Draft Taxation Ruling

TR 93/D41

Income tax: Taxation Appeal - effect of prior criminal conviction.

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FOI status:

draft only - for comment

Preamble

What this Ruling is about

This Ruling considers:

1. Whether it is open to an applicant in a taxation appeal to give evidence which conflicts with facts necessarily found against him as a result of a previous criminal trial in circumstances where many of the issues in the tax appeal and the criminal trial are common.

2. In certain circumstances, a party to litigation may be prevented from asserting or denying certain facts necessarily determined against that party in prior litigation. There are a number of rules which variously deal with this issue. They are the doctrine of res judicata, the doctrine of issue estoppel and abuse of process.

3. The doctrine of res judicata operates to prevent any action being brought where a final judgement has been entered in that particular cause of action between the parties.

4. Issue estoppel operates to prevent a party to litigation in certain circumstances from raising or denying in subsequent litigation an issue of fact or law that has previously been the subject of judicial determination between the same parties. This rule applies predominantly to civil proceedings.

5. Further, it may be an abuse of process for a party to commence proceedings for the purpose of challenging a final decision of another court of competent jurisdiction in circumstances where the litigant commencing the second proceedings had a full opportunity to contest the decision sought to be challenged.

6. This ruling has been issued as a result of the decision of the Full Federal Court in Saffron v Federal Commissioner of Taxation.

Ruling

7. An applicant in a taxation appeal may bring and conduct an appeal for the purpose of contesting his liability to tax notwithstanding that this may involve him in seeking to lead evidence which conflicts with facts necessarily found against him in previous criminal proceedings where many of the issues of fact in the tax appeal and criminal trial are common. However, he may not conduct his case for the purpose of challenging the propriety of his criminal conviction.

Date of effect

8. This Ruling applies to years commencing both before and after its date of issue.

Explanations

9. The taxpayer had been assessed on amounts of income from the operation of certain business activities and had lodged appeals against unfavourable objection decisions. In addition, he had been presented for trial on a charge of conspiring to defraud the Commonwealth and was convicted in 1987. During the conduct of the his taxation appeal, the taxpayer sought in evidence to deny that he had arranged not to declare a part of the proceeds received from the conduct of certain business operations notwithstanding that the taxpayer's denial contradicted one of the matters upon which the conviction was necessarily based. The Commissioner sought to have the taxpayer precluded from making this denial.

10. The Full Federal Court found that it is the purpose of the particular proceedings which constitutes an abuse of process, and that it had not been shown that there was any purpose connected with the taxation appeals which would constitute these appeals an abuse of process. The taxpayer was not seeking to mount an attack on the decision reached in the criminal proceedings, but merely exercising his statutory right of appeal, the appeal having been commenced prior to the conviction on the conspiracy charge.

11. The Commissioner sought to establish that the criminal conviction was conclusive proof of the essential facts on which the conviction was based. However, the Court held that the conviction is merely proof of the fact of the conviction for an offence but not of the facts underlying the conviction. In the conduct of the taxation appeal, the taxpayer in the present case did not seek to challenge the fact that he had been convicted. Accordingly, there was no element of abuse of process in the conduct of the taxpayer's taxation appeal.

12. The Court found that an argument based on issue estoppel could not have succeeded as the parties to the criminal proceedings were not the same parties as those in the taxation appeals. In addition, issue estoppel has little or no application to criminal proceedings.

13. The doctrine of res judicata was equally inapplicable, again for the reason that the parties in the criminal proceedings were not the same parties to the taxation appeals.

Commissioner of Taxation
9 September 1993

Not previously released to the public in draft form

References

ATO references:
NO BANTR1

Subject References:
appeals

Case References:
Saffron v F C of T
91 ATC 4646