BROWN v FC of TJudges:
MEDIA NEUTRAL CITATION:
 FCA 563
Mr Brown applies to the Court in its original jurisdiction by way of an appeal from the decision of a Senior Member of the Administrative Appeals Tribunal affirming a decision of the Respondent Commissioner of Taxation (``the Commissioner''), that a taxation objection to an assessment of income tax in respect of the year of income ended 30 June 1991 lodged by Mr Brown with the Commissioner, be dealt with, notwithstanding
ATC 4517that it had not been lodged by Mr Brown within the period of 60 days from service of that assessment upon him.
2. The assessment to which Mr Brown wished to object (it was an amended assessment) was issued on 28 March 1996. Pursuant to s 14ZW(1)(c) of the Taxation Administration Act 1953 (Cth) (``The Administration Act'') an objection to an ordinary assessment of income tax is required to be lodged within 60 days of service of the assessment to which the objection relates. The objection together with a request that it be considered, notwithstanding that it was out of time, was lodged on 1 July 1997. The matter the subject of the objection concerned the inclusion in Mr Brown's assessable income of an amount of $984,725.00, that being the value of a home unit in Mermaid Beach, Queensland (less some associated costs) which was transferred to him by Ray Development Corporation Pty Ltd (``Ray Corp'') by memorandum of transfer dated 11 July 1990 and remission of additional tax related to the inclusion of that amount in assessable income. The substantial basis of the objection was that the transfer of the unit was a ``mere'' gift to him, given as ``a token of esteem and for personal reasons,'' was not remuneration for work he had performed and thus not income in ordinary concepts or made income as a result of s 26(e) of the Income Tax Assessment Act 1936 (``the Income Tax Act'').
3. In the letter accompanying the objection and requesting an extension of time Mr Brown gave as his reasons for the delay in lodging the objection:
``1. The amended assessment was issued as a result of an investigation into my taxation affairs conducted by officers of the Australian Taxation Office. At the time that the amended assessment was issued, I was under the impression that my amended assessment constituted the only adjustment that would be made to my taxable income for any year as a result of that investigation.
2. However, on 18 April 1997 (13 months after the amended assessment to which this application relates was issued), further amended assessments arising out of the investigation were issued to me in respect of the years ended 30 June 1990 and 1991 together with assessment notices for the 1992 to 1995 years of income inclusive.''
4. Mr Brown's request that his objection be considered notwithstanding the fact that more than a year had elapsed from service of the assessment upon him was disallowed by the Commissioner acting under s 14ZW(2) of the Administration Act. Mr Brown was dissatisfied with that decision and applied to the Administrative Appeals Tribunal (``the Tribunal'') that it be reviewed. In support of that application Mr Brown relied upon written statements or affidavits of his accountant, Mr Henry, a Mr Ray associated with Ray Corp and himself. The Commissioner relied upon a statement of an officer of the Australian Taxation Office, Mr Caldbeck. Also in evidence were correspondence, documents and various file notes. Mr Henry, Mr Caldbeck and Mr Brown also gave oral evidence and were cross examined.
The decision appealed from
5. The Tribunal took as its starting point what it described as the ``non-exhaustive guiding principles'' enunciated by Wilcox J in
Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-350. That case, and the principles discussed in it, concerned the exercise by the Federal Court of its discretion to extend the time for the commencement of proceedings for judicial review of administrative decisions under the Administrative Decisions (Judicial Review) Act 1977. Among the matters listed by Wilcox J appears the following:
``The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted.''
6. The Tribunal referred, as well, with approval to a paraphrase of these principles by Senior Member Fayle in Case 18/94,
94 ATC 204 at 206, where they are listed as follows:
- ``(i) prima facie, proceedings commenced outside the prescribed period will not be entertained. An extension of time will be granted, however, if it is proper to do so;
- (ii) it is relevant whether the applicant rested on his rights or took action to make the decision-maker aware that the decision was being contested;
- (iii) any prejudice to the respondent that would be caused by granting the extension of time is relevant;
- (iv) any wider prejudice to the general public in terms of disruption to established practices is relevant;
- (v) the merits of the substantial application are relevant; and
- (vi) fairness of granting the extension of time as between the applicant and other persons in a like position is relevant...''
7. The Tribunal then proceeded to consider each of these guide lines. I shall return in more detail to this discussion later. Suffice it to say here that most of the discussion centred on the fifth matter - namely the merits. After pointing out that this was an important consideration the Tribunal referred to the decision of von Doussa J in
Windshuttle v DFC of T 93 ATC 4992 at 4999. That case, like the present, was an appeal from the Administrative Appeals Tribunal refusing the taxpayer an extension of time to lodge an objection. In it his Honour referred to Hunter Valley as outlining principles of a general nature in applications for extensions of time and noted that the parties had agreed that the Tribunal in applying the principles stated by Wilcox J correctly addressed the right matters. However, his Honour did set aside the Tribunal's decision because it had, in considering the merits of the potential grounds of objection, misunderstood the distinction between bare legal ownership and beneficial ownership and this error materially affected the Tribunal's decision. However, at 4999 von Doussa J said:
``The issue which the AAT was required to consider was whether, for the purposes of the exercise of the discretion under s 188A, the applicant's case had prospects of success, and what those prospects were. It is sufficient for that purpose, if the parties chose to so argue their case, to merely identify the factual assertions which the applicant made in the objection, and then to consider whether the application of the law to those assertions would bring about the result for which the applicant contends. In other words the assertions can, if the parties so choose, be treated as pleadings are treated where an application is made to strike out an action on the ground that the pleadings disclose no cause of action. On an application of that kind the true existence of the facts alleged in the pleadings is not explored by evidence. That is left for the trial if there is an arguable case on the pleadings. It would, of course, have been open before the AAT for the Commissioner to attack the history of the transaction asserted by the applicant. If it could have been demonstrated that an essential part of that history was wrong, that would go directly to the prospects of success to the objection. However the Commissioner chose not to attack the veracity of the facts alleged by the applicant, and this is understandable having regard to judicial pronouncements to the effect that where the issue is whether leave should be given to extend time it is inappropriate for the tribunal concerned to embark on a full scale trial of the merits of the underlying question which will be agitated only if time is extended.... It would not be appropriate on an application to extend time to seek to attack the facts alleged on the ground that the credit of the applicant, or that of supporting witnesses, should not be accepted. Arguments of that kind are best left for later consideration if and when an extension of time is granted. Only where there is some obvious and easily demonstrated flaw in the applicant's case would it be appropriate to challenge the factual basis for the asserted claim on an application to extend time.''
8. The Tribunal, having stated that it accepted this admonition in it.s entirety, found that the case fell within the last sentence of the passage cited. On its view the evidence could lead to one conclusion only, namely, that Mr Brown received the unit ``in respect of'' commission. It found that Mr Brown could not be believed. It did this on the basis of the fact that the documentary evidence pointed to the fact that he had received the unit in lieu of commission. Of Mr Ray's evidence it was said that it was relevant not only for what it said but for what it did not say. In particular it is said that Mr Ray's omission in his statement to deal with references to commission in corres- pondence ``must cast considerable doubt on the truth of his statement.''
The evidence before the Tribunal
9. In support of his application to extend the time to object there was filed with the Tribunal a statement by Mr Brown. In that statement Mr Brown said that in a conversation with Mr Ray in early 1990 he had mentioned a delegation of Japanese businessmen who were looking at purchasing timbered land, constructing cabins
ATC 4519and building a golf course on that land. Mr Ray expressed interest in meeting the delegation. He was, it would seem, involved in some way with property development. Mr Brown facilitated the subsequent meeting between Mr Brown and the delegation. It seems that in the result Japanese interests purchased a property in the Tweed Valley in New South Wales in which Mr Ray had an interest.
10. According to Mr Brown later in June or early July of the same year, Mr Ray thanked Mr Brown for the introduction and by way of appreciation indicated he wished to give him a unit on the Gold Coast. Nothing more than that was involved according to Mr Brown's statement.
11. Mr Ray's statement was, on the whole, to the same effect. He said that after he had negotiated the sale to the Japanese interests he informed his partners that the introduction to them had come through Mr Brown and ``that it would be a fitting gesture to provide to Brown a significant financial reward for this introduction''. According to Mr Ray he arranged the title of the property to be transfer to Mr Brown ``in recognition of his kindness in making the introductions which resulted in a significant sale for my partners and myself''.
12. Mr Henry's evidence concerned meetings he had held with officers of the Australian Taxation Office. He formed the view as a result of a meeting held on 9 October 1995 that representatives of the Australian Taxation Office were indicating to him that if Mr Brown paid the tax on the unit without objecting to it the Office would consider with favour a lesser imposition of penalties attaching to the primary tax and would take a more favourable attitude towards Mr Brown in connection with other taxation disputes which were then on foot. In this, he was apparently misconceived. It is not suggested that officers of the Australian Taxation Office in fact said anything to Mr Henry to this effect. His view depended upon his reading of their attitude which proved to be wrong. Be that as it may he advised Mr Brown not to lodge an objection. In doing so he took into account also Mr Brown's public profile as a former Minister of the Crown and Chief Executive of the Tourism Task Force Limited. His advice to Mr Brown, (advice which was apparently agreed to by a solicitor who was present at the meeting between Mr Brown and Mr Henry) was that whilst there were:
``grounds upon which an objection could be based, his prospects of reaching a commercial resolution with the [ATO] could be reduced if he lodged objections to the assessments issued by the ATO.''
13. Counsel for the Commissioner conceded that if the evidence had not proceeded beyond the evidence of Mr Brown, Mr Ray and Mr Henry, Mr Brown would have been entitled to be granted an extension of time. However, in addition to cross examination of Mr Henry and Mr Brown there was before the Tribunal some correspondence which appeared to contradict Mr Brown's statement, or at least make the Commissioner's case stronger. This material, or at least some of it, was introduced into evidence through the testimony of Mr Caldbeck.
14. First, there was a letter from a Mr Dickson of Ray Corporation. Mr Dickson did not give evidence. In that letter Mr Dickson referred to ``distribution of commission payable to you pursuant to the sale by Monacorp Pty Ltd of Kings Forest Estate which amounts to $1,000,000''. According to the letter this commission was to be applied towards the purchase of the unit. The letter requested Mr Brown to sign a letter which Mr Dickson had prepared. That letter was signed by Mr Brown. It said:
``I refer to the sale of the Kings Forest Estate in northern new South Wales to Narui Gold Coast Pty Ltd for an amount of $21,000,000 in respect of which Monacorp Pty Ltd owes me $1,000,000 for commission payable for introduction of the purchasers.
I hereby authorise Ray Development Corporation Pty Ltd to distribute the $1,000,000 towards the following.In respect of purchase of Unit 4 - $925,000 In respect of furniture allowance - $30,000 In respect of acquisition costs - $40,000 In respect of other costs - $5,000 Total $1,000,000 ----------
In addition to the above Ray Development Corporation Pty Ltd is to cover the costs of remarbeling (sic) the bathrooms to an amount of $30,000.''
15. Next there was a memorandum from Mr Dickson dated 22 June 1990 to a Mr Maunsell
ATC 4520who was the solicitor for Ray Corporation detailing the sale and noting under the heading ``Consideration'' that it was ``Paid in lieu of commission on sale of Kings Forest Estate to Narui Narin Co Limited''.
16. Finally there was a letter from Mr Maunsell to Ray Corporation which read in part:
``We note your advice that your Company is transferring the above Lot to Mr Brown in consideration of Mr Brown waiving any right to commission on the sale of property situated at Kings Forest Estate to Narui Narin Co Ltd....
We confirm your advice that you do not wish to have a Contract of Sale executed by Mr Brown which notes the terms of the transaction in particular that Mr Brown accepts the property in lieu of commission. In our opinion it would be best for your company and Mr Brown to execute a Contract to in particular, from your Company's point of view, record the fact that Mr Brown has waived his entitlement to commission and those terms which would normally appear in the Contract which are intended to protect your Company including terms which make the purchaser liable to pay stamp duty on the transaction...''
17. In parenthesis it may be noted that the learned Tribunal member in his reasons states that Mr Maunsell was Mr Brown's solicitor. Indeed, counsel for the Commissioner referred to the letter as constituting an admission by Mr Brown's solicitor. However, other correspondence suggests that he was not, but rather that Mr Brown had another solicitor acting for him. What seems to be the case is that Mr Maunsell was at Ray Corporation's request authorised by Mr Brown to accept the transfer of the unit to Mr Brown. Indeed the letter, the text of which appears in part in paragraph 18 of my reasons, concludes with the suggestion that the transfer be delivered to Mr Brown's solicitor, a suggestion which would be meaningless if Mr Maunsell was also Mr Brown's solicitor. Of course it is for the Tribunal, not the Court to decide facts. If it had mattered, it would have been necessary to consider whether the Tribunal's finding was one which was not open to it to make. However, it is not necessary to pursue the matter here.
18. In his statement Mr Brown dealt with the letter prepared by Mr Dickson which Mr Brown had signed and returned to Mr Dickson. He said, inter alia, that he had not paid ``particular attention to the attachments''. He had not focused on the word ``commission'' and reiterated his claim that the transfer was simply a gratuitous act by Ray Corporation. In his oral evidence Mr Brown said that he sometimes ``as a Minister'' had signed letters prepared by others, and which he might not have carefully read.
The Issue Mr Brown wished to contest
19. It is important in the present context to consider the issue which Mr Brown wished to agitate in support of his claim that the transfer to him of the unit did not give rise to assessable income. It is best illustrated by the decision of the High Court in
Scott v FC of T (1966) 14 ATD 286; (1966) 117 CLR 514. Mr Scott was a solicitor. He had acted for a Mrs Freestone for many years and received proper legal fees for so doing. She regarded him as a most helpful friend. She in due course made a substantial cash gift to him. Having considered all the evidence (and there were some discrepancies in it) Windeyer J found the payment to be a gift [at ATD 291]:
``... in the sense that it was gratuitous, not made in discharge of an obligation and not taken by the recipient as discharging an obligation.''
20. In holding that the payment to Mr Scott was not income in ordinary concepts or made assessable income under s 26(e) his Honour said at ATD 293; CLR 526-527:
``... Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income. Whether or not a gratuitous payment is income in the hands of the recipient is thus a question of mixed law and fact. The motives of the donor do not determine the answer. They are, however, a relevant circumstance. It is apposite to quote here a passage from the judgment of Kitto, J
ATC 4521in The Squatting Investment Co Ltd v Federal Commissioner of Taxation. His Honour said: `It is a commonplace that a gift may or may not possess an income character in the hands of the recipient. The question whether a receipt comes in as income must always depend for its answer upon a consideration of the whole of the circumstances; and even in respect of a true gift it is necessary to inquire how and why it came about that the gift was made.' An unsolicited gift does not, in my opinion, become part of the income of the recipient merely because generosity was inspired by goodwill and the goodwill can be traced to gratitude engendered by some service rendered.''
21. Scott's case has been followed in many cases since. While some may think that Mr Scott was fortunate to succeed, there is no case which suggests other than that the question whether a gift is income in ordinary concepts must depend upon a consideration of all the circumstances in which the so called gift is made. Should the so called gift be but a payment or transfer for no consideration in satisfaction of a right to commission, then without more the payment or transfer would be income in ordinary concepts. It would probably also fall within s 26(e). If it is in fact gratuitous then the question whether it is income will be a conclusion of mixed fact and law.
22. There is no need here to consider in detail the application of s 26(e) to the transfer of the unit to Mr Brown. Suffice it here to say that while s 26(e) may extend to include in assessable income the value of the unit transferred to Mr Brown even where the transaction did not amount to the derivation of income in ordinary concepts it is difficult to see that in a case such as the present s 26(e) would add anything to s 25(1): cf
Reuter v FC of T 93 ATC 4037, aff'd on appeal, 93 ATC 5030. If the ``gift'' of the unit was in truth the product of Mr Brown's services it will be both income in ordinary concepts and made assessable income under s 26(e). To reach a conclusion whether s 26(e) applies it will be necessary to:
``... look at all the circumstances which bear upon the character [of the transaction].''
See Reuter v FC of T at 5035. That is true also of the task involved in determining whether Mr Brown derived income in ordinary concepts.
Did the Tribunal err in its approach to the task before it?
23. Senior Counsel for Mr Brown submitted that in going into the merits of the case, and making findings of credit as it did and ultimately reaching the conclusion that the transfer of the unit involved the derivation of assessable income by Mr Brown, the Tribunal erred in law. Counsel for the Commissioner submitted that the Tribunal was entitled to do what it did. With respect I do not think that it was.
24. As von Doussa J said in Windshuttle the applicant need generally do no more than indicate the factual assertions which he makes to demonstrate whether there is an arguable case. Assuming that those factual assertions could lead to a conclusion that there is, in law, a case to be made, that is usually the end of the matter. The question of what the true facts are and associated questions of credibility will usually be left to the trial. It is conceded by counsel for the Commissioner that on this material and accepting the evidence at least of Mr Brown that he had returned the letter to Mr Dickson without reading it, Mr Brown had made out an arguable case on the merits. It is no doubt true that if the only evidence before the Tribunal at a trial on the merits was the correspondence to which reference has already been made, the Commissioner would have to succeed. It is also true that unless Mr Brown was able to explain the correspondence from Mr Dickson Mr Brown's credit would suffer. Without Mr Dickson giving evidence the inference his correspondence creates that the transfer was in satisfaction of a claim for commission would be more readily made against Mr Brown. But that would be the situation at a trial on the merits.
25. A party seeking to have the time for objection extended is not required in applying to the Tribunal for a review of an adverse decision to undergo at that stage a trial on the merits. There is little doubt that a hearing on the merits would require a close examination of all the circumstances in which the transfer to Mr Brown occurred. For the Tribunal to deal with an application for an extension of time as if it involved a trial on the merits would (unless that course was consented to by the Applicant) involve a denial of natural justice. It was not suggested that this course was consented to by Mr Brown. Had it been, then no doubt efforts
ATC 4522would have been made to have Mr Ray present and perhaps also Mr Dickson. As it was they were not called.
26. It will be a rare case (unless the parties consent) that the Tribunal in considering whether the objection sought to be lodged has merit will proceed to consider for itself the facts. This is particularly so where the issue is predominantly one which involves an examination of all the circumstances of a particular transaction. No doubt an extension of time would not be granted where the facts claimed to exist do not lead to a conclusion that the assessment is excessive. An extension would likewise, perhaps, not be granted where, as von Doussa J observed, the outcome of the objection depended upon a chronology of facts and there is an issue between the parties as to whether the chronology is incorrect in some particular.
27. But where, as in the present case, the facts contended for by an applicant in his objection as supplemented by statements lodged with the Tribunal in connection with the application are such that it would be open to a Tribunal to find for the Applicant (and it was conceded by counsel for the Commissioner before me that this is the case), it involves legal error for the Tribunal to embark upon a trial of the merits and conclude as a result of that trial that if allowed to object out of time the objection would be futile because the taxpayer must lose.
28. Put another way it is conceded that the objection itself, on its face, raises an arguable case that the assessment is excessive. No doubt a mere gift, made for personal reasons, would not be income in ordinary concepts or made assessable income under s 26(e). Mr Brown claims that is the case here. Nothing in Mr Brown's statement, or the statement of Mr Ray requires the conclusion that Mr Brown must fail. Nor, it must be said, do these statements require the conclusion that Mr Brown must win. The best that can be said of them from Mr Brown's point of view is that further investigation of all the circumstances would be necessary before a conclusion could be reached whether the transfer resulted in Mr Brown deriving assessable income, but that it was arguable that he did not. There is undoubtedly evidence (it was before the Tribunal in the form of the correspondence which I have referred to) which strongly suggests that the transfer to Mr Brown rather than involving gratuitous benefaction was no more than a transfer in satisfaction of a claim for commission. If that is the case and that evidence can not be explained away by Mr Brown, Mr Ray or others, Mr Brown must clearly lose as the Tribunal not surprisingly found. But that is not a question which the Tribunal was entitled to consider for itself without that course being consented to by Mr Brown. It was a question for another day if an extension of time was granted.
29. In my view it was simply inappropriate for the Tribunal to embark as it did on a trial of the merits - particularly in making a finding on the credit of Mr Brown and perhaps also Mr Ray who was not even present. No doubt if the Commissioner challenged the reasons why Mr Brown had delayed for such a long time in lodging an objection (and it is fair to say he did) cross examination of Mr Brown on that issue was quite appropriate. And if Mr Brown was not believed on this issue, then no doubt it would be necessary for the Tribunal to say so. I should say that there is no suggestion in the Tribunal's reasons that Mr Brown's evidence on this point was not believed. But there is nothing in the transcript which suggests that Mr Brown intended to open up the whole case on the merits as part of his application to extend time.
30. It follows in my view that the Tribunal erred in law, and that the decision of the Tribunal should be set aside. Ordinarily I would have remitted the matter to the Tribunal for reconsideration in accordance with law. However, the parties have agreed that if I am of the view that the Tribunal erred in descending into the merits in the way it did then, in the circumstances of this case, the orders of the Tribunal should be set aside and in place thereof I should make an order by consent extending the time in which Mr Brown may object. That agreement has, it might be noted, been reached without prejudice to the right of the Commissioner to appeal my judgment should he be so advised.
31. In consequence of that agreement I would make the following orders:
- 1. That the time within which the Applicant must lodge with the Respondent any taxation objection against his amended assessment of income tax for the year of income ended 30 June 1991 issued by the Respondent on 28 March 1996 be extended
ATC 4523for a period to expire 21 days after the date of this Order pursuant to s 14ZW(2) of the Taxation Administration Act.
- 2. That the Respondent deal with any taxation objection lodged with it in compliance with s 14ZU of the Taxation Administration Act and within the terms of the preceding Order as if it has been lodged within 60 days of 28 March 1996 with the Respondent pursuant to s 14ZW(2) of the Taxation Administration Act.
The applicability of Hunter Valley Developments
32. As I have already noted the parties acquiesced in the application of the principles discussed in Hunter Valley Developments to the circumstances of Mr Brown's application. This was, as I have noted, the approach taken in Windshuttle. It was also the approach taken by the Tribunal in
Zizza v FC of T 99 ATC 4166; ( FCA 37) and adopted by Katz J on appeal in that case. An appeal against that decision has been filed but has not yet been argued. It is difficult to see that the Tribunal erred in law in applying those principles where the parties proceeded upon the basis that it should. While I would not say that to do so would, in any event, amount to an error of law I think that it is important here to say something about them and their applicability to an application for extension of time to object.
33. First, it must be pointed out that Wilcox J in Hunter Valley Developments never suggested that he was laying down a series of principles to be applied in every case, even every case involving an application to the Court to commence proceedings for judicial review outside the time prescribed by the Administrative Decisions (Judicial Review) Act. His Honour was seeking to distil from previous case law factors which would serve as a ``guide''. Nor did his Honour suggest that the matters which he outlined were exhaustive. Indeed he said the contrary. As I pointed out in
Kim Hyun Tai v Bolkus (1996) 42 ALD 249 at 251:
``The danger that the distillation of matters relevant to discretion might harden into a statement of binding principle was not lost on his Honour. Sometimes, however, his Honour's warning appears to have escaped the attention of those seeking to rely upon what his Honour said.''
34. Secondly, the context in which Wilcox J stated his non-exhaustive guidelines differs substantially from that where a taxpayer is seeking an extension of time for filing an objection against an income tax assessment.
35. The Administrative Decisions (Judicial Review) Act prescribes a time in which applications for review under s 5 of that Act may be brought in the Court. I leave out of consideration for present purposes provisions which operate where no time is prescribed. It is provided in s 11(1) that the Court may allow a further time in which the application may be filed. There are no criteria specified as matters to which the Court should give attention. This contrasts with s 11(4) which does specify criteria to be taken into account in a case where no period is prescribed within which an application to the Court must be made.
36. The Administration Act, while likewise stipulating the time in which objections are to be lodged, permits the Commissioner (or the Tribunal standing in the shoes of the Commissioner on a review of the Commissioner's decision) to determine whether to agree to or refuse a taxpayer's application for an extension of time. Although it does not expressly stipulate matters that are to be taken into account the requirement in s 14ZW(3) that the taxpayer's application state fully and in detail the circumstances concerning and the reasons for the failure to lodge the objection in time make it clear that these matters are clearly relevant. This is not to say that these are the only matters which the Commissioner or the Tribunal may take into account and counsel for the Commissioner, properly, did not submit this to be the case.
37. More significantly, however, an application for judicial review of an administrative decision under the Administrative Decisions (Judicial Review) Act is an application which is restricted to a review on quite limited grounds (cf s 5 of that Act). In essence it is an application seeking to assert a legal error in the decision or a failure in the decision making process, for example, the denial of natural justice. It is not a review on the merits. Absent what may be succinctly described as legal or process error the Court can not intervene to set aside a discretionary decision. An objection against an assessment of income tax is quite different. It is the first step in a process whereby the assessment may be
ATC 4524reconsidered by the Commissioner in the light of the objection and if disallowed may be the subject of merits review by an independent tribunal, the Administrative Appeals Tribunal, or by the Court, (although before the Court matters involving the exercise of discretion are the subject of judicial, rather than merits, review). If the disallowance of the objection is reviewed by the Tribunal and a decision adverse to the taxpayer is arrived at there is the possibility of an application to this Court by way of an appeal on a question of law.
38. The historical background to the ability of a taxpayer to seek an extension of time to lodge an objection is in part sketched in
Lighthouse Philatelics Pty Ltd v FC of T 91 ATC 4942; (1991) 32 FCR 148, although that case was concerned with a related question, namely the ability of a taxpayer to seek to rely on grounds other than those on which the original objection was framed. Before the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth) a taxpayer was required to lodge an objection within 60 days and that time was mandatory. Further the taxpayer was bound thereafter by those grounds and could not with or without leave, depart from them. This framework was apt to lead to considerable injustice. It was from time to time the subject of submissions from professional organisations that the legislation be changed to alleviate that injustice. Ultimately Parliament saw fit to amend the law to permit the Commissioner to extend the time for making objections by substituting a new section s 188, substantially in the form of s 14ZW of the Administration Act which later replaced s 188. At the same time s 190(a) was amended to permit a taxpayer, with leave, to rely upon a ground of objection which did not appear in the grounds of objection initially lodged.
39. In Lighthouse Philatelics a Full Court of this Court rejected a submission that the ability to rely on a new ground of objection should be narrowly construed and so as not to permit an amendment which raised entirely new matters. In so doing the Court said at ATC 4949; FCR 156:
``... The amendment to s 190(a) introduced by the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth) was of a remedial kind and thus must be construed in accordance with well established principles relating to ameliorating legislation....
The decision whether to allow an amendment ought to be made on the same considerations of justice upon which such decisions are regularly made in litigation. It was in the past a reproach to the law that the real issues in taxation appeals could be refused a hearing for a defective objection, and Parliament has legislated to remove that reproach; an amendment under s 190 should not be considered with reluctance, but on its merits.''
40. I should add that it was in the past a reproach to the law that a taxpayer might well be refused an independent review of a meritorious taxation objection even in circumstances where the failure to object may not have been his or her fault or where the assessment may not even have come to the attention of the taxpayer within the time within which objections were required to be lodged. Parliament has legislated to remove that reproach and an application for approval to lodge an objection out of time should be considered by the Commissioner or the Tribunal on a review not with reluctance but taking into account all circumstances in an endeavour to arrive at a just result.
41. In the comments which follow I propose to examine the matters raised by Wilcox J and their relevance to taxation objections generally and to the present case in particular. In doing so I would repeat that I should not be taken to be suggesting that in the present case the Tribunal erred in law in approaching the matter by reference to Hunter Valley Developments for this was the approach which the parties suggested to the Tribunal. And it must be said that at least some of the factors enunciated as guide lines in Hunter Valley may have relevance, notwithstanding the differing context in which they were formulated. Nor should I be seen to be criticising the comments which the Tribunal made in considering the Hunter Valley guidelines, other than the approach it took to the merits of Mr Brown's case. The Tribunal's comments, however, do serve to demonstrate that a number of the Hunter Valley Developments ``guidelines'' will often have no relevance to an inquiry such as the present for they are framed by reference to a quite different context. Too slavish an adherence to them should, in my view, be avoided.
42. The first matter raised by Wilcox J in Hunter Valley Developments was what his
ATC 4525Honour referred to as the prima facie position, that Parliament has laid down time limits to be observed so that, absent a satisfactory explanation for the failure to comply with those time limits, an extension of time should not be allowed. Those time limits provide a legislative indication that there is to be some finality in the decision making process.
43. Within this first proposition lies implicitly the necessity for the applicant for an extension of time to provide an explanation for the failure to lodge an application in time, and, at least in the ordinary case, an acceptable explanation for that failure. This is explicitly the second matter which his Honour saw as relevant. Indeed the first three matters to which Wilcox J adverts are connected with each other.
44. It is true in the context of income tax, just as it is in the context of judicial review of administrative decisions, that the fact that the statute prescribes a time limit and that the applicant seeks an indulgence in extending that time limit, brings about the result that there will be a need to consider the circumstances which led to the time limit not being complied with.
45. It may be, as I suggested in Kim Hyun Tai, that the need to give an acceptable explanation in seeking an extension of time for the making of an application under the Administrative Decisions (Judicial Review) Act, requires reconsideration in the light of the decision of the full court of this Court in
Comcare v A'Hearn (1993) 119 ALR 85.
46. In the context of an application to extend the time for lodging an objection it is clear enough that the circumstances which resulted in the objection not being lodged in time require consideration. Indeed the taxpayer's explan- ation for the delay, while not the sole factor, must clearly be an important factor. If there were no explanation it would be unusual for an extension of time to be granted. In some cases the explanation for the delay may be so compelling that it will almost require an extension of time to be granted. For example, where the assessment did not reach the taxpayer at all within the 60 days from being put into the post it would be rare for an extension of time not to be granted. Even where there is no particular explanation given for the delay, other than the belief that an objection would be futile, but subsequent to the expiration of time Court interpretations changed so that the possibility of the objection being successful arose, an extension of time would likely be granted.
47. While, therefore, the explanation for delay in lodging the objection will be an important factor, it is necessary to bear in mind that the decision maker should take into account all the circumstances of the particular case against the background that Parliament has enacted a procedure to permit extensions of time being granted. An extension should be granted where the justice of the case requires, cf
Wedesweiller v Cole (1983) 47 ALR 528 at 531 per Sheppard J, cited with approval in the present context by Sweeney J in
Fardon v FC of T 92 ATC 4339 at 4348. Neither the Commissioner nor the Tribunal on review should approach the question of determining whether an extension of time should be granted on the basis that it will only be in an exceptional case that an extension is granted.
48. The second factor raised by Wilcox J, as already noted, overlaps with the first. It involves, as well, the question whether an applicant for an extension of time has so rested on his rights as to lead the decision maker to believe that the matter has finally been concluded. His Honour refers in this context to the possibility that the passing of time may make it difficult for the decision maker to recall all the circumstances surrounding the making of the decision. That is no doubt important where what is being challenged is the making of an administrative decision. It has much less relevance where the substance of the challenge which a taxpayer wishes to make is the excessiveness of an assessment of the taxpayer's taxable income, a question which requires an investigation of the taxpayer's assessable income and the allowable deductions to be put against that assessable income. It is not as if the Commissioner has made a decision based on facts known to him at the time of decision where those facts may fade from the Commissioner's recollection if subsequently required to be recalled in the light of a court challenge to the making of that decision. Almost always the facts surrounding a particular transaction said to give rise to assessable income or to generate allowable deductions will be peculiarly within the knowledge of the taxpayer rather than the Commissioner. True it is that other witnesses may with the effluxion of time be unavailable to give evidence or become forgetful. But where
ATC 4526the onus of proof is on the taxpayer to show that an assessment is excessive, delay in instituting the objection and appeal procedure may well more often prejudice the taxpayer than the Commissioner. In weighing up whether the delay may operate to the prejudice of the Commissioner because evidence available to him and which may support the assessment may become unavailable (and this would be a matter upon which evidence should ordinarily be advanced by the Commissioner) it will be necessary to consider the time which has elapsed between the event which is said to give rise to the assessable income and the making of the assessment itself.
49. In summary it is clear that in considering an extension of time the Commissioner (or Tribunal) must take into account the circumstances surrounding the failure to object in time and any explanation for delay which is given. The length of delay will likewise be relevant. But these are factors to be weighed against other matters, particularly the fact that to deny a taxpayer the right to have the assessment reconsidered by the Commissioner, or ultimately by the Tribunal or the Court, may be conducive to injustice.
50. In the present case the Tribunal determined that there was an explanation for the delay, although rightly observed that the decision not to object at the time was a conscious one. It pointed out that the prime motivation of Mr Brown was the possibility or even probability of bankruptcy. The Tribunal's reasons do not suggest that for this reason alone the extension of time should be refused.
51. The third matter discussed by Wilcox J is prejudice to the Respondent. As we have already seen this overlaps with the second matter discussed above. As I have already noted it may be a much more critical matter in applications for judicial review than in proceedings for extending the time in which a taxpayer may object. Except where the effluxion of time may affect adversely the ability of the Commissioner to defend an assessment, it is hard to see what prejudice there could be to the Commissioner in a case such as the present, or indeed in like cases, other than administrative inconvenience. The Commissioner is entitled to collect tax due under an assessment whether or not there is an objection. He is obliged to collect tax in accordance with a correct assessment, that is to say, to collect the correct amount of tax, no more and no less. If an assessment is excessive it would be improper for the Commissioner to seek to collect tax payable under it. In saying this I should not be understood as suggesting in the light of ss 175 and 177 of the Income Tax Act that a Court should go into the merits of an assessment outside the objection and appeal process.
52. It is true that if the taxpayer is not allowed to object the Commissioner in the result will not be required to repay tax which has perhaps been incorrectly assessed. But that is not prejudice to the Commissioner.
53. In matters of judicial review on the other hand there is more often the possibility that reopening a decision may cause prejudice because of a lapse of time. The context of public law will more readily give rise to prejudice than private tax disputes. In Fardon v FC of T at 4348 Sweeney J referred to what was said by Bray CJ in
Lovatt v Le Gall (1975) 10 SASR 479 at 485 as apposite. With respect I am of the view that it should be repeated:
``... `If the defendant has suffered no prejudice, as when... 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'.''
54. The Tribunal properly regarded prejudice to the Commissioner as being irrelevant in the present case.
55. The fourth matter, related to the third, is stated by Wilcox J to be that the mere absence of prejudice will not be enough to justify an extension. That may be generally accepted, particularly in the context of judicial review. But the defining difference between judicial review and the ordinary taxation objection is that the former will often involve matters of public policy and interest. That is not ordinarily the case with income tax assessments. It would be more desirable if, under this head, the Commissioner or the Tribunal took into account against the absence of prejudice to the Commissioner, the considerable prejudice to a taxpayer who is otherwise denied a right of independent review of an assessment which he or she claims to be excessive.
56. The fifth matter is, as has already been noted, the merits. Given that the income tax
ATC 4527legislation proceeds on the basis that there will first be an objection lodged and thereafter a consideration of that objection by the Commissioner, there is much to be said for the view that the merits of the objection are of less concern when an application for an extension of time to object is under consideration than would be the case where judicial review of an administrative decision is sought. For it is only after the objection is lodged within the time which is extended that the Commissioner is placed under a duty to consider the objection and allow or disallow it or allow it in part. I do not wish to be taken as saying that the merits of the objection are totally irrelevant. For present purposes I am prepared to accept the view of von Doussa J in Windshuttle that an applicant should show that he or she has an arguable case. No doubt if the objection on the face of it is one which is frivolous or bound to fail as a matter of law it would be a futility to permit an extension of time to enable it to be considered. But this points to quite a low threshold. What is involved is whether the objection on its face discloses a case which is arguable, not whether having regard to other matters, including evidence which may not even be known to the taxpayer at the time of making the application, the case is one that the taxpayer will or will probably lose.
57. The sixth matter raised by Wilcox J concerns considerations of fairness as between the applicants and other persons in like position. That is clearly a relevant matter when a public law issue is involved. It will seldom have any significance in the context of income tax assessments. In the present case the Tribunal appears to have considered that it should take into account persons who decided not to object to assessments. But there can here be no question of fairness arising so far as other taxpayers are concerned. They are entitled to lodge objections and if out of time to seek an extension of time in which to lodge their objections, just as Mr Brown is. If the tax is collected at the time it becomes due Mr Brown gains no advantage over other taxpayers. If it has not been collected, that is not a matter which is within Mr Brown's control.
58. In summary when a taxpayer seeks an extension of time in which to lodge an objection the following matters will require consider- ation:
- 1. The taxpayer's explanation for the delay in lodging an objection against the assessment within the time stipulated by Parliament.
- 2. The circumstances attendant upon that delay.
- 3. Whether the objection is one which, on its face, is frivolous or which in law must fail, or, to the extent that this is indeed a different test, is one in which the taxpayer has no arguable case. This matter will be considered by reference to the objection itself and such other material as the taxpayer puts before the Commissioner. It will seldom, if ever, require the decision maker to consider matters such as credit or endeavour to reconcile the evidence which the taxpayer choses to rely upon with other factual material in the possession of the Commissioner. No doubt the stronger the case the more likely that the discretion would be exercised in favour of a taxpayer even where the explanation for delay was thought not to be strong. Whether the converse is also the case need not here be considered.
- 4. Such other matters as the circumstances of the particular case make relevant, including, if prejudice to the Commissioner be asserted, such prejudice as is shown to arise.
59. What is required is the balancing of the delay; the explanation fo.r it; the circumstances which gave rise to it and such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to a taxpayer who has by reason of the failure to object in time lost the right to a review of the assessment. In this balancing process the Commissioner or the Tribunal on a review will be guided by what the justice of the case requires. The balancing process should be approached on the basis that while Parliament has stipulated a time in which objections are required to be lodged it has entrusted to the Commissioner a power to extend that time in appropriate circumstances. The decision maker should not lose sight of the fact that s 14ZW is an ameliorating provision designed to avoid injustice.
THE COURT ORDERS THAT:
Decision of the Administrative Appeals Tribunal be set aside and in lieu thereof it be ordered:
- 1. That the time within which the Applicant must lodge with the Respondent any taxation objection against his amended assessment of income tax for the year of income ended 30 June 1991 issued by the Respondent on 28 March 1996 be extended for a period to expire 21 days after the date of this Order pursuant to s 14ZW(2) of the Taxation Administration Act 1953 (Cth).
- 2. That the Respondent deal with any taxation objection lodged with it in compliance with s 14ZU of the Taxation Administration Act and within the terms of the preceding Order as if it has been lodged within 60 days of 28 March 1996 with the Respondent pursuant to s 14ZW(2) of the Taxation Administration Act.
- 3. The Respondent to pay the Applicant's costs.
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