Applicant v Respondent [2010] VSC 464 | Case summary

Supreme Court of Victoria|2010-10-19|Before: Pagone J

The application of taxing provisions has become increasingly complicated, and at times uncertain, with the inevitable consequence that taxpayers must rely upon expert legal advisors to navigate their way through complex and difficult provisions. The taxpayer in this case did precisely that. The duty cast upon the lawyers by the retainer and the law was to consider provisions which were likely to apply to the transactions in question.[19] Whatever fault may be found with the legal advisors, the taxpayers took reasonable care to comply with the law by seeking advice and acting upon it. The Commissioner was in error in not considering that CLIL had taken reasonable care to comply with the taxation law. The evidence available to me would appear to satisfy the condition stipulated in s 30(3)(a) to permit the Commissioner to determine that no penalty tax was payable.

33 The conclusion that s 30(3)(a) had been satisfied might ordinarily determine the question of penalty in favour of the taxpayer if the word "may" were construed as conferring a power upon the Commissioner which had to be exercised when its pre-conditions were found to exist, rather than as conferring a discretion which might or might not be exercised. The word "may" in statutes is sometimes used to confer a power which is to be exercised if the conditions upon which the power may be exercised are found to exist. of the (Vic), however, requires that the word "may" when used in a conferring power be construed as meaning that the power so conferred "may be exercised, or not, at discretion". The proper construction of in such circumstances may be problematic. It is not clear how such a discretion is to be exercised where the statute conferring the power stipulates all of the considerations relevant to the exercise of the discretion. In particular it is not clear how might permit the Commissioner not to exercise the power if the only considerations permitted by the conferring statute to be taken into account have been satisfied. Indeed, if the Commissioner were to take into consideration factors other than those in the conferring statute it might be thought that the exercise of the discretion had been misdirected and was wrong in law. Nonetheless, the effect of upon s 30(3) of the Administration Act would appear to be to confer upon the Commissioner a discretion not to exercise the power notwithstanding that the only conditions capable of being taken into account in favour of the exercise of the discretion have been satisfied.

34 The enactment of s 45(1) may have its genesis in attempts by the legislature to counter what might superficially be perceived to be arid pedantic arguments encapsulated by such phrases as "may means shall" or "may means must". The problem with a solution to such arguments as that found in s 45(1) is that it may strike indiscriminately both at the arid pedantic arguments as well as the substantial and significant issue which lies behind them: namely, that sometimes the legislature has used the word "may" to confer a power which is to be exercised when the conditions it has determined for its exercise have been found to exist and which is to be exercised only by reference to the criteria which the legislature has identified as those which must be considered. In such cases there is no room for the repository of the power refusing to exercise it as a matter of discretion by criteria which are not stipulated by the legislature and which may be inconsistent with those that are. Section 45(1) leaves uncertain the basis upon which the power "may" not be exercised where the statutory criteria upon which the power could be exercised have been established. For present purposes, however, it may be sufficient that I indicate that I would have remitted the matter back to the Commissioner for re-exercising the discretion in accordance with the law.

35 In the circumstances of this case I will order that the appeal be allowed, that the objection decision be set aside, that the objection be allowed in full and that the respondent pay the costs of the appellant including all reserved costs subject to any submission which the parties may make about costs.

[1] [2010] VSCA 197 (Unreported, Neave, Harper and Hansen JJA, 6 August 2010).

[2] Cf Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; (2007) 158 FCR 325, 327 [3] (Allsop J).

[3] Explanatory Memorandum, Statute Taxation Acts (Tax Reform) Bill 2004 (Vic) 24.

[5] Victoria, Parliamentary Debates, Legislative Assembly, 13 May 2004, 1314 (John Brumby).

[6] Duties Act 2000 (Vic) ch 3 div 6.

[7] Other than the condition discussed above in [4] - [6].

[9] Bell v Federal Commissioner of Taxation [1952] HCA 34; (1953) 87 CLR 548, 573 (Dixon CJ, Williams, Webb, Fullagar and Kitto JJ); Federal Commissioner of Taxation v Lutovi Investments Pty Ltd [1978] HCA 55; (1978) 140 CLR 434, 444 (Gibbs, Stephen, Mason, Murphy and Aickin JJ).

[10] Federal Commissioner of Taxation v Energy Resources of Australia [1994] FCA 1521; (1994) 126 ALR 161, 204 (Hill J); Kiwi Brands Pty Ltd v Federal Commissioner of Taxation (1997) 148 ALR 605.

[11] Cf Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520.

[12] Bell v Federal Commissioner of Taxation [1952] HCA 34; (1953) 87 CLR 548, 573 (Dixon CJ, Williams, Webb, Fullagar and Kitto JJ).

[13] Newton v Federal Commissioner of Taxation [1958] UKPCHCA 1; (1958) 98 CLR 1; Federal Commissioner of Taxation v Lutovi Investments Pty Ltd [1978] HCA 55; (1978) 140 CLR 434, 444 (Gibbs, Stephen, Mason, Murphy and Aickin JJ).

[15] Victoria, Parliamentary Debates, Legislative Assembly, 13 May 2004, 1314 (John Brumby).

[19] Bristol & West Building Society v May May & Merrimans (a firm) [1996] 2 All ER 801, 809 (Chadwick J).

[20] Finance Facilities Pty Ltd v Federal Commissioner of Taxation [1971] HCA 12; (1970) 127 CLR 106.

[21] Shields v Chief Commissioner of Police [2008] VSC 2 (Unreported, Bell J, 30 January 2008) [95]-[113].

Administration Act 1997

Legislation Act 1984

(b) Where a tax is imposed subject to a discretionary dispensing power, the purpose of the dispensing power is to avoid the need to specify the minutiae of every circumstance where the tax burden is to be relieved. However, the dispensing power is incidental and ancillary, and must not defeat the primary object of the taxing legislation. See Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1968) 119 CLR 365 at 381 per Menzies J and Federal Commissioner of Taxation v Swift [1989] FCA 413; (1989) 20 ATR 1434 at 145 per French J. The dispensing power is thus to deal with unforseen or unexpected consequences arising on the facts of a particular case.

(c) In the context of Part 2 of Chapter 3 of the Act, given that the legislation already contains very detailed provision for which (sic) is and is not to be brought to duty, it is considered that the scope for exercise of the discretion in section 85(2) is limited. This is reflected in the Revenue Ruling DA.036 where the Commissioner has described his approach to section 85(2) stating (at page 4 of the Ruling):

Applicant v Respondent

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