Appellants v Respondent

The objection is disallowed on the ground that the unencumbered dutiable value of the dutiable property ... is $8,680,000, being the amount for which Lot J might reasonably have been sold in an open market ... free from any encumbrance...

Does s9(3) limit the operation of ss109 and 112?

14 The Commissioner's present application is made under s109 of the Act, which provides as follows:

Grounds of review or appeal

On a review or an appeal -

(a) the taxpayer's case is limited to the grounds of the objection; and

(b) the Commissioner's case is limited to the grounds on which the objection was disallowed -

unless the Tribunal [being VCAT, the Victorian Civil and Administrative Tribunal] or Court otherwise orders.

15 The parties agreed that it was appropriate that I consider the application in advance of the hearing of the appeal, as its outcome will necessarily affect the evidence which will need to be obtained prior to that hearing.

16 On the hearing of an appeal, this court may "make any order it thinks fit and may by order confirm, reduce, increase or vary the assessment or decision" (s112). If ultimately successful on the new ground, the Commissioner would seek an order that the assessment be increased. Whilst the parties' arguments focussed largely on s109, I regard s112 as equally important to my decision. If there were some time limit which would prevent the Commissioner from succeeding on the new ground at the hearing of the appeal, that would be an important consideration in deciding whether to permit the Commissioner to raise the new ground at all. I note that s112 itself contains no time limit for the exercise of those very broad powers.

17 The taxpayers argue that in seeking to rely on a new ground of disallowance which might lead to an increase in tax liability, the Commissioner is "in reality" carrying out a reassessment. Accordingly, they argue that ss109 and 112 must be read subject to s9(3) of the Act, which provides as follows:

The Commissioner cannot make a reassessment of a tax liability more than 3 years after the initial assessment of the liability, unless -

(a) the reassessment is to adjust tax to give effect to a decision on an objection, review or appeal as to the initial assessment; or

(b) at the same time the initial assessment or a reassessment was made, all the facts and circumstances affecting the tax liability under the relevant taxation law of the person in respect of whom the assessment or reassessment was made were not fully and truly disclosed to the Commissioner; or

(c) the reassessment is authorised to be made more than 3 years after the initial assessment by another taxation law.

18 It is common ground that none of the exceptions in (a) to (c) apply, and that if s9(3) does apply, the 3 year period would have expired in October 2005. There is no dispute that had the Commissioner received his valuation 4 weeks earlier than he did, he could have made a reassessment within the time limit.

19 I agree with the Commissioner that s9(3) has no application here, because reliance on the new ground in the appeal will not involve the making of "a reassessment". "Reassessment" is defined in s3 of the Act to mean "reassessment of tax liability under s9". Section 9 contains a specific administrative procedure, which may be used by the Commissioner on one or more occasions, and which may result in an increase or decrease in tax liability. As discussed below, it is quite different to the varying of an assessment by order of this court or VCAT, even though the final monetary result in each case may be the same.

20 It is helpful to consider in more detail the structure of the Act and the relationship between the assessment, review and appeal provisions. The Act makes general provision for the administration and enforcement of various State taxation laws. It includes a regime for the assessment and payment of tax liabilities, as well as mechanisms for challenging such assessments.

21 The Commissioner's powers of assessment are contained in part 3 of the Act. There are several types of assessment, all of which are simply referred to as "assessments" in the Act (s3):

(b) One or more reassessments under s9(1). Reassessments are subject to the time limit in s9(3);

(c) An assessment by way of estimate under s11(1), where the Commissioner has insufficient information to make an exact assessment; and

(d) A compromise assessment under s12(1), where it is difficult or impracticable to determine the tax liability without undue delay or expense, because of the complexity or uncertainty of the case. In such a case, the Commissioner may assess liability in an amount agreed with the taxpayer.

22 Any assessment may be withdrawn within 3 years of service of the notice of assessment, whether or not the tax specified in the notice has been paid (s13). If the Commissioner makes or withdraws an assessment, the Commissioner must serve a notice of the same on the taxpayer (s14(1)).

23 The amount of tax stated in a notice of assessment (including a reassessment) is payable by the date specified in the notice (s14(3)). Failure to pay the tax on time results in liability to pay interest and penalty tax under part 5 of the Act.

24 A taxpayer who is dissatisfied with an assessment may lodge a written objection, which the Commissioner is required to consider and either allow or disallow in whole or in part (division 1 of part 10). In the case of an objection to a reassessment, the grounds of objection may only relate to tax liabilities to the extent that they are greater than those under the previous assessment (s97(2)). On an objection, the objector has the onus of proving its case (s98).

25 If dissatisfied with the Commissioner's determination on the taxpayer's objection to assessment, the taxpayer may either seek review by VCAT or bring an appeal in this court (division 2 of part 10). On a review or appeal, the taxpayer has the onus of proving its case (s110). As previously mentioned, section 112 (and s111, the equivalent provision for reviews by VCAT) gives the court very broad powers in the event of an appeal, including, amongst other things, power to increase the assessment.

26 If the court determines that the original assessment is wrong, then the Commissioner can make a reassessment to give effect to that judicial decision. Section 9(3)(a) expressly allows the Commissioner to make such a reassessment, even though more than 3 years may have elapsed since the original assessment. If the court's power to order the variation of an assessment was limited by a 3 year time limit, there would be no purpose to the exception in s9(3)(a).

27 There is no time limit contained within ss109 or 112 themselves. Had the legislature intended to limit the exercise of either power by some form of temporal consideration, it could easily have done so. The absence of such a time limit may be explained at least in part by the following. On the one hand, a taxpayer does not determine whether or not an assessment or reassessment should be made or withdrawn; that is purely a decision for the Commissioner. The imposition of a 3 year time limit on the withdrawal of assessments, or the making of reassessments, was presumably intended to give taxpayers some certainty in the organising of their financial affairs. On the other hand, the taxpayer, not the Commissioner, is the only person who decides whether or not to commence and continue with an appeal or review. To that extent, the taxpayer has a choice whether or not to pursue litigation which may lead to an alteration of its tax liability, and can factor the uncertainty of litigation into its financial planning.

28 In this case, if the taxpayers choose to discontinue the appeal then, because the time for administrative reassessment has expired and because s9(3)(a) could not apply, there would no longer be any mechanism for the Commissioner to seek higher duty than that already paid.

Construction of s109

29 The expression "unless the court otherwise orders" is facultative, empowering the court (or VCAT) to allow the parties to alter their cases. In Lighthouse Philatelics Pty Ltd v Commissioner of Taxation[1], the Full Federal Court considered the meaning of that expression in the context of an equivalent provision in Commonwealth income tax legislation[2] and made the following observation:

The words ... are on their face wide and unambiguous. They empower the Tribunal, or the court as the case may be, to relieve the taxpayer from the constraint of that subsection. Unless there is something in the legislative history or context which requires a departure from the literal meaning of the words, they should be given effect to.[3]

30 The Full Court noted that the words were "of a remedial kind and thus must be construed in accordance with well-established principles relating to ameliorating legislation."[4] Lighthouse Philatelics was followed by Northrop J in McLean v Commissioner of Taxation.[5] His Honour described the power as "an unfettered discretion remedial in nature to overcome a mischief resulting in injustice."[6] The hardship which was to be relieved in those cases was the hardship of the taxpayer being held to its original grounds of objection.

31 Here, the legislature has given the court and VCAT a broad power to permit either the taxpayer or the Commissioner to be relieved from the hardship of being bound by their original arguments. There is nothing in the legislative history or context of s109 which would require the court's broad power to be read down in some way.

Discretionary matters

Alleged valuation flaws

32 The taxpayers assert that there are various defects in the Commissioner's valuation report and it ought not be relied upon by the court. I am not persuaded that the Commissioner's valuation report is so obviously flawed that it should preclude the Commissioner from even relying on it. Beyond that observation, the merits of the various valuations are matters to be determined at the hearing of this appeal, not on an application such as this.

Delay

33 I have already explained why there is no time bar to the making of this application. The taxpayers nevertheless argue that the Commissioner has delayed to such a degree that I should refuse the application in the exercise of my discretion under s109.

34 True it is that the Commissioner delayed for about 15 months in setting down the appeal, without satisfactory explanation. But since the appeal was set down, the taxpayers have been fairly leisurely in prosecuting it. They also took about 12 months to provide the last of the documents requested by the Commissioner, despite court orders and repeated requests to do so. Furthermore, the Commissioner foreshadowed at the time of setting down that this application might be made once all the necessary documents had been provided. Whilst I accept that not all of the documents sought by the Commissioner may have been necessary for valuation purposes, some of them undoubtedly were. The Commissioner commenced this application soon after the Valuer-General's valuation was received. No prejudice has been demonstrated as having flown from any delay by the Commissioner, and I would not refuse to grant leave on the basis of delay.

35 The taxpayers also argue that they will be substantially prejudiced if the Commissioner is allowed to rely on the new ground, as they will have to spend money retaining new valuers to provide a valuation for the property, some years after the transfer. That is because the valuer who performed the initial valuation for the taxpayers, Mr Darren Wingjam, has joined the police force and has not practised as a valuer since September 2003.

36 It is not uncommon for valuers to be asked to value real property many years after the valuation date; there is no evidence that this would not be a feasible task for a new valuer to perform in this case (indeed, that is precisely what the Valuer-General had to do). Any additional costs which may be incurred in engaging a new valuer can be dealt with at the hearing of the appeal, depending on its result and what use is made of the various valuations. The taxpayers will be given reasonable time to obtain a further valuation report, if they wish to do so.

37 Quite apart from the present application, the taxpayers' objection raises some valuation issues, in support of which I assume they will need to adduce some evidence from a valuer, whether that be Mr Wingjam or a new valuer.

38 It follows that I am not satisfied that the Commissioner's application should be denied on the basis of any prejudice which may be suffered by the taxpayers.

Land tax assessments

39 The taxpayers seek to draw comfort from land tax assessment notices issued by the Commissioner between October 2003 and June 2005. In those notices, the unimproved value of the property varies from approximately $2.8 to $3.6 million.

40 Those amounts are not "similar to" the amount of the taxpayers' valuation, as suggested in the taxpayers' first outline of submissions. Any suggestion that the Commissioner has somehow adopted the taxpayers' valuation for all purposes, and ought not be allowed to change that position, is misconceived.

41 The taxpayers relied on the land tax assessments in a different manner in oral submissions. They argued that the fact that the Commissioner used different figures demonstrates that the Commissioner was able to obtain his own valuations without waiting for any documents from them. As I understand their argument on this point, they seem to be saying that the Commissioner would have been able to make a reassessment within 3 years and should have done so, and should therefore not be allowed to make this application. The argument is misconceived, quite apart from the fact that there is no time limit for an application under s109. Land tax is assessed on a different basis to stamp duty and is generally based on site values calculated by a rating authority for rates purposes. The fact that land tax assessment notices were issued does not establish that the Commissioner did obtain, or could have obtained, a valuation without the taxpayers' documents.

Conclusion

42 For the reasons discussed above, I conclude:

(a) There is no time limit which would prevent the Commissioner from making this application under s109, or seeking at the hearing of the appeal an order under s112 increasing the assessment;

(b) Section 109 confers an unfettered discretion, which is remedial in nature;

(c) There is no discretionary consideration which would suggest that the Commissioner's application should be refused.

43 I will hear from the parties as to the form of orders, any consequential directions and costs.

[1] (1991) 32 FCR 148.

[2] Section 190(a) of the Income Tax Assessment Act 1936.

[3] At 150.

[4] At 156.

[5] (1996) 66 FCR 106.

[6] At 116.