P Gerber DP
Administrative Appeals Tribunal
Dr P. Gerber (Deputy President)
This matter was resolved at a hearing by telephone and the issue decided adversely to the respondent. I was asked by the respondent to deliver my reasons in writing ``for future guidance''. Cur. adv. vult.
2. The parties to this dispute are, nominally, the taxpayer, but in reality a large international firm of accountants (``the agent'') and the Commissioner of Taxation (``the Commissioner''). Each has a small branch office in Hobart, Tasmania.
3. The issue is simple: the agent lodged an objection out of time and the Commissioner refused to accept a late lodgment, purporting to act on the guidelines as set out in Taxation Ruling IT 2455.
4. The sec. 37 statement enables me to reconstruct this restoration comedy, act by act, and I shall set it out in the true tradition of the theatre in the hope that similar disputes can be resolved in future inter partes without recourse to this Tribunal.
5. The notice of assessment issued on 22 April 1988 and was served on the agent. Monday 25 April being a public holiday, the final day for lodging the objection was thus 28 June 1988. In fact the objection was not lodged until 12 August 1988 and was accompanied by an application under sec. 188(1) for an extension of time for lodgment. The Commissioner rejected this request by letter dated 12 September 1988 on the ground that ``an objection received outside the prescribed time limit calls for a full and proper explanation or excuse before it is treated as duly lodged. No explanation of the delay has been provided''.
6. If nothing more were known than the bare-boned outline of the events as described above, the Commissioner would have been justified in rejecting the request for an extension. However, the ``T'' documents reveal a very different picture.
7. In his application for an extension to this Tribunal, the agent states that ``it was our intention to resolve the matter by telephone dialogue (as had been successful in previous situations) rather than by the often lengthy objection process''. It was common ground that there had indeed been a telephone conversation between the agent (Scott) and an officer of the Commissioner (Michael) on 12 May 1988. An internal memorandum of the Commissioner makes it clear that this conversation was treated as a request to review the previous decision to disallow the claimed deduction and under the heading ``action required'' appears the notation
ATC 255``please review assessment as tax agent feels that the interest income earned from offshore sources relates to the earning of primary production income and hence should be averaged''. This ``review'' culminated in a letter being sent to the agent by the Commissioner dated 20 June 1988, stating that ``consideration has now been given to your telephone request of 12 May 1988 relating to your assessment of income for the year ended 30 June 1987''. The letter concluded, after a lengthy statement of reasons that ``accordingly your request has been disallowed and your 1987 assessment is hereby confirmed''.
8. Pausing here, and looking at the events in slow motion, the first lesson clearly emerges: while much is to be said for the practice of attempting to resolve a dispute of this kind informally - and it is obvious that both parties accepted such a ``shorthand'' procedure in this case - it is unwise to deal with the Commissioner without a ``protective'' objection.
9. It seems that on receipt of the letter of 20 June, Scott, counting days on his fingers and toes, concluded that the time provided for by the Act for lodging an objection (60 days) had already expired. In fact, he still had several days up his sleeve.
10. From this point onwards, the proceedings become the stuff that farce is made of. Further telephone conversations take place between Scott and Michael after the 60-day period had well and truly expired, culminating in a frantic notation in the Commissioner's file on 1 July 1988: ``review case urgently so that tax agent does not jeopardise right of appeal. Re-consider in light of s. 156(1) definition''. A further phone conversation between Scott and Michael is minuted in the Commissioner's notes 12 July 1988. After informing Scott as to the law on the subject, Michael's notes state: ``the request was a CRAM (credit amendment?), hence there was a CRAM (credit amendment?), hence there was no right to appeal to the AAT, though I did say that taxpayer had his normal `civil' rights, i.e. if he felt aggrieved he could write to the Ombudsman''.
11. The agent, having committed the cardinal sin of not safeguarding his client's interest by lodging a protective objection, now compounds his fall from grace by writing to the Commissioner on 12 August 1988, disputing his interpretation of the law and, in a throwaway line at the end, states that ``this letter should be treated as a formal objection to the income tax assessment in the event that the requested averaging rebate adjustment is not allowed. We refer you to our letter of 8th August in respect of an application for an extension of time to lodge an objection for this purpose''. (The letter of 8 August, referred to above, does not form part of the ``T'' documents, and subsequent correspondence suggests that if it was sent, it was not received by the Commissioner.) In a further letter to the Commissioner, dated 12 August 1988, Scott notes that ``since your reply to our telephone request was dated 20th June, 1988, and therefore outside the 60 day limit, we are unable to lodge an objection under Section 185''. The application for an extension was rejected by letter from the Commissioner to the agent dated 12 September 1988, in which it is stated, inter alia:
``Income Tax Ruling I.T. 2455 sets out certain criteria for the acceptance of an objection lodged outside the 60 day limit. It is our view that the taxpayer's case does not satisfy those criteria and the decision therefore is that the application for extension of time is denied.''
12. The ``T'' documents make it clear that the Commissioner's decision was arrived at after consultation with senior officers of his department and contains the notation ``the fact remains that no objection was lodged within the 60 days. This can only be attributed to the agent's apparent neglect of the case... Also, the fact that the agent did not lodge the s. 188(1) objection until 7 weeks after receiving our letter suggests the matter was not a high priority of the agent''.
13. Section 185 of the Tax Act provides that a taxpayer dissatisfied with an assessment may lodge an objection against the assessment within 60 days after service. Prior to the passing of Act No. 48 of 1986, the 60-day time limit had been set by Parliament without power of extension by the Commissioner. In other words, a taxpayer who had missed the 60-day period, for whatever reason, had to bear his lot with whatever fortitude he could muster. The 1986 amendment has the effect of allowing the Commissioner to treat a late objection as duly
ATC 256lodged, with right of appeal against a refusal to grant an extension of time. The substance of the 1986 amendment is usefully summarised in Taxation Ruling IT 2455, relied on by the Commissioner for his refusal to allow the late lodgment.
``5. Subsection 188(1) provides that where the period for lodgment of an objection against an assessment has ended the taxpayer may, notwithstanding that the period has ended, send the objection to the Commissioner together with an application in writing requesting the Commissioner to treat the objection as having been duly lodged. By reason of subsec. 188(3) it is necessary for the taxpayer's application to state fully and in detail the circumstances concerning, and the reasons for, the failure by the taxpayer to lodge the objection within the 60 day time limit. The Commissioner may, under subsec. 188A(1), either grant or refuse the application. A taxpayer who is dissatisfied with the decision by the Commissioner on the application may apply to the AAT for a review of that decision (subsec. 188A(3)).
15. The circumstances in which applications to treat objections as duly lodged may be granted include delay in lodgment of the objection caused by the illness of the taxpayer or the taxpayer's agent, other factors outside his or her control, or absence of the taxpayer overseas at the time of issue of the notice of assessment. Delays in the post would also constitute grounds to accept the objection as duly lodged. The date of lodgment of the objection and application is relevant in considering whether to grant or refuse an application. A taxpayer would generally have to satisfy the Commissioner that the objection, together with the subsec. 188(1) application was lodged as soon as circumstances reasonably permitted. It is not envisaged that taxpayers could delay for an unreasonable period of time the lodgment of objections and extension applications.
16. Where it is alleged that late lodgment was due to the negligence of the taxpayer's agent or accountant, there are a number of considerations to take into account. On the one hand an agent of the taxpayer should be expected to be thoroughly familiar with the relevant statutory provisions governing the lodgment of objections. Retention of a professional advisor does not exonerate a taxpayer from responsibility for ensuring that instructions are carried out especially where some action must be taken within a certain period of time. On the other hand taxpayers should not be deprived of their rights on account of an error of an agent especially where the error or delay was due solely to the fault of the agent. That the taxpayer acted promptly to instruct the agent to lodge an objection and there was nothing else that could reasonably have been done to ensure the objection was lodged on time would be a factor supporting the granting of the application. However the fact that late lodgment was due to the negligence or omission of the taxpayer is but one circumstance to be considered. It cannot be said that in every case where the delay is not the taxpayer's fault the application should be granted.
17. The conduct of the Australian Taxation Office and the taxpayer and/or an agent generally in so far as it bears upon the delay - including the on-going negotiations as to the dispute - may be relevant to consideration of an application. Misunderstandings may arise which, in retrospect, would justify validation of a late objection. The fault may on occasion be that of the Australian Taxation Office, or of the taxpayer or the agent or of both.''
14. In the circumstances of this case I must decline the offer to provide a ``declaratory judgment'' for the guidance of future cases, if only because Taxation Ruling IT 2455, which sets out a succinct and humane approach to the exercise of the Commissioner's discretion, has clearly not been observed on this occasion. In short, an assessor cannot, like the Lorelei, sit on a rock and lure unwary mariners to their untimely end, particularly when he has the means to rescue them from their errors of navigation. Paragraphs 16 and 17 of the guidelines so neatly fit the events that occurred on this occasion that one can only marvel at the fact that this case has gone as far as it has.
15. Section 188 and 188A were inserted by Parliament to ameliorate the harshness of the
ATC 257``60 day'' rule. It is a remedial provision and should be interpreted remedially. I am satisfied that the time limit should never be strictly applied where an assessor has himself contributed to the confusion - as in this case - and rarely where the Commissioner is not taken by surprise and suffers no prejudice. Having said this, it is appropriate to add that the time limit set by Parliament cannot be ignored with impunity and that taxpayers (or their agents) who fail to act within the statutory time frame provided for by sec. 185(1) may well do so at their peril (cf. Case U175,
87 ATC 1007). Laches is generally a terminal condition.
16. When this case is looked at in historic context, it is difficult to find a reason - any reason - why the taxpayer should be prevented from having his objection considered. It is true that the agent committed two errors: he attempted to negotiate with the Commissioner without protecting his client's legal position, and then having failed to resolve the dispute by negotiation (and incidentally allowed the time limit to slip away), he failed to comply with the requirements of sec. 188(3) by not ``stating fully and in detail the circumstances concerning, and the reason for the failure by the taxpayer to lodge the objection or request as required by this Act''. On the other hand, the high moral tone adopted by the Commissioner ill becomes him when he himself has been known to lodge appeals out of time on the grounds of ``public importance''.
17. On the whole of the evidence, I am satisfied that the assessor misapplied his discretion. In an ideal world, I would direct (i) that Scott write out 100 times ``I must not be negligent''; (ii) that Michael write out 50 times ``I must not be overzealous''; and (iii) that the $240 filing fee be donated to FOWNA (Fund for Orphans and Widows of Negligent Accountants). Alas, all I can do is to direct that the objection be treated as having been duly lodged.