ISAACS v FC of T

Judges:
Conti J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2005] FCA 832

Judgment date: 22 June 2005

Conti J

The Tribunal decision the subject of appeal and the legislative context in which it was made

1. These proceedings constitute an appeal by the taxpayer Phillip Isaacs (``Mr Isaacs'') against the decision of the Administrative Appeals Tribunal (``Tribunal'') made on 27 February 2004 [reported at
2004 ATC 2032], whereby a Senior Member found that the Tribunal did not have jurisdiction under Part IVC of the Taxation Administration Act 1953 (Cth) (``Administration Act'') to review the decision of the Commissioner of Taxation made on 11 September 2001 to refuse an extension of the period of time for Mr Isaacs to make an

ATC 4539

election under s 139E of the Income Tax Assessment Act 1936 (Cth) (as amended) (``1936 Tax Act'') in relation to certain employee share options. Section 139E forms part of Division 13A of Part III of the 1936 Tax Act, introduced effectively from 16 December 1995, which Division is headed Employee share schemes. Section 139E provides as follows:

``(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.

(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.''

2. A ``qualifying right'' is defined in s 139CD(1)(b) as a right to acquire a share in a company provided that the conditions enumerated in subsecs 139CD(2), (3), (4), (6) and (7) are satisfied. Mr Isaacs' share options were qualifying rights within the meaning of s 139CD(1)(b).

3. Section 139B of Division 13A provides for the fiscal consequences of an option-holder making, or not making, an election pursuant to s 139E, as follows:

``(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.

(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.

(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.''

The ``discount'' refers of course to the difference between the option exercise price and the value of the shares at the time of exercise of the options to take up the same.

4. Section 139CA relates to shares and 139CB to qualifying rights. Both provisions define the respective ``cessation times'' of either type of interest. Neither provision is presently relevant since what Mr Isaacs seeks is for the assessment of his liability to pay tax on the value of his ``rights''; that is, his options to require shares in his employer, to take place retroactively in the year of income when he acquired the options.

5. The introduction of Division 13A to Part III of the 1936 Tax Act expanded upon the scope of the longstanding s 26(e) thereof, which treats as ``assessable income'' ``the value to the taxpayer of all... benefits... granted to him in respect of, or for or in relation directly or indirectly to, any employment of... him...'' In
Donaldson v FC of T (1974) 1 NSWLR 627, Bowen CJ in Eq (as he then was) held that options granted by an employer to an employee to take up shares in that employer constituted a ``benefit'' of an income nature which had been ``allowed, given or granted'' to the employee within s 26(e).

6. On 4 March 1998, Mr Isaacs commenced employment as managing director of Cytyc Australia Pty Limited (``Cytyc''), a wholly owned subsidiary of Cytyc Corporation, a United States clinical automation company. He did so on the condition that he would be granted ``a significant number of share options''.

7. Consequently on 1 May 1998, Mr Isaacs was granted options to purchase 50,000 Cytyc shares, which were not exercisable for a period of at least 12 months from the date of grant of the options, and then only at the rate of 25% per annum of that total shareholding for the ensuing four years. Subsequently on or about 5 June 1998, the applicant received documentation from Cytyc for those 50,000 share options, and was thereby advised to consult a personal financial counsellor or tax expert to learn how the options would be taxed in Australia.

8. On 27 April 1999 Mr Isaacs' accountants lodged an income tax return on his behalf for the year of income ended 30 June 1998 (``the 1998 fiscal year''). On 4 May 1999 the Commissioner issued an assessment to Mr Isaacs for the 1998 fiscal year. Mr Isaacs had not made an election under s 139E, prior to lodgment of that return or prior to the subsequent issue of that assessment. On 11 April 2000, Mr Isaacs was granted options to purchase a further parcel of 5,000 Cytyc shares,

ATC 4540

and on 12 March 2001, Mr Isaacs was granted options to purchase another parcel of 15,000 Cytyc shares. Neither of those subsequent parcels is presently relevant to these proceedings.

9. It was not apparently until 6 April 2001 that Mr Isaacs first became aware of the right, pursuant to s 139E of the 1936 Tax Act, for an employee to make an election to be taxed at the time of grant of share options, rather than at the time of exercise of the options. The consequence of making that belated election was that if the same would be recognised by the Commissioner in respect of the parcel of 50,000 options granted on 1 May 1998, and effect be given thereto by the making of an amended assessment for the 1998 fiscal year, Mr Isaacs' assessable income for the 1998 fiscal year would be varied by an increase in the sum of $209,802 (representing the aforementioned ``discount''). As a consequence Mr Isaacs would avoid his anticipated exposure to a significantly larger assessment of taxable income referrable to a later fiscal year during which the options would be exercised. Thus Mr Isaacs sought a retroactive operation of the fiscal right of election to take effect in relation to what was by then the fourth preceding fiscal year ended 30 June 1998. The issue arising in the proceedings is regarded as far reaching in significance, the Commissioner having agreed to pay Mr Isaacs' legal costs of the present appeal, as well as those incurred by the Commissioner, irrespective of the outcome. I would observe that judicial recognition of the circumstance that a ground of objection may be postulated by a taxpayer as to inadequacy, in contrast to overstatement, of the quantification of his, her or its assessable income derived in relation to a particular fiscal year appears in the reasons for judgment of the High Court in
Henderson v FC of T 70 ATC 4016; (1969-1970) 119 CLR 612, where Windeyer J as a single justice on appeal observed 69 ATC at page 4050; CLR at page 618 that ``[t]here is no express provision for the case of a taxpayer who appeals against an assessment as being too low'', but nevertheless recognised the implicit statutory scope therefor, and where a Full High Court on further appeal in the same proceedings (Barwick CJ, McTiernan and Menzies JJ) concurred in principle with that recognition. Presumably by 2001, the value of subject shares in Cytyc had risen significantly since the grant of the options to Mr Isaacs to acquire the same on 1 May 1998.

10. It was therefore on 18 May 2001 that Mr Isaacs sought to make a belated s 139E election in respect of the 50,000 Cytyc options granted to him on 1 May 1998, and lodged the same with the Commissioner. At the time of lodgment, the Commissioner was requested to:

(i) allow further time for the making of the election; and
(ii) issue an amended notice of assessment for the 1998 fiscal year to include, by way of addition to his assessable income, the abovementioned so-called ``discount'' amount of $209,802, representing the value of the Cytyc options claimed to have been derived by Mr Isaacs as at the time of grant thereof during that earlier fiscal year.

Mr Isaacs contended to the Commissioner that the monetary value of the ``discount'' should be retroactively included in his assessable income for the year of income in which the option right was acquired, being the 1998 fiscal year, and that he should be retrospectively permitted to make that election within a further period of time which should be allowed by the Commissioner pursuant to s 139E(2) of the 1936 Tax Act. Mr Isaacs simultaneously tendered to the Commissioner payment of $101,753.97, being the amount of income tax calculated to be payable by Mr Isaacs as a result of his requested inclusion of the value of that ``discount'' as assessable income derived by him in respect of the 1998 fiscal year; and

(iii) not impose a penalty for the late disclosure of assessable income and payment of tax.

11. On 11 September 2001, the Commissioner wrote to Mr Isaacs and rejected the first two of those requests, and advised moreover that an updated discount in value of the initial 50,000 share parcel would need to be included as part of his assessable income derived in respect of the subsequent year of income during which the options were in fact exercised. The Commissioner indicated that it was not necessary in the circumstances for him to impose or remit penalties or the general interest charge.

12. On 20 December 2001, Mr Isaacs lodged an objection against the assessment of income tax for the 1998 fiscal year, pursuant to s 175A

ATC 4541

of the 1936 Tax Act. The terms of the objection were as follows:

``Pursuant to section 175A of the Act, the taxpayer, 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 dated 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 the year.

2. That although this election was not originally made when the taxpayer filed his 1998 return, pursuant to section 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.

3. The reasons why the Commissioner should have allowed further time to make the election are more fully set out in the letter of 18 May 2001, requesting an amendment of the taxpayer's assessment for the year ended 30 June 1998, a copy of which is attached.''

13. On 7 February 2002, the Commissioner wrote to Mr Isaacs and informed him that his objection had been disallowed in full, for the extensive explanations as well as reasons set out below (as appears therefrom, the Commissioner prefaced those reasons by first seeking to frame the issue raised by the objection as the Commissioner at least then perceived the same to be):

``Will subsection 139B(2) of the [1936 Tax Act] include in your assessable income for the 1998 year of income the discount given in relation to your employee shares, where you request a late election under subsection 139E(2) of the [1936 Tax Act]?''

``An employee who acquires qualifying rights may make an election to include the discount in assessable income, in the year of acquisition (subsections 139B(2) and 139E(1) of the [1936 Tax Act]). The written election must be made before the employee lodges the return of income for that year, or within such further time as the Commissioner allows (subsection 139E(2) of the [1936 Tax Act]).

You did not make an election in respect of the qualifying rights in the relevant income year. You objected against the Assessment and requested that the Commissioner's discretion be exercised to accept a late election.

When considering whether to exercise the discretion contained in subsection 139E(2) of the [1936 Tax Act], the Commissioner considers the following factors:

• the circumstances which led to the taxpayer not making the election prior to the lodgment of their income tax return for the relevant income year;

• the taxpayer's explanation of the time delay between the date of lodgement of the income tax return and the date of the late election; and

• whether it would be fair and equitable in the circumstances for the Commissioner's discretion to be exercised.

In your case, you were clearly warned that as an international employee, the taxation treatment for the rights you received, would not be the same as those in the country where the company was located, and that you should seek your own tax advice. As you were unaware of the Australian taxation position on employee share schemes, you should have sought advice to enable you to make an informed decision.

The explanation provided by you is not a mistake in fact but a failure to understand the law on this subject. Ignorance of or failure to understand the operation of Division 13A, either by yourself or by your agent, is not an acceptable explanation warranting the grant of an extension.

Your explanation of the time delay between the date of lodgement of the income tax return and the date of the late election was

ATC 4542
that you were unaware of the Australian Taxation treatment of the rights, and had you been aware would have made an election. The Commissioner does not consider this a reasonable explanation warranting an extension of time. You were told by the employer that you should seek tax advice. It was your own decision not to seek advice for twelve months, assuming that the tax treatment would be the same as in the overseas country where the company was located.

There was an unreasonable time delay between when you were initially made aware that the tax treatment may differ from the country where the company was located until the date you actually lodged a request for a late election.

Accordingly, it is not considered to be fair and equitable in the circumstances for the Commissioner to grant an extension of time to make a late election.

...

We provide the following comments on our policy and the prejudice argument:

1. Because of the effect the section 139E elections has on both timing and quantum of the tax liability, this election is required to be made before the lodgement of your tax return for the year in which the shares or rights are received. You are required to make this choice on the information you have at that time. The Commissioner has the discretion to accept a late election if he considers it appropriate. The Commissioner considers certain mistakes of fact and your circumstances at the time the election should have been made. Most importantly, each late election request is treated on its merits.

2. Many taxpayers have requested the Commissioner's discretion be exercised to accept late section 139E elections. Most of these requests have been denied after considering whether it is fair and equitable to exercise the discretion, due to the time period involved and the explanations provided. In this instance, other taxpayers will be prejudiced if we allow your late election as we have denied many other taxpayers late elections with similar circumstances. We are providing consistent decisions on the late election issue. Allowing you a late election would result in prejudice to these taxpayers.

3. Facts arising after the election should have been made are not considered relevant as the main prejudicial facts arise after this time. In your case, this occurred when you finally sought Australian taxation advice in relation to the employee share plan, which was some years after the first election should have been made.

Accordingly, your objection against your Assessment for income year ended 30 June 1998 is disallowed in full.

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 [1936 Tax Act].

...''

That calculation involved, broadly speaking, certain market value criteria reduced by any valuable consideration provided by the taxpayer in exchange for the qualifying rights. The Commissioner subsequently stated, in the context of the present proceedings, that the Commissioner's letter of 7 February 2002 ``... erroneously treat[ed] the purported objection as a valid objection...'' by considering and purportedly disallowing the objection, though nothing of significance would appear to turn on that admission.

14. On 26 August 2002 Mr Isaacs applied to the Tribunal for review of the Commissioner's decision giving rise to that disallowance. Mr Isaacs submitted to the Tribunal a statement of facts, issues and contentions, whereby he raised for resolution the issues as to whether the Tribunal had jurisdiction to hear and decide that application, and if so, whether the Tribunal should set aside the Commissioner's objection decision and substitute a decision to allow Mr Isaacs further time in which to make an election pursuant to s 139E of the 1936 Tax Act in respect of the parcel of 50,000 Cytyc options.

15. As already indicated, the Tribunal decided on 27 February 2004 that it did not have jurisdiction to hear Mr Isaacs' application for review of its objection decision, and so

ATC 4543

notified Mr Isaacs. The concluding paragraph of the Tribunal's reasons for so deciding was in the following terms [ATC at 2042]:

``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) [of the 1936 Tax Act] 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.''

The order of the Tribunal was that ``[t]he application is dismissed for want of jurisdiction''. Counsel for Mr Isaacs submitted that ``... the order of the Tribunal has to be set aside, it has to be sent back to the Tribunal to perform its duty'', and moreover that ``... the real question is whether in the course of performing its duty to review and redetermine the objection the Tribunal can grant an extension of time under section 139E''. In reaching its decision the subject of appeal, the Tribunal discussed a number of the authorities which I will later address in these reasons.

16. At the commencement of the hearing of the present appeal, Mr Isaacs sought to amend the text of the question of law tendered for resolution by adding after the word ``objection'' the words ``dated 20 December 2001'', and by deleting the words ``to the respondent's refusal to allow the applicant further time to make an election under section 139E of the Income Tax Assessment Act''. The full text of that question of law was originally framed in the notice of appeal as follows:

``Does the Tribunal have jurisdiction to review the respondent's disallowance of the applicant's objection to the respondent's refusal to allow the applicant further time to make an election under section 139E of the Income Tax Assessment Act 1936.''

The parties ultimately agreed that the precise text of the amendment, involving as it did a matter of conceptual difficulty, should await the giving of the Court's reasons, and then be addressed by the parties for the purpose of framing the final orders in the proceedings.

17. The Commissioner submitted in that regard that there is no statutory provision which renders a decision under s 139E per se reviewable by the Tribunal, and that Mr Isaacs must point to another decision whereof the Tribunal has been given jurisdiction to review such that the review thus within jurisdiction would also incorporate review of the s 139E decision. The Commissioner hence framed ``the central question'' arising as to whether s 139E forms part of the Commissioner's assessment function, as opposed to his ``administrative function''. For his part, Mr Isaacs framed the issue as ``... whether the Tribunal has power to review the extension of time decision in the course of the objection decision'', and also ``... whether in the course of performing its duty to review and redetermine the objection, the Tribunal can grant an extension of time under s 139E.'' As has been seen from the concluding passage of the reasons for judgment of the Tribunal, the Tribunal described the exercise of the discretion contained in s 139E(2) as administrative in nature.

18. In connection with the hearing of the proceedings, which took place on 2 December 2004, each party presented comprehensive written submissions. Subsequent to the hearing of the proceedings, Mr Isaacs further submitted to the Court three successive supplementary written submissions, the last whereof being provided to the Court on 11 February 2005. Each raised matters of considerable detail and complexity, in particular in relation to issues, including adjectival issues, raised by each party in the course of oral submissions. The

ATC 4544

Commissioner submitted one set of supplementary submissions to the Court subsequently to the hearing, which were also comprehensive in scope.

The statutory scheme relating to the objection and review of objection process here in operation and the issues in outline arising on the appeal

19. An assessment is defined, in so far as may relate to the 1998 fiscal year, by s 995-1 of the Income Tax Assessment Act 1997 (Cth) (``1997 Tax Act'') as having the meaning given by s 6(1) of the 1936 Tax Act, namely:

``the ascertainment of... the amount of taxable income... and of the tax payable on that taxable income...''

20. As already inferentially indicated, s 175A of the 1936 Tax Act provides for the right of objection against any such assessment as follows:

``A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.''

Counsel for the Commissioner emphasised that the right of objection, which becomes a taxation objection for the purposes of Part IVC of the Administration Act, constitutes a right to object not against a decision but against an assessment (see s 14ZV). Section 14ZU of Part IVC of the Administration Act specifies how a person is to make an objection, and s 14ZW thereof prescribes time limits within which various types of objections may be made.

21. A ``taxation objection'' is defined in s 14ZQ of Part IVC by reference to s 14ZL thereof, the latter section reading 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' .

...''

22. Section 14ZQ stipulates that the expression objection decision has the meaning given by s 14ZY(2); the full text of s 14ZY reads as follows:

``(1) If the taxation objection has been lodged with the Commissioner within the required period, the Commissioner must decide whether to:

(a) allow it, wholly or in part; or

(b) disallow it.

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

(3) The Commissioner must cause to be served on the person written notice of the Commissioner's objection decision.''

Thus an objection decision is a decision of the Commissioner to allow or disallow a taxation objection.

23. Section 14ZQ further stipulates that a reviewable objection decision means an objection decision that was (inter alia) not an ineligible income tax remission decision, as defined in s 14ZS of the Administration Act. It is common ground that Mr Isaacs' application for review does not involve the making of an ineligible income tax remission decision. It is further common ground that the 1998 objection decision was putatively a reviewable objection decision in respect of which Mr Isaacs could apply to the Tribunal for review.

24. In the event that the Commissioner does not wholly allow an objection, s 14ZZ of the Administration Act relevantly provides:

``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

...

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

...''

Section 14ZZA of the Administration Act consequentially provides:

``The [Administrative Appeals Tribunal Act 1975 (Cth) (`AAT Act')] applies in relation to:

(a) the review of reviewable objection decisions;

ATC 4545

...''

25. The jurisdiction of the Tribunal to review objection decisions is conferred by s 25 of the AAT Act, which relevantly 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

(c) 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.''

26. The powers and discretions of the Tribunal exercisable on review of objection decisions, and of other matters which fall within the Tribunal's jurisdiction, are set out in s 43 of the AAT Act, which relevantly provides:

``(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

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

(Emphasis added by Mr Isaacs)

It may therefore be seen that s 43 relates to powers and discretions available for operation in the exercise of jurisdiction conferred otherwise by statute upon or in relation to the Tribunal, being the 1936 and 1997 Tax Acts and the Administration Act.

27. The critical issue arising in the present appeal can be framed in terms as to whether the power to extend the time, or to allow further time, for action relevantly to be taken may be so exercised that the time is extended to, or the period of further time allowed ends on, a date which has already passed by the time the power is exercised.

28. It was acknowledged on behalf of Mr Isaacs that neither the Administration Act, nor the 1936 and 1997 Tax Acts, directly provide for review by the Tribunal of a decision made by the Commissioner purportedly under or pursuant to s 139E to allow, or not to allow, further time to make an election under that section. It was submitted by Mr Isaacs that the Tribunal is charged with the duty to review the 1998 objection decision, and the issue ultimately raised by Mr Isaacs is seemingly whether the Tribunal is authorised to exercise the s 139E discretion for the purpose of reviewing a decision, relevantly in the present circumstantial context, by s 43(1) of the AAT Act.

29. Mr Isaacs described the issue arising for determination as whether the Commissioner's power or discretion to allow further time for the making of an election by a taxpayer, under and pursuant to s 139E of the 1936 Tax Act, involved in conformity with s 43 of the AAT Act the exercise of powers or discretions conferred by any relevant enactment on the person who made the decision, which the Tribunal may undertake [f]or the purpose of reviewing a decision, that being the decision made by the Commissioner on Mr Isaacs' 1998 taxation objection. The decision under review, submitted Mr Isaacs, was that of the Commissioner's to disallow Mr Isaacs' objection to the assessment of tax for the 1998 fiscal year as being too low. Upon that footing, Mr Isaacs contended that the Commissioner was empowered by s 43(1) of the AAT Act to exercise the Commissioner's discretion to allow further time for the making of a s 139E election, such further period of time to be extended to a past or earlier date on which a taxpayer's election might have been purportedly made. By

ATC 4546

reason of an extension of that dimension in the present context, Mr Isaacs' s 139E election would have been thereby rendered effective. It followed, so Mr Isaacs contended, that the exercise of that power which the Commissioner should have undertaken, would have rendered that election effective, and would have thereby altered the factual basis on which the objection decision, subsequently committed to the Tribunal, fell to be made.

30. It was submitted by the Commissioner that the ``source'' of Mr Isaacs' complaint as to disallowance of any such further time was merely his request for reconsideration of the Commissioner's refusal to extend time. It was this ``source'' above which could not rise ``the stream'', which ``stream'' comprised the exercise of the powers inherent in the review process contained in s 43(1) of the AAT Act. Hence, so the Commissioner's case concluded, Mr Isaacs' purported objection, involving nothing more than a request for reconsideration of the Commissioner's section 139E(2) decision, did not constitute an objection decision within s 14ZY(2) of the Administration Act, with the consequence that Mr Isaacs had not validly invoked the Tribunal's review jurisdiction. The Commissioner thereby submitted that the true issue arising was one of jurisdiction of the Tribunal rather than of power. In so framing what the Commissioner described as the ``central question'' in that way, the Commissioner identified the same in the terms ``... whether s 139E of the [1936 Tax Act] forms part of the assessment function''. That response of the Commissioner was made incidentally in the context of two of Mr Isaacs' supplementary written submissions.

31. Thus it can be explained by the way in which each counsel respectively defined the issue in dispute that there was scope for considerable differences in the material relied upon by either party in presenting their submissions. Counsel for Mr Isaacs concentrated on a line of authorities dealing with the nature and scope of powers that the Tribunal might exercise in the course of exercising its review function pursuant to s 43 of the AAT Act. Counsel for the Commissioner concentrated on decisions concerned with the competency of the Tribunal to hear applications for review brought from decisions of the Commissioner.

The Tribunal's jurisdiction and powers of review controversially involved in the present circumstances - a conspectus of the authorities the subject of more detailed examination by the parties

32. Senior counsel for Mr Isaacs advanced the appeal on the footing that the decision subject to review sought by Mr Isaacs to be re- made by the Tribunal was that of the Commissioner to disallow Mr Isaacs' objection against the assessment for the 1998 fiscal year lodged on 20 December 2001, thereby crystallising the processes for review stipulated by ss 14ZZ and 14ZZA of the Administration Act and by s 43 of the AAT Act.

33. What was described on Mr Isaacs' behalf as the nature generally of the process of income tax review was said to have been largely considered in the reasons for joint judgment of a Full Federal Court (Lockhart, Wilcox and Burchett JJ) in
Fletcher & Ors v FC of T 88 ATC 4834 at 4845-4846; (1988) 19 FCR 442 at 452-453, and in the context of the following passages (the emphasis of senior counsel for Mr Isaacs upon particular segments of the dicta extracted below appears in non-italics):

``As a matter of principle, it must be correct, as submitted on behalf of [Mr Fletcher et al], that the powers and discretions referred to by sec 43(1) of [the AAT Act] are the powers and discretions vested in the original decision-maker for the purposes of making the decision under review. They do not include any powers and discretions which may be vested in the decision-maker for some other purpose....

However, we do not think that it follows that, in the present case, the Tribunal lacked jurisdiction to exercise the discretion conferred upon the Commissioner by sec 177F(1) [of the 1936 Tax Act]. It is necessary to examine closely the relevant statutory provisions. Section 166 of [the 1936 Tax Act] empowers the Commissioner, from the taxpayer's return and from any other information in his possession, to `make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon'. There is no doubt that, in taking that step, the Commissioner is entitled, in a proper case, to exercise the discretion conferred upon him by sec 177F(1). That latter section specifically provides for including particular sums `in

ATC 4547
the assessable income of the taxpayer' and that a `deduction... shall not be allowable to the taxpayer'. Section 185 [of the 1936 Tax Act] provides for the making of an objection by a `taxpayer dissatisfied with any assessment'. Thereafter, by virtue of sec 186, the Commissioner incurs a duty to consider the objection, to disallow it or to allow it either wholly or in part, and to notify the taxpayer of his decision. In considering the objection, the question for the Commissioner is the correctness of the original decision, that question being considered in the light of the terms of the objection but taking account of all the information then available to the Commissioner regarding the amount of the taxable income of the taxpayer and the amount of the tax payable thereon. It may well happen, for example, that, between the date of the original assessment and the date of determination of an objection, new information comes to the Commissioner or that there is some change in the relevant law. Subject to the limitations imposed by sec 170 of the [1936 Tax Act], these are matters properly to be taken into consideration by the Commissioner, in any case, in determining whether to issue an amended assessment. As the issue of an amended assessment is a possible result of the consideration by the Commissioner of an objection to an assessment, it must be appropriate for the Commissioner to take account of such matters in determining an objection to an assessment.

It follows that, in determining an objection to an assessment, the Commissioner is entitled to make a determination under sec 177F of [the 1936 Tax Act]; and thereafter to give effect to that determination by an appropriate decision under sec 186.

By force of sec 43 of [the AAT Act], the Tribunal has all the powers and discretions that are conferred by s 186 [of the 1936 Tax Act] upon the Commissioner. In exercising those powers and discretions the Tribunal was bound to consider the facts as they were proved in evidence before the Tribunal, making the decision which, upon that evidence and at that time, was the correct or preferable decision to be made in considering the objection. The Tribunal was not confined either to the material which was before the Commissioner, as primary decision-maker, or the events which had occurred up to that time...

Once it is understood that, in exercising his powers under sec 186, the Commissioner would have been free to exercise a discretion under sec 177F of [the 1936 Tax Act], it follows that, in reviewing the Commissioner's decision under sec 186, the Tribunal is free to exercise that same discretion if, upon the material then before it, it seems proper to take that course.''

Section 177F forms part of the tax loss provisions of the 1936 Tax Act. Senior counsel for Mr Isaacs invited the substitution of ss 14ZL and 14ZY of the Administration Act for ss 177F and 186 of the 1936 Tax Act for the purpose of an appraisal of the implications to Mr Isaacs of the foregoing dicta in Fletcher.

34. Section 177F of the 1936 Tax Act may thus be seen to relate to the disallowance by the Commissioner of income tax deductibility, by reason of the Commissioner's determination that a tax benefit is thereby obtained in connection with a scheme to which Part IVA of the 1936 Tax Act applied. Section 14ZL of the Administration Act relates to a taxpayer's right to object to an assessment, determination, notice or decision of the Commissioner, and s 14ZY has been earlier extracted. Mr Isaacs' invocation of the principles restated in Fletcher invite by implication an analogy to be drawn between curial review of the s 177F opinion of the Commissioner and the Commissioner's bureaucratic review of a decision not to allow a taxpayer further time to make an election pursuant to s 139E, each such review having significance in relation to a prior year of income. Or as described by Mr Isaacs in the course of oral submissions, what the Full Court indicated in Fletcher was that when the Tribunal stands in the Commissioner's shoes to decide whether to uphold a so-called objection decision, or whether to vary or disallow the same, the Tribunal has all the powers which the Commissioner may exercise in relation to the making of that decision, including the power to allow further time pursuant to section 139E.

35. The Commissioner emphasised that the Full Court's decision in Fletcher did not involve the exercise of powers and discretions which had been vested in the Commissioner for a purpose other than the making of the ruling which the Tribunal had been required to review

ATC 4548

in conformity with s 43 of the AAT Act. The Commissioner cited in that regard the following further passage in Fletcher at ATC 4845; FCR 452:

``As a matter of principle, it must be correct, as submitted on behalf of [Mr Fletcher et al], that the powers and discretions referred to by sec 43(1) are the powers and discretions vested in the original decision- maker for the purposes of making the decision under review.''

36. The function and scope of the power of review conferred by s 43 of the AAT Act upon the Tribunal was the subject of later discussion in
Stevenson v FC of T 91 ATC 4476 at 4690; (1991) 29 FCR 282 at 299 (per Jenkinson J), where to adopt the summary of senior counsel for Mr Isaacs, his Honour found that ``the Tribunal was thereby empowered to give effect to its own determination that properly calculated, the applicant's taxable income and the tax due in respect of the income years in contest, were amounts greater than the amounts specified in the amended assessments''; thus the Tribunal's powers were not limited to disallowance of the objection or to allowance thereof in whole or in part. In the context of acknowledging the authoritative Full Court dicta of Fletcher, his Honour added as follows:

``In my opinion the reasoning of the Full Court in Fletcher's case strongly supports, if it does not require, the conclusion I reach that the Tribunal did not lack power to give effect to its conclusion that the taxable income of the applicant, and so the tax due, in respect of the year of income ended 30 June 1981 were amounts greater than the respective amounts specified in the amended assessment, objection against which had been wholly disallowed by the respondent. The means available to the Tribunal to give effect to that conclusion were, in my opinion to make decisions, first, that the respondent's decision under review be varied by adding thereto a decision that the taxable income of the applicant and the tax payable thereon in respect of the year of income were respectively the amounts determined by the Tribunal and, secondly, that the matter be remitted to the respondent with a direction that he further amend the assessment accordingly. Such decisions could in my opinion involve no contravention of the letter or the spirit of any provision of s 170 [of the 1936 Tax Act].''

The Commissioner rejoined upon Mr Isaacs' contention to the effect that the powers of the Commissioner under consideration in Stevenson, as in the case of Fletcher, were different in nature to those falling within the scope of s 139E of the 1936 Tax Act.

37. Subsequently in
Secretary, Department of Social Security v Hodgson (1992) 37 FCR 32 at 39-40, Hill J made the following observations upon the scope of operation of s 43 of the Tribunal Act:

``The language of s 43 [of the AAT Act] is quite clear and unambiguous. It empowers the Tribunal to exercise all the powers and discretions conferred upon the original decision-maker provided it does so for the purpose of reviewing a decision. Provided the necessary purpose is present, the power conferred upon the Tribunal is not otherwise limited. It is not necessary or permissible to put a gloss upon s 43 that would permit the Tribunal to exercise the decision-maker's powers and discretions only when those powers or discretions are necessarily interdependent with the decision under review or where the power or discretion to be exercised by the Tribunal is necessarily involved in the making of the decision under review.

Of course there must be an association between the power to be exercised by the Tribunal and the decision under review... The test is one of relevance rather than dependence. Where the exercise of a power or discretion is relevant to the making of the decision under review then, if requested, the Tribunal may exercise the discretion. The Tribunal is, like the Taxation Boards of Review... `another body in an administrative hierarchy'. Where its jurisdiction is enlivened by an application to review an administrative decision it exists to do again, within the limits of the review, that which the decision-maker was entrusted to do.''

(The threefold emphasis appearing above in non-italics being made by his Honour).

The issue which arose in Hodgson was whether the Tribunal could exercise a power of waiver under s 1237 of the Social Security Act 1991 (Cth), pursuant to s 43(1) of the AAT Act,

ATC 4549

where no consideration had been given by the original decision-makers to that subject at all, and his Honour thus resolved that issue in the affirmative. Senior counsel for Mr Isaacs sought to gain support from that dictum in Hodgson upon the test of relevance to any consideration as to allowance of further time for the making of an election by a taxpayer under or pursuant to s 139E of the 1936 Tax Act. Again the Commissioner's response boiled down to the observation that an exercise of power of a different kind or dimension was involved in Hodgson.

38. The decisions in Fletcher and Hodgson upon the scope of the power of review conferred by s 43(1) of the AAT Act were more recently considered by a Full Federal Court (Gray, Kenny and Downes JJ) in
Australian Securities and Investments Commission v Donald (2004) 22 ACLC 24; (2003) 203 ALR 566, where it was held that the Tribunal had power in the exercise of its discretion to accept an undertaking from the respondent to the proceedings, in the course of reviewing and varying a decision of the Commission to impose a banning order under the Corporations Law, notwithstanding that a decision by the Commission not to accept an undertaking was not itself a decision reviewable by the Tribunal. Gray J agreed with the reasons of Kenny J and added some observations of his own, and Downes J arrived at the same result and provided his own comprehensive reasons. The source of the relevant power was described by Kenny J at ACLC 31-32 [29]-[30] and [32]; ALR [29]-[30] and [32], which I have reproduced largely below, and upon which Mr Isaacs sought to place reliance:

``29. When the Tribunal reviewed the Commission's banning order decision, the Tribunal had, for this purpose, all the powers and discretions that were available to the Commission when it made the decision. These powers and discretions included the powers and discretions conferred by the Law and the [Australian Securities and Investments Commission Act 1989 (Cth) (`ASIC Act')]... [being] powers and discretions that were exercisable by the Commission and relevant to its consideration of the decision...

(reference above to the `Law' was of course to the Corporations Law)

30. When the tribunal stands in the stead of the Commission, it is no less favourably placed than the Commission. The Tribunal has all the powers and discretions that are vested in the original decision-maker, provided that their exercise is only for the purpose of reviewing a decision that the Tribunal has power to review. For the purpose of reviewing the Commission's decision... the Tribunal had, by virtue of s 43(1) of the AAT Act, the same powers and discretions as the Commission. In determining whether the Commission made the correct or preferable decision, the Tribunal was also bound to consider the powers and discretions that were exercisable by the Commission, and were relevant, to its consideration of the decision...

(thereafter Kenny J referred to the passage from the reasons for judgment of Hill J in Hodgson which I have earlier extracted in these reasons)

...

32. Upon the material before it, it was open to the Tribunal to decide that the correct or preferable decision was that the respondent be subject to a more limited banning order and that the Commission accept a written undertaking pursuant to s 93AA of the ASIC Act. Because there is no right under s 244(2) of the ASIC Act to apply to the Tribunal for a review of a decision by the Commission not to accept such an undertaking, there is some force in the Commission's submission that this conclusion permits the Tribunal to do indirectly what it cannot do directly. The answer to the Commission's complaint lies, however, in s 43(1) of the AAT Act. To adopt what Finn J said in
Comcare v Burton (1998) 157 ALR 522 at 528, s 43(1) `is not itself a source of jurisdiction', although it `confers power on the tribunal in relation to matters in which it has jurisdiction' (subject to the limitation that it is `for the purpose of reviewing a decision'). Accordingly, whilst there is no right to apply to the Tribunal to review a decision by the Commission not to accept an undertaking under s 93AA of the ASIC Act, it is open to the Tribunal, just as it was open to the Commission, to treat s 93AA as among the powers available to it, providing it does so only for the purpose of

ATC 4550
reviewing the reviewable decision that was made by the Commission.''

Gray J made the additional observation at [2] that ``[i]t is difficult to believe that parliament intended to place the tribunal in a situation in which, if it thought that a banning order was too severe a penalty for the conduct of the person concerned, it would have to impose no penalty at all, because it had no power to bring about the acceptance of an undertaking''. Downes J made the observation at [39] that ``... the power of ASIC to accept an undertaking is not a matter of substantive jurisdiction but a matter of what remedy should be imposed''.

39. The Commissioner cited what appears above from [30] of the reasons of Kenny J as authority for what the Commissioner asserted to be a principle of construction here applicable, namely that ``[a] power or discretion cannot be exercised by the Tribunal unless it is one which is `necessarily involved' in the making of a decision''. I observe that her Honour's dictum in Donald at ACLC 31 [30]; ALR [30] was however ``only for the purpose of reviewing a decision'' and ``relevant to its consideration of the decision'', which might be thought to afford different shades of meaning to ``necessarily involved''. Mr Isaacs emphasised what was said in ACLC 31 [29]; ALR [29] above as to ``all the powers and discretions that were available to the Commission'', and in ACLC 31 [30]; ALR [30] above as to ``the tribunal stands in the stead of the Commission''. Mr Isaacs emphasised the significance of the Court's finding that s 43(1) of the AAT Act empowered the Tribunal to exercise ASIC's statutory discretion to accept an undertaking even though no right of review lay from ASIC's refusal to do so. The Commissioner rejoined that ``... what Donald's case was about was the availability of remedies'', as Downes J appeared to emphasise in the passage I have already cited, thereby seeking again to distinguish the current facts from the authority relied upon by Mr Isaacs.

40. By way of purported summary of the judicial authorities thus far cited in the present segment of these reasons, it was submitted on behalf of Mr Isaacs that in reviewing the Commissioner's present objection decision the subject of appeal, and in giving emphasis to the concluding dicta which I have extracted above from Fletcher, the Tribunal is free to exercise its discretion antecedently, but relevantly, to the assessment objected to if, upon the material then placed before it, it would seem proper to take that course. Moreover it was submitted by Mr Isaacs that the Tribunal is not prevented from exercising one particular authorised power or discretion, in the course of performance of the duty of reviewing another power or discretion, by reason of the circumstance that the decision whether to exercise the first power is not independently amenable to review by the AAT. It was contended accordingly on behalf of Mr Isaacs that the power given by s 139E of the 1936 Tax Act, and by subsection (2) thereof in particular, to allow further time for the making of an election, as in the case of the powers under consideration in Fletcher, Stevenson, Hodgson and Donald, is one which is open to the Tribunal to exercise pursuant to s 43(1) of the AAT Act as relevant to a reconsideration of the objection decision placed before the Tribunal.

41. The Commissioner's submissions placed particular emphasis upon the need for the Court's identification of the precise decision under review ``in order to ensure that the Tribunal answers the same question as the original decision-maker''. In that regard of course the Tribunal was undertaking administrative review. The Commissioner referred to the first instance reasons for judgment of Finn J in
Comcare v Burton (1998) 157 ALR 522 at 526, where his Honour observed as follows:

``Section 43(1) of the AAT [Act] provides no alternative basis for conferring jurisdiction to deal with s 24 compensation. Its concern is with the powers available for use in the exercise of jurisdiction and not with jurisdiction itself.''

Subsequently at 528, his Honour further observed:

``The process of reviewing that decision is to occur in the setting of the question(s) that gave rise to the decision. And while in that process the tribunal can exercise its s 43(1) powers, it nonetheless is obliged to answer the same question(s) as was (were) before the reconsideration decision-maker...''

The legislative context in Comcare was that of the Safety Rehabilitation and Compensation Act 1988 (Cth). His Honour determined that it was not the Tribunal's function to determine entitlements to compensation as a primary

ATC 4551

decision-maker. His Honour's decision was upheld on appeal to a Full Federal Court.

42. The approach to construction enunciated by Finn J in Comcare was adopted by Branson J in
Commonwealth Bank Officers Superannuation Corporation Pty Ltd v FC of T (2003) 75 ALD 321 at 326, where the principal legislative context was the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth), and the decision concerned the method of calculation contained in s 8(5) of the amount on which a fund trustee was required to pay the superannuation surcharge. At [26] of her reasons for judgment, Branson J referred to ``at least'' three factors leading to her conclusion that the Legislature did not intend that s 24(1)(a) of that superannuation legislation, which conferred a right of objection against an ``... assessment of surcharge on a member's surchargeable contributions...'', should be read and understood as ``including within an assessment a decision made under s 8(5)(b)''; it is of assistance that I first cite the entirety of subsection 8(5) of that legislation below as it appeared at the relevant time:

``The `actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of', a member of a defined benefits superannuation scheme for the 1999-2000 financial year or a later financial year is an amount worked out using:

(a) the method set out in the regulations, being a method that excludes contributions made by the member for which the member is not entitled to an income tax deduction under the [1936 Tax Act] or under the [1997 Tax Act]; or

(b) if the Commissioner approves in writing another method as being appropriate in relation to the member for the financial year, being a method that excludes contributions made by the member for which the member is not entitled to an income tax deduction under the [1936 Tax Act] or under the [1997 Tax Act] - the method so approved.''

43. Those three factors so identified by Branson J were thus as follows:

(i) the amenability of the decision to judicial review under the ADJR Act, but not so under s 14ZY of the Administration Act disallowing an objection to an assessment, in the latter situation by reason of the exclusionary operation of cl (ga) of Schedule 1 to the ADJR Act; in that regard her Honour observed that it would be a curious result if a decision of the Commissioner not to approve ``another method'' of calculation made directly under s 8(5)(b) of that superannuation surcharge legislation was amenable to judicial review under the ADJR Act, but the same decision made as part of an objection decision under s 14ZY was not;
(ii) although an application could be made and refused (by the Commissioner) under s 8(5)(b) at the beginning of a fiscal year, merits review by the Tribunal under the ADJR Act of the Commissioner's assessment of the surcharge payable would not be exercisable in any event until after the end of the financial year, by which time the prescribed period, within which an application could be made for judicial review of part of the assessment process, would have expired;
(iii) the language of s 15(1) of that superannuation surcharge legislation suggested that the assessment of the surcharge payable in respect of a member is to be conducted wholly under that subsection, being a process which by virtue of paragraph (b) thereof ``assumes that identification of the surchargeable contributions is a matter of calculation only''; for the identification of the surchargeable contributions to be a mere matter of calculation, the determination of the method of calculation of the surchargeable contributions must have been determined independently from, and ahead of, the assessment process.

Section 15(1) of the superannuation surcharge legislation addressed in Commonwealth Bank Officers Superannuation reads as follows:

``(1) For each financial year for which there are surchargeable contributions for a member, the Commissioner must make an assessment that:

(a) calculates the member's adjusted taxable income; and

ATC 4552

(b) if the adjusted taxable income is greater than the surcharge threshold:

(i) calculates the surchargeable contributions; and

(ii) calculates the rate of surcharge that applies to the member; and

(iii) specifies the amount of the surcharge payable or, if no surcharge is payable, states that a nil amount of surcharge is payable; and

(c) if the adjusted taxable income is equal to or less than the surcharge threshold - states that a nil amount of surcharge is payable.''

Senior counsel for the Commissioner described Commonwealth Bank Officers Superannuation as illustrative of the correct approach to be taken, that is, to identify the nature of the decision under review ``in order to ensure that the Tribunal answers the same questions as the original decision-maker'', in conformity with the passage from Comcare at 528 above extracted.

The distinction between administrative functions and assessment functions

44. Senior counsel for Mr Isaacs next addressed certain authorities upon which the Commissioner placed particular emphasis, and submitted that instead of addressing the question whether the Commissioner's power to allow further time pursuant to s 139E(2) of the 1936 Act was available to the Tribunal [f]or the purpose of reviewing [the] decision pursuant to s 43(1) of the AAT Act, the Tribunal was ``diverted'' below by the Commissioner's submissions into an examination of a line of Federal Court authority which drew ``a distinction between the Commissioner's administrative functions and his assessment functions'', to cite the description used by the Tribunal in [51] of its reasons for decision. That line of authority was identified by the Tribunal to commence with
Intervest Corporation Pty Ltd v FC of T & DFC of T 84 ATC 4744; (1984) 3 FCR 591 (Smithers J), and ``to continue through''
Hadfield Finance Pty Ltd v FC of T (1988) 79 ALR 249 (Foster J, with whose reasons Woodard and Jenkinson JJ agreed), and to have been given due recognition by the Full Federal Court in
Meredith v FC of T & Ors 2002 ATC 4730; (2002) 125 FCR 308 (Lee and Cooper JJ, with whom RD Nicholson J agreed). Contextually grouped along with those authorities in the course of the Commissioner's submissions was
Harts Australia Ltd & Anor v FC of T 2001 ATC 4572, upon which the Commissioner also placed reliance.

45. It was emphasised on behalf of Mr Isaacs that cases such as Intervest and Hadfield in particular were concerned with the power of the Commissioner of Taxation to accede to requests from corporate taxpayers for extensions of time, pursuant to s 105AA of the 1936 Tax Act, within which the latter can make payment of further or sufficient dividends, in order to avoid the imposition of undistributed profits tax, the exercise of which power could not of itself affect ``the correct or preferable decision to be made in considering the objection'' (to cite dicta in Fletcher). Meredith involved an application for judicial review pursuant to the ADJR Act of determinations of the validity of certain Part IVA assessments. In those cases, Mr Isaacs' contentions continued, the exercise of the power by the Commissioner was insufficient to alter the liability of the corporate taxpayer to pay tax. Moreover it was pointed out that either at the time of exercise of the power, whether undertaken by the Commissioner initially as decision-maker or by the AAT on review, or at the time when the corporate taxpayer sought the exercise of that power, there could be no change in the fiscal liability of the taxpayer without some subsequent act or acts on the part of the taxpayer authorised by the favourable exercise of the discretion applied for, such as to create a different factual situation from that placed before the AAT.

46. Or as put another way by Mr Isaacs in the course of submissions, the Commissioner's power to extend to the corporate taxpayer additional time in which to pay a sufficient dividend the subject of consideration in Intervest and Hadfield, pursuant to s 105AA of the 1936 Tax Act, in order to ensure a sufficient distribution for the purposes of following s 105A thereof, could only be exercised so as to allow the subsequent payment of a dividend which would reduce or extinguish the undistributed amount on which income tax would otherwise be levied against the company, and s 105AA could not allow an extension to any earlier point in time because of the limitation of subsection (3) thereof. It is of assistance to an understanding of the distinction

ATC 4553

thus sought to be made by Mr Isaacs that I reproduce the entire text of s 105AA below, inclusive of subsection (3):

``(1) Where:

(a) a notice of assessment in respect of the income of a company of a year of income has not been served on the company before the prescribed time;

(b) before the prescribed time there was served on a company a notice of assessment in respect of the income of the company of a year of income on the basis of which the company would not have had a distributable income in respect of that year of income and after the prescribed time there has been served on the company a notice of amended assessment in respect of that income on the basis of which the company has a distributable income in respect of that year of income;

(c) after the prescribed time there has been served on a company a notice of amended assessment in respect of the income of the company of a year of income on the basis of which the distributable income of the company in respect of that year of income is greater than it would have been on the basis of the assessment before it was amended; or

(d) after the prescribed time there is a determination of credit for a year of income or a determination of credit for a year of income is amended and as a result of the determination or amendment the distributable income of that year of income is greater than it would otherwise have been,

the company may, by writing signed by the public officer of the company, request the Commissioner to determine a further period in which the company may pay dividends for the purpose of making sufficient distribution in relation to that year of income.

(2) On receipt of the request the Commissioner may grant the request and determine such a further period or he may refuse the request.

(3) The Commissioner shall serve, by post, on the company that made the request, a notice in writing of his decision on the request and, where the request is granted, the notice shall be so served before the commencement of the further period determined by the Commissioner.''

Emphasis was placed by Mr Isaacs on the words determine a further period in which the company may pay dividends in subsection (1), and on the concluding words to subsection (3) the notice shall be served before the commencement of the further period determined by the Commissioner. It was submitted by Mr Isaacs that a decision under s 105AA was therefore necessarily one which was separate from any assessment or objection decision based on an extension of time decision, because the extension of time decision could have no consequence unless following that decision, the company paid a further dividend; that is, irrespective of whether the Commissioner exercised the s 105AA power, the factual basis underlying the assessment would remain the same, absent the taking of action by the taxpayer.

47. It was pointed out by senior counsel for Mr Isaacs that in Hadfield, the circumstances placed before the Tribunal did not disclose the payment of the requisite dividend, and accordingly, the assessment of undistributed profits tax was correct, since an exercise of the discretionary power to extend the time for a company to make a sufficient distribution would not have revealed facts leading to any different liability to pay tax on the part of the taxpayer. Consequently the exercise of the s 105AA power, by way of Mr Isaacs' adaption of dicta of the Full Court in Fletcher at ATC 4845; FCR 453, did not go on his submission to ``... the correctness of the original [assessment] decision... considered in the light of the terms of the objection but taking account of all the information then available to the Commissioner regarding the amount...'' the subject of tax. After referring to the earlier decision of Smithers J in Intervest, Foster J explained in Hadfield (at 256-257) as follows (as I have earlier recorded, Woodward and Jenkinson JJ agreed with the reasons for judgment of Foster J):

``A decision within this section [s 105AA of the 1936 Tax Act] 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. It is an opportunity which, if granted,

ATC 4554
need not necessarily be availed of. That is a matter within the company's own discretion, a discretion which is necessarily interposed between the discretion of the Commissioner to grant or refuse the request and the ultimate calculation of tax. The decisions in the cases referred to led directly to the assessment and were necessarily involved in it. The decisions, indeed, in my view, point up the exclusion of the s 105AA decision process from the process of assessment.

This latter process 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 section 105A. 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'... It is a decision which `affects liability'... [and] `is not a decision dealing with the calculation of liability'.''

(the emphasis appearing above is that of Mr Isaacs').

48. The issue arising in Harts was whether the Commissioner's refusal to extend time for the making of a loss transfer agreement, pursuant to s 80G(6A)(b) of the 1936 Tax Act, was susceptible to judicial review in proceedings in this Court brought by a taxpayer under Part IVC of the Administration Act. The jurisdiction of the Court invoked in those proceedings was that conferred by s 14ZZ of the Administration Act, which provides that a person dissatisfied with the Commissioner's objection decision may appeal to the Federal Court against the decision. The exercise of the Tribunal's function of administrative review, alternatively available pursuant to s 43 of the AAT Act, was therefore not in issue. It was contended on behalf of the taxpayer in that case that the Court could review the Commissioner's failure to exercise the power under s 80G(6A)(b) to extend time for the making of a loss transfer agreement, because the exercise of that power was open to the Commissioner on a consideration of the objection. Heerey J rejected that contention, for the following reasons appearing at page 4581 of the report of Harts:

``59. Harts Australia requested that the Commissioner exercise his discretion under s 80G(6A)(b) to allow further time for the making of an agreement under that section.

60. The decision to refuse to extend time is logically anterior to the process of assessment of the taxable income of Hart Australia. It does not form part of the process of assessment as defined in s 6(1) of the [1936 Tax 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 amendable to review in this Court in this proceeding.''

The Commissioner understandably took up his Honour's description above as to ``logically anterior'' in the present context.

49. At the time of the objection decision under review in the circumstances in Harts, there was no written agreement in existence between the ``loss company'' and the ``income company'', in conformity with requirements of s 80G(6A) of the 1936 Tax Act. It was contended on behalf of Mr Isaacs that the exercise by the Commissioner of the power to extend the time for the formation of any such an agreement would not have altered per se the liability of the taxpayer. Any such alteration would have required the taking of the further step of making an agreement of that kind, being a step to be taken following the Commissioner's favourable decision on the extension, and if that further step was not then to be taken by the taxpayer, the liability of the taxpayer would necessarily have remained unchanged. For those reasons it was contended by Mr Isaacs that it was on the facts placed before the Commissioner at the time of the objection decision, which was made by the Commissioner antecedently to the ensuing litigation in Harts, and thus also on the facts subsequently placed before Heerey J in Harts by reference to which the Court's judicial

ATC 4555

review of the decision was thereby undertaken, that the Commissioner's assessment was found by his Honour to be correct and thus duly upheld.

50. It was contended on behalf of Mr Isaacs, by way of asserted contrast, that in Meredith, a Full Federal Court held that decisions to make determinations under s 177F of the 1936 Tax Act were part of the process of the ``due making of the assessment'', and in consequence the same were excluded from review under the ADJR Act by s 3(1)(d) thereof in combination with cl (e) of Schedule 1 thereto. Clause (e) of that Schedule lists the classes of administrative decisions excluded from susceptibility to ADJR review, as decisions making or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty... under the statutes thereafter enumerated, inclusive of the 1936 and the 1997 Tax Acts. No further act of the taxpayer was therefore required before the determination of the Commissioner affected relevantly the liability of the taxpayer. The situation in Meredith was described by counsel for Mr Isaacs as comparable to that in Fletcher. At ATC 4738-4739; FCR 319 of Meredith, Lee and Cooper JJ held as follows:

``... The reasoning adopted by the Full Court in Hadfield Finance to hold that the decision in Intervest Corporation was correct, involved the drawing by the Full Court of a clear distinction between the Commissioner's administrative functions and his assessment functions, with the latter category only being subject to the exclusion from review rendered by the operation of s 3(1) of the ADJR Act and cl 3(e) [sic cl (e)] of the First Schedule to it...

A decision which does not have a sufficient connection with, or is not sufficiently related to, the process of assessment, even if it leads to a decision to amend an existing assessment or calculation of tax, is not a decision within cl (e).''

51. By reference to the various circumstances involved in the authorities cited above, it was further submitted on behalf of Mr Isaacs that what distinguished for instance Meredith and Fletcher from Intervest, Hadfield and Harts was that by reason of the circumstances placed before the decision-maker in the context of the latter three authorities, whether as in Harts the Commissioner undertaking the assessment functions of the 1936 Tax Act, or whether as in Intervest the now defunct Board of Review ruling upon disputed taxation assessments, or whether as in Hadfield the Tribunal undertaking the function of review of the Commissioner's assessments under s 43 of the AAT Act, the exercise of the relevant power alone could make no difference to the liability to tax prevailing at the time of decision-making, and hence no difference as to how the decision under review should correctly have been made. Before therefore the exercise of the Commissioner's functions affected the liability to pay tax, so Mr Isaacs' submissions continued, the taxpayer was required to undertake some further action, which had not already occurred at the time of the review decision. Upon the basis of those contentions, Mr Isaacs submitted that the exercise of the Commissioner's power was therefore not relevant for the purpose of any subsequent review of the objection decision since its exercise could have no effect on the factual basis underlying the disputed assessments.

52. In Fletcher and Meredith, by way of contrast asserted by senior counsel for Mr Isaacs, the exercise by the Commissioner of discretionary power, in the course of reviewing the objection decision by reference to the facts placed before the Tribunal, would relevantly have made a difference, since such exercise would have affected the correctness of the decision required to be made by the Commissioner, and would therefore have involved the exercise of discretionary power by the Tribunal [f]or the purpose of reviewing the decision, pursuant to s 43(1) of the AAT Act. In the present case, however, Mr Isaacs' submissions continued, the circumstances placed before the Tribunal were that the s 139E election, for which allowance by the Commissioner of the requisite extension of time to make was sought by Mr Isaacs, had already been purportedly made by the time of the Commissioner's decision-making upon the objection, and thus of course by the time of the Tribunal's subsequent review. Hence any exercise of the power of the Commissioner to allow further time up to when that out of time election had been purportedly made would operate, Mr Isaacs' further submissions continued, to alter the correctness of the

ATC 4556

decision on the objection, by providing the basis on which the objection should be considered, and indeed allowed. It followed, according to Mr Isaacs' further submissions, that the power to allow further time for the making of the election fell to be considered by the Tribunal for the purpose of reviewing the decision within s 43(1) of the AAT Act, that being a power ``relevant to the making of the decision under review'' according to the concluding dictum of Hill J earlier extracted from Hodgson. In line with that reasoning, it was contended by Mr Isaacs that the Tribunal had possessed at all material times the requisite power to make the decision sought by Mr Isaacs for the grant of the requested extension of time, and to do so in the course and for the purpose of the Tribunal's review of the objection decision.

53. The Tribunal was therefore submitted by Mr Isaacs to have erred in law in concluding that it did not have ``jurisdiction'' to review the Commissioner's decision refusing to allow Mr Isaacs an extension of time within which to make an election under s 139E of the 1936 Tax Act, being of course the election already purportedly made and for which Mr Isaacs in effect sought ratification by the Commissioner. By the Tribunal framing the question as to whether or not it did have the ``jurisdiction'' contended for by Mr Isaacs, the Tribunal was asserted by Mr Isaacs to have mistaken the true issue arising for resolution, that being whether by virtue of s 43(1) of the AAT Act, the Tribunal was vested with the power or authority of the Commissioner to allow the s 139E extension of time sought by Mr Isaacs for the purpose of reviewing the objection decision. In order to apply this reasoning to the current facts however, Mr Isaacs was required to overcome the Commissioner's submission that a taxpayer in Mr Isaacs' position is placed in a similar position to those in Intervest, Hadfield and Harts, because a s 139E(1) election cannot be validly made by a taxpayer until the Commissioner allows... such further time under s 139E(2).

54. Senior Counsel for the Commissioner rejected the propositions that the Full Federal Court's decision in Meredith based upon cl (e) of Schedule 1 to the ADJR Act, and in Fletcher based upon s 43(1) of the AAT Act, turned on their own facts, and that the case for Mr Isaacs demonstrated a failure on the Commissioner's part to recognise that similar circumstances were relevantly here involved. The Commissioner described Mr Isaacs' case as follows:

``because [Mr Isaacs] purported to make a s 139E(1) election before asking the [ Commissioner] to allow him to do so, the Tribunal had power to review the [ Commissioner's] refusal to extend time under s 139E(2).''

55. The Commissioner asserted that the reasoning process in those Federal Court decisions lent no support to the analysis inherent in Mr Isaacs' submissions, that process having consistently involved a construction of the decision under review, and the identification of the powers and discretions of the decision- maker which bore upon the decision. Those decisions did not turn upon their own facts, nor upon initiatives taken by the involved applicants in anticipation of the exercise of the decision-maker's powers or discretions. The Commissioner invoked in that context of analysis the following further passages from the reasons for joint judgment of Lee and Cooper JJ in Meredith at ATC pages 4738-4739; FCR pages 319-320 (which as I have already recorded, focused upon the operation of cl (e) of Schedule 1 to the ADJR Act):

``It is necessary therefore to properly characterise the decision in question in terms of the Act under which it was made...

When a decision is characterised for the purposes of cl (e) of the First Schedule as not one forming part of the process of making, or leading up to the making of an assessment or calculation of tax because it is not connected or related directly or indirectly with the process of the making of an assessment, the decision is not within cl (e)... A decision which does not have a sufficient connection with, or is not sufficiently related to, the process of assessment, even if it leads to a decision to amend an existing assessment or calculation of tax, is not a decision within cl (e).

...

It follows, in our view, that the decisions made under s 177(1)(a) of the [1936 Tax Act] in the present case fell within cl (e) of the First Schedule to the ADJR Act and were thereby excluded from judicial review under that Act.''

ATC 4557

Clearly it may be observed, Mr Isaacs wrongly characterised the reasoning in Meredith as turning on its own facts in the sense that the Commissioner's decision in question was determined to fall within cl (e) because of the characterisation adopted by the Court of that decision, as opposed to the absence of a need for a further act on the part of the taxpayer before the exercise of that decision could have affected the factual basis of the disputed assessment. Or perhaps put another way, it is apparent from their Honours' reasons that it was the nature of the decision, rather than the absence of need for any further act on the part of the taxpayer, which rendered the Commissioner's s 177F determination part of the assessment, and hence within the class of decisions identified in cl (e) of Schedule 1 of the ADJR Act.

56. The Commissioner submitted moreover that the decisions in relation to which Fletcher has been purportedly applied appeared to adopt the same approach, being that the nature of the decision must be identified in order to ensure that the Tribunal answers the same question as the original decision-maker. I was referred by the Commissioner to the dictum in Comcare at 526 where Finn J described the opening phrase of s 43(1) of the AAT Act as ``[t]he purposive limitation'' of the power so given to the Tribunal by this provision, and thereafter at 528, where his Honour pointed out that ``[t]he process of reviewing that decision [of the Commissioner] is to occur in the setting of the question(s) that gave rise to the decision'', and ``... while in that process the Tribunal can exercise its s 43(1) powers, it nonetheless is obliged to answer the same question(s) as was (were) before the reconsideration decision- maker''. I was further referred by the Commissioner to Commonwealth Bank Officers Superannuation at 326, where Branson J said that the requisite approach in that context of circumstances involved ``the identification of the questions that are before the [ Commissioner] when he determines an objection to an assessment of surcharge on a member's surchargeable contributions'', that being when ``the [Commissioner] makes an `objection decision' within the meaning of s 14ZZ of the Administration Act concerning an assessment of surcharge on a member's surchargeable contributions.''

57. In those contexts of authoritative dicta, the Commissioner further contended that it was well established that the exercise of a function, which may either afford or deny the taxpayer the opportunity of altering the factual basis upon which his or her assessment to tax is to be made is not for that reason part of the assessment. The Commissioner asserted judicial support for that contention from Hadfield generally, and also from Intervest at ATC 4747; FCR 593-594 in particular, where the following appears in the reasons for judgment of Smithers J in relation to the operation of s 105AA of the 1936 Tax Act:

``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, might be made.''

58. The same point was said by the Commissioner to have been made by a Full Federal Court (Bowen CJ, Northrop and Lockhart JJ) in
Minister for Industry and Commerce v Tooheys Ltd (1982) 60 FLR 325 at 338, where the following dictum of Ellicott J at first instance (inter alia) was affirmed:

``In other words, what par (e) is directed to is the process whereby the liability to tax or duty is calculated in a particular case. A decision to make a by-law or determination is a decision which affects liability. It is not a decision dealing with the calculation of liability. It is only in a temporal sense that it could be said to lead to the making of a calculation of duty, but in my view this is not enough.''

The circumstances in that litigation were that Tooheys Ltd applied for the admission of an overseas manufactured automatic palletizer for home consumption on the basis of a particular

ATC 4558

by-law having customs duty implications, which application required the Minister to make a determination under s 273 of the Customs Act 1901 (Cth). It was held by the Federal Court, both at first instance, and unanimously on appeal, that the Minister's refusal to make any such determination under s 273 did not fall within cl (e) of Schedule 1 to the ADJR Act. That was because, first, that cl (e) is directed to the process whereby the liability to duty is calculated in a particular case, and a decision to make a by-law or determination is a decision which affects lability, and not one which deals with the calculation of liability, and seemingly, it was an evident purpose of cl (e) to exclude from the classes of decision susceptible of review under the [ADJR Act] decisions which adversely affect the citizen and which are reviewable on appeal generally to Boards of Review or the courts or both. Hence the Minister's decision in Tooheys was excluded from ADJR review in effect at the instance of Tooheys.

59. In the present case, the Commissioner contended, the mere fact that an exercise of the Commissioner's discretion under s 139E(2) might lead to an alteration of the factual basis on which an assessment was to be made was not sufficient to endow the Tribunal with a capacity to exercise the Commissioner's discretion, for the reason that it was not possible thereby to characterise the Commissioner's exercise of the s 139E(2) discretion as ``necessarily involved in the making of an assessment''. The Commissioner's submission is implicitly predicated on a reading of s 139E(2) that would make receipt of a grant of further time by the Commissioner a necessary pre-requisite to making a s 139E(1) election. Counsel for Mr Isaacs submitted that this ``construction of s 139E(2) adds an unwarranted further requirement being that the further time in which the election is made be necessarily after the `moment which the Commissioner allows'''. The Commissioner further contended that there is no necessary temporal relationship between the s 139E decision and an assessment, since the assessment may be made without any such decision, and moreover that any further time allowed under s 139E might not result in an election being made, further time merely providing a taxpayer with the opportunity to elect in the same way that an extension of time under s 105AA gives a corporate taxpayer an opportunity of making additional distributions. The Commissioner emphasised therefore that as in the circumstances of Intervest, Hadfield and Harts, some further act on the part of a taxpayer was required ``before the factual basis is altered''.

60. The Commissioner sought to place reliance also upon what appears in Harts at page 4581 (which I reproduce again for convenience), where in relation to the Commissioner's discretion to ``allow further time'' for the making of an agreement under section 80G(6A)(b) of the 1936 Tax Act, Heerey J said as follows:

``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 [1936 Tax 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.''

61. The Commissioner accordingly submitted that the operation of s 139E together with s 139B(2) involves a distinct decision on the part of the Commissioner, being one which is qualitatively different from the process of assessment. That decision of the Commissioner is of course to be made within the framework of the concluding sentence of subsection (2) thereof, namely ``... within such further time as the Commissioner allows''. It was said by the Commissioner therefore to follow that the Tribunal correctly concluded below that the Commissioner's decision not to allow to Mr Isaacs further time pursuant to s 139E was not part of any assessment process, and accordingly the Tribunal had no jurisdiction to review that decision.

An overview of curial allowance of extension of time made in other statutory settings by way of purported analogies

62. As I have already foreshadowed, it was submitted on behalf of Mr Isaacs that the Commissioner's power or authority to allow further time for an election to be made by a taxpayer pursuant to s 139E may be so exercised that the original time is extended to,

ATC 4559

or an allowed period of further time ends on, a date which has already passed by the time the power or authority granting that extension is exercised or granted. That of course is the nature or effect of the extension of time which Mr Isaacs presently seeks by way of outcome to this appeal. It was essential to his case for Mr Isaacs to establish the viability of any such retroactive ratification, since the Commissioner's primary contention is implicitly predicated on the inability of a taxpayer to validly make a s 139E(1) election post-lodgement date until such further time as may be granted by the Commissioner under s 139E(2). In one of the supplementary segments of written submissions provided on behalf of Mr Isaacs however, I was referred to a collation of decisions of Tribunal members and judges of this Court based upon differing Commonwealth statutes, being decisions said by Mr Isaacs to embody the principle that a power to extend time or allow further time for an action to be taken may be exercised so that the time is extended to, or the period of further time allowed ends on a date which has passed at the time the power is exercised. It is appropriate that I discuss and distinguish the operation relevantly of those authorities before framing my conclusions.

63. The first group of what I would thus characterise more as supplementary and not directly or sufficiently relevant authorities, as digested by Mr Isaacs, comprised
Bonavia v Secretary, Department of Social Security (1985) 9 ALD 97,
Zerna v Comcare (1994) 33 ALD 705,
Sporting Supplies (Aust) Pty Ltd v Controller-General of Customs (1995) 37 ALD 767, and
Bonnell v FC of T (2001) 47 ATR 1115, each of which decisions concerned the extension of prescribed times for making an application to the Tribunal pursuant to s 29 of the AAT Act. I was referred in more detail perhaps to the decision of this Court in
re Gowing; Ex parte Deputy Registrar in Bankruptcy (1985) 11 FCR 111, where Beaumont J held that the Deputy Registrar in Bankruptcy was empowered by the then s 33(2)(c) (now s 33(1)(c)) of the Bankruptcy Act 1966 (Cth)) to extend the time within which a meeting of creditors should have been held pursuant to s 194 of that legislation, and to do so in relation to a date earlier than that on which the extension decision was made (for example the date on which the meeting was actually held albeit out of time). Section 33(2)(c) of the Bankruptcy Act read as follows:

``(2) The Registrar may-

...

(c) extend before its expiration or, if this Act does not expressly provide to the contrary, after its expiration, any time limited by this Act... for doing an act or thing or abridge any such time.''

In determining whether s 194 of the Act constituted an express provision to the contrary his Honour observed as follows (at 112):

``In my opinion, there is nothing in the language of s 194 or elsewhere in the Act which could form a foundation for a suggestion that the general power to extend time contained in s 33(2)(c) is not available for the purpose of extending the time for holding the meeting. All that s 194(1) relevantly does is to fix a time limit for this purpose: it is silent on the question whether any extension of that limit should be permitted.''

A similar course to that adopted in re Gowing was taken by Burchett J in
re Clubb; Ex parte Clubb v Westpac Banking Corporation (1990) 93 ALR 123, in relation to the operation of s 41(5) of the same legislation, which provided as follows:

``A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.''

The ratio in re Clubb was applied in the same statutory context to
re Tenuta; Ex parte Australia and New Zealand Banking Group Limited (1991) 33 FCR 56 at 58 (per Olney J).

64. Senior counsel for the Commissioner pointed out, in my opinion rightly, that generally speaking, contrary to Mr Isaacs' submission, those cases did not involve findings as to the existence of statutory power to extend time to a date earlier than that on which the statutory decision-maker dealt with each particular application, and moreover and I think more pertinently, that s 139E addresses the grant of an extension of time to qualify for the making of an election, upon which an annual assessment of revenue is required to be made by

ATC 4560

reference to legal principles as well as factual circumstances prevailing in respect of that annual assessment.

65. Mr Isaacs referred furthermore to decisions of this Court where the time for commencement of administrative review proceedings under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (``ADJR Act'') was extended to a date which had already passed, pursuant to the provisions of subsecs 11(1) thereof, and par (c) in particular, which I reproduce for ease of reference below:

``(c) [the application] shall be lodged with a Registry of the court concerned and, in the case of an application in relation to a decision that has been made and the terms of which were recorded in writing and set out in a document that was furnished to the applicant, including such a decision that a person purported to make after the expiration of the period within which it was required to be made, shall be so lodged within the prescribed period or within such further time as the court concerned (whether before or after the expiration of the prescribed period) allows.''

In
Winter v DFC of T 87 ATC 4065; (1987) 18 ATR 307, Burchett J extended the time stipulated by section 11(1)(c), albeit that the application for review related to inconsistent income tax assessments made against several parties involving the same income, and was made outside the stipulated period of time, the entitlement of that applicant to seek such relief being acknowledged however not to involve prejudice to the Commissioner. A similar course was taken in
Devereaux v FC of T (1986) 10 FCR 550, arising out of the decision of the Commissioner to direct that the applicant be registered as a group employer under s 221F(3) of the 1936 Tax Act. It may be observed however that s 11(1)(c) of the ADJR Act contains explicitly the words including such a decision that a person purported to make after the expiration of the period within which it was required to be made, the decision-maker being of course any departmental or public authority in relation to whose decisions the ADJR Act for the time being applied, and which was not excluded by reference to the decisions for the time being listed in Schedule 1 to the ADJR Act.

66. It was acknowledged by Mr Isaacs that orders under statutory provisions such as s 33(2)(c) of the Bankruptcy Act and s 11(1)(c) of the ADJR Act do not operate nunc pro tunc, but are made under statutory authorisation merely to extend the time for commencement of legal process. It was submitted by Mr Isaacs that he was here invoking no inherent power, and that there could be no relevant difference between a power framed in such terms conferred on a Court and a power conferred on an administrator such as the Commissioner of Taxation. In the former case however it would seem that an order nunc pro tunc (as here sought) may be made by a court to take effect as if made at an earlier point in time, with the consequence that a past act would be thereby validated, but any such operation in relation to an administrative course of action may be attended with more difficulty. I was referred incidentally to
Emanuele & Anor v ASC & Ors (1997) 15 ACLC 763 at 774; (1997) 188 CLR 114 at 131-132, where Toohey J recorded the origin of nunc pro tunc orders, the same involving the ``... doing now [of] what it would have done then'' (thereby citing Lord Eldon in
Donne v Lewis (1805) 11 Ves Jun 601 at 601). In the present case, it was submitted by Mr Isaacs that the Commissioner's power to allow further time does not go to what the Commissioner might or should have done at an earlier time, but goes instead to whether a time may be extended to a past, or if more appropriate, to a present or future time.

67. The Commissioner's response in principle was that the Commissioner's decision the subject of present review, absent legislative power to ``backdate'' the decision, or absent a provision giving the decision retrospective effect, must be viewed as ``done on, and [ therefore] cannot take effect before, the date of the decision, and there can be no valid or legally effective election before that time''. For that purpose, so the Commissioner's response continued, it did not matter whether the relevant period of time enured before or after the date of the Commissioner's decision, since s 139E ``plainly'' contemplates that the right to elect arises upon the allowing of further time and not before. Hence, so the Commissioner's response continued, the election had never been effectively made, since ``there is no right to make it unless and until further time is allowed by the [Commissioner]'', to cite the precise text of the submission. This was disputed by Mr Isaacs, who contended that this construction of

ATC 4561

s 139E(2), adding as it did ``an unwarranted further requirement'', was not open on a reading of the plain words of the provision.

Conclusions

68. The operation of Division 13A of the 1936 Tax Act upon the employee share options granted to Mr Isaacs has been at all material times geared to the mechanism of annual assessment of taxable income, being the year of income during which the options are granted. The discretion conferred upon the Commissioner by s 139E(2) to allow further time to make an election after the taxpayer had lodged his, her or its income tax return for that fiscal year, to adopt the description used in Harts, is logically anterior to the process of assessment of the taxable income of [Mr Isaacs]. Despite the considerable research and thought given by Mr Isaacs' legal representatives to the preparation and presentation of his case on this appeal, the conclusion is persuasive to the effect that the Commissioner's decision not to allow further time pursuant to s 139E did not form part of the income tax assessment process, and accordingly the Tribunal was not empowered and had no jurisdiction to review that decision.

69. The statutory power to extend a prescribed statutory or regulatory period of time within which a person may require the exercise of a decision-making function by an administrative entity involves a consideration of the nature and effect of that decision-making according to the statutory or regulatory context in which the same is legislatively required take place. I have been substantially assisted by the researches and analysis of case law provided by both parties, which although focused primarily upon the 1936 Tax Act and understandably so, have extended into other fields of general administrative law of comparable dimension of operation, subject to the qualification that assistance obtainable in relation to extensions of time for the commencement of legal proceedings processes are to be found, tend to involve distinguishable contexts.

70. It is not enough for Mr Isaacs to point to the width of an administrative decision-maker's statutory powers and discretions exercisable in the light of all the information available to the decision-maker at the time a decision is made. The authorities which I have reviewed, and I refer particularly to Fletcher, Intervest, Hadfield, Meredith and Harts, point to the need to identify and construe the nature and ambit of the decision the subject of review and the identification of the powers and discretions of the decision-maker bearing upon that decision. A decision to allow further time pursuant to s 139E(2) is required to be related to the process of income tax calculation and assessment. As is apparent from the terms of s 175A of the 1936 Tax Act and Pt IVC of the Administration Act, the dictum of Foster J at page 252 of his reasons for judgment in Hadfield still holds true in principle:

``the tribunal under these sections [former sections 185, 186, 189 and 190 of the 1936 Tax Act] has power to review, on the merits only, those decisions of the [Commissioner] which can be said to form part of the process of `assessment' under the Act, ie the ascertainment of the amount of the taxpayer's taxable income and of the tax payable thereon.''

71. If Mr Isaacs' appeal was to be upheld, it would be difficult to mark out any definitive stopping place in terms of the ambit of such further time as the Commissioner allows. The Commissioner has established in principle by reference to authorities such as Hadfield and Intervest, that the exercise of a function, which may allow or deny a taxpayer the opportunity of alteration of the factual basis upon which his or her assessment to tax is to be made, does not thereby render that function to be part of the taxation assessment process. As anticipated by Tooheys, it is not enough that in a temporal sense, a decision might conceivably lead to the making of a calculation and assessment of taxation for that decision to be one that is part of the assessment process.

72. In my view, it is not possible to distinguish the present case, in terms of ratio, from that addressed by the Full Federal Court in Hadfield. In that case the taxpayer sought to challenge an amended assessment for additional tax imposed pursuant to s 104(1) of the 1936 Tax Act in respect of the undistributed amount of asserted dividends. The fact that the taxpayer had made a request under s 105AA for further time in which to pay those dividends was held to be relevant in determining whether or not the Tribunal was correct in reaching the conclusion that it lacked jurisdiction to review the Commissioner's refusal of that request in the course of reviewing the taxpayer's purported objection in respect of the amended assessment.

ATC 4562

As in Hadfield, the failure of the Commissioner here to exercise his discretion to grant a further period of time was the sole ground for the taxpayer's objection to the controversial assessment of tax. For Mr Isaacs to assert that the actual decision being reviewed is that of the Commissioner's disallowance of that objection, rather than the Commissioner's decision not to favourably exercise the s 139E(2) discretion, is to create a purported distinction from Hadfield that is in truth non-existent in substance.

73. Similarly I think that it is not possible to distinguish Hadfield on the ground that the decision there in question was qualitatively different from that presently addressed. As I have already said, the operation of Division 13A of the 1936 Tax Act upon the employee share options granted to Mr Isaacs has been at all material times geared to the mechanism of annual assessment of taxable income. It is true that s 139E(2) does not stipulate explicitly any relationship between the further time and any allowance of the same by the Commissioner. Nevertheless on a correct reading of the subsection, the election must be made before the taxpayer lodges his income tax return for the relevant fiscal year or within any further time allowed for that purpose. There is no right to provide the election after the return is lodged unless the Commissioner allows a further period of time within which to do so. To construe the provision in a way that an election is open to be made before the grant of further time within which to ``backdate'' the operation of an election would be to trespass beyond the mere ``beneficial construction'' contended by Mr Isaacs. None of the authorities cited by Mr Isaacs, involving as they did comparably rare instances in which an extension of time was granted at moment C, having the consequence that the original time was extended to, or the further period of time ended on, moment B which had already passed, come close to exemplifying that any such statutory construction is commonplace, much less operative in relation to the circumstances such as the present. Those provisions dealt with largely adjectival subjects, primarily involving the grant of extensions of time within which to initiate applications sought to be made out of time.

74. My foregoing findings and conclusions are not intended to reflect any requirement for establishing an element or notion of necessary interdependence or necessary involvement within the purview of the analysis of the reasoning in Hodgson. I do not think that it is semantic to distinguish any such elements or notices from the postulation in Meredith as to the need at least for sufficient connection or sufficient relationship to the process of assessment.

75. I would therefore conclude that the Commissioner's contention to the effect that the decision of the Commissioner under and pursuant to s 139B(2) of the 1936 Tax Act constituted a discrete determination, and one that was qualitatively different from the process of assessment of income tax in relation to the year of income ended 30 June 1998, is correct and that therefore Mr Isaacs' appeal must be dismissed.

THE COURT DIRECTS THAT:

1. Draft orders giving effect to these reasons be prepared by the respondent and presented to the appellant within 14 days.

2. The proceedings be thereafter listed for the making of final orders after the expiration of the ensuing twenty-one days.

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.

Individuals online services

Business online services

Agents online services

Non-residents online services

Foreign Investor

ISAACS v FC of T

Tools

Tax information for

Help and support