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ISAACS v FC of T

Members:
PJ Lindsay SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2004] AATA 202

Decision date: 27 February 2004

PJ Lindsay (Senior Member)

This application concerns the refusal by the Commissioner of Taxation to allow Phillip John Isaacs, the applicant, an extension of time to make an election under s. 139E of the Income Tax Assessment Act 1936 (the Act). Section 139E is found in Division 13A ``Employee Share Schemes'', in Part III of the Act.

Background

2. The background may be set out in brief. Mr Isaacs lodged his income tax return for the year ended 30 June 1998 on 27 April 1999. It was prepared by registered tax agents. It is not disputed that he did not make an election under s. 139E prior to lodgment of the income tax return, or for that matter before the assessment was issued on 4 May 1999, and I so find.

3. Subsequently, Mr Isaacs wished to make such an election. His representatives wrote to the Commissioner on 18 May 2001 (T4 in the T documents lodged with the tribunal pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975) enclosing a copy of a signed election also dated 18 May 2001. They stated that ``the effect of making the election to be taxed at grant is that an additional amount of $209,802 should be included in the taxpayer's assessable income for the year ended 30 June 1998''. The calculation was derived from use of the valuation tables in s. 139FM, also in Division 13A.

4. The election covered 50,000 options granted to Mr Isaacs on 1 May 1998, having an exercise price of US$14.75 which was the market value of the shares to which the options relate. A cheque for $101,753.97 was enclosed. The payment represented the tax that Mr Isaacs' representatives calculated was payable by including the additional amount in his assessable income.

5. By letter dated 11 September 2001 the Commissioner notified Mr Isaacs that his request for an extension of time in which to make the election had been refused. In essence, the Commissioner declined to exercise the discretion because he was not satisfied that the merits of the case warranted it. Consequently, Mr Isaacs signed an objection on 19 December 2001, which stated as follows (T6):

``Pursuant to section 175A of the Act, Mr Phillip J Isaacs, hereby objects against the assessment of income tax based on income derived by him during the year of income ended 30 June 1998 and issued to him by notice of assessment date 4 May 1999 and contends that the amount of $209,802 ought to have been included in his assessable income for the year of income.

In support of his contention, the taxpayer claims that:

  • 1. The amount of $209,802 represents the taxable income calculated in accordance with Division 13A of the Act, which must be included in assessable income for the year ended 30 June 1998, as a result of electing pursuant to section 139E of the Act to be taxed at grant in respect of employee stock options granted to him during that year.
  • 2. That although this election was not originally made when the taxpayer filed his 1998 return, pursuant to section

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    139E(2), the Commissioner should have allowed further time to make the relevant election and thereby treat as valid the election made by the taxpayer on 18 May 2001.
  • ...''

6. On 7 February 2002 the Commissioner disallowed the objection. The thrust of his reasons (T7) was that it was not fair and equitable to exercise the discretion due to the lapse of time between lodgment of the return and the request for an extension of time to make the election, given that, around the time of the grant, his employer had informed him that he should obtain tax advice about the taxation treatment of employee share options. The Commissioner noted ``You will need to include the discount on your shares or rights in your assessable income in the income year in which your cessation time occurs. The amount of discount will be calculated in accordance with either subsections 139CC(3) or (4) of the ITAA 1936.''

7. Mr Isaacs made an application to the tribunal seeking a review of the Commissioner's decision of 7 February 2002.

Issues

8. There are two issues that arise in this matter:

  • • Whether the tribunal has jurisdiction to hear and decide the application.
  • • If the tribunal has jurisdiction, whether it should set aside the respondent's objection decision of 7 February 2002 and remit the matter to the respondent with the direction that a new assessment be made as a consequence of extending time to make an election under s. 139E to include the amount of discount in Mr Hicks' assessable income of the 1998 income year.

The tribunal agreed to the request by the applicant that the hearing cover both the jurisdictional and the substantive issues.

Evidence

9. Mr Isaacs gave evidence at the hearing. His witness statement dated 5 May 2003 was accepted in evidence over a number of objections by counsel for the Commissioner, mainly regarding hearsay statements.

10. Mr Isaacs is a biochemist by training. His career began in 1962 when he was employed as a biochemist by the Commonwealth Department of Health. He remained there until 1970 when he joined an American company with operations in the field of laboratory automation. Mr Isaacs was the managing director of that company's Australian subsidiary from 1973 to 1980. In 1980 he set up the Australian subsidiary of Beckman Instruments, an American scientific instruments company. He was its managing director from 1980 until 1997. He was granted share purchase options by Beckman Instruments under that company's employee share option plan. Options were granted to him in 1990, 1991, 1992, 1993, 1994, 1995 and 1996. Those options are not the subject matter of this application.

11. In 1997 Mr Isaacs was approached by another US company, Cytyc Corporation. He was asked to set up its Australian subsidiary. He was familiar with that company's products and knew it was developing a new technology for the detection of cervical cancer. His statement reads:

``17.... Cervical cancer is one of the world's greatest killers of women, and I realised that the provision of a better test for the detection of cervical cancer would be of great interest in the Asia-Pacific region. I formed the opinion based on my experience that if the new test was marketed properly it would be taken up rapidly, and this would lead to a big increase in the price of Cytyc shares. I therefore decided I would `take the plunge' and join Cytyc provided that I was granted a significant number of share options in the company....''

12. He was assured that he would be granted 50,000 options if he joined Cytyc and additional options would be granted later depending upon performance. He started working for Cytyc on 4 March 1998, and was employed as managing director of Cytyc Australia Pty Limited until his retirement in November 2001.

13. Mr Isaacs was granted 50,000 options on 1 May 1998 and received the option documentation from Cytyc around 5 June 1998. He was advised by Cytyc to consult a personal financial counsellor or tax expert to learn how the options would be taxed in Australia. The options were not able to be exercised for a period of at least twelve months from the date of grant and then at 25 per cent a year for the next four years. The Cytyc shares were subject to a number of share splits from 1999 to 2001,

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allowing Mr Isaacs to acquire six shares with each option.

14. Mr Isaacs' income tax return for the 1998 year of income included an amount of $27,016 being assessable income in respect of the share options granted by Beckman Instruments. No amount of assessable income was included in the return in respect of any benefit he received from participation in the Cytyc share option scheme.

15. The income tax return was lodged in April 1999, having been prepared by a firm of accountants. Mr Isaacs explained that he has no training in either accounting or law. He said that he has used only one firm of accountants since 1964 and the firm that prepared the 1998 return was the product of a number of mergers and reorganisations in ensuing years.

16. Mr Isaacs' statement referred to a meeting with his accountants in around September 1998. He said he was told that he would not be liable to pay tax until he exercised his options. When that happens, he was advised that he would pay tax on the difference between the exercise price of the option and the value of the shares obtained at the time of exercise. His evidence was that he had the necessary financial resources to have paid the tax required, had the options been subject to tax in the year of grant.

17. Mr Isaacs' statement reads as follows:

``20. In 1997 and 1998 I was very optimistic about Cytyc and the prospects of its `ThinPrep Pap Test'. I believed that the value of the company's shares would increase substantially over the next few years. Had I known that the Australian tax laws enabled me to pay tax on my share options as at the date of grant, rather than on exercise of the options, I would have paid the tax as at the date of grant without hesitation.

...

25. On 6 April 2001, I received an interoffice memorandum from Mr Ian Allan, the in-house accountant of Cytyc Australia, reporting on advice that Cytyc had received from Arthur Andersen, to the effect that, under Australian law, there were two ways of paying tax on employee share options: either taxing them at the time of exercise (which I had been advised was the only way they could be taxed), or at the time of grant of the options....

26. I telephoned Arthur Andersen at about 2pm on Friday 6 April 2001, shortly after receiving Mr Allan's memorandum. I arranged a meeting with that firm at 11 am on Friday 20 April 2001 to discuss whether I could pay tax on the Cytyc options as at the date of grant rather than as at the time of exercise.''

18. Mr Isaacs said that there was a memorandum of advice from Arthur Andersen to Cytyc in the US. It was attached to Mr Allan's memorandum. The Arthur Andersen memo was dated 19 June 2000 and entitled ``Tax Treatment of Stock Options: Australia & Switzerland''. Cytyc requested the advice because Cytyc had recently extended its stock option plan to Australia and Switzerland. In relation to Australia, the Arthur Andersen memo prefaced a more detailed analysis of the taxation law by estimating that, based on outstanding options, potential income at exercise on options in 2000 could reach $2,404,000. The advice referred to potential for

``... significant individual tax savings... under Australia's new capital gains tax legislation enacted in October of 1999. Under this law, if the employee holds stock for twelve (12) months after exercise, he can exclude from taxable income half of the nominal gain thereafter realized upon sale. Therefore, an employee who was taxed at grant, paying tax on only a fraction of the overall value can, if he retains the stock for one year, avoid paying tax on a full one-half of the balance of the stock's much increased market value.

... in light of the $2.4 million dollar projected gain to be realized at exercise this year by a small number of Cytyc employees, and the detrimental tax impact those employees will experience, we highly recommend that Cytyc explore the potential for tax savings on their behalf by applying to the Australian tax authorities for retroactive tax at grant recognition.''

19. Mr Allan's memorandum of 6 April 2001, entitled ``An Interesting Possibility'', was addressed to all Cytyc Australia staff. The memorandum stated:

``An Arthur Andersen review of the income tax effects of the Employee Stock Option

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Plan on both the Company and the employees was commissioned by CYTYC in USA.

So far as Australian employees are concerned, this revealed that there are two ways to deal with the options an employee receives from an income tax perspective.

The election to adopt one of those ways, known as `taxing at grant' based on certain assumptions, indicates a financial advantage might be gained by using that method.

The second method is where taxing occurs at time of exercise.

It has also been suggested that there is an opportunity to amend previously lodged income tax returns to take advantage of the method retrospectively....''

20. Later on 6 April 2001, Mr Isaacs sought the opinion of his own accountants as to this advice. He said that they were unaware of the alternative of being taxed on options at the time they are granted and unaware of the Black- Scholes formula that is used in calculating the value of the options.

21. At a meeting with representatives of Arthur Andersen on 20 April 2001 regarding his Cytyc options, Mr Isaacs said he was informed that the Australian income tax legislation gives a taxpayer the choice of paying tax on employee share options at the time of grant or at the time of exercising the options. Some calculations were carried out. Mr Isaacs said he was told that it would have been far better for him to have paid tax at the time of grant of his options. He was advised that Arthur Andersen had come across other cases of taxpayers in a similar situation to his and that the Australian Taxation Office had allowed them to put in amended assessments and to recalculate the tax so that it was payable at grant. Mr Isaacs told them that he would like them to obtain an amended assessment for him.

22. Arthur Andersen wrote to the Australian Taxation Office on 18 May 2001. They enclosed an election under s. 139E signed by Mr Isaacs and also dated 18 May 2001 (T4-10), pursuant to which he elected for s. 139B(2) of the 1936 Act to apply in respect of 50,000 options granted to him on 1 May 1998 by Cytyc. The election noted that the options have an exercise price of US$14.75 and that the market value of shares in Cytyc was US$14.75. A cheque for $101,753.97 was also enclosed. In evidence Mr Isaacs said that the cheque was banked by the Australian Taxation Office and it still retains the funds. He said the Cytyc share price rose from approximately US$2.00 a share in 1998 to around US$20.00 in 2001.

Applicable legislation

23. Section 6(1) of the Act defines ``assessment'' as ``(a) the ascertainment of the amount of taxable income;... and of the tax payable on that taxable income... ''. Other provisions of the Act that are relevant to making an assessment are as follows:

Section 166 states:

``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.''

Section 169A(1) states:

``Where a return of income of a taxpayer of a year of income is furnished to the Commissioner (whether or not by the taxpayer), the Commissioner may, for the purposes of making an assessment in relation to the taxpayer under this Act, accept, either in whole or in part, a statement in the return of the assessable income derived by the taxpayer and of any allowable deductions or rebates to which it is claimed that the taxpayer is entitled and any other statement in the return or otherwise made by or on behalf of the taxpayer.''

24. Section 139B in Division 13A makes provision for the inclusion of an amount in assessable income and the time when it is so included:

``(1) If a taxpayer has acquired a share or right under an employee share scheme, the assessable income of the taxpayer includes the discount given in relation to the share or right.

Note: Employee share scheme is defined in section 139C.

When the discount is to be included

(2) Unless subsection (3) applies, the discount is included in the taxpayer's assessable income of the year of income in which the share or right is acquired.

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(3) If the share or right is a qualifying share or right and the taxpayer has not made an election under section 139E for the year of income in which the share or right is acquired, the discount is included in the taxpayer's assessable income of the year of income in which the cessation time (see sections 139CA and 139CB) occurs.''

For rights or options, the cessation time is contained in s. 139CB:

``(1) The cessation time for a right is the earliest of the following:

  • (a) the time when the taxpayer disposes of the right (other than by exercising it);
  • (b) the time when the employment in respect of which the right was acquired ceases;
  • (c) if the right is exercised and there is a restriction preventing the taxpayer from disposing of the share acquired as a result of the exercise of the right or a condition that could result in the taxpayer forfeiting ownership of the share - the time when the last such restriction or condition ceases to have effect;
  • (d) if the right is exercised and there is no such restriction or condition - the time when the right is exercised;
  • (e) the end of the 10 year period starting when the taxpayer acquired the right.

(2) For the purposes of subsection (1), a taxpayer only ceases the employment in respect of which the right was acquired when the taxpayer is no longer employed by any of the following:

  • (a) the employer of the taxpayer in that employment;
  • (b) a holding company of the employer;
  • (c) a subsidiary of the employer or of a holding company of the employer.''

25. The election to include an amount of discount in assessable income in the year the option is acquired is the subject of s. 139E:

``(1) A taxpayer may make an election under this section that subsection 139B(2) applies for a year of income. The election covers each qualifying share or qualifying right acquired in that year by the taxpayer.

How and when election must be made

(2) The election must be in writing in a form approved by the Commissioner and be made before the taxpayer lodges his or her return of income for the year of income, or within such further time as the Commissioner allows.''

Consideration and findings

26. It is common ground between the parties, and I find, that the 50,000 Cytyc options granted to Mr Isaacs in May 1998 are ``qualifying rights'' for the purposes of Division 13A.

27. The tribunal's power to review decisions is based exclusively on statute (see, for example
Lees v Comcare (1999) 29 AAR 350 at 353). Relevantly s. 25 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) provides:

``(1) 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; or
  • (b) for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment.

(3) Where an enactment makes provision in accordance with subsection (1), that enactment:

  • (a) shall specify the person or persons to whose decisions the provision applies;
  • (b) may be expressed to apply to all decisions of a person, or to a class of such decisions; and
  • (c) may specify conditions subject to which applications may be made.

(4) The Tribunal has power to review any decision in respect of which application is made to it under any enactment.''

28. In carrying out its reviews, s. 43 of the AAT Act states:

``(1) For the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision and shall make a decision in writing:

  • (a) affirming the decision under review;
  • (b) varying the decision under review; or
  • (c) setting aside the decision under review and:
    • (i) making a decision in substitution for the decision so set aside; or

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    • (ii) remitting the matter for reconsideration in accordance with any directions or recommendations of the Tribunal.

...''

29. The Taxation Administration Act 1953 (the Administration Act) is an enactment that gives the tribunal jurisdiction to review certain decisions made by the Commissioner. Section 14ZO in Division 1, Part IVC of the Administration Act notes that Division 4 contains provisions about applications to the tribunal for review of decisions by the Commissioner in relation to certain taxation objections and requests for extensions of time. Section 14ZZ in Division 4 of Part IVC provides the tribunal with power to review certain objection decisions by the Commissioner where a person is dissatisfied with the decision. Section 14ZZA provides that:

``The AAT Act applies in relation to:

  • (a) the review of reviewable objection decisions;
  • (b) the review of extension of time refusal decisions; and
  • (c) AAT extension applications;

subject to the modifications set out in this Division.''

30. The decisions referred to in s. 14ZZA(b) are decisions by the Commissioner under s. 14ZX of the Administration Act that refuse a person's request for additional time in which to lodge an objection. Paragraph (c) of s. 14ZZA refers to an application to the tribunal for it to extend the stipulated time for lodging an application with it for it to review the Commissioner's decisions referred to in pars (a) and (b). Neither s. 14ZZA (b) nor (c) applies here.

31. Section 14ZQ defines ``reviewable objection decision'' as meaning an objection decision that is not:

``(a) an ineligible income tax remission decision or

(b) an ineligible sales tax remission decision;''

It is common ground that neither par (a) nor (b) applies.

32. ``Objection decision'' in turn is defined in s. 14ZY(2) effectively to mean a decision made by the Commissioner to allow an objection wholly or in part, or to disallow it. This leads to s. 14ZL, also in Part IVC of the Administration Act, which provides as follows:

``(1) This Part 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 may object against it in the manner set out in this Part.

(2) Such an objection is in this Part called a `taxation objection' .''

33. For the tribunal to have jurisdiction to review an objection decision, Mr Issacs' objection must be against such an assessment, determination, notice or decision.

34. Pursuant to s. 175A of the Act, taxpayers dissatisfied with an assessment are entitled to object against it in the manner set out in Part IVC of the Administration Act. Counsel for Mr Isaacs submitted that the objection dated 20 December 2001 made pursuant to s. 175A of the Act, was in the form required by s. 14ZU of the Administration Act and lodged by the time required by s. 14ZW. It was submitted that the Commissioner's decision of 7 February 2002 to disallow the objection is a reviewable objection decision and accordingly the tribunal has jurisdiction. It was further submitted that the Commissioner's refusal to include the amount of $209,802 in Mr Isaacs' assessable income necessarily involved as a first step, a decision not to allow further time for the making of the s. 139E election.

35. In written submissions, the Commiss- ioner stated that the proper forum for the applicant in this matter is in judicial review proceedings in the Federal Court. As for merits review, it was submitted that no objection rights are given specifically in relation to a decision to refuse an extension of time for making an election pursuant to s. 139E. Further s. 139E(2) is not concerned with an assessment, determination, notice or decision and thus does not confer objection rights under Part IVC.

36. The Commissioner submitted that where objection rights under Part IVC have been provided in respect of a determination, the relevant statutory provisions have clearly done so, for example in s. 177F(7) of the Act. Similarly, s. 128P of the Act makes specific provision for objecting against a decision by the Commissioner, in that instance, refusal to issue

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a withholding tax exemption certificate. So far as objections to notices are concerned, s. 221YHAAE(1) is an example of giving a taxpayer the right to object if dissatisfied with a notice in respect of provisional tax liability.

37. In relation to the applicant's argument that he was objecting to an assessment, the Commissioner disputed that a decision not to allow further time to make the election, was a decision forming part of an assessment. Counsel for the Commissioner found support for this submission in the following passage from the Full Federal Court's judgment in
Hadfield Finance Pty Ltd v FC of T 88 ATC 4300 (per Foster J at 4302):

``It is thus plain that the Tribunal under these sections has power to review on the merits only those decisions of the respondent which can be said to form part of the process of `assessment' under the Act, i.e. the ascertainment of the amount of the taxpayer's taxable income and of the tax payable thereon.''

38. It had been argued in that case that the tribunal lacked the power to review a decision by the Commissioner refusing a request by a private company for a determination of a further period in which to pay dividends for the purpose of making a sufficient distribution within the meaning of s. 105A of the Act. The tribunal found that it did not have that power (Case U138,
87 ATC 798) and the subsequent appeal to the Full Federal Court (Hadfield Finance) was unsuccessful.

39. In reaching its conclusion, the Full Court agreed with the reasoning of Smithers J in
Intervest Corporation Pty Ltd v FC of T & DFC of T 84 ATC 4744. The statutory context to that case was different, as it concerned an application by a private company under the Administrative Decisions (Judicial Review) Act 1977 (the Judicial Review Act) for review of a decision by the Commissioner to refuse to determine a further period for making a distribution. The background was that an assessment of income tax had been raised against the company and additional tax had been imposed in respect of undistributed income because the company had failed to make a sufficient distribution of its income. If the request for a determination of a further period in which to pay dividends had been granted, and if the company made an additional and sufficient distribution, it might have eliminated the additional tax. Smithers J discussed the situation where, as here, a refusal to extend time was not followed by the issue of an amended assessment (at 4747).

``A refusal of a request made under sec. 105AA after service of a notice of assessment is relevant to the liability of the applicant to pay the tax demanded in the notice of assessment which has been issued. If the request is granted a reduction in liability may result. If it is refused the chance of any such reduction is eliminated. But there is no sense in which a decision to refuse the request is a decision making an assessment or calculation of tax, or a decision forming part of the process of making an assessment or calculation of tax. A decision refusing a request denies to the taxpayer making the request an opportunity to change the basis of fact by reference to which an assessment, or an amended assessment, depending upon appropriate calculations, may be made.''

40. This reasoning was approved in Hadfield Finance in the following passage (at 4305):

``... A decision within this section [s. 105AA], as pointed out in the passages cited earlier, is one which either affords or denies the taxpayer the opportunity of altering the factual basis upon which its assessment to tax is to be made.''

41. In deciding whether the decision to refuse the company's request was excluded from judicial review under the Judicial Review Act, Smithers J made the distinction between the Commissioner's administrative functions and his assessment function, holding as follows (at 4748):

``... It is in his administrative function that he may or may not sanction the taking of steps by a taxpayer which, if taken by him, may produce a state of facts by reference to which an amended assessment may be made which might differ from that upon which the assessment already made was made. When he approaches the task of making an assessment with reference to the facts before him and makes the necessary calculations for that purpose he is exercising his assessment function.''

42. In the context of the objection and appeals procedures then found in the Assessment Act, and now primarily in the

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Administration Act, Foster J, for the Full Court, held in Hadfield Finance that the assessing process (at 4306):

``... involves the application of the appropriate income tax legislation to the relevant facts as found by the Commissioner to exist at the time of that application.... In arriving at his ascertainment of this factual basis of the assessment, he will have to make decisions which may well involve rejection of assertions of fact made by or on behalf of the taxpayer. Such decisions are quite clearly, in my view, different in kind from decisions of a discretionary nature allowing or disallowing a taxpayer an opportunity to produce an alteration to that factual basis such as by the payment of additional dividends in order to produce a sufficient distribution under sec. 105AA. In my view such a decision does not even `lead up' to the making of the assessment as it cannot be said that the making of the assessment `will follow from the decision'.''

43. Mr P Fraser, counsel for Mr Isaacs, sought to distinguish Hadfield Finance on a number of bases. What happened in Hadfield Finance was that the taxpayer, a private company, requested additional time under s. 105AA of the Act in which to pay dividends. The Commissioner refused the request. This was followed by the issue of an amended assessment raising additional tax under Division 7 because sufficient distributions had not been made in the required time. The company then lodged an objection against the amended assessment. Mr Fraser submitted that, as the company had not made the distributions that would bring about the state of facts by reference to which tax would be reduced or eliminated, it was not in a position to challenge the amended assessment. But, more importantly, even if the Commissioner had favourably considered the request for additional time, it remained within the taxpayer's discretion whether to avail itself of the further opportunity to make the distributions and then to lodge a notice with the Commissioner under s. 105AA specifying the amount so distributed. It was argued, therefore, that an extension of time would not have a direct effect on the assessment. Rather, it merely put the company in a position to take steps, including making additional distributions, that would allow a change in the factual matrix and ultimately a reduction in undistributed profits tax. Thus an exercise of the discretion by the Commissioner in Hadfield Finance could be regarded as merely an administrative function and not an assessing function.

44. By contrast, it was submitted that in this matter there is a direct connection between an exercise of the discretion in Mr Isaacs' favour and the process of assessment. That is, if further time were granted to make the election, and an election was made for discount to be included in the assessable income of the year in which the options were granted, s. 139B(2) would necessarily apply to include the discount in Mr Isaacs' assessable income of the 1998 income year. In fact Mr Isaacs had already lodged a completed election in May 2001, many months before making his objection in December 2001. So, had the Commissioner exercised the discretion, the immediate and direct effect would be the inclusion of the discount in assessable income. No other administrative process would be required and, it was submitted, no other change to the factual matrix would ensue. An amended assessment of the additional tax payable should then issue. Thus, it was submitted, a decision to allow additional time for the election was clearly related to the assessment function.

45. Further support for the submission was said to be contained in Taxation Rulings IT 2624 Company self assessment; Elections and other Notifications; Additional (Penalty) Tax; False or Misleading Statement, which was published on 10 December 1990, and in IT 2662 False and Misleading Statements, Additional Tax, Elections and Notifications published on 12 May 1991. IT 2624 explained that:

``[19] There are many provisions in the Act which require or permit taxpayers to lodge elections or other notifications with the Commissioner on or before the last day for the furnishing of the return. All but a few... authorise an extension of time to be allowed by the Commissioner. For example, frequently used provisions such as sec. 31(3) (value of trading stock), sec. 59(2A) (depreciation balancing charge), and sec. 80G(6)(c) (transfer of loss within company group) all contain the words `or within such further time as the Commissioner allows'.''

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46. Paragraph 4 of IT 2662, a ruling that relates to individuals, partnerships and trusts, states:

``In every situation where the law authorises the Commissioner to extend the time for making a written election or other notification, the time for lodgment is to be taken as extended for taxpayers until such time as the Commissioner requires the election or notification to be made. Exceptions to this are the specific elections or other notifications identified in Taxation Ruling IT 2624, Tax Pack and other relevant published Tax Office instructions.''

47. Counsel submitted that it could not be intended that a taxpayer would have to apply for the extension of time and then wait for the Commissioner's favourable response, prior to lodging the election. Where a taxpayer has made the relevant election, the rulings were said to uphold the submission that granting further time in which an election is to be lodged, is inextricably related to the assessment process.

48. Turning firstly to the rulings, I have not found them of assistance in deciding this matter. The rulings are concerned with a taxpayer's obligation to lodge material with the Australian Taxation Office. I do not accept that IT 2662 allows taxpayers additional time in which to make the relevant elections. The taxpayer must first have made the election. The ruling merely authorises taxpayers to retain elections in their records rather than lodge them with the Commissioner with the relevant returns. As well, the ruling allows additional time to give the Commissioner an election already made, without penalty.

49. As for the election in question, s. 139E(2) quite clearly makes provision for the form in which it is to be made. The subsection also states that the election must be made before the return is lodged or within such further time as is allowed. Obviously the request for further time will precede the Commissioner's decision whether or not to extend time for making the election. And the Commissioner's decision will precede an assessment or amended assessment, if one is made. Authority for this statement is found in the following passage from the judgment of Heerey J in
Harts Australia Ltd v FC of T 2001 ATC 4572 (at 4581):

``The decision to refuse to extend time is logically anterior to the process of assessment of the taxable income of Harts Australia. It does not form part of the process of assessment as defined in s 6(1) of the Act. The only relevant right to object is against an `assessment': s 175A. The exercise of that discretion to extend time under s 80G does not form part of the determination of an objection for the purposes of the Act. Accordingly, it is not amenable to review in this Court in this proceeding.''

50. Counsel for the applicant distinguished Harts Australia on the basis that the extension of time was sought for a loss transfer agreement to be made. Following a successful request for further time, a number of steps are involved such as the companies agreeing on the amount of the loss, entering into the agreement and providing the agreement to the Commissioner. Making loss transfer agreements was said to be comparable in complexity to the procedures for effecting a distribution and giving notice, where a request under s. 105AA has been granted. Making a belated s. 139E election, however, was perceived as a more streamlined process.

51. The principle established in Intervest and applied by the Full Court in Hadfield Finance, draws a distinction between the Commiss- ioner's administrative functions and his assessment functions. Recently, the Full Court in
Meredith v FC of T & Ors 2002 ATC 4730; (2002) 192 ALR 418 endorsed the continuation of the distinction, at least in relation to the operation of clause 1(e) to Schedule 1 of the Judicial Review Act, which was the nature of the matter there under consideration. I am of course bound to follow Hadfield Finance and Harts Australia, in the objection and appeal context of Part IVC in the Administration Act.

52. I am satisfied that a decision under s. 139E(2) is one ``... which either affords or denies the taxpayer company the opportunity of altering the factual basis upon which its assessment to tax is to be made'' (Hadfield Finance at 4305). The facts that are the basis for the making of an assessment or an amended assessment may change following a favourable decision by the Commissioner, but there is no certainty that they must change. Whether there is a change to the factual matrix depends on action to be taken by the taxpayer in consequence of the Commissioner's decision. In some circumstances, it may be in the interest of a taxpayer to request the additional time for making the election but, though successful in

ATC 2042

their request, decide for personal, market or employment reasons not to proceed to make the election within the extended period. Therefore I do not accept that a decision to grant or refuse a request under s. 139E(2) would lead ``... directly to the assessment and [would be] necessarily involved in it'' (Hadfield Finance at 4306).

53. I accept the submission by Mr I Young, counsel appearing for the Commissioner, that by lodging a completed election in anticipation of the Commissioner's extending time for it to be made, and anticipating that s. 139B(2) will necessarily include the discount in assessable income once the discretion is favourably exercised, the taxpayer was acting prematurely. The taxpayer is seeking the Commissioner's ratification of the election. But it remains the case that a decision by the Commissioner to extend time provides the opportunity for changing the state of facts, through making the election, on which an amended assessment may later be made. Attempting to accelerate the process for making an election by lodging an executed document in advance of a decision extending time to make the election, does not in my view change the nature of that decision once made. It still results in an opportunity, albeit an opportunity to be taken up with alacrity, to change the facts on which an amended assessment may be made. I find therefore that the Commissioner's decision refusing to extend time for the making of an election under s. 139E was a decision made as part of his administrative function and was not part of the process of assessment. The tribunal does not have jurisdiction to review such a decision.

54. The application is dismissed for want of jurisdiction.


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