Asiamet (No. 1) Resources Pty Ltd v Federal Commissioner of Taxation

ASIAMET (NO. 1) RESOURCES PTY LTD & ORS v FEDERAL COMMISSIONER OF TAXATION N29 OF 2002 N922 OF 2002 N1066 OF 2002

N29 OF 2002 BETWEEN: ASIAMET (NO. 1) RESOURCES PTY LIMITED

CONSOLIDATED PRESS ENTERTAINMENT PTY LIMITED ACN 070 506 606

CONSOLIDATED PRESS FINANCIAL SERVICES PTY LIMITED ACN 008 457 869

CONSOLIDATED PRESS INVESTMENTS PTY LIMITED ACN 000 089 118

TORANAGA PTY LIMITED (formerly known as Dorigad Pty Limited) ACN 056 229 728

TELEVISION CORPORATION OF AUSTRALIA PTY LIMITED ACN 003 181 404

1. the matter be stood over for further directions on 7 February 2003;

2. the parties be directed to bring in short minutes of orders to give effect to these Reasons and any submissions that they or it wish to make as to costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

N922 OF 2002 BETWEEN: ASIAMET (NO. 1) RESOURCES PTY LIMITED

CONSOLIDATED PRESS ENTERTAINMENT PTY LIMITED ACN 070 506 606

CONSOLIDATED PRESS FINANCIAL SERVICES PTY LIMITED ACN 008 457 869

CONSOLIDATED PRESS INVESTMENTS PTY LIMITED ACN 000 089 118

TORANAGA PTY LIMITED (formerly known as Dorigad Pty Limited) ACN 056 229 728

TELEVISION CORPORATION OF AUSTRALIA PTY LIMITED ACN 003 181 404

1. the matter be stood over for further directions on 7 February 2003;

2. the parties be directed to bring in short minutes of orders to give effect to these Reasons and any submissions that they or it wish to make as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

N1066 OF 2002 BETWEEN: ASIAMET (NO. 1) RESOURCES PTY LIMITED

CONSOLIDATED PRESS ENTERTAINMENT PTY LIMITED ACN 070 506 606

CONSOLIDATED PRESS FINANCIAL SERVICES PTY LIMITED ACN 008 457 869

CONSOLIDATED PRESS INVESTMENTS PTY LIMITED ACN 000 089 118

TORANAGA PTY LIMITED (formerly known as Dorigad Pty Limited) ACN 056 229 728

TELEVISION CORPORATION OF AUSTRALIA PTY LIMITED ACN 003 181 404

1. the matter be stood over for further directions on 7 February 2003;

2. the parties be directed to bring in short minutes of orders to give effect to these Reasons and any submissions that they or it wish to make as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

N29 OF 2002 BETWEEN: ASIAMET (NO. 1) RESOURCES PTY LIMITED

CONSOLIDATED PRESS ENTERTAINMENT PTY LIMITED ACN 070 506 606

CONSOLIDATED PRESS FINANCIAL SERVICES PTY LIMITED ACN 008 457 869

CONSOLIDATED PRESS INVESTMENTS PTY LIMITED ACN 000 089 118

TORANAGA PTY LIMITED (formerly known as Dorigad Pty Limited) ACN 056 229 728

TELEVISION CORPORATION OF AUSTRALIA PTY LIMITED ACN 003 181 404

N922 OF 2002 BETWEEN: ASIAMET (NO. 1) RESOURCES PTY LIMITED

CONSOLIDATED PRESS ENTERTAINMENT PTY LIMITED ACN 070 506 606

CONSOLIDATED PRESS FINANCIAL SERVICES PTY LIMITED ACN 008 457 869

CONSOLIDATED PRESS INVESTMENTS PTY LIMITED ACN 000 089 118

TORANAGA PTY LIMITED (formerly known as Dorigad Pty Limited) ACN 056 229 728

TELEVISION CORPORATION OF AUSTRALIA PTY LIMITED ACN 003 181 404

N1066 OF 2002 BETWEEN: ASIAMET (NO. 1) RESOURCES PTY LIMITED

CONSOLIDATED PRESS ENTERTAINMENT PTY LIMITED ACN 070 506 606

CONSOLIDATED PRESS FINANCIAL SERVICES PTY LIMITED ACN 008 457 869

CONSOLIDATED PRESS INVESTMENTS PTY LIMITED ACN 000 089 118

TORANAGA PTY LIMITED (formerly known as Dorigad Pty Limited) ACN 056 229 728

TELEVISION CORPORATION OF AUSTRALIA PTY LIMITED ACN 003 181 404

PRELIMINARY.................................................................................................................. 1-5 STATUTORY FRAMEWORK......................................................................................... 6-10 FACTUAL BACKGROUND.......................................................................................... 11-58 THE CPH PROPERTY LITIGATION.................................................................... 14-25 THE DETERMINATIONS UNDER PART IVA..................................................... 26-37 THE REQUESTS TO ALLOW FURTHER TIME TO TRANSFER LOSSES.......... 38-46 THE REQUESTS FOR COMPENSATING ADJUSTMENTS............................... 47-52 THE REQUESTS FOR DEFERMENT OF PAYMENT OF TAX........................... 53-58 EXTENSION OF TIME FOR TRANSFER OF LOSSES - N29 OF 2002................................................................................................................ 59-120 THE COMMISSIONER'S DECISION................................................................... 59-71 GROUNDS OF REVIEW....................................................................................... 72-73 Denial of Procedural Fairness................................................................ 74-85 Apprehended Bias................................................................................... 86-93 Errors of Law and Application of Unlawful Policy.............................. 94-112 Improper Exercise of Power............................................................... 113-119 CONCLUSION AS TO EXTENSION OF TIME FOR TRANSFER OF LOSSES.......................................................................................... 120 DELAY IN DETERMINATION UNDER SECTION 177F(1)(b) - N922 OF 2002............................................................................................................ 121-125 GROUNDS OF REVIEW.......................................................................................... 121 CONCLUSION AS TO DELAY......................................................................... 124-125 DEFERMENT OF TIME FOR PAYMENT OF TAX - N1066 OF 2002 ............................................................................................. 126-148 THE COMMISSIONER'S DECISION....................................................................... 126 GROUNDS OF REVIEW.......................................................................................... 127 Errors of Law..................................................................................... 128-132 Breach of the Rules of Natural Justice............................................... 133-140 Improper Exercise of Power............................................................... 141-147 CONCLUSION AS TO EXTENSION OF TIME FOR PAYMENT......................... 148 DISPOSITION OF PROCEEDINGS................................................................................. 149 APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4

PRELIMINARY 1 These three proceedings arise as a consequence of determinations made under Part IVA of the Income Tax Assessment Act 1936 (Cth)('the Act') by the respondent in each proceeding, the Commissioner of Taxation ('the Commissioner'). The determinations led to the disallowance by the Commissioner of deductions claimed by Australian Financial Times Pty Limited ('AFT'). The disallowance meant that AFT did not incur losses in various years of income as it had claimed. Part of those losses had been transferred to seventeen applicant companies ('the Taxpayer Companies'). The Taxpayer Companies therefore sought to transfer other losses from Consolidated Press (Finance) Limited ('CPF'). AFT, CPF and the Taxpayer Companies are all members of the Consolidated Press Holdings Limited group of companies ('the CPH Group'). 2 In each of the proceedings, judicial review is sought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act') in respect of decisions made by the Commissioner, either under the Act or under the Taxation Administration Act 1953 (Cth) ('the Administration Act'), in consequence of the determinations. The three proceedings have been heard together and evidence in each has been admitted as evidence in the other two. 3 The proceedings involve the following: · Proceeding N29 of 2002: decisions of the Commissioner made on 30 October 2001 refusing applications made for extension of time to transfer losses totalling $126,509,886.00 from CPF to the Taxpayer Companies, to replace the losses that had been transferred by AFT. CPF is the eighteenth applicant in this proceeding. · Proceeding N922 of 2002: failure by the Commissioner to determine applications by the Taxpayer Companies for the Commissioner to make compensating adjustments in consequence of the Commissioner's disallowance of the deductions claimed by AFT. · Proceeding N1066 of 2002: the Commissioner's decisions refusing requests by the Taxpayer Companies under the Administration Act for deferment of the time for payment of tax totalling $84,488,268.53 payable under assessments issued following the refusal of the Commissioner to allow transfers of losses to them. 4 Each proceeding raises separate issues, although much of the factual background is common to all three proceedings. Further, it is possible that, if the Taxpayer Companies and CPF are successful in proceeding N29 of 2002, that could have consequences in relation to the conduct of the Commissioner that is under challenge in proceedings N922 of 2002 and N1066 of 2002. For example, if the Commissioner's decisions under challenge in proceeding N29 of 2002 were to be set aside and decisions favourable to the Taxpayer Companies were subsequently made by the Commissioner, that could have a bearing on whether the Taxpayer Companies would pursue the question of compensating adjustments. Further, the assessments that give rise to the liability for tax that is the subject of the decisions under challenge in proceeding N1066 of 2002 may be excessive if such a favourable decision were made by the Commissioner. However, I shall consider the issues in each of the three proceedings on the basis that the position of the Commissioner under challenge in the other proceedings stands as it is. 5 Before setting out the factual background to the decisions in question in the three proceedings, I shall say something about the statutory framework under which the decisions arise.

STATUTORY FRAMEWORK 6 Under Subdivision A of Division 3 of Part III of the Act, provision is made in certain circumstances for losses incurred by a company in a year of income to be carried forward and to be allowable as deductions against income of that company in subsequent years of income. Under s 80G of the Act, which was inserted in 1984, provision was made for the transfer of losses within a company group. Section 80G(6) provides that, subject to s 80, where: · a resident company (referred to as 'the Loss Company') is deemed to have incurred a loss for the purposes of s 79E or s 80 (which deal with the carrying forward of losses); · another resident company (referred to as 'the Income Company') has a taxable income; · the Loss Company and the Income Company agree that the right to an allowable deduction in respect of so much of the whole or part of a loss as has not been allowed as a deduction should be transferred to the Income Company; and · certain other prerequisites are satisfied; the amount of the loss is to be deemed, for the purposes of the application of the Act, to be a loss incurred by the Income Company. Under s 80G(6A)(b), however, the agreement between the Loss Company and the Income Company must be made before the date of lodgement of the return of income of the Income Company for the income year or within such further time as the Commissioner allows. 7 At the relevant time, s 79D of the Act provided for a limitation on deductions in respect of foreign income. The general purpose and intended effect of s 79D was to quarantine deductions incurred in relation to foreign income to the amount of the foreign income. The effect of s 79D(1) was as follows: · where there were one or more foreign income deductions of a taxpayer in relation to a class of assessable foreign income in relation to a year of income and the taxpayer did not derive any assessable foreign income of that class in the year of income then, for the purposes of the Act, those deductions were reduced to nil. · where there were one or more foreign income deductions of a taxpayer in relation to a class of assessable foreign income in relation to a year of income and the taxpayer derived assessable foreign income of that class in a year of income and its amount was exceeded by the sum of the foreign income deductions, then, for the purposes of the Act, those deductions were reduced by amounts proportionate to those deductions and equal in total to the amount of the excess.

The terms 'assessable foreign income', 'class of assessable foreign income' and 'foreign income deduction' were defined in s 160AFD of the Act. 8 Part IVA of the Act deals with 'SCHEMES TO REDUCE INCOME TAX'. For Part IVA to apply to a scheme, each of the elements of s 177D must be satisfied. Those elements may be summarised as: (1) a 'scheme' as that expression is defined in s 177A(1) of the Act; (2) the obtaining by a taxpayer of a 'tax benefit' as that expression is defined in s 177C of the Act; (3) a conclusion, having regard to the various matters referred to in s 177D(b), as to the dominant purpose of one of the people who entered into or carried out the scheme or part of the scheme. Under s 177F(1) of the Act, where a tax benefit has been obtained by a taxpayer in connection with a scheme to which Part IVA applies, the Commissioner may, relevantly, in the case of a tax benefit that is referable to a deduction being allowable to the taxpayer, determine that the whole, or a part, of the deduction shall not be allowable to the taxpayer. Where the Commissioner makes such a determination, he or she must take such action as he or she considers necessary to give effect to that determination. 9 Under s 177F(3) of the Act, where the Commissioner has made such a determination in respect of a taxpayer in relation to a scheme, and if, in the opinion of the Commissioner:

• an amount would have been allowed or would be allowable to the Relevant Taxpayer as a deduction if the scheme had not been entered into or carried out, being an amount that was not allowed or would not be allowable as a deduction to the Relevant Taxpayer, and
• it is fair and reasonable that that amount or a part of that amount should be allowable as a deduction to the Relevant Taxpayer, the Commissioner may, in relation to any taxpayer (referred to as 'the Relevant Taxpayer'), determine that that amount should have been allowed or shall be allowable, as the case may be, as a deduction to the Relevant Taxpayer. 10 Section 255-10 of the Administration Act provides that the Commissioner may, having regard to the circumstances of a particular case, defer the time at which an amount of a tax related liability is, or would become, due and payable by a taxpayer. If the Commissioner does so, the time is varied accordingly. Under s 255-1 of the Administration Act, a tax related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law, including the Act.

FACTUAL BACKGROUND 11 In the years of income ended 30 June 1992 to 30 June 1998 inclusive ('the years of income in question'), AFT made interest payments to CPF. The interest was paid in respect of loans made by CPF to AFT to enable AFT to subscribe for redeemable preference shares in Murray Leisure Group Pty Limited ('MLG'), which is an Australian resident. MLG in turn applied the funds received from that subscription in subscribing for shares in a company incorporated in the United Kingdom ('CPL (UK)'). (Subsequently, MLG sold some of its shares in CPL (UK) to a company incorporated in the Bahamas ('CPL Bahamas')). 12 Because of the interest payments made by AFT to CPF, AFT incurred losses in respect of the years of income in question. Subsequently, AFT entered into an agreement pursuant to s 80G(6A), in respect of each of those years, with one or more of the Taxpayer Companies to transfer the right to allowable deductions in respect of part of those losses. The Taxpayer Companies accordingly claimed the amounts of the transferred losses as allowable deductions for certain of the years of income in question. 13 As a result of the Commissioner's making a determination under Part IVA, the interest payments made by AFT to CPF are not to be allowed as deductions. AFT therefore did not have losses to transfer to the Taxpayer Companies. The Taxpayer Companies therefore sought an extension of time to transfer other losses, being losses incurred by CPF. Before dealing with the factual background to the Commissioner's decision in relation to the application for an extension of time for the transfer of other losses to the Taxpayer Companies, it is desirable to say something about certain litigation that preceded the Commissioner's determination under Part IVA of the Act.

THE CPH PROPERTY LITIGATION 14 Prior to the events that led to these proceedings, there were disputes between the Commissioner, on the one hand, and members of the CPH Group, on the other hand. The disputes related to the years of income ended 30 June 1990 and 30 June 1991 and assessments in respect of those years issued to CPH Property Pty Limited ('CPH Property') and other members of the CPH Group. The disputes concerned the deductibility of interest payments made in those years by CPH Property to CPF. 15 On 7 April 1993, an officer of the Australian Taxation Office ('the ATO') wrote to Ernst & Young, the tax agents of the members of the CPH Group, in connection with an audit of the CPH Group. The letter enclosed a memorandum that, inter alia, formulated a number of issues. One of the issues was as follows: '3.2 Is the arrangement whereby [CPH Property] borrows funds from CPF to subscribe for redeemable preference shares in MLG, to allow MLG to subscribe for shares in CPIL (UK), a scheme or part of a scheme for the purpose, or dominant purpose, of obtaining a tax benefit?' 16 On 26 July 1994, a meeting took place between representatives of the ATO and representatives of Ernst & Young. In the course of the meeting, one of the representatives of the ATO put forward arguments as to why Part IVA should be applied in relation to an alleged scheme under Part IVA of the Act. The scheme was formulated as follows: '*Instead of investing directly overseas, capitalised another resident company in group (MLG), who in turn used those funds to acquire shares in CPIL (UK). … *Dividends from MLG not offset against interest deduction as Aust. sourced dividends not foreign sourced, [Esquire Nominees Ltd v FCT (1972) 3 ATR 105]. *Part IVA applies as our conclusion on the facts is that the dominant purpose of the group in structuring the transactions in this way is to avoid the application of subsection 51(1) and 79D in relation to the interest/discount expense. *Part IVA is applied to strike down the arrangement involving the interposition of MLG between the resident group that incurs the interest expense and the non resident company to which capital is contributed.' Thus, the representatives of the Commissioner were advancing an argument that foreshadowed the argument applied by the Commissioner in relation to the determination under Part IVA made in respect of AFT. 17 On 26 August 1994, Ernst & Young wrote to the Commissioner responding to the arguments advanced at the meeting of 26 July 1994. In particular, Ernst & Young said: 'You also seek to invoke Part IVA in conjunction with s 79D to disallow interest deductions claimed by ACP on the basis (as advised in our meeting on 26 July 1994) that your reconstruction of the facts for Part IVA purposes involved MLG being replaced by ACP, such that ACP should be regarded as investing directly into CPIL(UK), or CPIL (Bahamas), as relevant. We must point out we strenuously disagree with you in relation to this interpretation of the application of s 79D and Part IVA. Leaving aside the fact that at no stage have you requested a commercial explanation of the transactions in question, you have clearly failed to consistently apply this substituted fact pattern.' 18 The ATO responded on 7 September 1994 saying, relevantly: 'Referring to the s 79D/Part IVA issue, we are quarantining interest expenses incurred by ACP, MLG and [AFT] in purchasing shares in the UK entities. As these amounts were paid to CPF, they are not in any way directly related to any valuation of the UK companies but are an additional expense claimed by the companies to purchase those shares. On this basis, it cannot be argued that we are double counting the same sum of money to tax in a different and inconsistent way.' The reference to 'discount' is a reference to the fact that part of the funding in question was arranged by means of a bill discounting rather than a direct loan. 19 On 21 December 1994, a delegate of the Commissioner made a determination under Part IVA in respect of AFT. By the determination, s 177F(1) was applied to disallow, as a deduction of AFT for the year ended 30 June 1992, the sum of $64,629,000 that had been claimed as '[d]eduction for discount on Bill quarantined under s 79D'. An adjustment sheet dated 21 December 1994 in respect of AFT showed that the net loss as claimed by AFT had been reduced by the sum of $64,629,000 in respect of '[d]eduction for discount on bill of exchange quarantined'. 20 On the basis of that determination, the Commissioner then issued assessments and amended assessments. The assessments led to appeals to the Federal Court, which were dealt with by Hill J (see CPH Property Pty Ltd v Commissioner of Taxation (1998) 88 FCR 21), and subsequently, by the Full Court(see Commissioner of Taxation v Consolidated Press Holdings Ltd (No 1) (1999) 91 FCR 524). There was then an appeal by special leave to the High Court of Australia(see Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235). 21 The reports of the decisions of Hill J, the Full Court and the High Court of Australia referred to above were admitted as evidence in these proceedings, not to prove the facts found and stated in those decisions, but as evidence of the fact that those decisions had been made at the respective times at which they were made, for the reasons set out in the reports. However, much of the underlying factual background found by Hill J can be derived from the documentary evidence that was before the Court in the present proceedings. 22 In relation to the s 79D/Part IVA Scheme contended for by the Commissioner, Hill J found that there was a scheme within the meaning of s 177A(1) of the Act and that a conclusion would be drawn that the dominant purpose of some person who participated in the scheme was to bring about the result that a deduction would be allowed to the Taxpayer Companies involved that, but for the scheme, would have been disallowed to them because of the application of s 79D. However, his Honour adopted a construction of s 79D such that it had no application in the circumstances. His Honour concluded, therefore, that the taxpayers in question did not obtain a tax benefit within s 177C. 23 The Full Court disagreed with Hill J's construction of s 79D and concluded that it did apply in the circumstances then under consideration. Accordingly, while Hill J had found that Part IVA did not apply, the Full Court concluded that Part IVA did apply in the circumstances. That result was confirmed by the High Court. That, of course, is the position that had been contended for by the Commissioner and his representatives since April 1993. 24 Clearly enough, there was some doubt as to the application of s 79D in respect of the years of income in question before Hill J. The fact that Hill J reached a conclusion favourable to the taxpayers in that case indicates that the view contended for by the taxpayers was a reasonable one. On the other hand, there was judicial unanimity as to whether Part IVA applied assuming the Commissioner's construction of s 79D were correct. 25 While there may have been such doubts as to the application of s 79D to CPH Property, that doubt was removed in respect of assessments for the years of income ending 30 June 1991 and subsequent years. Section 79D was amended, with respect to that year of income and subsequent years, to deal specifically with the issue that had arisen in the proceeding before Hill J. Thus, it is reasonable to conclude that it must have been apparent to those advising the Taxpayer Companies and AFT that there was a real risk that, in respect of the years of income in question in the present proceedings, the Commissioner's contention that s 79D and Part IVA were applicable would ultimately prevail. That conclusion is relevant to the question of 'culpability' referred to below.

THE DETERMINATIONS UNDER PART IVA 26 On 17 December 1999, Mr Anthony John Bridge ('Mr Bridge'), a delegate of the Commissioner, wrote to Ernst & Young, in their capacity as tax agents of AFT and the Taxpayer Companies, saying that a '79D scheme' had operated and that, accordingly, it was proposed to disallow AFT's claim for interest deductions in the years of income in question. The letter went on to say: 'Consequently the amount of losses transferred to other companies pursuant to s 80G of the [Act] will be reduced. The income of the transferee companies will be accordingly adjusted and the imposition of incorrect penalties considered. You are invited to comment on the above proposal including submissions in regard to the imposition of penalties.' 27 Ernst & Young, replied on 17 January 2000, saying that '[o]nce the law concerning the application of section 79D is settled, we will be in a position to review how it applies to AFT in view of any relevant facts or circumstances'. However, the letter went on to say, relevantly, as follows: 'In relation to your comments that losses transferred by AFT will be reduced, we request that the Commissioner exercise his discretion and allow a period for companies in the Consolidated Press Holdings Groups (CPH Group) to enter into loss transfer agreements to replace any loss transfers that may be affected by your proposed application of s 79D. … You state that you intend to consider the imposition of incorrect penalties on loss transferee companies whose loss transfers may be reduced by virtue of the application of s 79D to AFT. Provided the Commissioner does exercise his discretion to allow CPH Group companies to enter into loss transfer agreements to replace those which may be invalid, and we see no reason why he should not, the loss transferee companies will not have any tax shortfall. That is, the quarantining of AFT's interest deductions would not, in the ordinary course, result in the CPH Group being in a tax payable position due to the availability of transferable revenue losses in other CPH Group companies. Had the taxpayers been aware section 79D applied to the interest expenses incurred by AFT (which is not conceded), transferable revenue losses from another company would have been transferred to the transferee companies. However, should the Commissioner not exercise his discretion to allow CPH Group companies to enter into loss transfer agreements to replace those which may be invalid, a matter which would be contested, the loss transferee companies will have a tax shortfall. The CPH Group companies have not, however, engaged in any culpable behaviour. …' 28 On 14 April 2000, Mr Bridge wrote to Ernst & Young saying that it was the intention to issue assessments to AFT for the years of income in question and that adjustments would be made to disallow AFT's claims for interest paid to CPF in respect of those years. The letter went on to say: 'You are advised that in respect of the loss transferee companies, it is not proposed to consider any amendment action until after the above assessments have issued to AFT. At such time I will be happy to discuss and receive submissions on loss transfers or on any other issue you may care to raise.' 29 On 19 April 2000, Ernst & Young wrote to the Commissioner in response to the letter of 14 April 2000. The letter expressed the view that compensating adjustments under s 177F of the Act should accompany the adjustments that the Commissioner was then proposing to make. Ernst & Young said that, provided such compensating adjustments were made, AFT would be in a tax loss position for the years of income in question despite the fact that a portion of its interest expenses had purportedly be quarantined. The letter then said: 'In the event that you do not propose to make compensating adjustments… we would seek the exercise of the Commissioner's discretion to allow loss transfers from other entities within the CPH Group to AFT pursuant to [s 80G(6A)(b) of the Act]. We note that the CPH Group has on previous occasions been afforded an opportunity to seek the exercise of the Commissioner's discretion to allow late loss transfers in such circumstances.' 30 Mr Bridge responded on 20 April 2000, saying that it was not proposed to make compensating adjustments for the years of income in question because the Commissioner was of the view that it was not fair and reasonable that the amounts referred to should not be included in the assessable income of MLG. The letter went on to say: 'Further in regard to your request for the exercise of the Commissioner's discretion to allow loss transfers from other entities, you are referred to ATO policy as outlined in TR98/12. Your attention is drawn in particular to the first sentence of paragraph 93 and I invite you to advise me as to reasons why this should not have application to your circumstances.' 31 The reference to TR98/12 is a reference to a ruling issued by the Commissioner on 8 July 1998 entitled 'Income Tax: Transfer of Losses: Section 80G'. Under the heading 'Exercise of the Discretion under Subsection 80G(6A)', TR98/12 relevantly says as follows: '17. Under [s 80G(6A)], a loss transfer agreement is required to be made before the date of lodgement of the return of the income company or within such further time as the Commissioner allows. [Emphasis from original] 18. In exercising the discretion under subsection 80G(6A)…, the Commissioner is guided by administrative law principles. These include an obligation to identify and consider all factors that may be relevant to the exercise of the discretion and to give them an appropriate weighting. In determining the relevant factors and their weighting, the Commissioner has regard to the policy of section 80G… and its context within the Act. Although each case must be decided on its merits, this Ruling provides a guide to taxpayers and ATO officers as to what factors may be relevant in the exercise of the discretion. 19. …[T]he statutory time limit is not to be ignored and, prima facie, agreements must be made within time. Therefore, the onus is on the taxpayer to demonstrate to the Commissioner that the case is an appropriate one for the favourable exercise of the discretion. This generally requires the taxpayer to provide an adequate explanation for the delay. 20. In cases where an agreement is sought to be made out of time as a result of an adjustment to the tax position of the company group by the Commissioner, a relevant factor is the conduct giving rise to the adjustment. For example, where there is fraud or evasion, or a scheme to which Part IVA of the Act applies, this factor weighs heavily against a favourable exercise of the discretion. Conversely, where an adjustment stems from conduct which could not be regarded as culpable, this factor would be weighted in favour of the extension of time being granted.' 32 TR98/12 then sets out further material under the heading 'Explanations'. Section E of that material is entitled 'Exercise of the Discretion under Section 80G(6A)'. After setting out the terms of s 80G(6A)(b), TR98/12 observes that this part of the ruling is intended to provide a general guide for taxpayers, and officers of the ATO when considering the exercise of the discretion. It states, nevertheless, that the decision-maker must exercise the discretion according to the merits of each case and should not fetter the discretion by inflexibly applying, or acting in blind obedience to, a policy or rule. Paragraph 84 indicates that applications for the exercise of the discretion usually fall into one of two broad categories. 33 The first category is where it can be said that there has been delay on the part of the taxpayer that results in non-compliance with s 80G(6A). The second category is where the request for an extension of time to make an agreement arises out of an adjustment to the tax position of the relevant company group by the Commissioner. Paragraphs 85 to 90 deal with non-compliance with the time limit caused by delay of the taxpayer. Paragraph 87 indicates that the Commissioner considers that the general principles need to be balanced with a consideration of the underlying policy of s 80G, which is to align the treatment of company groups with divisional companies, and the wider consideration of the proper administration of the Act. 34 Paragraphs 91 to 93 then deal with the extension of time requests arising from ATO adjustments as follows: 'Extension of time requests arising from ATO adjustments 91. In this category, there is generally compliance with the requirement to enter into loss transfer agreements within the time stipulated in [s 80G(6A)]. However, as a result of an adjustment to the taxation position of the group by the Commissioner, there is a request for an extension of time to enter into a further agreement or further agreements. 92. In Bond Corporation Holdings Ltd and Ors v Australian Broadcasting Tribunal (1988) 84 ALR 669, Gummow J stated the range of factors that can be considered in the exercise of an unfettered discretion (such as that contained in [s 80G(6A)]) is unconfined, subject to any implied limitation within the relevant legislation. It is considered there is nothing within the subject matter, scope and purpose of section 80G (Subdivision 170-A) (or the rest of the taxation legislation) that would imply any limitation upon the Commissioner to consider the conduct of a company group giving rise to an adjustment as being a relevant factor to the exercise of the discretion. 93. Accordingly, where an adjustment is made, for example, as a result of fraud or evasion, or a scheme to which Part IVA applies, then this factor generally weighs heavily against a favourable exercise of the discretion. In a sense, it could be said in these circumstances the delay is directly attributable to the actions of the taxpayer. Conversely, in cases where it cannot be said the conduct of the group is culpable in respect of its failure to comply with its obligations under the law, this is a factor which weighs in favour of an extension of time being granted (e.g., where a company was unclear as to the appropriate tax treatment for bill discounts prior to the High Court decision in Coles Myer Finance Ltd v FC of T (1993) 176 CLR 640).' 35 On 2 May 2000, Mr Bridge wrote again to Ernst & Young confirming that, as foreshadowed in the letter of 14 April 2000, it was intended to make determinations under Part IVA in relation to AFT for the years of income in question. The letter went on to say that Mr Bridge may have misunderstood the earlier request and invited Ernst & Young to furnish details of any facts that they wished the Commissioner to take into account in relation to the question of compensating adjustments. 36 On 15 May 2000, Mr Bridge made determinations, in respect of each of the years of income in question, that AFT had obtained a tax benefit, being the amount of interest paid to CPF, and that the benefit was obtained in connection with a scheme to which Part IVA of the Act applies. On the same day, Mr Bridge sent to Ernst & Young adjustment sheets for AFT for the years of income in question. The adjustment sheets stated that a determination had been made under Part IVA of the Act in respect of the deduction for the interest payments that had been claimed by AFT. By the adjustment sheets, the net loss of AFT was reduced by interest payments made to CPF. 37 The Commissioner then issued assessments to AFT in respect of certain of the years of income in question. As a consequence of disallowance of the deductions for the interest payments, AFT had assessable income for the years ended 30 June 1994 to 30 June 1998 inclusive. After disallowance of the deductions for the interest payments, it still had losses for the other years of income in question. However, it no longer had available the losses that it had transferred to the Taxpayer Companies. The Taxpayer Companies therefore sought to acquire other losses from another company within the CPH Group, namely, CPF.

THE REQUESTS TO ALLOW FURTHER TIME TO TRANSFER LOSSES 38 On 8 June 2000, Ernst & Young wrote to the Commissioner referring to three issues in relation to the transfer of revenue losses within the CPH Group. For present purposes, the first issue is the only relevant one and was formulated as follows: 'a somewhat tentative request for revenue loss grouping to "cover-off" assessments issued to [AFT] on 16 May 2000 ("the AFT Assessments") should compensating adjustments pursuant to S177F not be allowed. This matter is taken together with a proposal for loss grouping against further assessments expected to be issued in relation to this matter'. Attached to the letter were appendices furnishing particulars of the proposed transfer of losses, including copies of proposed loss transfer agreements. 39 The letter of 8 June 2000 referred to the request by Ernst & Young for compensating adjustments to effect the offset of taxable income in AFT and to the fact that, while such request was originally rejected, the Commissioner had indicated that he would reconsider that decision. The letter stated that a 'hypothetical request for loss grouping' was being made against the possibility that the Commissioner might reaffirm his earlier decision not to allow compensating adjustments. If appropriate compensating adjustments were to be made, AFT would have no taxable income and, accordingly, the transfers of losses would be unnecessary. Accordingly, the letter was expressed to be a request for the Commissioner's 'views as to the application of Section 80G(6A)(b) of the… Act' to the transfer of losses, details of which were set out in Appendix 1 to the letter. 40 The letter then went on to say: 'We note that by way of letter dated 20 April 2000 you have intimated that in order for you to favourably consider an exercise of discretion in AFT's circumstances, the taxpayer should demonstrate why the first sentence of paragraph 93 of TR98/12 should not have application.

… It is acknowledged that where Part IVA is prima facie present this sentence would, read in isolation, give cause for the Commissioner to refuse to exercise the relevant discretion. However, the AFT circumstances can be distinguished on the basis of the following:

· Part IVA has yet to be affirmed by the Courts as to its application to CPH Property's circumstances, and by extension, on the hypothesis proposed in your letter dated 17 December 1999; to AFT's circumstances;

· If ultimately the Courts found Part IVA had application to AFT, it would be in a manner not previously contemplated by this or any other taxpayer;

· In any event the first sentence of paragraph 93 of TR98/12 can not be read in isolation from that which follows immediately thereafter, that is:

"In a sense it could be said in these circumstances the delay [in seeking loss grouping] is directly attributable to the actions of the taxpayer".

In AFT's circumstances, the ATO would have been aware in December 1994, if not before, that if its views of the application of S.79D to CPH Property were to prevail, then there would be some possibility of applying Part IVA to AFT. Had this been conveyed to AFT at that time, and not some five to six years later, it would have foreseen an opportunity to seek loss grouping at the time of lodging AFT's income tax returns for the years ended 30 June 1994 to 30 June 1998 inclusive. It therefore cannot be said that the delay [in seeking loss grouping] was caused by the taxpayer. In addition paragraph 93 of TR98/12 goes on to state: "Conversely, in cases where it cannot be said the conduct of the group is culpable in respect of its failure to comply with its obligations under the law, this is a factor which weighs in favour of an extension of time being granted (eg. where a company was unclear as to the appropriate tax treatment for bill discounts………)." Clearly, given the uncertainty expressed above as to the application of Part IVA to AFT and by the Courts in these circumstances generally, it could be easily argued that in fact AFT's circumstances are not dissimilar to those where paragraph 93 expressly calls for added weight to be given to this factor. In addition to the loss grouping sought to be made against the AFT assessments, Appendix 1 also outlines loss grouping sought to be made against assessments which we understand are pending and are to be issued to CPH Group companies which were the recipients of loss transfers from AFT. In this regard we note that assessments have not yet been raised in respect of those entities which entered into loss transfer agreements with AFT. In view of the fact that the High Court granted the taxpayer leave to appeal against the Full Federal Court's decision that the Commissioner was entitled to apply the deduction quarantining provisions of section 79D to interest expenses incurred by Consolidated Press Property, we request that you postpone the issue of these amended assessments until the Section 79D issue is finally determined by the High Court. If you are concerned that the time limits within which the Commissioner is able to amend the loss transferees' assessments may expire before the High Court hands down its decision in relation to this issue, our client has stated that they would be willing to consider granting extensions pursuant to subsection 170(4) where appropriate. We also note that subsection 80G(15) arguably obviates the need for such extensions in any event. If, however, you are not prepared to postpone issuing amended assessments to the loss transferee companies, to the extent AFT losses transferred to those entities are no longer available, we request the Commissioner exercise his discretion pursuant to Section 80G(6A)(b) of the Act to allow loss transfers in terms of Section 80G(6)(c) as set out in the attached Appendix A. As to the application of TR98/12 to these transfer requests, we refer you to the comments made above concerning paragraph 93 and in addition we note that prima-facie Part IVA does not have application to the loss transferee companies as they were bona fide transferees without notice, as is, in part, evidenced by the fact that they were not and furthermore were not [sic] identified to be parties to the so-called "Section 79D Scheme".' [Emphasis from original] 41 On 7 September 1999, the Full Court had allowed appeals from the orders made by Hill J. Subsequently, special leave was granted to appeal to the High Court of Australia from the decision of the Full Court. Thus, at the time of Ernst & Young's writing on 8 June 2000, the proceeding was still current in the High Court of Australia. The issues that arose in the dispute involving CPH Property were similar, but not identical, to those concerning AFT. 42 On 28 November 2000, Mr Bridge wrote to Ernst & Young and, after referring to the letter of 8 June 2000, relevantly said: 'Your request pursuant to [s 80G(6A)(b) of the Act] for the Commissioner of Taxation to exercise his discretion to allow additional time to transfer in revenue losses to both the loss company and the income companies to which losses had previously been transferred, has not been granted.' 43 On 23 May 2001, Ernst & Young wrote to the Commissioner drawing attention to their letter of 8 June 2000 and urging the Commissioner 'to consider this matter in light of the fact the issue of assessments is now imminent'. Following the decision of the High Court on 31 May 2001, Ernst & Young wrote again to the Commissioner, on 7 June 2001, requesting the Commissioner to consider the Taxpayer Companies' requests to allow further time for the transfer of losses. Mr Bridge responded by letter of 19 June 2001, confirming that the Commissioner's view, as stated in the letter of 28 November 2001, would stand. 44 The letter of 19 June 2001 then went on to set out the losses that were allowable as a result of the decision of the High Court. The letter said that 'a 25% culpability component is imposed'on the Taxpayer Companies pursuant to s 226 of the Administration Act and that amended assessments would issue immediately. Amended assessments were then issued to the Taxpayer Companies in respect of the years of income in question, showing substantial sums of tax payable by the Taxpayer Companies as a result of the disallowance of the deductions claimed in respect of losses transferred from AFT. 45 On 10 July 2001, Ernst & Young wrote to the Commissioner requesting a statement pursuant to s 13(1) of the ADJR Act in relation to the decision that was the subject of the Commissioner's letter of 19 June 2001. Mr Bridge responded on 27 July 2001 saying that the views that had been expressed in the letters of 28 November 2000 and 19 June 2001 were 'based upon hypothetical scenarios'and that no decision had yet been made by the Commissioner. Accordingly, on 6 June 2001, Ernst & Young sent to the Commissioner formal requests on behalf of CPF and each of the Taxpayer Companies for the Commissioner to allow further time within which to make agreements to transfer tax losses pursuant to s 80G(6A)(b) of the Act. 46 On 28 August 2001, a meeting took place between representatives of AFT and the Taxpayer Companies on the one hand and representatives of the Commissioner on the other. Discussion took place concerning compensating adjustments and the transfer of losses pursuant to s 80G(6). On 8 November 2001, the Commissioner's delegate wrote to Ernst & Young saying that the requests for the Commissioner to allow additional time 'to transfer in revenue losses' to the Taxpayer Companies had not been granted.

THE REQUESTS FOR COMPENSATING ADJUSTMENTS 47 On 22 October 2001, each of the Taxpayer Companies requested the Commissioner, pursuant to s 177F(5) of the Act, to make a determination, under s 177F(3) of the Act, of the quantum of compensating adjustments for various of the years of income in question. On 9 November 2001, Mr Bridge wrote to Ernst & Young saying that 'the Commissioner continues to rely on his Part IVA/S.79D position and the S.51(1) position as alternatives to disallow the interest deductions' claimed by AFT. Accordingly, so it was said, the Commissioner's position as to the treatment of compensating adjustments had not changed. 48 On 19 December 2001, Mr Bridge wrote to Ernst & Young again, inviting them: 'to explain why the amount of deductions sought, by way of determination, would have been allowed to the relevant taxpayers as deductions in the year of income if the scheme had not been entered into and that it is fair and reasonable that the amounts should be allowed as deductions to the relevant taxpayers in the year of income.' 49 Ernst & Young responded on 18 January 2002 in the following terms: 'As you are aware AFT incurred certain interest expenses (outgoings) for the years ended 30 June 1992 to 30 June 1998 inclusive giving rise to tax losses in AFT which were transferred to the Taxpayers. You took the view that section 79D/Part IVA operated to deny a deduction otherwise allowable under S 51(1), for the outgoings incurred. As a direct consequence you issued amended assessments to deny deductions for loss transfers which had been made by AFT to the Taxpayers. In general terms, Section 177F(3) of the Act obliges you to cancel a tax benefit and make such compensating adjustments as you see fit in order to give affect [sic] to what, in your opinion, would have been the situation if the Part IVA scheme had not been entered into. In this respect we note that in order for you to be in a position to apply Part IVA of the Act to AFT, you must first satisfy yourself that the interest outgoings were deductible pursuant to section 51(1) of the Act - if you did not do so, Part IVA could have no application. Accordingly, when one puts aside the application of Part IVA the interest outgoings are considered deductible pursuant to Section 51(1) of the Act. On the basis of the position you take it follows that but for the application of Part IVA the outgoings would be deductible pursuant to Section 51(1) and therefore available for transfer from AFT to the Taxpayers and effected by valid loss transfer agreements entered into between them within the statutorily prescribed time frame. The matter of fairness and reasonableness as a requirement for your determination is found in the correct application of the [Act] to the residual facts and circumstances.' 50 On 8 February 2002 Mr Bridge wrote to Ernst & Young saying relevantly: 'The assessments to the income companies are wholly based on the assessments to AFT - losses which had been transferred to the income companies from AFT were disallowed on the basis that they were not available to AFT to transfer. Logically the issues to be determined in respect of AFT are prior to those to be determined in respect of the income companies. It follows that approached sensibly the issues to be determined in respect of the income companies should not be dealt with in advance of the issues to be determined in respect of AFT. Moreover we have now received submissions in support of the requests (by your letter dated 18 January 2002). In setting up the basis for the requests, those submissions… attribute to the Commissioner positions which you know to be inconsistent with the Commissioner's declared position. … In the interests of sound administration of the Act we believe that it is preferable to consider the requests by the income companies for compensating adjustments in conjunction with their objections and together with AFT's objections, submissions and request, and not in advance of them.' 51 After further inconclusive exchanges of correspondence, Ernst & Young wrote to the Commissioner on 29 May 2002 requiring the Commissioner to make determinations pursuant to s 177F(3) of the Act. In response to that letter, Mr Bridge wrote on 5 June 2002, saying that it was not proposed to decide the applications for compensating adjustments of the Taxpayer Companies in advance of the determination of AFT's objections. The letter said that those objections raised issues that logically should be determined prior to the question of compensating adjustments. 52 Ernst & Young wrote on 25 July 2002 setting out contentions as to why the Commissioner should make a determination under s 177F(3). Mr Bridge responded on 2 August 2002, saying that he was not persuaded by the further submissions to take a different view to that that had been set out in the letter of 5 June 2002. Proceeding N922 of 2002 was then commenced.

THE REQUESTS FOR DEFERMENT OF PAYMENT OF TAX 53 On 26 and 27 June 2001, the Commissioner issued various notices of assessment and amended assessment to the Taxpayer Companies in respect of various years of income, totalling $77,484,191.80. The due date for payment of the tax that was the subject of the assessments was variously 26, 27 and 30 July 2001. On 12 July 2001, Ernst & Young sought the deferral, pursuant to s 255-10 of the Administration Act, of the time for payment of the tax until, if the Commissioner were to disallow the objections, the date thirty days after the decision of the Federal Court upon appeal against the Commissioner's decision. The request also sought the Commissioner's determination that the date from which any liability for interest was to be computed be the deferred date for payment. 54 The basis upon which the request for deferral was made was as follows: (1) there is a genuine dispute concerning the correctness of the assessments; (2) the Commissioner is still considering submissions made on behalf of the Taxpayer Companies as to the application of the law in the circumstances; (3) the law in this area is far from clear, despite the High Court's decision in respect of CPH Property, which must be read in the context of the facts of that case; (4) matters impacting the level of liability are yet to be resolved, such as the availability of loss grouping and compensating adjustments and the appropriateness of penalties and interest; (5) the magnitude of the assessments is such that payment, or even part payment, will substantially impact on the financial position of the CPH Group; (6) CPH, as a member of the CPH Group, currently has $20 million on deposit with the ATO which, following the High Court decision, is refundable. CPH may be prepared to put into place a guarantee for the balance of the tax outstanding under the Assessments. 55 On 3 August 2001, Ernst & Young wrote to the Commissioner, referring to the request that had been made for the Commissioner to make a determination under s 177F(3) and requesting the Commissioner to take into consideration the fact that decisions had not yet been made in relation to that matter. On 6 September 2001, Mr Bridge wrote to Ernst & Young again. After referring to the letter of 12 July 2001 requesting deferral of payment time, Mr Bridge's letter set out two sets of circumstances where the Commissioner would defer the time for payment and said that, on acceptance of either of the two alternatives, legal action for recovery of the amounts subject to dispute would be deferred. 56 However, on 6 December 2001, Mr Bridge wrote to Ernst & Young once more, saying that the decision to refuse the request for a deferral was made on the basis of policy that had been changed. The new policy, which was enclosed with the letter, was in the following terms: '9.4 POLICY

9.4.1. Without limiting the Commissioner's discretion in relation to any particular case, the time for payment will not normally be deferred unless the debtor can demonstrate:

(i) payment cannot be, or has not been, made by the original time for payment because of circumstances beyond their control, and the debtor has taken reasonable steps to mitigate the effects of those circumstances; and

(ii) payment in full can be made at a later time (when the circumstances that led to the non-payment have been alleviated).' 57 Mr Bridge went on to say that a decision had been made to withdraw the previous decision and to reconsider the application to defer time, having regard to all the circumstances. Mr Bridge requested that two matters be addressed as follows: 'First, a consequence of a decision to defer time is that the general interest charge would not begin to accrue until the deferred date. I would be grateful if you would address submissions to why the taxpayers should not be liable to pay GIC if the assessments were ultimately upheld and the tax were not to be paid. Second, a consideration of significance is the capacity of the taxpayers to pay the debt now and at the deferred date, and the financial impact of the payment of the tax. Considerations along these lines are addressed in your application. If you wish to maintain reliance on such considerations please furnish me with evidence sufficient to allow me to make all relevant findings of fact and to properly assess the risks faced.' 58 On 13 December 2001, Ernst & Young responded to the Commissioner's invitation of 6 December 2001. On 8 January 2002, Ernst & Young wrote again to the Commissioner providing further information. They wrote again on 18 January 2002, referring to the commencement of proceeding N29 of 2002. They wrote a further time on 26 March 2002, referring specifically to the Commissioner's letter of 8 February 2002, declining to make compensating adjustments. On 8 August 2002, the Commissioner wrote to Ernst & Young saying that he was not satisfied that the deferral sought was warranted.

EXTENSION OF TIME FOR TRANSFER OF LOSSES - N29 OF 2002

THE COMMISSIONER'S DECISION 59 As at 1991 and following years there existed within the ATO a section known as the Large Business and International Section ('the LBI'). There was a group within the LBI known as the Losses Network, which comprised senior officers within the LBI. The structure of the Losses Network and the training of its members were designed to ensure there was consistent decision-making in respect of loss recoupment matters within the ATO. In an ATO minute of 25 September 1996, the Losses Network was said to be 'responsible for determining all loss cases arising within LBI'. The minute also contained the following statements: 'Ownership of Loss Cases While cases will continue to be owned by the LBI team in which they arise, the relevant officer must consult the appropriate Network member in processing and finalising the case. … What do you do if you have a "loss case"? Once a case is identified as including a loss recoupment or transfer issue of the kind specified above, the case officer should contact one of the members of the Losses Network…. The appropriate member will then assist in determining the appropriate course of action. This could include the preparation of a request for further information and/or examining the information available with a view to determining whether or not the deduction claimed should be allowed.' 60 Following receipt of Ernst & Young's letter of 17 January 2000, in which reference was made to the possibility of the Commissioner's exercising his discretion to allow members of the CPH Group to enter into loss transfer agreements to replace those that may be invalid as a result of the determination of 15 May 2000, Mr Phillip Jones sent a memorandum to the Losses Network on 27 January 2000. At that time, Mr Jones was assisting Mr Bridge, who was the team leader within the LBI dealing with the audit of the CPH Group. 61 Mr Jones' memorandum of 27 January 2000 relevantly said: 'Subsequent to a decision in the Full Federal Court, which held that a Part IVA scheme existed, it is the intention of this office to disallow interest payments claimed by the taxpayer for the 1992 to 1997 years. These interest payments created losses. During the years 1992 to 1997, these losses were transferred out pursuant to section 80G. The disallowance of interest deductions will result in a corresponding disallowance of the losses transferred to the income companies. As a consequence most of those income companies will now become taxable. Written advice is sought from you in respect to the following: 1. As the adjustments to the loss company will be made as a result of a Part IVA determination, should the Commissioner exercise his discretion to allow further time for the income companies to make loss transfer agreements?…' 62 A number of communications occurred within the Losses Network. The communications included comments on a draft response to Mr Jones. In the result, Mr Michael Mooney of the Losses Network forwarded a response to Mr Jones on 6 March 2000 under the heading 'Additional time to lodge loss transfer agreements'. Mr Mooney's response acknowledged 'the input of members of the Losses Network' and referred in particular to five individuals. The response then went on to provide relevantly as set out in Appendix 1 to these Reasons. 63 On 17 May 2000, a discussion involving several officers of the ATO, including Messrs Bridge and Jones, took place. The discussion was summarised in a document entitled: 'REPORT FROM THE PART IVA PANEL … Australian Financial Times / s79D scheme' 64 It is not clear precisely what the 'Part IVA Panel' is. The report recorded that the Panel believed that the arrangement involving AFT 'was not materially different from the arrangement in which section 79D was applied to [CPH Property]'. The report also recorded that the Panel was of the view that the Commissioner should defer making any decision with respect to the exercise of his discretion in relation to compensating adjustments under s 177F(3) until 'the substantive issues have been resolved by the Court'. 65 The report then addressed the question of extension of time under s 80G(6A)(b) as follows: 'On the separate issue of whether additional time should be granted to all the loss companies and income companies in the group to make transfer arrangements under s 80G(6A)(b), the Panel was of the view that the applicability Part IVA to the arrangements weighs heavily against the Commissioner granting an extension of time. The Panel was of the opinion that the BSL [Business Services Line] should be guided by the Taxation Ruling TR98/12.' 66 On 21 November 2000, Mr Jones prepared a memorandum concerning AFT entitled 'SECTION 80G LOSSES'. The memorandum referred to the requests pursuant to s 80G(6A)(b) and recorded that the requests were based on the assumption that compensating adjustments under s 177F(3) of the Act would not be granted because the ATO was primarily relying on s 51(1) of the Act and 'therefore compensating adjustments are not applicable at this stage'. The memorandum said: 'As the Part IVA argument cannot be divorced from the s 51(1) argument until it is found that s 51(1) does or does not apply it would not be appropriate to consider the request for additional time to transfer losses only in the context of section 51(1) of the Act.' The memorandum then set out the greater part of the response from the Losses Network of 6 March 2000 and referred also to the paragraph from the report of the Part IVA Panel discussion set out above. 67 After referring to the letter from Ernst & Young of 8 June 2000, the memorandum provided as set out in Appendix 2 to these Reasons. The memorandum ended with a statement that it was proposed to amend the returns of the Taxpayer Companies 'in line with direction from [Mr Bridge]'. 68 Following Mr Jones' memorandum of 21 November 2000, Mr Bridge, wrote the letter of 28 November 2000 to Ernst & Young, saying that the requests pursuant to s 80(6A)(b) had not been granted. 69 After Ernst & Young made formal requests on behalf of the Taxpayer Companies on 6 August 2001 for further time under s 80G(6A)(b), Mr Jones again consulted the Losses Network, on 12 September 2001. He received a response from the Losses Network, which referred to the earlier response of 6 March 2000 and said: 'The decision and the reasoning set out in the document are in accordance with ATO policy as published in Taxation Ruling TR98/12 and are consistent with the way in which that policy has been applied since the formation of the Losses Network and Losses [Centre of Expertise]' 70 Mr Jones then prepared a memorandum dated 10 October 2001, dealing with the formal request for additional time to transfer losses. After referring to the report of 21 November 2000 and to the further response of 18 September 2001, Mr Jones said that it was not proposed to allow the Taxpayer Companies' requests to allow additional time 'to transfer in losses' in accordance with s 80G(6A)(b). On 30 October 2001, Mr Bridge, as team leader, endorsed, in handwriting on Mr Jones's memorandum of 10 October 2001, the following note: 'I agree with Mr Jones submission not to allow additional time to transfer losses. The decision is supported by Taxation Ruling TR98/12 and by the Manager of Losses [Centre of Expertise].' 71 On 23 November 2001, Ernst & Young requested a statement of reasons pursuant to s 13(1) of the ADJR Act. The Commissioner complied with that request by furnishing statements of reasons dated 17 December 2001 in respect of each of the Taxpayer Companies ('the Section 13 Statements'). The decision-maker was Mr Bridge. Relevantly, the reasons provided as set out in Appendix 3.

GROUNDS OF REVIEW 72 In proceeding N29 of 2002, the Taxpayer Companies and CPF claim declarations and orders under s 5 of the ADJR Act and s 39B(1A) of the Judiciary Act 1903 (Cth), together with s 22 and s 32 of the Federal Court of Australia Act 1976 (Cth), in relation to decisions made by the Commissioner on 30 October 2001. The decisions are those communicated by the Commissioner's letter of 8 November 2001 to Ernst & Young, refusing the applications made on behalf of the Taxpayer Companies under s 80G(6A)(b) of the Act for extension of time to transfer of losses from CPF to the Taxpayer Companies. 73 Section 5(1) of the ADJR Act provides that a person who is aggrieved by a decision to which the Act applies may apply to the Court for an order of review in respect of the decision on any one or more of the grounds set out in s 5(1). It is common ground that the decisions in respect of which orders are sought are decisions to which the ADJR Act applies. All of the grounds relied on by the Taxpayer Companies and CPF are within s 5(1) of the ADJR Act. I shall deal with several grounds separately.

Denial Of Procedural Fairness 74 Under s 5(1)(a) of the ADJR Act, a ground of review is that a breach of the rules of natural justice occurred in connection with the making of a relevant decision. The amended application in proceeding N29 of 2002 relies, inter alia, on the following ground: '4. There was a denial of procedural fairness in the making of the Decisions.

(a) In making the Decisions the Respondent acted upon the following internal Australian Taxation Office ("ATO") advice:

(i) A report dated 6 March 2000 by the Losses Network;

(ii) A report dated 17 May 2000 by the Part IVA Panel;

(iii) A report dated 21 November 2000 by Mr Phillip Jones, an officer of the ATO;

(iv) Advice of the Manager of the Losses Centre of Expertise dated 18 September 2001;

(v) A report dated 10 October 2001 by Mr Phillip Jones.

(b) the ATO advice contained critical information and advice concerning the Respondent's discretion under section 80G(6A)(b) of the ITAA, which information and advice was adverse to a favourable determination of the Applicant Companies' applications under that provision and the internal ATO advice was not disclosed to the Applicants for their comment or consideration prior to the making of the Decisions.

(c) the non-disclosure of the ATO advice as particularised in (a) above occurred in circumstances where, on 8 June 2000, the Applicants had sought guidance from the Respondent as to the application of section 80G(6A)(b) of the ITAA to the transfer of losses;

(d) further or in the alternative, the Applicant Companies had a legitimate expectation that their applications under section 80G(6A)(b) of the ITAA would be considered in accordance with the terms of TR98/12 ("the policy") (to the extent it was lawful) and their submissions thereon, whereas in fact the Decisions were based, or in part based, on the internal ATO advice particularised in (a) above which was significantly different from the terms of the policy and the Applicant Companies were not afforded an opportunity prior to the Decisions being made to comment on the Respondent's intention not to adhere to or apply the terms of the policy in determining the Applicant Companies' applications. …'

[Emphasis added] 75 The Taxpayer Companies contend that the five internal reports particularised above ('the ATO Advice') contained critical information and advice concerning the Commissioner's discretion under s 80G(6A)(b) that was adverse to a favourable determination of the request to allow further time. They say that the ATO Advice expressed views that were not disclosed to the Taxpayer Companies in circumstances where they had sought guidance from the Commissioner as to the application of s 80G(6A)(e) to the proposed transfer of further losses. 76 The Taxpayer Companies draw attention specifically to those parts of the report of the Losses Network of 6 March 2000 that are emphasised in bold in the extracts set out in Appendix 1. They say that Mr Bridge denied the Taxpayer Companies procedural fairness in not disclosing to them for comment the views expressed concerning 'the lifting of the corporate veil' and the doctrine of 'Common Controller', which, they say, ultimately proved critical to Mr Bridge's decision. 77 When a decision is to be made that would deprive a person of the legitimate expectation of a benefit, the person is entitled to know the case sought to be made against him or her and to be given an opportunity of replying to it. In the context of administrative decision making, it is appropriate to speak of a duty to act fairly and to accord procedural fairness. What is appropriate in terms of procedural fairness in a particular case, however, depends on the circumstances of the case, including the nature of any enquiry involved in making the decision, the subject matter of the decision and the rules under which the decision-maker is acting. The expression 'procedural fairness' entails the notion of a flexible obligation to adopt fair procedures that are appropriate and adapted to the circumstances of the particular case (Kioa v West (1985) 159 CLR 550 at 584-585). 78 An applicant for a benefit is entitled to put forward, in support of his or her application, such information and material as he or she thinks appropriate. However, no complaint can be made if the decision-maker rejects an application because the decision-maker does not accept what is put forward. On the other hand, if the decision-maker intends to reject such an application by reference to some consideration personal to the applicant, on the basis of information obtained from another source that has not been dealt with by the applicant in the application, procedural fairness may require that the applicant be given an opportunity of responding to the matter (Kioa v West at 587). Thus, a person whose interests are likely to be affected by an exercise of power should be given an opportunity to deal with relevant matters adverse to his interests that the repository of the power proposes to take into account in deciding upon its exercise. Nevertheless, administrative decisions are not necessarily to be held invalid because the procedures of adversary litigation are not fully observed (Kioa v West at 628-629). 79 A person who would be affected by the exercise of a statutory power is entitled to rebut or qualify further information, and comment by way of submission upon adverse material, from other sources that is before the decision-maker. A decision-maker is required to identify to the person affected any issue critical to the decision that is not apparent from its nature or the terms of the statute under which it is made. The decision-maker is required to advise of any adverse conclusion that has been arrived at, which would not obviously be open on known material. Subject to those qualifications, however, a decision-maker is not obliged to expose his or her mental processes or provisional views for comment before making the decision in question (Commissioner for ACT Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 at 591-592 ('Alphaone Case')). Nor is there any duty to disclose draft or preliminary views. Within the bounds of rationality, a decision-maker is generally not obliged to invite comment on the evaluation of the subject's case. It is only if the decision-maker proposes to reach an adverse conclusion that is not an obvious and natural evaluation of the material supplied by the applicant, that the applicant is entitled to be told of the tentative conclusion (Alphaone Case at 591). 80 If the concepts adopted by Mr Bridge were inconsistent with TR 98/12, there may be some cause for complaint on the part of the Taxpayer Companies. The Taxpayer Companies contend that the material in the Losses Network report that is highlighted in bold in the extract in Appendix 1 was not referred to in TR98/12. As a consequence, Mr Bridge did not apply or adhere to that part of the announced policy of TR98/12 contained in the third sentence of paragraph 93. That is to say, the Taxpayer Companies contend that they had a legitimate expectation that their conduct would not be treated as culpable because they were not involved in a scheme to which Part IV applies. They say, in effect, that, in the reasoning adopted by Mr Bridge, they were nevertheless found to be culpable by reference to the concept of common controller, of which they were given no notice. 81 The complaint of the Taxpayer Companies is that, in relying on the report of the Losses Network, Mr Bridge, in effect, adopted the concepts of 'culpability' and 'common controller' that are advanced in that report. Of course, if those concepts may not legitimately be taken into account in the exercise of the discretion conferred by s 80G(6A)(b), that is a ground of complaint, but that is a different matter from denial of procedural fairness. Legislation may be interpreted in the course of making an adjudicative decision. Similarly, policies may be interpreted, extended and adapted in the course of making such a decision. So long as the interpretation, extension or adaptation is according to law, there will be no denial of procedural fairness in reaching a conclusion on such a basis, even if the interpretation, extension or adaptation has not been disclosed in advance to the person to be affected by the decision. 82 The Taxpayer Companies were afforded the opportunity of making submissions as to the application of the policy stated in TR98/12. Paragraph 93 of TR98/12 makes clear that, where an adjustment is made as a result of a scheme to which Part IVA applies, that will generally be treated as weighing heavily against a favourable exercise of the discretion under s 80G(6A)(b). The reasoning process that leads to a conclusion as to the involvement of the Taxpayer Companies in a Part IVA scheme is not something that, as a matter of procedural fairness, requires disclosure. The Taxpayer Companies were aware that the Commissioner would have regard to their alleged involvement in a scheme to which Part IVA applied in determining whether to exercise the discretion in favour of the Taxpayer Companies. There was no want of procedural fairness on the part of Mr Bridge in failing to disclose the reasoning adopted by him, as propounded in the report of the Losses Network and the other elements of the ATO Advice. 83 The Taxpayer Companies also contend that there was a want of procedural fairness insofar as the Taxpayer Companies had a legitimate expectation that their application for an extension of time would be considered in accordance with the terms of TR98/12 whereas, in fact, Mr Bridge made his decisions in relation to the application of s 80G(6A)(b) on the basis of the elements of the ATO Advice. They say that the contents of the ATO Advice differed significantly from the terms of TR98/12 and that the Taxpayer Companies were not afforded an opportunity to comment on the intention not to adhere to or apply the terms of TR98/12. 84 The Taxpayer Companies also complain that the Commissioner misled them by drawing attention to, and inviting comment on, only the first sentence of paragraph 93 of TR98/12. That is to say, in his letter of 20 April 2000, Mr Bridge expressly invited Ernst & Young to advise him as to why the first sentence in paragraph 93 of TR98/12 should not apply in the circumstances. 85 However, it is difficult to see how the letter could be taken to constitute a representation on behalf of the Commissioner that the Taxpayer Companies did not need to address the whole of TR98/12. Mr Bridge's letter might be construed as an invitation to make submissions on a particular topic, but it is not an invitation to ignore the balance of TR98/12. Mr Bridge expressly invited the Taxpayer Companies to make submissions in relation to TR98/12. The letter refers 'in particular' to the first sentence of paragraph 93 and invites Ernst & Young to furnish reasons as to why that sentence should not have application 'to your circumstances'. The first sentence of paragraph 93 of TR98/12 was the critical statement relied upon by Mr Bridge in concluding that the discretion should not be exercised in favour of the Taxpayer Companies. In fact, the second sentence of paragraph 93 is explanatory of the first sentence. The third sentence does no more than state, as it says, 'the converse' of the first sentence. There was no denial of procedural fairness by drawing attention 'in particular' to the first sentence of paragraph 93 and not drawing attention to the other sentences of that paragraph.

Apprehended Bias 86 The amended application also relies on the following ground: '5. Further or alternatively, the actual decision-maker (Mr Bridge) would be apprehended by a reasonable person to have had a biased disposition against the grant of the application for an extension of time under section 80G(6A)(b) in circumstances where:

(a) since December 1999, he had been the principal officer dealing on behalf of the Respondent with the taxation affairs of the group of companies to which the Applicant Companies belonged, and had taken each of the steps described in the Schedule A hereto, and those steps (or most of them) would be rendered nugatory by the granting of the application to extend time; and

(b) he had, on 28 August 2001 (22 days after the request for an extension of time for loss regrouping and more then two months prior to the Decisions) communicated to representatives of the Applicants in words to the effect that 'we are confidently of the view that loss regrouping should not be allowed regardless of whether section 51(1) is relied upon' and that 'I don't believe it is relevant to the loss regrouping request whether Part IVA or the section 51(1) position is adopted.'' [Emphasis added] 87 The Taxpayer Companies refer to the fact that, since December 1999, Mr Bridge had been the principal officer of the ATO dealing with the taxation affairs of the CPH Group and had taken a number of steps, most of which, they say, would be rendered nugatory by the granting of the application to allow an extension of time to transfer other losses. The Taxpayer Companies contend that the following steps would have been rendered nugatory were Mr Bridge to have allowed the extensions of time sought: (i) On 8 June 2000, AFT applied for an extension of time under s 80G(6A) to enter into an agreement to receive a transfer of losses from CPF. That application has not yet been determined. If the extension of time were allowed to the Taxpayer Companies, AFT would have had a reasonable expectation that its own, pending, application would also have been granted. If that application had been granted, and losses were transferred to it from CPF, AFT would not have had any taxable income and the Part IVA determination made on 15 May 2000, the imposition of penalties pursuant to s 226 and the issuing of the notices of assessment and notices of amended assessment on 16 May 2000, would have become otiose. (ii) A refusal to grant compensating adjustments to AFT would not result in a liability to AFT if losses were allowed to be transferred to AFT pursuant to AFT's pending application. The granting of the compensating adjustments to AFT would merely result in a reduction in the amount of losses required to be transferred to AFT or to the Taxpayer Companies. (iii) If losses were able to be transferred to AFT pursuant to its pending application, AFT would have no tax liability, regardless of whether the Commissioner were ultimately to rely on s 51(1) or Part IVA of the Act. (iv) If the extensions of time had been allowed, the Taxpayer Companies would have had losses transferred to them, such that they would have had no taxable income for the years of income in question and, consequently, the assessments and imposition of penalties foreshadowed in the above steps would also be rendered nugatory or become otiose. (v) If the Taxpayer Companies were to have losses transferred to them, any right of recovery in relation to the assessments issued to them would be removed. 88 The question is not whether Mr Bridge's mind was blank, but whether it was open to persuasion (Minister for Immigration & Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 at 531[71]). There will be many circumstances where previous decisions of a judicial officer may generate an expectation that he or she is likely to decide issues in a particular case adversely to one of the parties. That does not mean that the judicial officer will approach the issues with a prejudiced mind. Similarly, an administrative decision-maker does not have to be free from prior involvement in a decision (Re JRL; Ex Parte CJL (1986) 161 CLR 342 at 352 and Eaton v Overland [2001] FCA 1834[232]). 89 There was no denial on behalf of the Commissioner that, at a meeting on 22 August 2001, Mr Bridge said to representatives of Ernst & Young the words attributed to him, namely: 'We are confidently of the view that loss regrouping should not be allowed regardless of whether ss.51(1) is relied upon.' and 'I don't believe it is relevant to the loss regrouping request, whether Part IVA or the ss.51(1) position is adopted.' The Taxpayer Companies contend that those statements demonstrate that Mr Bridge had, at the relevant time, decided not to grant an extension of time, irrespective of whether he regarded the transferred losses as not deductible because of what he considered to be the application of Part IVA to the arrangements under which the losses were sustained. 90 The Commissioner relies upon the possible application of s 51(1) as a reason for justifying the decision not to permit any compensating adjustments to AFT pursuant to s 177F(3) of the Act. The Taxpayer Companies contend that, having of necessity, in the light of TR98/12, relied heavily upon the application of Part IVA in not allowing an extension, the Commissioner is taking an inconsistent and inequitable stance in relation to the application for exercise of the discretion under s 177F(3). 91 The mere fact that Mr Bridge has been involved with the affairs of the CPH Group does not of itself indicate bias. There is no basis for the Taxpayer Companies, by that reason alone, to apprehend bias on the part of Mr Bridge. 92 The meeting of 28 August 2001 at which Mr Bridge made the statements in question was one in which the Taxpayer Companies were given an opportunity to present their views on a variety of taxation issues and hear the provisional views of the Commissioner's delegate, so that they could understand the critical issues. Expressing a provisional view does not of itself show prejudgment establishing an appearance of bias. A decision-maker who has given thought to a matter or expressed views or an inclination of mind does not, purely on that account, have an appearance of bias (R v Commonwealth Conciliation & Arbitration Commission; Ex Parte The Angliss Group (1969) 122 CLR 546 at 553). 93 Further, Mr Bridge's view that the extension of time under s 80G(6A) of the Act should not be allowed was reached after consulting other officers of the ATO who recommended that he make that decision. There is no reason to conclude that that consultation was not a genuine process. I do not consider that the evidence supports a conclusion that there would be an apprehension, by a reasonable person, of bias on the part of Mr Bridge in making the decisions under challenge.

Errors of Law and Application of Unlawful Policy 94 One of the grounds of review provided for in s 5(1)(f) of the ADJR Act is that the relevant decision involved an error of law. The Taxpayer Companies rely on that ground in the following respects: '6. Further or alternatively, the Decisions were based upon the application of a policy that was unlawful: (a) if, on its proper construction, it denied the Respondent power to exercise his discretion in circumstances where the Applicant Companies, or one or more of them, had been found or were taken to have participated in a Part IVA scheme; and/or … (b) to the extent that it identified involvement in a Part IVA arrangement as disentitling conduct, it was inconsistent with the legislative purpose of section 80G of the ITAA and, to that extent, unlawful; and/or … 10. Further or alternatively, the Decisions involved one or more errors of law.

(a) The Decisions were based upon the Respondent's erroneous conclusion that it would be inconsistent with the general intention of the Act to grant an extension of time to transfer losses one Part IVA applied to disallow a deduction. … (b) The Decisions were based on the premise that Part IVA of the ITAA applied, yet Part IVA could have no application to the Applicant Companies' applications under Section 80G(6A)(b) of the ITAA if the Respondent's primary argument was correct. (c) The internal ATO advice as set out in the particulars to paragraph 4 above and relied upon by the Respondent in making the Decisions was wrong in law in advising that it was necessary and appropriate to depart from orthodox legal principles in company law in administering section 80G(6A)(b). … (d) In considering and rejecting the submission made on behalf of the Applicant Companies concerning their conduct or culpability for the purposes of Part IVA of the ITAA, the Respondent directed his mind to the wrong time for determining whether there was uncertainty in the application of Part IVA and hence whether there was a good reason for the Applicant Companies not having entered into the subject agreement(s) to transfer revenue losses at or at any time before the time at which no extension was required. The relevant time was the date when the losses the subject of the Respondent's subsequent disallowance were originally transferred from AFT to the Applicant Companies, not the date of the Applicant Companies' submission of 8 June 2000 or the date of the Decisions, as found by the Respondent. (e) Refusing the grant of an extension of time by reason of or, alternatively, by reference to an applicant's participation or involvement in a Part IVA arrangement gave an impermissibly extended operation or effect to Part IVA and the penal consequences attaching to a finding that a Part IVA arrangement existed.' [Emphasis added] 95 In paragraph 41 of the Section 13 Statements, Mr Bridge stated that he considered that the scheme that gave rise to the interest deductions claimed by AFT was similar to, and was the successor of, the scheme that the High Court considered in the CPH Property litigation. He stated his view that: 'it would be inconsistent with the general intention of the Act and the anti-avoidance provisions contained within Part IVA of the Act if I allowed the Group additional time to transfer losses to the applicant once Part IVA applied to disallow a deduction claimed by AFT.' Mr Bridge's view that it would be inconsistent with the general intention of the Act to grant an extension of time to transfer losses, once Part IVA applied to disallow a deduction, appears to me to exhibit a misapprehension of the law. 96 The view adopted by Mr Bridge fails to take account of the very purpose of s 80G of the Act, as acknowledged in TR 98/12, which is to permit and facilitate the transfer of losses within a group of companies so that there is no difference in the tax treatment of a group of companies, each carrying on separate enterprises, as against a single company that carries on the same separate enterprises in separate divisions. Using a Part IVA determination per se as a bar to, or a 'very weighty factor' against, the grant of an extension of time directly subverts the purpose of s 80G and is also inconsistent with the remedial and beneficial nature of s 80G(6). To disallow an extension of time substantially on the basis of participation in a Part IVA scheme, with significant adverse financial consequences to an income company, as that term is defined for the purposes of the Act, is effectively to increase the penalty beyond the limits set by the Act. 97 The Act contains its own penalties for participation in a Part IVA Scheme. Thus, s 226 of the Act provide for penalty tax where Part IVA applies. Under s 226(1) where the Commissioner has calculated the tax that is assessable to a taxpayer in relation to a year of income taking into account any determination made under s 177F(1) was taken into account and, either no tax would have been assessable if no determination had been made or the amount of tax that would have been assessable if no determination had been made is less than the amount of tax calculated by the Commissioner, the taxpayer is liable to pay, by way of penalty, additional tax as provided for in s 226(1). The additional tax is a percentage of the tax avoided by the scheme in respect of which the determination has been made. 98 The effect of the determinations by the Commissioner under s 177F(1), and the failure by the Commissioner to allow a further time within which to make an agreement for the purposes of s 80G(6)(c) of the Act, is to produce a windfall for the revenue. That is to say, if the Taxpayer Companies and CPF were all divisions of a single company rather than separate companies, the losses incurred by the CPF division would automatically be set off against the income of the Taxpayer Company divisions. To refuse to allow the extension of time to enable that set off to occur between CPF on the one hand and the Taxpayer Companies on the other, as individual companies, simply because there was an involvement in a scheme under Part IVA is to penalise those individual companies beyond the penalties contemplated by s 226. 99 The purpose of s 80G is, in part at least, to remove a disincentive to business activity by not allowing companies within a group to take advantage of losses within the group in the ways in which a single company with divisions would be allowed to (see the Treasurer's speech on the second reading of the Bill by which the relevant provisions were inserted in the Act, Hansard, House of Representatives, 21 August 1984, p 63). That is also clear from the terms of TR 98/12 itself (see above at [33]). 100 Thus, if a deduction claimed by a single company were found to violate Part IVA, with the consequence that it was disallowed and a penalty was levied, that company would not be prevented from taking advantages of losses sustained by one or more of its divisions in the same or previous tax years by reason of its involvement in a Part IVA scheme. The consequence of the decisions in the instant case, however, is to ensure just such a result when there is a group of companies, as opposed to a single company with a number of divisions. Even if the Taxpayer Companies were somehow tainted by the Part IVA scheme because of their membership of the CPH Group, it was an error to use that fact as a basis for disentitling the Taxpayer Companies to the extension of time. 101 Accordingly, the policy that Mr Bridge relied upon in making the decisions was unlawful. To the extent that it identified involvement in a Part IVA arrangement as disentitling conduct, it gave an impermissibly extended operation or effect to Part IVA and the penal consequences attaching to a finding that a Part IVA scheme existed. 102 By letter dated 19 June 2001, Mr Bridge, notified Ernst & Young that a twenty-five per cent culpability component was imposed on AFP pursuant to s 226 of the Act. The Act does not authorise further, collateral, punishment for participation in a Part IVA scheme, in addition to that prescribed by s 226. The Commissioner exercised his discretion in a way that wrought significant further and disproportionate penalties upon the Taxpayer Companies, assuming that the Taxpayer Companies can properly be regarded as having participated in the scheme. True it is that the discretion given to the Commissioner under s 80G(6A)(b) is unlimited in its terms. However, the discretion must be exercised with regard to, and within the context of, the object for which the discretion was conferred namely to equate companies in a group, where there is one hundred per cent common ownership, with divisions of a single company. 103 Further, the concept of the 'common controller' propounded by the report of the Losses Network of 6 March 2000, which was relied upon by Mr Bridge in making the decisions under s 80G(6A)(b), was wrong in law. The report advised that it was necessary and appropriate to depart from orthodox legal principles of company law in determining that the Taxpayer Companies had participated in a Part IVA scheme. The legal advice included the following propositions: · the doctrine of companies as separate legal entities had to be ignored to some extent; · a controlling mind had to be attributed to the activities of a group of companies in relation to their taxation affairs; · there is a presumption that, in a case where Part IVA of the Act possibly applies, the common controller was aware of both the existence of a loss and how it was constituted; · an income company is deemed to have the common controller's presumed awareness; · an income company is obliged to be cognisant of the nature and integrity of any loss transferred to it from another company in the group; · an income company has the same obligations as a loss company to enquire into and ascertain the propriety of a loss that is the subject of a transfer agreement. 104 Neither the circumstance that a company is completely subject to the ownership and the direction of another person nor the circumstance that that other person exercises directorial control of the activities of the company in ways that minimise the manifestations of the company's separate legal identity will justify a conclusion that acts in the law formally done by the company are to be regarded, for purposes of the kind here in question in relation to Australian income tax law, as acts in the law done by that other person (Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267 at 274). 105 The decision by the Commissioner to ignore the separate legal entity doctrine for the purposes of s 80G - which was central to the report of the Losses Network - was not open as a matter of law. Even if it was theoretically open to the Commissioner to circumvent a cardinal principle of modern company law, by piercing the corporate veil, that is not something that should be lightly done. It can only be done where evidence exists that justifies such a piercing in accordance with established principles. There was no such evidence in this case. 106 Of course, if the Commissioner had taken account of evidence specific to the Taxpayer Companies that they had not been given the opportunity to address, there may have been a denial of procedural fairness. However, the Commissioner does not appear to have had regard to any evidence in determining that there must be a common controller of companies in the CPH Group. 107 In paragraph 43 of the Section 13 Statements, Mr Bridge referred to the assertion by Ernst & Young in their letter of 8 June 2000 that there was uncertainty 'as to the application of Part IVA to AFT, by the Courts in these circumstances generally'. Mr Bridge said that he did not consider that there was 'either at the time the letter of 8 June 2000 was written or when I made my decision on 30 October 2001 any significant amount of uncertainty'. He referred to the fact that as at 8 June 2000, the Full Court had accepted the Commissioner's position in relation to s 79D and Part IVA and that, by 30 October 2001, the High Court had confirmed that position. 108 By expressing the view that, as at 8 June 2000 and 30 October 2001, there was no uncertainty as to the application of Part IVA to AFT by the Courts, Mr Bridge directed his mind to the wrong time for determining whether there was uncertainty in the application of Part IVA and hence whether there was a good reason for the Taxpayer Companies' not having entered into the subject agreements to transfer revenue losses at or at any time before the time at which no extension of time was required. 109 The relevant time must be the date when the Taxpayer Companies lodged their returns for the relevant years of income, not the date of the Ernst & Young letter of 8 June 2000 nor the date of Mr Bridge's decisions. As at the date of the lodging of the returns there was no relevant case law applying to the position. There were respectable and reasonably arguable views against the proposition that the analogous financial arrangements resulted in a tax benefit. Indeed, the High Court described those arguments as having 'considerable force' in the case of CPH Property. 110 By focusing his attention on the wrong dates, the Commissioner asked himself the wrong question and erred in law in so doing. It is implicit, moreover, in the fact that Mr Bridge asked himself the question as to whether there was uncertainty as to the application of Part IVA to AFT by the Courts (albeit directing his mind to the wrong time period), that he considered this question to be highly relevant. Whilst the Full Court had held that Part IVA did apply, Hill J had held that it did not and the High Court had seen the matter as raising a sufficiently important issue of principle with reasonable prospects of success for CPH Property to obtain special leave to appeal on 26 May 2000. 111 On the other hand, while there may well have been respectable and reasonably arguable views in relation to the position concerning CPH Property, the position was different in relation to AFT and the Taxpayer Companies. Certainly, there was no case law concerning the question of a Part IVA scheme or s 79D. However, s 79D had been amended prior to the years of income in question such that there could be no doubt, if there was a scheme, that the Taxpayer Companies derived a benefit for the purposes of the application of Part IVA of the Act. 112 Nevertheless, in determining whether the Taxpayer Companies were 'culpable' for the purposes of the exercise of the discretion, Mr Bridge turned his mind to the wrong time. As a consequence, he appears to have taken into account, as a consideration in the exercise of the discretion, the state of knowledge of the Taxpayer Companies as to whether they had participated in a scheme at a date that was quite irrelevant to the question of their culpability in relation to that participation. While that is not of itself an error of law, it may indicate a misapprehension on the part of the decision-maker as to the task required of him, from which an inference might be drawn that he misdirected himself as to the law. Since Mr Bridge did not give evidence, that inference is more easily drawn.

Improper Exercise of Power 113 Section 5(1)(e) of the ADJR Act provides that a ground of review is that the making of the relevant decision was an improper exercise of the power conferred by the enactment in pursuance of which the decision was purported to be made. Section 5(2) provides that a reference in s 5(1)(e) to an improper exercise of power includes a reference to several different circumstances. The Taxpayer Companies rely on a number of those circumstances as follows. '7. Further or alternatively, if, upon its proper construction, the policy did not compel the refusal of an application pursuant to section 80G(6A)(b) in circumstances where the Applicant Companies, or one or more of them, had been found or were taken to have participated in a Part IVA scheme, the decision-maker treated that fact as conclusive and, in the premises, the Decisions involved an improper exercise of power. … 8. Further or alternatively, the Decisions constituted an improper exercise of power in that they failed to give any real or genuine consideration to the merits of the Applicants particular applications including: (a) the fact that none of the Applicant Companies was a participant in the Part IVA arrangement relied upon in refusing the applications and none of those applicants had or has any ability to challenge that characterisation; (b) the fact that the Eighteenth Respondent had no involvement or no relevant involvement in the Part IVA arrangement relied upon; (c) as the decision-maker had himself found in a related context, the fact that the Part IVA arrangement upon which he relied did not entail any 'culpability' on the part of Australian Financial Times (AFT) because it was 'reasonably arguable' that the arrangement in question did not amount to a Part IVA arrangement and remained not so until the date of the judgment of the High Court in CPH Property Pty Limited v Federal Commissioner of Taxation on 31 May 2001 and where, as at 13 October 1998 and until 7 September 1999, the Federal Court had found no basis for the application of Part IVA to AFT; … (d) the fact that the decision-maker had formed the views communicated to representatives of the Applicants on 28 August 2001, as particularised in paragraph 5(b)above; (e) assuming, as a critical part of the reasoning process, that Part IVA would apply to disallow the deductions in circumstances where, in fact, no decision had been made (and still remains to be made) as to whether that Part of the ITAA would apply; … 9. Further or alternatively, the Decisions involved an improper exercise of the power under section 80G(6A)(b) of the ITAA in that the Respondent failed to have regard to one or more of the following relevant considerations: (a) that, if it be legitimate to take account of the fact that a reason for the seeking of an extension of time is an applicant's participation in an arrangement found to amount to a Part IVA arrangement, not all arrangements that are found to amount to Part IVA arrangements involve 'culpability' or, alternatively, culpability that warrants or should 'weight heavily' against the grant of an application for an extension of time; … (b) that Part IVA of the ITAA and the first sentence of paragraph 93 of the policy could have no application if the Respondent's primary argument ('the primary argument') for not allowing or disallowing the relevant interest deductions claimed by Australian Financial Times Pty Limited ('AFT'), which deductions provided the basis for original loss transfers to the Applicant Companies, was correct; … (c) that there could be no 'culpability' of the Applicants for the purposes of section 80G(6A)(b) in circumstances where the Respondent was primarily relying on section 51(1) to disallow the deductions and, in the premises, Part IVA did not arise; and (d) the remedial and beneficial nature of the Respondent's discretion to extend time under section 80G(6A)(b) of the ITAA. … 11. Further or alternatively, the Decisions involved an improper exercise of power under section 80G(6A)(b) of the ITAA and were unreasonable insofar as the Respondent gave inappropriate weight to: (a) the internal ATO advice to the effect that the Applicant Companies' applications should be rejected in circumstances where that advice was uninformed by the individual circumstances of the particular applications, including the submissions made on behalf of the Applicant Companies in support of their applications as set out in Ernst & Young's letter dated 8 June 2000; (b) a concern to exercise discretion under section 80G(6A)(b) of the ITAA so as to facilitate the imposition of culpability penalties in respect of Part IVA of the ITAA, … and gave insufficient weight to the following matters: (c) that, as the issue as to the application of Part IVA was in fact reasonably arguable, as the decision-maker himself recognised in the Part IVA Determination, that was a factor in favourof granting the application for an extension under section 80G(6A). … (d) the various matters set out in Ernst & Young's letter dated 8 June 2000 bearing upon the conduct or culpability of the Applicant Companies and, in particular that at the relevant time, there was uncertainty as to the application of Part IVA to AFT and that if, ultimately, it was held by the Courts that Part IVA of the ITAA applied to AFT, it would be in a manner not previously contemplated by the Applicant Companies or any other taxpayer; (e) that the Applicant Companies were bona fide transferees without notice, which claim was expressly said to be supported by the fact that the Applicant Companies 'were not and furthermore were not identified to be parties to the so-called Section 79D Scheme'; and … (f) the remedial and beneficial nature of the Respondent's discretion under section 80G(6A)(b) of the ITAA.' [Emphasis added] 114 The Taxpayer Companies contend that Mr Bridge did not give real or genuine consideration to the merits of the question before him but, rather, blindly adopted the views and advice of other persons within the ATO to the effect that no extension should be allowed. They contend that, within the ATO, responsibility for determining requests under s 80G had been reposed in the Losses Network. Mr Bridge, however, who was the decision-maker, was not a member of the Losses Network. 115 The Taxpayer Companies contend that an inference should be drawn from the terms of the minute of 1996 concerning the Losses Network that determinations in relation to matters arising under s 80G should be made, either in fact or in effect, by the Losses Network. They say that an inference should be drawn that no independent or genuine discretion was exercised by Mr Bridge following receipt of the report of the Losses Network of 6 March 2000. They contend that the report of the Losses Network and of the Part IVA Panel were 'determinative of Mr Bridge's thinking'. 116 However, taking advice within the ATO would not, of itself, result in the decision-maker failing to give proper genuine or realistic consideration to the merits of the case. A decision-maker who takes into account the recommendations and advice of departmental officers, who are responsible for providing that advice, does not, on that account alone, fail to consider the merits of a particular case. Decision-makers who make a large number of decisions do not act unlawfully by acting on the basis of facts found by their advisors, rather than performing every step of the decision making process personally, provided they act on the basis of an accurate summary of the relevant evidence and submission that has been heard by their advisors. The fact that Mr Bridge had regard to the ATO Advice does not, of itself, give rise to an inference that he did not exercise his own judgment in relation to the decision that was required of him. 117 The Taxpayer Companies also say, in effect, that, by reason of all the other matters relied upon as vitiating the decisions not to allow an extension under s 80G(6A)(b), Mr Bridge's decision was an improper exercise of power, within the meaning of s 5(1)(e) of the the ADJR Act, because it was an exercise of power that was so unreasonable that no reasonable person could have so exercised the power, as provided in s 5(2)(g). The Taxpayer Companies do not advance any basis upon which the establishment of one or more of the other grounds relied upon would also indicate that the strict test of s 5(2)(g) is satisfied. In any event, I have rejected their contentions in relation to a number of the grounds. It appears that they are cumulative and, accordingly, this ground is not made out. 118 Further, the contention is that Mr Bridge gave inappropriate weight to certain matters and gave insufficient weight to other matters. The basis for suggesting that Mr Bridge gave inappropriate weight to certain matters such as to render the decision one that no reasonable person could have made is not clear. Similarly, the basis upon which insufficiency of weight indicates unreasonableness is not apparent. So long as those matters are matters that were properly to be taken into account in making the decision, the weight to be accorded to them was a matter for Mr Bridge. This ground is not established. 119 I do not consider that the decisions were vitiated as being an improper exercise of power on any of the bases alleged.

CONCLUSION AS TO EXTENSION OF TIME FOR TRANSFER OF LOSSES 120 The Commissioner, through his delegate Mr Bridge, applied an unlawful policy and, accordingly, his decision was infected by error of law. Further, it was vitiated by errors of law in the respects that I have identified above. I consider that the decisions of the Commissioner not to allow extension of time for the transfer of losses should be set aside and the matter should be remitted to the Commissioner for decision according to law.

DELAY IN DETERMINATION UNDER SECTION 177F(1)(b) - N922 of 2002

GROUNDS OF REVIEW 121 In proceeding N922 of 2002, the Taxpayer Companies seek a review of the failure by the Commissioner to consider and determine their applications made on 22 October 2001 under s 177F(5) seeking determinations, under s 177F(3) of the Act, of appropriate compensating adjustments. The proceeding is brought under s 7(1) of the ADJR Act. Section 7(1) provides that, where a person has a duty to make a decision to which the Act applies, there is no law that prescribes a period within which the person is required to make that decision and the person has failed to make that decision, a person who is aggrieved by the failure to make the decision may apply to the Court for an order of review in respect of the failure to make the decision on the ground that there has been unreasonable delay in making the decision. Under s 9(2) 'review' means review by way of the grant of an injunction, the grant of a prerogative or statutory writ or the making of a declaratory order. It is common ground that the decision to make a determination under s 177F(3) is a decision to which the ADJR Act applies. 122 The letter from the ATO to Ernst & Young of 8 February 2002 confirms that the view taken by the ATO was that s 177F(3) had no application in the circumstances because the ATO, in addition to relying on Part IVA of the Act, also relied on s 51(1) of the Act, to disallow the deductions for the interest claimed by AFT. On that basis, so it was said, the requirement of s 177F(3), that an amount would have been allowed or would be allowable as a deduction, could not be satisfied. 123 Whether or not s 177F(3) would be applicable if the interest payments were otherwise deductible under s 51(1), the Commissioner maintains that the interest is not deductible under s 51(1). The Commissioner may be right or wrong about that question. However, that question still remains to be determined. Insofar as the Commissioner is deferring the making of a decision as to the exercise of the discretion under s 177F(3) until that question is determined, that is a legitimate reason for doing so in circumstances where the Commissioner takes the view, rightly or wrongly, that whether or not Part IVA applies, the interest is not deductible under s 51(1).

CONCLUSION AS TO DELAY 124 Any determination by the Commissioner under s 177F(3) would, of necessity, be provisional. That is to say, it would depend upon whether or not the Commissioner's contention, that the interest payments are not deductible under s 51(1), is ultimately shown to be correct. Until that question is determined, the Commissioner has a legitimate basis for not making a decision. 125 I am not persuaded that the Commissioner's delay in determining the requests lodged on 22 October 2001 seeking determinations under s 177F(3) is unreasonable. This application, therefore, should be dismissed.

DEFERMENT OF TIME FOR PAYMENT OF TAX - N1066 OF 2002

THE COMMISSIONER'S DECISION 126 Pursuant to a request made on behalf of the Taxpayer Companies, the Commissioner furnished statements pursuant to s 13 of the ADJR Act dated 12 September 2002 in relation to the decision not to grant the request for extension of the time to pay. In that statement, the decision-maker, Mr Paul Kalina, relevantly said as set out in Appendix 4 to these reasons.

GROUNDS OF REVIEW 127 In proceeding 1066 of 2002, the Taxpayer Companies seek review, under s 5 of the ADJR Act, of the Commissioner's decisions, as set out in the letter of 8 August 2002, refusing their requests of 12 July 2001 under s 255-10 of the Taxation Administration Act for deferment of the time for payment of tax. The application relies on grounds in s 5(1) of the ADJR Act as follows.

Errors of Law 128 The ground is stated in the application in the following terms: '4. The Decision involved one or more of the following errors of law: (a) The Respondent misconceived his task under Section 255-10 of the Taxation Administration Act 1953 in proceeding on the basis that, in considering and determining a request under that provision, the Respondent was not entitled to defer the time for payment of tax for a period other than that requested by the Applicants. (b) The Respondent asked himself the wrong question. Instead of considering and determining whether he should defer the time for payment of tax by the Applicants and then determine the period of that time, the Respondent asked himself whether he would grant a deferral for the particular period requested by the Applicants and, since he considered that period to be too long, he rejected the Applicants' requests without asking himself whether he was prepared to grant a deferral for a lesser period of time. (c) The Decision was made by reference to a rule or policy concerning the need to ensure that the general interest charge was payable from the original payment time, which rule or policy was unlawful because it was inconsistent with and/or effectively denied the Respondent's discretion under s.255-10 of that Act' [emphasis added] 129 The Statements of Reasons under s 13 of the ADJR Act indicate that Mr Kalina took the view that the period of the deferral sought by the Taxpayer Companies could be an extremely long one, insofar as they sought deferral until after the determination of any appeal to the Federal Court. Mr Kalina was of the view that, if he had been minded to grant a deferral, he would not do so for the extended period sought. He regarded that as sufficient reason for refusing the particular request for deferral that has been made and, in the end, that is his primary reason. That is to say, Mr Kalina was not prepared to consider the grant of an extension for a shorter time than had been sought because no request has been made for such a shorter extension. The Taxpayer Companies say that Mr Kalina therefore proceeded on an erroneous legal basis in making his decision. 130 When an application is made for the exercise of a discretionary power under statute, the duty of the decision-maker is to consider and deal with the application made. It is not appropriate for a decision-maker to consider alternative applications that might have been made but have not been made. Mr Kalina had no duty to consider the many alternative time periods that the Taxpayer Companies might have requested. That is particularly so where the request was not for a specific time but was measured by reference to a future uncertain event, namely the determination of appeals to the Court. It would have been inappropriate for Mr Kalina to consider, without inviting further submissions, the grant of an extension for a different period. 131 The Taxpayer Companies contended that Mr Kalina effectively asked himself the wrong question in considering and determining the request under s 255-10 of the Administration Act. They say that, instead of considering and determining whether he should defer the time for payment of tax and then determine what would be an appropriate deferral period, having regard to all of the material before him, he asked himself whether he should grant a deferral for the period specifically requested. I do not consider that it is inappropriate to refuse the request made, leaving it to the Taxpayer Companies to make a different request if so inclined. That is not necessarily to say that the Taxpayer Companies would be put to the trouble of making an infinite number of requests until they struck a period that might be acceptable to Mr Kalina, if at all. However, it would be open to the Taxpayer Companies to make a further submission now by reference to a fixed period of time or some other uncertain future event. 132 I do not consider that there was any error of law involved in the decision.

Breach of the Rules of Natural Justice 133 The ground is stated in the application in the following terms:

'7. A breach of the rules of natural justice occurred in connection with the making of the Decision.

Particulars (a) The Applicants had a legitimate expectation engendered by the Respondent's letter dated 6 December 2001 that the Respondent would take into account any submissions, information or evidence from the Applicant in support of their requests which was additional to that provided by them prior to the Respondent's withdrawal of his earlier decision dated 6 September 2001 refusing their requests. (b) Following receipt of the Respondent's letter dated 6 December 2001 the Applicants, through their representative, provided the following additional submissions, information and evidence in support of their request: (i) letter dated 13 December 2001 plus attachments; (ii) letter dated 8 January 2002 plus attachments; (iii) letter dated 18 January 2002 plus annexure; and (iv) letter dated 26 March 2002 plus attachments. (c) In making the Decision, the Respondent did not take into account the submissions, information and evidence provided by the Applicants as particularised in paragraph (b)(ii) to (iv) immediately above; (d) Prior to making the Decision, the Respondent did not afford the Applicants or any of them an opportunity to be heard on his intention not to take into account the submissions, information and evidence provided by them as particularised in paragraph (b)(ii) to (iv) above; and (e) Further or in the alternative, the Respondent denied the Applicants natural justice because, in determining their requests under s.255-10 of the Taxation Administration Act 1953, the Respondent failed to consider all the current and updated material provided to him by the Applicants in support of their requests including the submissions, information and evidence provided by the Applicants in support of their requests as particularised in paragraph (b)(ii) to (iv) above'. [Emphasis added] 134 Thus, the Taxpayer Companies also contend that Mr Kalina's decision should be set aside because it was made without regard to matters set out in letters from Ernst & Young of 8 January 2002, 18 January 2002 and 26 March 2002. The Commissioner concedes that although Mr Kalina was aware of those letters, he did not regard the letters themselves as relevant to the decision to be made and gave them no weight in making his decision of 8 August 2002. 135 The Taxpayer Companies say that the three letters contain relevant material bearing upon the circumstances of the particular case of the Taxpayer Companies. The Commissioner's response is that, while Mr Kalina gave no weight to the letters in making his decision, Mr Kalina in fact took into account the material contained in the letters. 136 The letter of 8 January 2002 was a covering letter for certain enclosures. The letter itself contained no submissions and no factual material. The enclosures were: (a) Copies of the Statement of Reasons under s 13 of the ADJR Act in relation to the decision concerning the extension of time under s 80G(6A). Several paragraphs of Mr Kalina's statement under s 13 of ADJR Act in respect of the decision of 8 August 2002 refer specifically to the fact that the Taxpayers Companies had commenced a proceeding in the Federal Court challenging the decisions to refuse an extension of time under s 80G(6A). Several of the paragraphs in Mr Kalina's statement under s 13 of the ADJR Act were derived from statements made in a letter from the Australian Government Solicitor to Mr Kalina of 11 June 2002. The purpose of the letter from the Australian Government Solicitor was to inform Mr Kalina of the factual background to the income tax affairs of the Taxpayer Companies. The letter refers expressly to the decision in relation to the application to allow an extension of time under s 80G(6A). (b) Copies of letters from Ernst & Young requesting the Commissioner to clarify the Section 13 Statements relating to the extension of time under s 80G(6A). The letters do not contain submissions or factual material. (c) A copy of the letter from Ernst & Young to the Commissioner of 21 December 2001 replying to a letter from the ATO dated 8 December 2001, in which the ATO requested clarification of an earlier letter from Ernst & Young relating to the Section 13 Statements in respect of the extension under s 80G(6A). The letter refers only to the interlocutory steps in the Federal Court challenging the decision under s 80G(6A). (d) Correspondence between the Commissioner and Ernst & Young relating to the application for compensating adjustments under s 177F(5), including a copy of the letter from the Commissioner to Ernst & Young of 19 December 2001 and a copy of a letter dated 21 December 2001 from Ernst & Young to the Commissioner requesting an extension of time to make the submissions. The correspondence is no more than a procedural step in the making of a decision under s 177F(3). The correspondence contains no submissions or factual material. 137 The Commissioner accepts that the existence of the proceeding in the Federal Court was a relevant consideration that Mr Kalina was bound to take into account. However, Mr Kalina did take the existence of the proceeding into account as appears from his s 13 Statement. On the other hand, it was not necessary for Mr Kalina to take into account the detail of interlocutory steps or issues relating to the s 13 Statements in that proceeding. 138 The letter of 18 January 2002 from Ernst & Young to the Commissioner informs the Commissioner that the application for review of the Commissioner's refusal to allow an extension of time under s 80G(6A) had been filed in the Federal Court. Mr Kalina took into account the fact that the proceeding in the Federal Court was on foot as appears from the statements made in his s 13 Statements. 139 The letter of 26 March 2002 from Ernst & Young to the Commissioner attached three enclosures whose contents were all dealt with in the s 13 Statement. The subject matter of each of the three letters is the Commissioner's decision not to decide upon compensating adjustments prior to determining the objection to the disallowance of the deduction. That question is considered in several paragraphs of Mr Kalina's s 13 Statement and in the letter from the Australian Government Solicitor of 11 June 2002. Mr Kalina's duty was to take into account considerations, not every document received from the Taxpayer Companies. Having regard to the subject matter of the letters, it was sufficient. 140 Mr Kalina's s 13 Statements indicate that he accepted that the payment of such a large amount of tax as was involved in the request for deferment would cause any taxpayer difficulty. Having accepted that submission on behalf of the Taxpayer Companies, there was no need for Mr Kalina to take into account any further the financial position of the Taxpayer Companies.

141 This ground is stated in the application in the following terms: '[Failure To Take Into Account Relevant Considerations] 5. The making of the Decision was an improper exercise of the power conferred by Section 255-10 of the Taxation Administration Act 1953 in that the Respondent failed to take into account the following relevant considerations in exercising that power:

(a) The Respondent failed to consider whether he should defer the time for payment of tax for a period less than that requested by the Applicants.

(b) The Respondent failed to give real and genuine consideration to the material provided by the Applicants concerning their financial position, including the parent guarantee offered by Consolidated Press Holdings Limited and the audited financial accounts of that company as at 30 June 2001.

(c) In concluding that he had no evidence on which to base a judgment about the likely future financial position of the Applicants during the requested deferral period, the Respondent failed to take into account and/or give real or genuine consideration to the Applicants' offers in their representative's letters dated 12 July 2001 and 13 December 2001 to provide immediately any additional facts or material required by the Respondent to assess the financial impact of the amounts under the Amended Assessments either individually or as members of a group of companies.

(d) The respondent failed to take into account and/or give real and genuine consideration to the matters set out in the Applicants' representative's letters dated:

[Taking Into Account Irrelevant Considerations] 6. The making of the Decision was an improper exercise of the power conferred by Section 255-10 of the Taxation Administration Act 1953 in that the following irrelevant considerations were taken into account in the exercise of that power:

(a) The possibility that any future decision by the Respondent to revoke a deferral granted to the Applicants might be challenged by the Applicants.

(b) The terms of TR98/12 notwithstanding that Part IVA had not been applied to the Applicants.

… [Abuse Of Power] 8. The making of the Decision was an improper exercise of the power conferred by Section 255-10 of the Taxation Administration Act 1953 in that it involved an abuse of power. Particulars The significance attached by the Respondent to the length of the period of the deferral requested by the Applicants was irrationally inconsistent with the position adopted by the Respondent in rejecting and/or refusing to determine the Applicants' separate requests for relief under Section 80G(6A)(b) of the Income Tax Assessment Act 1936 (requesting an extension of time to transfer revenue losses) and Section 177F(5) of that Act (requests for compensating adjustments). [Unreasonable Exercise Of Power] 9. The making of the Decision was an improper exercise of the power conferred by Section 255-10 of the Income Tax Administration Act 1953 in that the exercise of the power was so unreasonable that no reasonable person could have so exercised the power. Particulars The Decision was unreasonable having regard to all the matters set out in the Applicants' submissions in support of their requests and the Applicants also repeat and adopt paragraphs 4, 5, 6, 7 and 8 above and the particulars thereto.' [Emphasis added] 142 The Taxpayer Companies complain that Mr Kalina took into account an irrelevant consideration insofar as he had regard to the possibility that, were a deferral granted and the financial position of the Taxpayer Companies were to deteriorate, the Commissioner would need to consider whether the deferral should be revoked or withdrawn. Mr Kalina concluded that he 'thought it was possible that any decision to revoke a deferral granted in the current matter might also be challenged'. 143 It was open to Mr Kalina to find that there was a risk to the public revenue in granting a deferment to a taxpayer whose financial position might later deteriorate, particularly in circumstances where there was no certainty of a speedy and effective withdrawal of the deferment. Insofar as Mr Kalina was considering no more than the possibility that a deterioration might occur and there might be some delay in giving effect to revocation, that was a legitimate consideration for him to take into account. 144 It would be a different matter if Mr Kalina took into account the possibility that the Taxpayer Companies might exercise their legal rights to challenge a decision in the future. However, a fair reading of Mr Kalina's s 13 Statement indicates that he was doing no more than considering the possible risk to the public revenue of a delay in giving effect to a lawful revocation in the event of a deterioration in the financial position of the Taxpayer Companies. 145 The Taxpayer Companies also contend that Mr Kalina took into account an irrelevant consideration by relying upon the terms of TR98/12, notwithstanding that he accepted that Part IVA had not been applied to the Taxpayer Companies. On a fair reading of the s 13 Statement, Mr Kalina was saying no more than, contrary to the submissions of Ernst & Young, TR98/12 was relevant to the question of additional time to transfer losses. Mr Kalina was clearly aware that the decision under s 255-10 of the Administration Act had to be made in the context of the inter-related decisions affecting the assessments of the Taxpayer Companies. 146 Mr Kalina had regard to the fact that, when a deferment is granted to a taxpayer under s 255-10, that taxpayer is not liable to pay the general interest charge until the deferred date. Had the application for deferment been granted and the objections to assessments lodged on behalf of the Taxpayer Companies ultimately dismissed, the Taxpayer Companies would have been relieved of the obligation to pay the general interest charge for the entire period of the deferment. That was a consideration that Mr Kalina was entitled to take into account in deciding whether or not to accede to the request. 147 Finally, the Taxpayer Companies contend that the decision of Mr Kalina fell within s 5(2)(g) of the ADJR Act in the sense that it was a decision that was so unreasonable that no reasonable person could have made it. The only basis for the contention is the cumulative effect of the other grounds. Since none of the other grounds has been made out, this ground also fails.

CONCLUSION AS TO EXTENSION OF TIME FOR PAYMENT 148 I am not persuaded that the Taxpayer Companies have made out any of the grounds of review relied on by them in relation to their requests under s 225-10 of the Administration Act. Accordingly the application should be dismissed.

DISPOSITION OF PROCEEDINGS 149 The Taxpayer Companies have been partially successful overall. That is to say, they are entitled to the orders they seek in proceeding N29 of 2002, although they have failed in both proceeding N922 of 2002 and proceeding N1066 of 2002. I have expressed my conclusions in the latter two proceedings on the assumption that the decisions under challenge in proceeding N29 of 2002 stand. However, as I have indicated above, there may be consequences from the conclusion that I have reached in proceeding N29 of 2002 as regards the position of the Commissioner that is under challenge in proceedings N922 of 2002 and N1066 of 2002. 150 I will stand the three proceedings over to a date that is convenient for the parties to enable them to bring in short minutes of orders in each proceeding to reflect my conclusions. I am mindful that the fact that all three proceedings have been heard together could have a bearing on costs. Accordingly, I will also give the parties the opportunity of making submissions on the question of costs, if any party wishes to submit that costs in any of the proceedings should not follow the event in that proceeding.

APPENDIX 1 151

1. Additional time for loss transfer agreements In this instance, there is a complication in that the adjustment is being made to the loss company's claimed deductions with the flow-on effect that the losses which were originally claimed to have been incurred and transferred to the income company are no longer available. Generally, where an adjustment is made (as a result of audit or similar activity by the Commissioner) to the income of a company and there is manifest culpability, this generally weighs heavily against the exercise of the discretion under s80G(6A)(b) for the grant of additional time during which an agreement may be made for the transfer of losses from a loss company to an income company. It would be an anomalous and somewhat curious result if a taxpayer were able to evade a culpability penalty by successfully requesting the Commissioner to exercise a discretion to allow additional time for the making of a (further) loss transfer agreement with the result that the sanctions imposed by legislation for the making of an incorrect claim in a self-assessment environment are circumvented. This is probably the tax advantage that is covered by the Part IVA determination. Paragraph 93 of Taxation Ruling TR 98/12 states: "…where an adjustment is made… a scheme to which Part IVA applies, then this factor generally weighs heavily against a favourable exercise of the discretion (to allow an extension of time to lodge a loss transfer agreement)" The TR is not saying that the factor always weighs heavily, but it clearly remains an obstacle to the favourable exercise of the discretion that the taxpayer must overcome. However, other factors need to be considered when determining whether or not the discretion to allow further time to make additional agreements and these may include:

• principles applied by the courts and Tribunals in the exercise of similar powers;
• whether the interests of justice require an extension of time for the making of the loss transfer agreement(s);
• factors referred to in Hunter Valley Developments;
• the principles espoused by Senior Member J Block in AAT Case 12,451. There no doubt will be an argument advanced on behalf of the income company that losses from another loss company in the group should be used to 'replace' the losses that had originally been transferred from the first loss company. Whilst we still have the doctrine of "separate legal entity" in relation to companies, the principles upon which s80G are based must, of necessity, ignore that principle to some extent. Therefore, again for the purposes of s80G, it is necessary to treat "group companies" in a different manner than one would treat companies dealing with each other at arms [sic] length. To do this, we need to attribute some form of "controlling mind" to the activities of the group in relation to their taxation affairs in order for the provisions of s80G to be effective in its present form however before we can attribute anything we must look at the particular factual background of a loss transfer in a 100% owned group of companies. Certainly in commonly owned (ie, 100% owned) company groups it is to be expected that there is, ultimately, some form of 'common control' exercised over subsidiaries in the group. That would generally emanate from the board of directors of the holding company or, if not that board as such, then by the managing director individually or a particular director(s) or perhaps even a committee of directors to whom that responsibility has been delegated, (or further, some other person(s) acting for an on behalf of the managing director, director(s)) within the holding company, such as the group taxation manager. It would be fair to say that the 'common controller' may not be familiar with each and every facet of a subsidiary company's business. Some aspects/transactions of a subsidiary company's business may be nothing more than ordinary 'every day affairs', so that the 'common controller' would not need to be familiar therewith. Those persons having knowledge of those transactions would be the directors and/or (tax) managers of the subsidiary itself. The tax law enables transfers of losses within a wholly-owned company group. This is a strategic benefit available to a group. Loss transfers made prudently would necessarily involve the deliberate selection of a loss company and accompanying income company(s). Although that selection could theoretically be left to the directors of each group subsidiary company, it is reasonable to submit that it is more likely to flow from the influence of 'common control', so that a loss transfer can produce the best result for the group as a whole. However, the doctrine of 'separate legal entity' remains alive and application of that doctrine can present difficulties. A company is a legal person but it is not a natural person. As noted in 'Ford's Principles of Corporations Law': "Although a company is not a sentient being, the working of the legal system requires that it be deemed capable of acquiring knowledge through its organs, agents and employees, or forming an intention or purpose…" The above quotation is a very simplistic account of those circumstances in which the Courts have lifted the 'corporate veil', be it pursuant to statutory warrant or general law. However, it is our view that the ATO should argue the point that where a loss is, at least, possibly vulnerable to Part IVA, it is a reasonable expectation that the 'common controller' would, or ought have been, sufficiently aware of both the existence of the loss and hw it was constituted. On that line of thinking, the income company, via its human controller(s) and agents(s), is obliged to be cognisant of the nature and integrity of any loss transferred to it. Any culpability attaching to the loss company in respect of the loss must also attach to the income company because of common knowledge. Loss transfer agreements must be signed by the public officer of each of the loss company and the income company. 'Public officer' is not a term known under Corporations Law. It exists only for the purposes of the ITAA. A number of questions need to be addressed, for example: (a) On what basis, or on what authority would a public officer 'commit' himself/herself to a loss transfer agreement? (b) Does the public officer hold proper authority to effectively authorise the loss transfer itself? (c) If so, what is that authority? (d) Does the public officer simply react to directions given by others? The answers to these questions must inevitably be provided by the facts pertinent to each claimed loss transfer. Alternatively, if we should encounter difficulty before the AAT or court with that argument, which relies upon penetrating the corporate veil, we can then advance a second argument. Once a loss is transferred to it, the income company is then taken to have incurred that loss itself for the purposes of the Act; see paragraphs 80G(6)(e) & (f). Therefore, the income company should, logically, be subject to the precisely the same obligations as the loss company in ensuring the integrity of the amount of loss before such is transferred. It does not seem right that an income company can receive a loss transferred in, and enjoy the tax benefit by claiming that loss as a deduction, and yet be free from any obligation to check, at any time, the veracity of that loss. We consider that if the loss company properly held a 'reasonably arguable position' in respect of the loss, there can be no manifest culpability on the part of either the loss company or the income company. In our opinion, the income company(s) took a risk in accepting a loss(s) from a loss company(s) that was involved in a 'scheme', to which Part IVA is considered applicable, that itself generated the loss(s) which have been transferred, unless the loss company was properly entitled to a RAP. If the loss company was not properly entitled to a RAP, the income company could have sought a loss (from another group company) that was not 'potentially tainted' by Part IVA. In other words, there is the matter of group companies having a 'common controller(s)', who would be at the very least aware of, if not privy to, the tax affairs of each group company and the circumstances in which a loss is claimed to exist. If the loss company participated in a scheme that is ultimately apprehended by Part IVA, it is eminently reasonable for us to submit that the original income company(s), by virtue of the 'common controller', would have been well aware of how that loss was caused. For those income companies to now seek additional time within which to make further loss transfer agreements with another loss company(s) within the commonly-owned group means that the delay in wanting to make those further agreements is, prima facie, caused by the income companies actions in having agreed to originally accept a 'Part IVA tainted' loss. Paragraphs 91-93 of TR98/12 are applicable here, with the result that it would not be appropriate for the exercise of the Commissioner's discretion to allow further time to lodge loss transfer agreement(s) for either the loss company or the income companies.

APPENDIX 2 152 The taxpayer states the following: "Clearly, given the uncertainty expressed above as to the application of Part IVA to AFT and by the Courts in these circumstances generally, it could be easily argued that in fact AFT's circumstances are not dissimilar to those where paragraph 93 expressly calls for added weight to be given to this factor." The Commissioner would vehemently refute this claim. In the CPH Property case the Federal Court and the Full Federal Court both found that Part IVA did apply and the Commissioner argues that this scheme continues today with different participants. In view of the above opinions from the Losses Network and the Part IVA Panel it is proposed that no additional time to transfer losses under Section 80G(6A)(b) of the Income Tax Assessment Act 1936 or Section 170-50(2)d of the Income Tax Assessment Act 1997 to either the income companies or the loss companies for the years ended 30 June 1992 to 30 June 1998 be granted.

APPENDIX 3 153 REASONING When making my decision, I had regard to: 38. S80G of the Act which provides that a loss agreement must be "made before the date of lodgement of the return of income of the income company for the income year or within such further time as the Commissioner allows". The Act does not specify a list of matters that I should have regard to when considering whether to exercise my discretion in favour of an applicant to allow additional time. 39. The Commissioner's Ruling TR 98/12 which deals with the transfer of losses. Paragraphs 81 to 93 of that Ruling deal with the exercise of discretion to allow additional time to lodge loss transfer agreements. The Ruling provides that I must exercise the discretion according to the merits of the case and not inflexibly apply any particular policy. 40. The reports prepared by the Losses Network and the Part IVA Panel. 41. I considered that the scheme which gave rise to the interest deductions claimed by AFT was similar to and was the successor of the scheme which the High Court considered in Federal Commissioner of Taxation v Consolidated Press Holdings Ltd & Anor. I considered that it would be inconsistent with the general intention of the Act and the anti-avoidance provisions contained within Part IVA of the Act if I allowed the Group additional time to transfer losses to the applicant once Part IVA applied to disallow a deduction claimed by AFT. 42. Although the applicant did not make any submissions in its application of 6 August 2001 as to why I should exercise my discretion in its favour I had regard to the matters raised in the letter of Ernst & Young of 8 June 2000. In that letter the applicant suggested that the Commissioner was responsible for the delay in not notifying AFT in December 1994 that Part IVA may apply to the AFT arrangement. In my view this was incorrect as:

(a) the applicant requested the Commissioner to defer issuing a notice of assessment to the applicant disallowing the transfer of losses from AFT;

(b) the Group was aware in 1992 that the Commissioner was considering the application of s79D and Part IVA in relation to arrangements entered into by the Group;

(c) the Commissioner did not begin to fully investigate the AFT arrangement until November 1999. 43. In that letter of 8 June 2000 Messrs Ernst & Young stated that there was uncertainty "as to the application of Part IVA to AFT, by the Courts in these circumstances generally". I did not consider that there was either at the time the letter of 8 June 2000 was written or when I made my decision on 30 October 2001 any significant amount of uncertainty as:

(a) as 8 June 2000 the Full Federal Court had agreed with the Commissioner's position in regard to the s79D and Part IVA scheme,

(b) by the time I made my decision on 30 October 2001 the High Court had handed down its decision in Federal Commissioner of Taxation v Consolidated Press Holdings Ltd & Anor, in regard to the s79D and Part IVA scheme, which was unanimously in favour of the Commissioner.

(c) I consider that the scheme which gave rise to the interest deductions claimed by AFT was similar to and was the successor of the scheme ruled upon by the courts as above. 44. I also did not consider that the applicant was a "bona fide transferee without notice" as referred to in the letter of 8 June 2000 given that AFT and the applicant were members of the same group and no material was put before me to substantiate this assertion made on behalf of the Group. 45. Prior to making my decision disallowing the Group additional time to transfer losses I was aware that in the previous audit of the Group additional time was allowed to recast losses and to transfer losses. Subsequent to that decision the Commissioner's Ruling TR98/12 was issued which sets out office policy generally in respect of the Transfer of Losses and the factors to be considered when making a decision on whether additional time should be allowed. 46. I considered that there was no material put to me by the applicant to justify not applying the policy in these circumstances.'

APPENDIX 4 154 The period of deferral sought 26. The period for which the deferral is sought is measured by reference to the outcome of appeals to the Federal Court. 27. I was concerned about the certainty of the date to which the deferral was sought. It has to be borne in mind that what was being determined was the dates that an extremely large set of liabilities to tax would become due and payable. In my opinion the Commissioner is entitled to expect that the date should be certain. 28. But perhaps more significantly the period of the deferral sought by the applicants could be an extremely long one. To take a relevant example, the previous tax appeals by CPH Property Pty Ltd (and other Group taxpayers) which were the subject of the decisions of Hill J, the Full Court and the High Court were commenced on or about 31 January 1996. Hill J gave judgment on 13 October 1998 and the Full Court on 7 September 1999. That is a period of over three and a half years. Those tax appeals and appeals to the Full Court did involve a number of issues other than the s.79D scheme, so the time taken in the current case might not be as long. Also this case might take less time because a substantially similar scheme has already been considered by the High Court. Nevertheless an appropriate estimate of the likely length of time should the matter go to the Full Court would be measured in years rather than months. 29. Also relevant to the period of the deferral sought is the absence of evidence submitted about the financial position of the applicants (perhaps because the applicants do not take any point about inability to pay). In his letter dated 27 November 2001 marked to my attention (concerning a request for a payment arrangement under s.255-15 of the Administration Act) which offered a guarantee by CPH of the tax payable by the applicants, Mr Williams enclosed audited financial accounts of CPH as at 30 June 2001. Those accounts apart (and they were not particularly informative), I had no evidence on which to base a judgment about the likely future financial position of the applicants during the period of the deferral should it be granted in the terms sought. 30. If a deferral were to be granted in the terms sought by the applicants, and if circumstances were to change and the financial position of the applicants and the Group were to deteriorate so that a real question were to arise whether they would be able to pay the tax, the Commissioner could be faced with problems in seeking to take action to protect the revenue (for example because the tax would not be due and payable and recovery action could not be commenced). 31. If that situation were to arise (deferral granted and financial position deteriorate), the Commissioner would need to consider whether the deferral should be revoked or withdrawn. However I was uncertain whether the Commissioner could successfully revoke or withdraw such a deferral. Companies within the Group apparently have in the past taken action against previous decisions revoking extensions of time. I thought it was possible that any decision to revoke a deferral granted in the current matter might also be challenged. 32. In my opinion, for the reasons set out in parr.28-31 above, if I had been minded to grant a deferral, I would not do so for the extended period sought by the applicants. This provided sufficient reason for refusing the particular request for deferral (and in the end is my primary reason). Nevertheless I proceeded to consider the balance of the submissions made on behalf of the applicants. … Conclusion 73. I have already explained that there are grounds related to the period of the deferral sought to refuse the request (see par.32 above; and see also par.61). That would be sufficient to deal with the request. 74. However, having regard to the submissions made by the applicants, I concluded that the request should also not be granted on other grounds. 75. A large part of the applicants' submissions go to the merits of their case. That is consistent with the description of the period of the deferral sought - it is measured by reference to the ultimate outcome on the merits. Even assuming (without conceding) the merits of their case to be better than the Commissioner's, in my opinion that would not necessarily justify the deferral sought. The real question is not so much whether the applicants do or do not have any merits in their dispute about the assessment, or even whether the applicants' view or the Commissioner's view is to be preferred. Even if the applicants' view were to be preferred the question would remain whether the applicants should be granted a deferral of time to pay tax while the contending positions are determined by the Court. In the circumstances of these applicants they should not. It may be (and I come to no conclusion in relation to this) that where the Commissioner's view of a matter is particularly weak, and he knows that to be so but wishes to pursue it nonetheless (for example, because it raises an important policy issue that should be tested), then in such a case it may be that there would be more substantial reason to grant a deferral. However, this does not seem to me to be such a case, particularly in light of the decision of the High Court in the related case. 76. Further, one effect of granting a deferral would be that GIC would not be payable, even if the Commissioner were to be successful. I find this to be problematic. Thus, if the Commissioner were to be ultimately unsuccessful, the assessments would be set aside and as a matter of law GIC would not be payable. Alternatively, if the Commissioner were ultimately to be successful GIC would ordinarily be payable. However, if a deferral were granted, no GIC would be payable. The critical question is - why should the applicants, unlike other taxpayers, have a GIC-free period for a tax liability which is ultimately up-held by the courts? Merely relying on the applicants having merits in their dispute over the assessment, and even asserting that their position is the better view, does not go far enough. They were given an opportunity to address this concern; the response was not persuasive. 77. For these reasons, I refused the request.

I certify that the preceding one hundred and fifty-four (154) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate

Date: 22 June 2006 Counsel for the Applicants: Mr J.E. Griffiths SC with Dr A.S. Bell Solicitors for the Applicants: Ernst & Young Counsel for the Respondent: Mr S.J. Gageler SC with Ms M. Allars Solicitor for the Respondent: Australian Government Solicitor Dates of hearing: 2-4 December 2002 Date of judgment: 31 January 2003