas if a correct application of the law would yield less tax than would application of the Ruling, then the correct application of the law would be applied. Put another way, if the Ruling were invalid, in the sense that it was not authorised by the statute, nobody is better off so far as the payment of tax is concerned.


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12. The applicant's complaint, in substance, is that tax officials are likely to act in accordance with the Ruling in exercise of their powers. That may be granted. That may lead to clients of the applicant being assessed for tax upon the basis of the Ruling. There are, however, elaborate provisions for appeal against assessments pursuant to Pt IVC of the Administration Act, including a full merits review by the Administrative Appeals Tribunal. The difficulty that I see is not simply a question of locus standi, although that is one aspect of it. The Federal Court does not have any general supervisory role over the Executive, nor any role to enforce statutes save when a proper justiciable controversy is brought before it by the proper parties. There is no proper subject for a writ of mandamus or prohibition and nothing to properly injunct to bring the matter within s 39B(1), and there is no matter arising under any law made by the Parliament within the meaning of s 39B(1A). The contrast between public rulings and private rulings is instructive. Private rulings do affect individual taxpayers, and there is an appeal system.

13. The applicant was not able to point to any authority which, directly or by way of analogy, showed the assumption of jurisdiction in a case such as the present. Counsel for the parties referred me to a series of recent High Court authorities, including
Croome v Tasmania (1997) 191 CLR 119,
Bateman's Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd (1998) 194 CLR 247,
Re East; Ex parte Nguyen (1998) 196 CLR 354,
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334, and
Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 169 ALR 616. I find nothing in those authorities inconsistent with the view I have formed that the facts pleaded do not establish any proper justiciable controversy. In my opinion, the application for relief in relation to the Ruling is misconceived and should be summarily dismissed. The question at issue does not depend upon the particular (or any) facts, but rather involves application of basic principles of administrative law. It is therefore appropriate to be disposed of summarily provided that the test in
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 is met. In my opinion it is. There is no need to deal with various alternative arguments advanced on behalf of the Commissioner.

Fresh relief claimed

14. The claims for relief in pars 4 to 6 inclusive of the amended application give rise to a different issue. The essence of the position of the applicant is that the Commissioner is bound by a course of conduct to treat the applicant and its clients in a particular way, which is inconsistent with the Ruling but which may not reflect the correct amount of tax payable.

15. Counsel for the Commissioner submits that, no matter how precisely framed, that argument cannot possibly succeed, as it is well established that no conduct on the part of the Commissioner can operate as an estoppel against the obligation imposed by the Act to assess for the correct amount of tax, subject to the specific statutory provisions as to public and private rulings. Counsel referred to the dicta of Kitto J in
FC of T v Wade (1951) 9 ATD 337 at 344; (1951) 84 CLR 105 at 117, the citing of that view of Kitto J with approval by the majority of the High Court in
FC of T v ANZ Savings Bank Ltd 94 ATC 4844 at 4850; (1994) 181 CLR 466 at 479, and what was said by Deane, Toohey and Gaudron JJ in
Chamberlain v DFC of T 88 ATC 4323 at 4327; (1988) 164 CLR 502 at 510 and by Gleeson CJ, Gummow and Hayne JJ in
FC of T v Ryan 2000 ATC 4079 at 4084; (2000) 168 ALR 704 at 709 (par 22) (``Ryan''). Furthermore, in
Bellinz v FC of T 98 ATC 4634; (1998) 84 FCR 154 the Full Court described the view of Kitto J as ``the accepted view'', and also referred to
AGC (Investments) Ltd v FC of T 91 ATC 4180 at 4195 where Hill J held that the doctrine of estoppel cannot be invoked by a taxpayer so as to prevent the Commissioner assessing tax pursuant to the duty so to do.

16. In none of the cases referred to did the point of law here arise directly for decision in circumstances like those alleged in this case. The more recent expressions of the principle in the High Court have been somewhat guarded (see the passage from Ryan). Counsel for the applicant submits that the authorities on estoppel have come a long way since 1951 when Kitto J spoke. Success (particularly in the High Court) cannot be ruled out. The decision of Burchett J in
OneTel Ltd & Ors v DFC of T 2000 ATC 4229 (at 4244-4246); (2000) 101 FCR 548 (at 566-568) as to legitimate


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expectation indicates that the administration of the Commissioner is not free from curial intervention. However, it seems to me to be that there is a strong probability that both a first instance judge and a Full Court will apply the ``accepted'' view and dismiss any claim made for estoppel regardless of the particular facts that are proved. It is therefore arguably a waste of time and resources to hear a case on the off- chance that the High Court might take a different view of the law. On the other hand, it is a large step to shut out a case the like of which has never received full consideration in a developing area of the law without considering and finding the facts.

17. With considerable hesitation I have come to the conclusion that the fresh claims should not be summarily dismissed, stayed or struck out on this basis. Counsel for the Commissioner also argued that, in any event, there were such procedural and substantive defects in the applicant's case that it would inevitably fail, either because no proper basis for estoppel is alleged or could be found or that discretionary relief would inevitably be refused. Whilst I see the force of these arguments, which may in the end prove decisive, I do not think that the applicant's case (if it is open as a matter of law) is so hopeless as to warrant summary dismissal without further examination of the facts. As I will have to consider the merits of the case, it is best that I say as little as possible about those issues. The applicant has received fair notice of the obstacles in its path.

18. Proceeding further is at the risk of the applicant as to costs, and if it loses on the basis of arguments presented on this motion, a special order might result. I should also make it quite clear that the pendency of this case should not inhibit the Commissioner from proceeding as he sees fit. There will be directions for an early final hearing.

Orders

19. As the case is to proceed, the best course is to strike out pars 1, 2 and 3 of the claims for relief in the amended application and otherwise dismiss the motion, As each party has had a measure of success, the costs of the motion will be costs in the proceeding.

THE COURT ORDERS THAT:

1. Paragraphs 1, 2 and 3 of the claims to relief in the amended application are struck out.

2. The motion is otherwise dismissed.

3. The costs of the motion are costs in the proceeding.


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