Decision impact statement

Commissioner of Taxation v Hornibrook

Venue: Federal Court of Australia
Venue Reference No: NSD210/2006
Judge Name: Gyles, Stone, Young JJ
Judgment date: 28 November 2006
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• Not applicable

Subject References:
Income tax
remission of additional or penalty tax by Administrative Appeals Tribunal
Tribunal did not have power to remit additional tax in exercising its jurisdiction under s 14ZZ of the Taxation Administration Act 1953
specific prohibition in one statute not overridden by general power in complementary statute
having affirmed liability for primary tax
appeal allowed

Précis

This appeal by the Commissioner to the Full Federal Court concerned the interplay between s 43 of the Administrative Appeals Tribunal Act 1975 and the provisions of Pt IVC of the Taxation Administration Act 1953, as they formerly stood, in relation to the remission of additional or penalty tax imposed in a 1988 year amended assessment.

Brief summary of facts

The Commissioner amended the taxpayer's 1988 income tax assessment to include a further amount in assessable income upon which income tax was levied and additional tax by way of penalty (penalty tax) was imposed under section 223 of the Income Tax Assessment Act 1936.

The taxpayer objected to the amended assessment, but only against the inclusion of a further amount in assessable income. There was no ground of objection relating to penalty tax. The Commissioner disallowed the objection. The Commissioner's objection decision made no reference to penalty tax.

The taxpayer appealed to the Administrative Appeals Tribunal (the Tribunal). The taxpayer's statement of facts, issues and contentions did not raise penalty tax as an issue. The Commissioner's amended statement of facts, issues and contentions likewise made no reference to penalty tax.

The Tribunal affirmed the decision in relation to the further income but, in relation to penalty tax, remitted the matter to the Commissioner with the direction that it be remitted in full. The direction for remission of penalty tax was made without any discussion of the source of power to do so. No order was made by the Tribunal under section 14ZZK of the Taxation Administration Act 1953 (TAA) to include penalty tax as an additional ground of objection.

The Commissioner appealed to the Federal Court challenging that direction. Edmonds J dismissed that appeal. The Commissioner appealed to the Full Federal Court.

Issues decided by the court or tribunal

Gyles, Stone and Young JJ (the Court) allowed the Commissioner's appeal, holding that the Tribunal did not have the jurisdiction to remit penalty tax. Under section 14ZZ of the TAA, the Tribunal has jurisdiction to review a reviewable objection decision. A reviewable objection decision is an objection decision that is not an ineligible income tax remission decision. Broadly, under section 14ZS of the TAA an objection decision is an ineligible income tax remission decision if it relates to the remission of penalty tax and the amount of penalty tax payable does not exceed the relevant threshold amount.

In this case the amount of penalty tax assessed did not exceed the 20% per year threshold fixed by paragraph 14ZS(2)(b) of the TAA, and even though the objection decision did not refer to penalty tax it related to the remission of penalty tax because under subsection 14ZR(1) of the TAA the taxpayer's objection related to a deemed single taxation decision that included the assessment of penalty tax and associated remission of penalty tax. Thus, there was a sufficient connection between the Commissioner's objection decision and the remission of penalty tax such that, for the purposes of subsection 14ZS(2) of the TAA, the objection decision related to the remission of penalty tax.

The Court also noted that whilst section 43 of the Administrative Appeals Tribunal Act 1975 (AAT Act) gives the Tribunal broad powers to stand in the shoes of the decision maker, these general powers cannot override the clear and specific legislative intention created by sections 14ZR(2) and 14ZS of the TAA that ineligible income tax remission decisions are outside the purview of the Tribunal.

Gyles and Stone JJ also agreed at [29] with the Commissioner's alternative argument that the only decision under review by the Tribunal was that relating to primary tax by virtue of the limited scope of the objection under section 14ZZK of the TAA. As there was no relevant association between the decision as to primary tax and the decision to remit penalty tax, section 43 of the AAT Act did not empower the Tribunal to exercise the Commissioner's discretion to remit penalty tax.

Young J disagreed with the majority in this respect. In his view section 14ZZK of the TAA does not limit the powers or jurisdiction of the Tribunal and simply regulates the way in which the Tribunal is to conduct its proceedings.

During the Full Court hearing the taxpayer raised a contention as to estoppel for the first time. For this reason, Gyles and Stone JJ decided that it was appropriate to remit the matter to the Tribunal to be dealt with according to law as this would afford the taxpayer the opportunity to argue that the Tribunal's decision should not be interfered with on the basis of estoppel, if the taxpayer so decided to take that course. Young J dissented on the basis that as he was allowing the appeal by reason of sections 14ZR and 14ZS of the TAA it was unnecessary to remit it to the Tribunal.

Tax Office view of Decision

The decision upholds the policy underlying sections 14ZR and 14ZS of the TAA that the Tribunal only has the power to review remission decisions where a specified threshold amount is exceeded. It ensures that a taxpayer can not otherwise avoid the application of sections 14ZR and14ZS by not objecting against the penalty tax.

Gyles J (with whom Stone J agreed) also agreed with the Commissioner's alternative position that paragraph 14ZZK(a) confines the Tribunal's subject matter of review to those matters raised in the taxpayer's objection, unless the Tribunal orders otherwise. Thus, it is for the limited purpose of reviewing the taxpayer's objection that the Tribunal has all the powers of the Commissioner under section 43 of the AAT Act. If there is no relevant association between the power to be exercised and the subject matter of review then that power cannot be exercised by the Tribunal under section 43 of the AAT Act.

However, the comments of Gyles and Stone JJ in this respect were only obiter. It is also noted that Young J expressed the opposing view that section 14ZZK of the TAA only regulates the way in which the Tribunal is to conduct its proceedings and is directed to the parties to the review.

The Commissioner remains of the view that paragraph 14ZZK(a) confines the subject matter of review to those matters raised in the grounds of objection, and that if there is no relevant association between the power to be exercised and the grounds of objection then that power cannot be exercised by the Tribunal under section 43 of the AAT Act.

Administrative Treatment

Implications on Law Administration Practice Statements

None

Court citation:
[2006] FCAFC 170
2006 ATC 4761
65 ATR 1

Legislative References:
Administrative Appeals Tribunal Act 1975 (AAT Act)
2A
25
27
29
32
33
35
41
43
44

Income Tax Assessment Act 1936 (ITAA)
193
207
223
227
Pt VII

Taxation Administration Act 1953 (TAA)
Pt IVC
14ZL
14ZQ
14ZR
14ZS
14ZU
14ZY
14ZZ
14ZZA
14ZZK

Taxation Laws Amendment (No 3) Act 1991
The Act

Taxation Laws Amendment (Self Assessment) Act 1992
6
14
27

Case References:
Australian Securities and Investments Commission v Donald
(2003) 136 FCR 7
[2003] FCAFC 318

Berowra Holdings Pty Ltd v Gordon
(2006) 228 ALR 387
(2006) 80 ALJR 1214
225 CLR 364

Comcare v Burton
(1998) 157 ALR 522

Comcare v Etheridge
(2006) 149 FCR 522
[2006] FCAFC 27

Commissioner of Taxation v Queensland Trading & Holding Company Ltd
[2006] FCAFC 112
63 ATR 445

Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Commissioner of Taxation
(2005) 148 FCR 427
61 ATR 509
[2005] FCAFC 244

Coulton v Holcombe
(1986) 162 CLR 1

Grollo Nominees Pty Ltd and Others v Commissioner of Taxation
(1997) 73 FCR 452
97 ATC 4585
36 ATR 424

HBF Health Funds Inc v Minister for Health and Ageing
(2006) 149 FCR 291

Hoffman v Chief of Army
(2004) 137 FCR 520

Isaacs v Commissioner of Taxation
(2006) 151 FCR 427
2006 ATC 4330
63 ATR 390

Lees v Comcare and Another
(1999) 56 ALD 84
(1999) 29 AAR 350

Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom
[2006] HCA 50

O'Grady v Northern Queensland Co Ltd
(1990) 169 CLR 356

PMT Partners Pty Ltd (in liq) v Australian National Parks and Wildlife Service
(1995) 184 CLR 301

Project Blue Sky Inc v Australian Broadcasting Authority
(1998) 194 CLR 355

Saraswati v The Queen
(1991) 172 CLR 1

Secretary, Department of Social Security v Hodgson
(1992) 37 FCR 32

Thomson Australian Holdings Pty Ltd v Trade Practices Commission
(1982) 148 CLR 150

Water Board v Moustakas
(1987) 180 CLR 491