CASE 17/95

HE Hallowes SM

Administrative Appeals Tribunal

Decision date: 24 March 1995

HE Hallowes (Senior Member)

On 21 October 1994 the applicant's solicitor lodged applications for review of objection decisions with respect to income tax assessments for the financial years ending 30 June 1988 to 30 June 1992 inclusive, made on 23 March 1994 by the respondent, together with applications to extend the time for lodging the applications to 21 October 1994 under subsection 29(7) of the Administrative Appeals Tribunal Act 1975 (``the AAT Act''). The applications should have been lodged within the period prescribed by subsection 29(2) of the AAT Act as modified by section 14ZZC of the Taxation Administration Act 1953, which provides:

``14ZZC Section 29 of the AAT Act applies in relation to a reviewable objection decision as if subsections (1) to (6) (inclusive) of that section were omitted and the following subsection were substituted:

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`(1) An application to the Tribunal for a review of a decision:

  • (a)...
  • (b)...
  • (c)...
  • (d) must be lodged with the Tribunal within 60 days after the person making the application is served with notice of the decision.'


2. The applicant company is the Trustee of a family Trust. When lodging the applications for review the following reasons were provided by the applicant as to why the applications were not lodged in time. The applicant had instructed its accountant and solicitor to have discussions with the respondent with a view to reaching a settlement agreement in respect of the assessments. Negotiations took place from 21 April 1994 to 20 June 1994. The applicant stated that the respondent had provided the applicant's accountant with ``without prejudice'' terms of settlement. The 60 day period within which to lodge the applications for review within time expired while negotiations were continuing. Ultimately nothing came of the negotiations. The applicant contended that the respondent had wrongly and incorrectly assessed the applicant for taxation under section 99A of the Income Taxation Assessment Act 1936 (``the ITA Act'') in respect of profit and/or interest which the applicant, in its capacity as Trustee of the Trust, had distributed to non-resident beneficiaries of the Trust. Distributions were said to have been made pursuant to resolutions of the directors of the Trust passed at meetings of the directors held on 30 June 1988, 19 June 1989, 19 June 1990, 19 June 1991 and 22 June 1992.

3. The respondent opposed the applications to extend time and advised the Tribunal that the applicant's explanation for delay only accounted for the period ending 22 June 1994 and that, whether or not negotiations were conducted during the period, the applicant's right to lodge applications for review of the objection decisions were not thereby suspended. The respondent contended that the applications lacked merit and that it would not be fair and equitable to grant the applications to extend time.

4. The Tribunal had before it a number of documents lodged by the applicant at the hearing including a letter from the respondent to the applicant dated 1 June 1993 (Exhibit C) which advised that various aspects of the operation of the family Trust had been reviewed and serious concerns were held regarding distributions of income and payments of interest by the Trust to overseas beneficiaries. An opportunity was provided to the applicant to examine the distributions made and interest paid to non-resident beneficiaries before the respondent made further inquiries. The letter went on to say that where disclosures are made by a Trustee that distributions and payments of interest may not be bona fide a settlement proposal was available. A further letter from the respondent dated 2 July 1993 (Exhibit D) indicates that the applicant's accountant had had a telephone conversation with the respondent's office and that the respondent understood that the applicant did not wish to settle the matter. In those circumstances the respondent stated that there was no option but to issue ``section 99A assessments''. Copies of the assessments were also before the Tribunal (Exhibit F) together with further correspondence between the parties including the notices of decision on the objections dated 23 March 1994 advising the applicant that the applicant's objection dated 28 October 1993 against the assessments issued on 31 August 1993 had been disallowed.

5. The applicant's solicitor gave evidence that he became involved in the applications in mid to late April 1994. The applicant's accountant had advised him that only 30 days remained within which to lodge applications for review of the decisions on the objections within time. When the solicitor first contacted the respondent's office the relevant officer was unavailable and it was not until the end of May 1994 that he had discussions with the officer. The solicitor said that he advised the officer that review by the Tribunal of the objection decisions would be sought if necessary although the applicant was interested in settling the matter. The officer asked for any counter offer with respect to the terms of settlement already proposed by the respondent (see paragraph 2 above) to be put in writing which was done on 31 May 1994 (Exhibit J). This offer was rejected by the respondent on 3 June 1994 (Exhibit K). The solicitor wrote to the officer seeking clarification of the rejection (Exhibit L). The solicitor contended that the funds in the applicant's bank account were owed to the

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beneficiaries of the Trust and the solicitor wanted the respondent to indemnify the applicant against any claims the beneficiaries may make against the applicant if those funds were used to settle the dispute.

6. On 22 June 1994 the solicitor had a lengthy conversation with the officer and he was advised that the applicant's offer of settlement was rejected. The parties were $120,000.00 apart and the officer advised the solicitor that the matter of the unpaid tax would be referred to the respondent's recovery section. A discussion then ensued between the solicitor and an officer of the respondent's recovery section.

7. The respondent's letter of 3 June 1994 clearly rejected the applicant's offer and advised that proceedings against the applicant may be instituted. In light of the negotiations which had already taken place the solicitor's letter to the respondent dated 10 June 1994 may be viewed as procrastination on the applicant's behalf and an attempt to put the ball back in the respondent's court. However, a further opportunity appears to have been provided to the applicant to provide further material to the respondent and the solicitor stated in oral evidence to the Tribunal that he was concerned to protect the directors of the applicant from being sued personally by the overseas beneficiaries. Counsel was briefed in early July for an opinion. The solicitor said that as a result of what was said to him by an officer of the Australian Taxation Office (``ATO'') he thought that no objection would be taken if he sought an extension of time within which to lodge the applications with the Tribunal.

8. A statutory demand under the Corporations Law was issued on 6 September 1994 and served on the applicant. The solicitor said that he received no warning that what he understood the position to be, that is, continuing negotiations had changed. He received instructions from the applicant to apply to the Federal Court for a stay of the demand and to apply to the Tribunal for review of the objection decisions. Further delay was occasioned however because the solicitor went on leave and counsel was apparently briefed at all steps along the way, although the solicitor said that the applicant was not interested in spending a lot of money on legal fees. In late April or May 1994 the applicant held approximately $60,000.00 in a bank account. That amount is now considerably diminished. The applicant maintains its contention that distributions to non-residents have been made in accordance with the ITA Act.

9. Under cross-examination the solicitor agreed that nothing came of the negotiations along the way but he thought that the negotiations were ongoing despite the advice provided to him in June 1994 (Exhibit K). This application highlights problems which arise when oral communication between parties is not necessarily consistent with the written word, although a policy of always being open to settlement is not a bad thing. On the other hand, administrative disputes should be resolved within a reasonable time and this dispute involves issues arising as far back as 1988.

10. The director and secretary of the applicant also gave evidence to the Tribunal. Following the death of her husband nine years ago she relied entirely on her accountant with respect to all aspects of the applicant's business. The accountant told her that following the respondent's inquiry he would ``fix everything''. The director said that she was aware of the 60 day period within which to apply to the Tribunal but she had left it all to the solicitor.

11. Both parties referred the Tribunal to the decision of Wilcox J in
Hunter Valley Developments Pty Ltd & Ors v Minister for Home Affairs and Environment (1984) 58 ALR 305. Wilcox J outlined matters for guidance when considering whether to extend time. Those matters are frequently used as a guide by the Tribunal although they do not fetter the Tribunal's discretion under subsection 29(7) of the AAT Act. Prima facie proceedings commenced outside the period provided will not be entertained (see
Lucic v Nolan & Ors (1982) 45 ALR 411 at 416). An explanation of the delay should normally be given (see also
Comcare v A'Hearn (1993) 119 ALR 85 at 88) and it must be fair and equitable in the circumstances to extend time. Wilcox J also said in Hunter Valley that action taken by an applicant is a relevant consideration together with any prejudice to the respondent occasioned by the delay. Delay which may result in unsettling others or established practices if an application is successful may prove fatal to an extension of time application and it is appropriate to consider fairness between an applicant and other persons in a like position.

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The merits of the substantial application are also properly to be taken into account in exercising the discretion. Solicitors delay may constitute ``special reasons'' why time should be extended (A'Hearn's case supra).

12. The Tribunal does not accept the applicant's contention that it was appropriate in all the circumstances for the solicitor not to lodge ``protective'' applications with the Tribunal because such a course ``would have involved incurring significant costs which would have been wasted had the matter been resolved by negotiation'' (paragraph 8 applicant's outline of argument). Although these proceedings involve five applications sub- regulation 19(5) of the Administrative Appeals Tribunal Regulations provides powers which were exercised by a Deputy Registrar of the Tribunal on 25 October 1994 such that only one fee was payable. I do however accept that the applicant had a reasonable belief that there remained an opportunity to settle the issues between the parties and that negotiations were still on foot, albeit, in the applicant's court and carried out without any sense of urgency, which must have been very frustrating for the respondent.

13. Viewed in light of the date on which the decisions on the objections were notified to the applicant, the delay in these applications is not lengthy and I am satisfied that there are issues between the parties requiring resolution which, as the parties are unable to agree on the facts, should be dealt with by the Tribunal. No particular prejudice to the respondent in these proceedings has been brought to the Tribunal's attention other than the cost to the ATO in pursuing this applicant to contribute to the public purse, and the frustration ATO officers may feel in carrying out their duties from time to time. On the other hand the ITA Act must be properly applied in each particular case. The director's evidence satisfies me that there is at least an arguable case in this matter.

14. The fact that the applicant's funds may be expended on legal fees rather than remaining available to meet its financial obligations, should the respondent's contentions on the substantive issues be correct, is no reason to deny the applicant its opportunity to have the Tribunal determine the matters on their merits. The statutory demand made under the Corporations Law includes penalties for late payment of income tax calculated at 16% per annum to 6 September 1994.

Considering all the circumstances of these applications the Tribunal will extend the time within which to lodge the applications although the respondent may view these applications as the ``last throw of the dice'' (see
Galinski v Minister For Immigration, Local Government and Ethnic Affairs (1994) 33 ALD 757 at 758). In these applications there has been evidence by the applicant's solicitor and the evidence with respect to the negotiations is not ``vague''. The respondent could not say that the applicant's case was ``totally hopeless'' although, as already indicated, the Tribunal would agree that the applicant's solicitor adopted a relaxed attitude in providing further information to the respondent. It is regrettable that time lines were not established within which negotiations were to take place and for the provision of further information such that it would have been clear to both parties at the end of the time-frame established that either the demand for tax be met by the taxpayer or an application for review be lodged with the Tribunal within time. In those circumstances there would be no room for misunderstanding.

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