Administrative Appeals Tribunal
RA Balmford (Senior Member)
These are two applications under sub-section 188A(3) of the Income Tax Assessment Act 1936 (``the Act''), which were by general agreement heard together, for review of decisions of the respondent made under sub-section 188A(1) of the Act. The respondent refused applications by each of the applicants, under sub-section 188(1) of the Act, that objections to the assessment of their taxable income in respect of the year ending 30 June 1986 be treated as having been duly lodged. The assessments in question were issued on 4 May 1987 and the objections were sought to be lodged on 13 February 1991. The applications are ``extension of time applications'' in terms of the definition in section 14ZB of the Taxation Administration Act 1953.
2. The Tribunal had before it the documents lodged by the respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (``the AAT Act'') and numbered T1 to T22, together with other material lodged at the hearing.
3. The relevant provisions of the Act are:
``185(1) A taxpayer dissatisfied with any assessment under this Act may, within 60 days after service of the notice of assessment, lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies.
188(1) Where the period for the lodgment by a taxpayer 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.
188(3) An application under sub-section (1) or (2) shall state fully and in detail the circumstances concerning, and the reasons for, the failure by the taxpayer to lodge the objection or request as required by this Act.
188A(1) The Commissioner shall consider each application made under sub-section 188(1) and may grant or refuse the application.
188A(2) The Commissioner shall give to the taxpayer who made the application notice in writing of the decision on the application.
188A(3) A taxpayer who is dissatisfied with a decision under sub-section (1) in respect of an application made by the taxpayer may apply to the Tribunal for review of the decision.
188A(4) Where an application under sub-section 188(1) has been granted, the taxpayer who made the application shall, for the purposes of this Part, be treated as having duly lodged the objection to which the application relates.''
4. A statement of agreed facts was lodged by the parties, which is set out below, with some deletions of superfluous or identifiable material. The relevant facts are identical with regard to each applicant, and I find accordingly.
- (i) The applicants were senior employees of the company A Pty Ltd when that company, by a written agreement, became a wholly owned subsidiary of X Limited. On 30 October 1985 they entered into written agreements with A Pty Ltd whereby that company agreed to pay each of them $250,000.00 in consideration for their entry into certain restrictive covenants.
- They were paid in November 1985.
- (ii) In their income tax returns for the year ended 30 June 1986, the applicants disclosed their receipts of this sum as a capital sum and submitted that it did not give rise to an assessable capital gain ``because the subject matter of the agreement is not an `asset' for the purposes of the Act''. However, the receipts were assessed as capital gains and notices of assessment were issued to the applicants on 4 May 1987 including the receipts in their taxable incomes as advised in the Adjustment Sheets which accompanied their assessments.
- (iii) On 5 June 1987 Mr H, of a well-known and substantial firm of chartered accountants, telephoned a senior officer of the Australian Taxation Office, on behalf of the applicants. Mr H referred to the settlement that day of a similar dispute between the Commissioner and another (unrelated) client of his firm and requested a meeting to discuss the matter.
- (iv) The meeting took place on 10 June 1987 and Mr H proposed a settlement on the same basis as the settlement to which he had referred on 5 June 1987. The elements of this precedent settlement were that:
- (a) The payment would be assessed to the recipient.
- (b) The company making the payment would be allowed a claimed deduction from its assessable income equal to the restrictive covenant payment.
- (c) That company would pay the tax assessed to the recipient in respect of the payment.
- (d) That company would be allowed a deduction from its assessable income for the tax paid on behalf of the recipient.
- (e) That company would pay fringe benefits tax in respect of the tax paid on behalf of the recipient.
- (v) At the conclusion of the meeting of 10 June 1987 it was agreed that the applicants' disputes would be settled along the lines of the precedent settlement, and that correspondence would be exchanged to this effect.
- (vi) On 11 June 1987, Mr H's firm advised the Deputy Commissioner of Taxation in writing on behalf of the applicants that no objections would be lodged against the applicants' assessments provided that:
- (a) X Limited received written advice that an associated company, Y Pty Ltd would receive a reduction in its taxable income for the year ended 30 June 1986 of $500,000.00 (being the total amount paid to the applicants pursuant to the restrictive covenants) and would as a consequence receive an appropriate refund of tax.
- (b) If the X group paid the applicants' income tax referable to the restrictive covenant payments subject to a maximum of $230,000.00, a deduction would be allowed in relation to the amount so paid and fringe benefits tax would be paid by the company providing the benefit.
- (vii) On 12 June 1987, X Limited (which had not been represented at the meeting) advised the Deputy Commissioner of Taxation in writing that provided Y Pty Ltd
ATC 500received a refund of tax of $230,000.00 (46 cents in the dollar on $500,000.00) in respect of its assessment for the year ended 30 June 1986, then the X group would reimburse the applicants to the extent of $230,000.00 in respect of their income tax liabilities and that such reimbursement would be treated as an expense payment benefit subject to fringe benefits tax.
- (viii) By letters dated 12 June 1987 and 15 June 1987, the Deputy Commissioner of Taxation replied in writing to both Mr H's firm and X Limited respectively, confirming that the settlement arrangements detailed in the abovementioned letters were acceptable. Following this confirmation, an amended assessment issued to Y Pty Ltd on 1 July 1987 in respect of the year ended 30 June 1986, in which the company's taxable income was reduced by $500,000.00; a refund cheque for the sum of $232,017.00 issued to Y Pty Ltd; payments in respect of the applicants' tax liability were made on 12 June 1987; a deduction was claimed by a member of the X group of companies in relation to the $230,000.00 provided to the applicants and this amount was declared in a Fringe Benefits Tax return of that member of the X group of companies and fringe benefits tax paid thereon.
- (ix) In accordance with the written undertaking provided by Mr H's firm on behalf of their clients, the applicants did not object to the assessments of 4 May 1987 within the period specified by section 185 of the Income Tax Assessment Act (i.e. by 3 July 1987).
- (x) Following the announcement of proposals to amend Part IIIA of the Income Tax Assessment Act, on 22 September 1989 Mr H's firm wrote to the Deputy Commissioner requesting that the assessments be reviewed and suggesting an ``expeditious resolution''. No proposals were made in relation to the other elements of the settlement. On 12 July 1990 the firm again wrote to the Deputy Commissioner of Taxation advising that the legislative amendments to which they had earlier referred had now become law, and again requesting that their proposal for ``expeditious resolution'' be accepted.
- (xi) A facsimile message was forwarded by the Deputy Commissioner of Taxation to Mr H's firm on 24 October 1990 advising that the matter was considered to be closed and that, accordingly, their proposed resolution would not be acted upon. Mr H sought discussions with more senior officers of the Australian Taxation Office so a meeting was held on 27 November 1990. Following that meeting Mr H's firm were again advised by letter dated 6 December 1990 that the matter was considered to be closed.
The objections referred to in paragraph 1 supra were sought to be lodged by the applicants on 13 February 1991.
Hunter Valley Developments Pty Ltd and Others v Cohen (1984) 7 ALD 315, Wilcox J considered the principles applicable in the consideration of an application to extend time for the lodging of an application for review under section 5 of the Administrative Decisions (Judicial Review) Act 1977. Those principles have frequently been adopted in this Tribunal as an appropriate basis for consideration of similar applications under the AAT Act. (See for example
Re Bonavia and Secretary; Department of Social Security (1985) 9 ALD 97,
Re Commonwealth Scientific and Industrial Research Organisation and Barbara (1987) 11 ALD 447, Case X75,
90 ATC 558.) His Honour said (at 319-321):
``Section 11 of the Administrative Decisions (Judicial Review) Act does not set out any criteria by reference to which the court's decision to extend time for an application for review under s 5 is to be exercised. Already there have been a number of decisions of judges of this court, all sitting at first instance, dealing with the approach proper to be taken. They differ a little, both in language and in emphasis, but I venture to suggest that from them may be distilled the following principles to guide, not in any exhaustive manner, the exercise of the court's discretion:
- (a) Although the section does not, in terms, place any onus of proof upon an applicant for extension an application has to be made. Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper to do so. The `prescribed period' of 28 days is not to be ignored
Ralkon v Aboriginal Development Commission (1982) 43 ALR 535
ATC 501at 550). Indeed it is the prima facie rule that proceedings commenced outside that period will not be entertained (
Lucic v Nolan (1982) 45 ALR 411 at 416). It is a precondition to the exercise of discretion in his favour that the applicant for extension show an `acceptable explanation of the delay' and that it is `fair and equitable in the circumstances' to extend time (Duff at 485;
Chapman v Reilly (unreported), Neaves J, 9 December 1983, at 7).
- (b) Action taken by the applicant, other than by making an application for review under the Act, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished. A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision (who has not `rested on his rights': per Fisher J in
Doyle v Chief of Staff (1982) 42 ALR 283 at 287) and a case where the decision-maker was allowed to believe that the matter was finally concluded. Compare Doyle, Chapman, Ralkon and
Douglas v Allen (unreported Morling J, 3 April 1984, at 18) with Lucic at 414-15 and
Hickey v Australian Tele-communications Commission (1983) 48 ALR 517 at 519. The reasons for this distinction are not only the `need for finality in disputes' (see Lucic at 410) but also the `fading from memory' problem referred to in
Wedesweiller v Cole (1983) 47 ALR 528.
- (c) Any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension: see Doyle at 287; Duff at 484-5, Hickey at 525-7 and Wedesweiller at 533-4.
- (d) However, the mere absence of prejudice is not enough to justify the grant of an extension: Douglas at 18, Lucic at 416; Hickey at 523. In this context, public considerations often intrude (Lucic, Hickey). A delay which may result, if the application is successful, in the unsettling of other people (Ralkon at 550, Becerra at 12-13) or of established practices (Douglas at 19) is likely to prove fatal to the application.
- (e) The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted: (Lucic at 417, Chapman at 6.)
- (f) Considerations of fairness as between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court's discretion: Wedesweiller at 534-5.
In considering the authorities it is, I believe, important to bear in mind the point made by Sheppard J in Wedesweiller at 531, relating to the diversity of decisions of to which review may be sought under the Act:... `there will be some cases which may be decided upon considerations which affect only the immediate parties. It will be appropriate to consider whether the delay which has taken place has been satisfactorily explained, the prejudice which may be caused to an applicant by the refusal of an application the prejudice which may be suffered by the government or a particular department if the application is granted and, generally, what the justice of the case requires. In other cases wider considerations will be involved'.
He went on to mention the reference to public interest made by Fitzgerald J in Lucic at 416.
It is in relation to the former category of cases, ie those `which affect only the immediate parties' that the approach adopted by Bray CJ in
Lovatt v LeGall (1975) 10 SASR 479 at 485 in respect of private litigation but adopted in this context in both Doyle at 287 and Duff at 485, is apposite namely: `If the defendant has suffered no prejudice, as when he was well within the limitation period of the plaintiff's claim, or where excess period of time is small, or where he cannot show that he has lost anything by reason of the delay, it may well be that the court will not find it difficult to come to the conclusion that it is fair and equitable in the circumstances to grant extension'.
By contrast, in cases involving public administration, especially day to day matters such as personnel management, the public interest may well dictate refusal of an extension even after only a short delay.''
6. The applicants justified the delay in lodging their objections by the enactment, with retrospective effect, of the legislation referred to in paragraph 4(x) supra. Their accountants requested a review of the assessment when the proposed amendment was announced, wrote again on its enactment, and thereafter pursued the matter. I accept that, from the time of the announcement of the proposed amendment, they could not be said to have ``rested on their rights''.
7. Counsel for the respondent submitted that there would be prejudice to the respondent if the application were granted. The respondent's relevant power of amendment of an assessment, contained in sub-section 170(3) of the Act, would not, in the circumstances, be exercisable to enable him to issue an amended assessment to Y Pty Ltd, given that more than three years have elapsed since the tax assessed in respect of that company (see paragraph 4(viii) supra) became due and payable. Thus if the applicants' objections were ultimately successful, amounts paid as tax would be refundable to them with interest, but the deduction allowed to Y Pty Ltd could not be disallowed. I accept that submission.
8. The merits of the substantive issue were canvassed at the hearing. At the date of the hearing the question was governed by the decision of the Full Court of the Federal Court in
Hepples v FC of T 90 ATC 4497; (1990) FCR 1, which was then under appeal to the High Court. It was common ground that the decision as it stood was fatal to the applicants' claim. Since the date of the hearing of this matter the appeal has now been upheld by a majority decision of the High Court (91 ATC 4808; (1991) 102 ALR 497). Counsel for the respondent contended at the hearing that a successful appeal would not assist the applicants. Whether that is the effect of the decision of the High Court is a matter which I have not thought it appropriate or desirable that I examine. The merits of the matter are not so obvious, either way, as properly to be taken into account in considering the question before me.
9. The enactment of retrospective legislation gives rise to many difficulties and injustices. In this case, it has prompted the applicants to seek, after the expiration of four years, to reopen a matter which was settled by carefully considered agreements, initiated by the applicants, involving other parties besides the applicants and the respondent, and in which parties all had skilled advice available to them. I do not think that it is in the public interest that an extension of time be granted to allow the reopening, after such a lapse of time, of agreements of that kind. This is an area where the need for finality in disputes (Lucic v Nolan (supra) at page 416) is of relevance: as is the question of fairness as between the applicants and other persons otherwise in a like position (Wedesweiller v Cole (supra) at pages 534-535). I note also the potential prejudice to the respondent described in paragraph 7 supra. In the general context of the principles enunciated by Wilcox J in Hunter Valley, the enactment of retrospective legislation does not, in my view, override these considerations.
10. For all of these reasons, the decisions under review will be affirmed.
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