Clark v Commissioner of Taxation [2007] FCA 1426 | Case summary

REASONS FOR JUDGMENT 1 David Clark and Helen Clark are taxpayers who have applied to the court (Applications 500/2006 and 501/2006 respectively) in its original jurisdiction conferred by s 14ZZ of the Taxation Administration Act 1953 (Cth) ('the TA Act') by way of an appeal from a decision of the Commissioner of Taxation ('the Commissioner') made on 27 October 2006 to disallow objections to an amended assessment issued to each taxpayer on 25 November 2005 for the year ending 30 June 2001. 2 Each taxpayer is an applicant by Notice of Motion in each proceeding for Orders that the Commissioner is not entitled to now raise the contended effect upon a relevant transaction of s 468 of the Corporations Act 2001 (Cth) in support of the amended assessment, on the ground that to do so denies each taxpayer procedural fairness. Alternatively, Orders are sought in connection with an Application made by a trustee (controlled by the taxpayers) of a trust for an extension of time pursuant to s 160WA(2) of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act') to rely upon the certificate of a liquidator of Rothwells Ltd, shares in which are said by each taxpayer to have been the subject of a disposal event for Capital Gains Tax purposes on or about 26 May 1993. Further, in the event that the Commissioner is entitled to rely upon the additional matter concerning s 468 of the Corporations Act, each taxpayer seeks leave pursuant to s 14ZZO(a) of the TA Act to amend the grounds stated in each objection to which the objection decision relates. 3 Lastly, each taxpayer complains that the Commissioner's Statement (and Amended Statement) of Facts Issues and Contentions ('ASFIC') asserts that events in 1993 and 1998 had the effect of resettling the relevant trust thus extinguishing capital losses in the trust yet the ASFIC fails to identify the acts, transactions and events that support that contention. Each taxpayer seeks an order that the Commissioner comply with Order 52B, rule 5(2)(a)(iv) of the Federal Court Rules which requires the Commissioner to file an 'appeal statement' (the ASFIC) that complies with the Federal Court Rules. The appellants contend, in effect, that since the term 'appeal statement' means 'a statement outlining succinctly the Commissioner's contentions and the facts and issues in the appeal as the Commissioner perceives them' (Order 52B, rule 5(3)), the Commissioner must identify all the material facts giving rise to the perception so that the taxpayer fairly understands the real content of the controversy to be quelled by an exercise of judicial power particularly having regard to the burden upon the taxpayer of proving that the amended assessment in each case is 'excessive' (s 14ZZO(b)(i)). 4 Accordingly, each taxpayer seeks greater elaboration upon the factual foundation for the Commissioner's perception as to resettlement of the trust in 1998. 5 As to the burden of proof, the appellants, although not raising the question by their motion, articulated on the hearing an additional matter to this effect. The Commissioner's ASFIC proceeds on the footing that each applicant is put to proof on all facts on which each applicant seeks to rely to establish that the amended assessment is excessive and no fact recited in the ASFIC is an admission by the Commissioner of any fact. The appellants say that there is a distinction to be made between the onus of proof on the ultimate question borne by the appellants and an evidential onus that shifts according to particular issues. Thus, a contention of the Commissioner that certain events in 1993 and 1998 had the effect of extinguishing a capital loss, requires it is said, the Commissioner to discharge an evidential onus of establishing those foundation facts supporting the contention. The Commissioner says there is no evidential onus upon the Commissioner and each appellant bears the onus of proving to the standard required that the assessment is excessive. The role of the appeal statement is to frame the issues the taxpayer must meet. 6 No particular Order is pressed in relation to the onus point. It is not raised by the motion and the respondent was not expecting to have to deal with it. In any event, it seems to me inappropriate to make directions about which party bears an evidential onus on any particular issue (if an evidential onus truly shifts). The question is a matter for the conduct of the hearing.

Considerations 17 Paragraph 1 of the motion seeks an Order that the respondent not be permitted to raise the argument that no capital losses were incurred on the disposal of the Rothwells' shares by reason of s 468 of the Corporations Act on two grounds, namely: (i) it denies procedural fairness to the applicant (if the applicant is now precluded, by reason of this Court's jurisdiction to deal only with facts existing at the date of the objection decision (Jackson v Commissioner of Taxation 27 FCR 1), from the opportunity of meeting that argument where previously it was not so precluded); and/or (ii) it denies fairness to the respondent in precluding him, knowing that a capital loss would have been available to be carried forward before the relevant year of income, from carrying out his duty to collect the correct amount of tax, 'not a penny more, not a penny less' (Lighthouse Philatelics Pty Ltd v Commissioner of Taxation 32 FCR 148). 18 In effect, the Application by the appellants seeks to strike out the Commissioner's contended reliance upon s 468 of the Corporations Act. 19 The ASFIC filed by the Commissioner plainly enough relies upon an additional contention to support the amended assessment not relied upon in the objection decision nor, apparently, in issuing the amended assessment. The Commissioner is entitled to support the amended assessment on a ground not taken into account at the time the assessment was made (Federal Commissioner of Taxation v Wade (1951) 84 CLR 105; Commissioner of Taxation v ANZ Savings Bank Ltd (1994) 181 CLR 466 per Brennan, Deane, Dawson and Toohey JJ at 479). In an appeal to the Court, nothing in the 1936 Act (nor the Income Tax Assessment Act 1997 (Cth) ('the 1997 Act')) or the TA Act confines the Commissioner to matters raised in the objection decisions (Commissioner of Taxation v ANZ at pp 478 and 479). Just as the Commissioner was entitled to rely upon the proper effect of s 26(j) of the Income Tax Assessment Act 1936 - 1947 in bringing a particular receipt, as a matter of law, within the assessable income of the taxpayer even though the provision was not considered in making the assessment (Federal Commissioner of Tax v Wade at p 116, per Kitto J) and, entitled, in a similar way, to rely upon the effect of s 32(4) of The Local Government Acts 1936-1965 (Qld) in rendering a purported lease void and therefore depriving the taxpayer of an entitlement to deductions claimed (Queensland Television Limited v Commissioner of Taxation (1969) 119 CLR 167), so too is the Commissioner entitled to rely upon s 468 according to its terms exposed by authority. Further, no conduct of the Commissioner gives rise to an estoppel in failing to raise the contention earlier. Plainly enough, the interests of the taxpayer must be preserved by ensuring that the taxpayer is given sufficient and proper notice of the contention. 20 The appellants say the point of distinction in this case, however, is that the introduction of the s 468 point into the controversy deprives the appellants of a procedural opportunity to respond and be heard on the merits as the resolution of the point turns on facts arising after the date of the objection decision and the court's decision in Commissioner of Taxation v Jackson (1990) 27 FCR 1 precludes the relevant facts being taken into account in exercising jurisdiction under Part IVC of the TA Act. 21 The relevant fact is said to emerge in this way. The taxpayer thought the sale by the trustee on 26 May 1993 effected a disposal. Now it is said that events at that time did not give rise to a disposal and if they otherwise did so, s 468 renders the disposal void. The response of the taxpayer is to seek to rely upon an alternative disposal event effected by the statute, s 160WA(1) of the 1936 Act, based upon an election by the trustee. The time for making the election has expired although the Commissioner may extend the time under s 160WA(2) in response to a request for an extension of time. That application to the Commissioner has been made by the trustee and is yet to be decided. When the trustee's extension application is decided by the Commissioner, the decision to extend time (if made) and the trustee's election (said to give rise to the crystallisation of a capital loss) are facts, it is said, arising after the making of the objection decision which cannot be taken into account in determining whether the amended assessment issued on 25 November 2005 is excessive. Thus, the contended denial of procedural fairness. 22 The position seems to me to be this. 23 The Commissioner is entitled to say that the application of the law to those facts said by the taxpayer to constitute a disposal on 26 May 1993, renders the disposal void. The contention is either good or bad but can properly be made. The issue is not frivolous or without argument. If the contention is sound, the Commissioner is entitled to rely upon the proper operation of the law giving rise to the result contemplated by the section. The operation of the section will, no doubt, turn upon the facts found to which the section applies, a construction of s 468 according to authority and possibly the intersection of that provision with the relevant sections of the 1997 Act dealing with capital gains and capital losses. The appellants say that a prohibition upon transfer of shares does not affect the passing of a beneficial interest in the shares to CCPL; CPL became a trustee of the shares for CCPL on 26 May 1993 and as a result, a disposal for CGT purposes occurred resulting in a realised capital loss. Those contentions and cross contentions can properly be made, in part, the subject of the appeal. It is inappropriate for present purposes to express any view about the strengths or weaknesses of those arguments. The question of whether reliance might have been placed upon the liquidator's declaration of 16 August 1994 and the application now made by the trustee of the Carringbush Trust to extend time to make an election are entirely separate matters although, potentially, related. If an extension is granted and the trustee makes an election (or the relevant taxpayer makes an election; s 160V(1) of the 1936 Act) resulting in a disposal at a material date, those events may result in the amended assessment of 25 November 2005 for the year ending 30 June 2001 being further amended by the Commissioner. That result might, in turn, depend upon whether a capital loss arises by reason of those new events; a consideration of when the capital loss arises; and whether other matters such as the Commissioner's contentions in relation to resettlement of the trust informs that outcome. 24 However, these events as to the trustee's application for an extension of time and a consideration of whether the Commissioner might make a decision favourable to the taxpayer on that question, are, for the moment, speculative. They do not bear on the question of whether the amended assessment issued by the Commissioner for the year ending 30 June 2001 is excessive. It may be demonstrated however that should certain events occur, the consequence of those events as a matter of law is relevant to the question of whether the amended assessment of the Commissioner issued to each taxpayer on 25 November 2005 is excessive particularly since an extension of time resulting in an election by the taxpayer gives rise to a 'relation back' to 'the time the declaration was made', namely, 16 August 1994. 25 If those events, should they occur, are demonstrated to be relevant to the question of whether the amended assessment remains excessive (because, for example, an alternative disposal event may be demonstrated to have arisen resulting in a realised capital loss at 16 August 1994), it seems to me that each taxpayer would be entitled to seek leave to amend the grounds stated in each taxation objection to raise, in the alternative to the contended disposal, another ground upon which a capital loss is said to have been realised. 26 The decision of the Full Court of this court in the Commissioner of Taxation v Jackson (supra) does not establish a rigid principle that no fact or event occurring between the date of the Commissioner's appellable objection decision and the hearing of the appeal can ever be taken into account in a referral of an objection decision to the court. The Full Court of this court recognised in Jacksonthat, in principle, it is unlikely that events arising after the making of the objection decision could be 'relevant' to the question of whether the amended assessment is excessive. The court also recognised, for example, that evidence of the formation of a state of mind by the Commissioner after the date of assessment in circumstances where the legislation required the formation of a state of mind at the date of assessment, would be irrelevant having regard to the statutory criteria. 27 The question will always be whether evidence of events occurring after the date of the objection decision can be demonstrated 'as being of relevance in the determination of a tax appeal' (Commissioner of Taxation v Jackson at p 19 per Hill J). Equally clearly, the court recognised that it would be difficult to conceive of circumstances which would render events (or evidence of events) occurring after the date of the objection decision, relevant. Although the taxpayer must show that the amended assessment objected to is excessive, that which comes before the court is the objection decision in its entirety and the court's power to make orders dispositive of the appeal is expressed in the widest terms (s 14ZZP). Because the exercise of judicial power is an appeal 'against the decision' (s 14ZZ(a)(ii), the controversy, in principle, must be limited to events affecting the liability of the taxpayer at a date 'no later than the date upon which the objection decision is made' (Jackson, p 20, per Hill J). It may be that a decision of the Commissioner in response to the application of the trustee of the Carringbush Trust in conjunction with an election, will result in a disposal event that affects the liability of the taxpayer as at the date of the objection decision by reason of the operation of the provisions of the legislation. If so, evidence of those events might be shown to be relevant and if relevant, admissible. 28 It seems to me that there is no principle which as a matter of absolute application prohibits the reception of evidence of events between the date of the making of the appellable objection decision and the date of hearing. The taxpayer would need to demonstrate the relevance (and admissibility of evidence) of the event. 29 Unless and until the event occurs, the question does not arise. 30 Accordingly, no procedural fairness arises in the sense contended for by the applicants. The Commissioner is entitled to rely upon the proper operation of s 468 of the Corporations Act. The contention can be fairly raised as there is more than enough time to enable the appellants to deal with the contention. In that sense, there is no prejudice. 31 It seems to me that the real or underlying point the appellants seek to agitate is not so much procedural unfairness based upon foreclosure of a right to agitate post objection decision events in answer to the s 468 contention but rather, perceived unfairness arising out of the Commissioner now agitating the notion that any disposal on 26 May 1993 is void by operation of law when the trustee of the Carringbush Trust might have effected a disposal of the shares (effective on 16 August 1994) by making the election contemplated by s 160WA(1), in writing, to the Commissioner on or before lodgement of each taxpayer's return of income for the year of income in which the liquidator's declaration was made, that is, 30 June 1995 since the declaration was made on 16 August 1994. The short point is that no election was, in fact, made because the trustee of the Carringbush Trust assumed, rightly or wrongly, that the transaction of 26 May 1993, 15 months prior to the liquidator's declaration, was an effective sale or disposal of the shares thus crystallising a capital loss. However, that assumption does not now deprive the Commissioner of the right to raise the proper operation of the law derived from s 468 of the Corporations Act as understood according to authority in support of the amended assessment. Equally clearly, the taxpayer is entitled to raise contentions in response with leave and might also seek to demonstrate the relevance of future events when they occur to the question of the liability of the taxpayer at the date of the objection decision and, if relevant, seek leave to further amend the grounds of objection. 32 In addition, the appellants seek leave to amend their respective grounds of objection to raise six additional matters. Grounds 1, 2 and 3 are responsive to the Commissioner's contention that the contended disposal of 26 May 1993 is void. Ground 4 is a contention that by force of the objection decision, the Commissioner is taken by operation of s 169A(3) of the 1936 Act to have made a decision to extend time under s 160WA(2) of the 1936 Act although the additional ground does not contend that the trustee made an election either at all or with any particular consequence. Ground 5 is a contention that the alleged resettlement of the Carringbush Trust in 1998 was a CGT event for the purposes of the 1997 Act resulting in the realisation of a capital loss in relation to the Rothwells' shares in 1998. Ground 6 is a contention that there is no reason why the court would not grant such approval as is necessary under the Corporations Act to affirm the disposal transaction on the part of the trustee on 26 May 1993. 33 I propose to give leave to each appellant to amend the Grounds of Objection to the amended assessment in each case in terms of grounds 1, 2, 3 and 5 of the proposed amendment annexed to the Notice of Motion. Grounds 4 and 6 are not proper grounds of objection to the amended assessments. 34 Each appellant seeks an Order by the motion, in the alternative to what I have described as the strikeout part of the motion, to join or consolidate with the resolution of the appeal, matters going to the respondent's consideration of the extension request by the trustee of the Carringbush Trust on 26 April 2007. Further, each appellant seeks an Order that if the Commissioner's decision under s 160WA(2) is favourable, the respondent ought not to be entitled to now rely upon the argument derived from s 468 of the Corporations Act. Alternatively, if the Commissioner's decision is unfavourable to each taxpayer, the appellants seek an Order that that decision form part of the respondent's objection decision and that a contended error in refusing to grant an extension, be the subject of a further amendment to the grounds of objection of each taxpayer, with leave. In addition, if it is demonstrated that the Commissioner erred in making an unfavourable decision under s 160WA(2), the appellants seek an Order that the Commissioner not be entitled to rely upon the s 468 argument. 35 The only questions alive in each appeal are matters going to the amended assessment and the objection decisions of the Commissioner in relation to each taxpayer's objection. There is no proper basis for joining in the adjudication of the questions alive on appeal a question going to the Commissioner's consideration of a request by the trustee of the Carringbush Trust nor a consideration of whether the Commissioner erred in making an administrative decision to either grant or refuse the trustee's application for an extension. Nor is there a proper basis for joining in the appeal the question of whether the refusal to extend time to the trustee deprives the Commissioner of the right to rely upon the consequences that flow from properly applying s 468 of the Corporations Act to facts as found. As discussed earlier, each appellant may be able to demonstrate should particular events occur that those events are relevant to the question of the liability of each taxpayer at the date of the objection decision. If so, an application might be made to amend the grounds of objection to raise the additional matters. Nor is there a proper basis for joining any challenge by an 'aggrieved person' to the Commissioner's decision on the extension question under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act'), in each appeal. Each of these matters are truly separate and discrete questions notwithstanding that the outcome of some of them may then be shown to have relevance for the questions presently alive on the appeal. 36 The remaining question is whether the Commissioner in filing an appeal statement which is treated as the document described as the Amended Statement of Facts Issues and Contentions has complied with Order 52B, rule 5(2)(a)(iv) of the Federal Court Rules. The appellants say the Commissioner has not done so because the ASFIC at paragraph 5(3) of the contentions at page 24 of the ASFIC simply asserts: 'Alternatively, the acts, transactions and events, related above, that occurred on or about 8 September 1998 constituted a resettlement of [the Carringbush Trust]'. That paragraph recites a cross reference which is unidentified. Paragraph 61 at page 13 of the ASFIC recites that the Carringbush Unit Trust was varied by a Deed of Variation which redefined the term 'net income'; introduced a new class of units; reclassified the existing units as 'ordinary units'; introduced a new clause entitling the trustee to issue discretionary units to persons not holders of ordinary units and replaced clause 11(a) and (b) with a new clause 11 comprising subparagraphs (a) to (g). At pages 2 - 5 of each objection decision, the Commissioner identifies the facts and circumstances which are said to give rise to the creation of a new trust with the result that the Carringbush Unit Trust ceased to exist on 24 June 1993. Some similar events are identified at paragraph 61 of the ASFIC in relation to the events on 8 September 1998. 37 However, it seems to me that each taxpayer is entitled to be told all of the relevant facts, circumstances and contentions which support the proposition that a resettlement of the Carringbush Unit Trust occurred on 8 September 1998. The Commissioner contends that all that is required for a compliant appeal statement is a sufficient statement to reflect the facts and issues in the appeal 'as the Commissioner perceives them'. The word 'perceives' is said to quite deliberately limit the obligation of the Commissioner to a statement of perception which is something well short of proper and full particularity of the facts and circumstances supporting a contention. I do not accept the Commissioner's submission on this matter. It seems to me that a taxpayer is entitled to be properly informed of the content of the contention especially since the taxpayer bears the ultimate burden of demonstrating that the amended assessment is excessive. The appeal statement must propound all the necessary ingredients of the claim for which the Commissioner contends and disclose the facts upon which the respondent has based the contention. It is not sufficient to simply assert the resettlement of the trust and in a generic and conclusionary way assert reliance upon all of the preceding acts, transactions and events recited in the appeal statement as a statement of the material facts enlivening the particular contention. The taxpayer is entitled to be told which facts are relied upon to support the contention that a resettlement of the trust occurred on the relevant date. Is it some of the preceding facts or each and every fact? If reliance is placed upon acts and events at a time other than 8 September 1998, which acts are relied upon? Although the ASFIC is not devoid of any stated basis for the contention (as illustrated, for example, in the circumstances of Rio Tinto Ltd v Federal Commissioner of Taxation (2004) 55 ATR 321), the Commissioner ought to be able to say with focussed precision and discipline precisely what facts and circumstances support the contention thus providing a proper exposition of the contention itself. Accordingly, I propose to make an Order that the Commissioner provide within 14 days a statement of those acts, transactions and events which support the contention that a resettlement of the Carringbush Trust occurred on 8 September 1998. 38 The costs of the motion will be reserved. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Clark v Commissioner of Taxation

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