Consideration
34 The Commissioner's primary submission is that the applicant has no reasonable prospect of successfully prosecuting the proceeding (or the proceeding is an abuse of process) because there is no reasonable prospect of the Court granting the declarations sought.
35 In making this submission, the Commissioner accepts that the Court should proceed on the assumption that the applicant could succeed in relation to both the Property Issue and the Personal Use Asset Issue. The Commissioner submits that summary dismissal is nevertheless appropriate in circumstances where the applicant has not made use of the appeal/review mechanisms provided for in Pt IVC of the Taxation Administration Act. The Commissioner submits that the failure to use those mechanisms, and the potential consequences of that failure, mean that the proceeding has no reasonable prospect of success, because even if the applicant proved the factual matters for which he contends, the Court would exercise its discretion to decline to grant any declaratory relief.
36 I accept that the existence of the appeal and review mechanisms in Pt IVC of the Taxation Administration Act may well be a strong discretionary consideration against granting the declaratory relief sought by the applicant in this proceeding. However, in my view, the very nature of the consideration - that is, a discretionary consideration - makes it insusceptible to summary resolution on the present interlocutory application. At this stage, I am not satisfied that the applicant's application for declaratory relief has no reasonable prospect of success because the Court would, in the exercise of its discretion, decline to grant declaratory relief. The question whether the Court would, in the exercise of its discretion, decline to grant the declaratory relief is a matter that needs to be considered at a final hearing in the context of a full consideration of the facts and circumstances of the matter.
37 Further, I do not consider the proceeding to constitute an abuse of process. In oral submissions, senior counsel for the Commissioner submitted that the proceeding was an abuse of process in the sense that the wrong process was being used (that is, a declaratory proceeding, rather than a proceeding under Pt IVC of the Taxation Administration Act). However, the Commissioner accepts that the existence of Pt IVC is not an absolute bar to declaratory proceedings: see paragraph 48 of the Commissioner's written submissions dated 12 March 2021. It is therefore necessary for the Commissioner to establish that there is something about the facts of this case that makes it an abuse of process to use a declaratory proceeding. The applicant has put forward an explanation as to why he has adopted the procedural course of commencing this proceeding for declaratory relief (primarily to obtain an early determination of the Property Issue and the Personal Use Asset Issue). While I tend to think that a Pt IVC proceeding would be a more appropriate procedural vehicle to determine these issues, I am not satisfied that the proceeding is an abuse of process on this basis.
38 I note for completeness that it is not suggested by the Commissioner that the Court would not have jurisdiction to grant the declarations sought by the applicant. The Commissioner accepts that the Court would have jurisdiction to grant the declarations: see the Commissioner's written submissions dated 12 March 2021 at paragraph 45.
39 The Commissioner also submits that the proceeding will have no utility following the issue of a taxation assessment. The Commissioner refers to s 350-10(1) of Sch 1 to the Taxation Administration Act (a conclusive evidence provision). The Commissioner submits that the practical effect of the provision is that if the Commissioner makes an assessment and issues a notice of assessment to the applicant, the assessment can only be challenged in Pt IVC proceedings. The Commissioner accepts that if declaratory relief were granted before an assessment was made, those declarations (unless set aside on appeal) would be binding on the Commissioner. However, the Commissioner states that he can provide no commitment that he will refrain from making an assessment and issuing a notice of assessment to the applicant for the 2021 income year until the resolution of the proceeding. The Commissioner submits that, upon an assessment being issued, there would be no utility in this proceeding - the Commissioner could tender the notice of assessment in this proceeding and it would be conclusive evidence of the capital gains tax implications of the Disposals.
40 The difficulty with the Commissioner's submissions, in the context of the present interlocutory application, is that as matters stand the Commissioner has not made an assessment and issued a notice of assessment to the applicant for the 2021 income year. It therefore cannot be said, at this stage, that the proceeding lacks utility on this basis.
41 In his outline of submissions dated 12 March 2021, the Commissioner submitted that the declarations sought may lack utility as the applicant's income may in any event be below the tax-free threshold. This submission has been overtaken by further information that has come to light regarding the applicant's income for the 2021 income year.
42 I now turn to consider the further submissions made by the Commissioner following the case management hearing on 10 August 2021, that is, in the Commissioner's written submissions dated 17 August 2021 and 3 September 2021. The main point raised by those submissions is that, in light of the information contained in the applicant's income tax returns for the 2016 to 2021 income years, the Commissioner now considers that there is an open question whether the gains the applicant made from cryptocurrency transactions should be assessed on revenue account instead of capital account. The Commissioner notes that the premise of both the Property Issue and the Personal Use Asset Issue is that the gains made by the applicant by the Disposals should be taxed on capital account. The Commissioner submits that, if gains from the applicant's cryptocurrency transactions should be assessed on revenue account, there will be no utility in resolving either issue.
43 Accepting for present purposes that if the transactions were on revenue account the proceeding would lack utility, the difficulty is that the Commissioner has not yet had an opportunity to fully investigate this issue, and therefore does not have a concluded position. Further and in any event, even if the Commissioner had reached a concluded position that the transactions were on revenue account, it could not be said at this stage that the proceeding lacked utility on the basis that the transactions were on revenue account. The question whether the Disposals were on capital or revenue account would need to be determined at the final hearing.
44 For these reasons, the existence of a potential issue as to whether the Disposals were on capital account (as has been assumed) or on revenue account (as the Commissioner may wish to contend), does not provide a basis to summarily dismiss the proceeding. That is, I am not satisfied that the existence of this potential issue means that there is no reasonable prospect that the Court would grant the declaratory relief sought or that the proceeding is an abuse of process.
45 Accordingly, I dismiss the Commissioner's interlocutory application seeking summary dismissal of the proceeding.
46 I now make some additional observations concerning the case management of the proceeding.
47 It is apparent from the affidavit of Mr Chew that the Commissioner needs time (estimated to be nine months from the commencement of a review) to investigate the capital account vs revenue account issue. This is a potentially relevant issue in connection with this proceeding because, as discussed above, if the transactions were on revenue account it would provide a reason not to grant the declaratory relief sought by the applicant. In these circumstances, I consider it appropriate to give the Commissioner that period of time to investigate before requiring the parties to take further steps in this proceeding. Accordingly, I will order that, subject to further order, the proceeding be listed for a case management hearing on a date to be fixed, not before 1 July 2022. I will reserve liberty to apply so that, if circumstances change, the parties can seek to have the matter listed for case management before then.
48 It may be that, before or shortly after that nine month period concludes, the Commissioner will be in a position to make an assessment for the 2021 income year, enabling the processes of objection and objection decision to take place and a proceeding under Pt IVC to be commenced. If that were to occur, it would supplant this proceeding. This would seem to offer a number of advantages, including that all of the taxation issues relating to the applicant's liability to tax for the 2021 income year would be determined in a single proceeding.