NATIONAL SPEAKERS ASSOCIATION OF AUSTRALIA INC. v FC of T

Judges:
Emmett J

Court:
Federal Court

Judgment date: 25 November 1997

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Emmett J

There is before the Court an application by National Speakers Association of Australia Inc. (``the Association'') which is expressed to be an appeal against an appealable objection decision made by the Commissioner of Taxation. The objection decision described in the application of 16 September 1997 is as follows:

``The disallowance by the Respondent of the Applicant's Notice of Objection dated 10 December, 1996 against the Private Binding Ruling dated 14 November, 1996 for the income year ended 31 December 1996.''

When the matter was called on before me today, counsel for the Association indicated that he wished to make a submission that there had been no valid notice of private ruling in accordance with the legislation and that, in the circumstances, the matter should be remitted to the Commissioner.

Counsel for the Commissioner then indicated that he wished to make a submission that in the circumstances there had been no valid application for a private ruling and sought a declaration to that effect. Both parties, as I understand the position, very much wanted to proceed with the hearing of the substantive matter which would have been raised by the appeal if there had been a valid application for a private ruling and a valid ruling. I have reluctantly come to the conclusion that it is not possible for me to give a ruling on the substantive issue. I will endeavour to explain the reasoning that leads me to that conclusion.

Section 14ZAF of the Taxation Administration Act 1953 (Cth) (``the Act'') provides that a person may apply to the Commissioner for a ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to the person with respect to a year of income in relation to an arrangement. The term ``arrangement'' is defined in section 14ZAAA as including ``a scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking''. By the operation of section 14ZAA(2) that definition is relevant for the purposes of section 14ZAF. Section 14ZAR provides that the Commissioner makes a private ruling by preparing a written notice of it and serving the notice on the applicant.

Under section 14ZAS(1), a notice of private ruling must set out the matter ruled on and, in doing so, identify the person, tax law, year of income and arrangement to which the ruling relates. Section 14ZAS(3) provides that an arrangement may be identified in a private ruling by reference to matters set out in a document identified in the ruling and which, or a copy of which, is available to the ``rulee''. The word ``rulee'' is a term defined in the Act to describe the person who makes the application.

On 1 October 1996, the solicitor for the Applicant wrote to the Commissioner. In that letter, the solicitor said that the Association sought a ruling as to whether or not the Association was exempt from income tax by reason of section 23(e) or alternatively section 23(g) of the Income Tax Assessment Act 1936 (Cth). Under section 23(e) and (g) the following income is exempt from income tax:

``(e) the income of a religious, scientific, charitable or public educational institution,

...

(g) the income of a society, association or club which is not carried on for the purposes of profit or gain to its individual members and is-

• ...
• (v) a society, association or club established for community service purposes (not being political purposes or lobbying purposes);''

Enclosed with the letter of 1 October 1996, was a formal application for private ruling. The form sets out the information required by the Australian Taxation Office in connection with an application for private ruling. Two of the questions in that form and their responses were as follows:

``What are the years of income      Not relevant --
for which a ruling is sought?       general ruling
...............................     sought.
                                    .....................
Has the arrangement(s)              Not relevant --
commenced?                          request involves
                                    the status of
                                    the association.''
          

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ATC 5133

The second response carries forward what might be considered to be a misconception in the way in which the matter was put to the Commissioner. Section 23 is concerned with whether income tax is exempt. It is not concerned with whether a prospective tax payer is exempt, nor with the status of a tax payer. On the other hand of course, the touchstone for the exemption of income is that a particular body satisfies a particular description in section 23. It is therefore perfectly understandable usage to refer to the prospective taxpayer as being exempt. In any event, the same misconception, if it is a misconception, was carried through by the Commissioner.

Some of the documents which were said to be enclosed with the letter of 1 October 1996 were omitted, apparently through oversight and on 4 November 1996 the Commissioner wrote to the Association's solicitor requesting the omitted material. That material was provided on 7 November 1996. There was, following receipt of that material, information before the Commissioner which included at least the following:

• 1. Statement of purposes of the Association which was lodged with the Victorian Company's Office at the time of the incorporation of the Association under the Victorian Associations Incorporation Act 1981 (Vic).
• 2. A monthly newsletter of the Victorian Chapter of the Association dated February 1996.
• 3. The rules of the Association adopted under the Associations Incorporation Act 1981 (Vic).
• 4. The 1995 Financial Accounts of the Association as at and for the year ended 31 December 1995.
• 5. A copy of the 1996 convention invitation of the Association.

On 20 November 1996 the Commissioner wrote to the Association's solicitor enclosing what was said to be a notice of private ruling together with a pamphlet setting out the Association's rights in respect of that ruling. The notice of private ruling contained some of the matters which are contemplated by section 14ZAS of the Act. It identified the Association. It identified the tax law as being subsections 23(e) and 23(g)(5) of the Income Tax Assessment Act. Notwithstanding the terms of the application itself, it identified a tax year as the year ended 31 December 1996. It also contained the following:

``WHAT THIS RULING IS ABOUT:

The question of the application of subsections 23(e) and 23(g) of the Income Tax Assessment Act.

THE SUBJECT OF THE RULING

Whether the income of NSAA is exempt from income tax under either subsection 23(e) or subsection 23(g) of the Income Tax Assessment Act

COMMENCEMENT OF ARRANGEMENT

Immediate...''

There is no attempt made in the document, which is a single page, to identify the arrangement to which the ruling relates either by reference to matters set out in a document or otherwise. The document terminates with the ruling as follows:

``The National Speakers Association of Australia Inc. is not considered to be exempt from income tax under either subsections 23(e) or 23(g)(v) of the Income Tax Assessment Act.''

It may be possible to draw an inference that, by the private ruling, the Commissioner was making a ruling as to whether the income of the Association would be exempt, in the light of the material which had been furnished to the Commissioner by the Association's solicitor. However, it is clear that the notice of private ruling does not purport to identify and does not in fact identify any ``arrangement'' as defined in section 14ZAAA. It is not possible to glean with any certainty from that material just what scheme, plan, action, etc., is the subject of the ruling.

That is not a matter of pure form. It is an essential part of the scheme of Part IVAA that the arrangement to which the ruling relates must be identified. It is of no use to a tax payer to know that the Commissioner has made a ruling about some arrangement in relation to a particular year of income unless that arrangement and the year of income are identified with precision. It is, of course, clearly in the interests of a prospective tax payer or applicant to set out with sufficient particularity the arrangement in respect of which a ruling is sought and the year of income in respect of

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ATC 5134

which the ruling is sought. By the same token, it must then be incumbent upon the Commissioner to identify that which is the subject of the ruling.

Difficulties which arose in relation to the material before me indicate why it might not be safe to endeavour to draw inferences about the arrangement to which a ruling refers. For reasons which have not been explained and do not matter, the material which is before the Court includes material which was not before the Commissioner when the purported ruling was given. In addition, there were pages which are not before the court but which apparently were before the Commissioner when the purported ruling was given. Clearly, there ought to be no doubt as to the material which is before the Commissioner and which evidences any relevant arrangement.

I consider that the notice of ruling dated 14 November 1996 is not a valid notice of private ruling for the purpose of section 14ZAS. Accordingly, no private ruling has been made under section 14ZAT of the Act.

A secondary question which was raised by the Association, was the possible application of section 14ZAM of the Taxation Administration Act which provides that if the Commissioner considers that a private ruling cannot be made without further information and that if that information were given there would be no reason for him not to comply with the application, then the Commissioner must request the applicant to give that information to the Commissioner. It was suggested that, in the circumstances, the Commissioner ought to have requested further information from the Association concerning its arrangements for membership and the like.

Having regard to the view which I have formed in relation to the other issues raised, it is unnecessary to resolve that question. That question would have involved examination as to whether or not the Commissioner did in fact consider that a private ruling could not have been made without further information and whether or not the Commissioner could reasonably have reached that conclusion.

That leaves the primary question as to whether or not there was a valid application for a private ruling. As I have said above, the formal application declined to identify any year of income and declined to indicate whether or not the ``arrangement'' had commenced. I consider that the scheme of the legislation contemplates that the applicant must set out, with such particularity as the applicant chooses, details of an arrangement. As I have said, it is in the interests of an applicant to specify an arrangement which will bear as much resemblance as possible to an arrangement which might actually come into operation.

However, it is essential that the application identify a year of income in respect of which the ruling is sought. It need not be limited to a single year of income. It may be a past year of income, the current year of income or a future year of income as is expressly provided by section 14ZAH. Unless, the Commissioner is told what year of income he is asked to express an opinion about it appears to me that there is no application within the meaning of Part IVAA.

In the circumstances, I am disposed to conclude that there was no valid application for a ruling. It follows that the process of objection and appeal to this Court has miscarried. Accordingly, I will make a declaration that the application dated 1 October 1996 made by the Association to the Commissioner is not a valid application pursuant to section 14ZAF of the Income Tax Assessment Act and a declaration that no valid private ruling has been made by the Commissioner pursuant to section 14ZAT.

I should add that one should not be critical of those responsible for the preparation of the form. The legislation is designed to enable taxpayers to obtain efficient and hopefully inexpensive rulings before commitment to a particular course. The legislation is of its nature, technical and complex.

I note the agreement of the parties that there be no order as to the costs of these proceedings and I order that the application be otherwise dismissed.