Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd

1. Throughout this judgment I frequently use the past tense to describe the position as it was at the time relevant to this appeal. Numerous changes to the appeal procedure since that time make it difficult to speak in the present tense.

Counsel for the Commissioner contended that, notwithstanding the legislative changes made in 1986, the Act required a taxpayer to show that the amount of tax assessed pursuant to the provisions of s. 166 was excessive and that Federal Commissioner of Taxation v Dalco [16] defined the issue in an appeal against a s. 166 assessment. In Dalco, a default assessment under s. 167 had been issued against the taxpayer. Brennan J. said [17] that the purpose of the procedure of assessment, objection and appeal or review was to ascertain the "true tax liability" of the taxpayer under the substantive provisions of the Act. At that time, the legislation treated the taxpayer's objection as an appeal (ss. 187(1)(b), 197). The Court was given power to "confirm, reduce, increase or vary the assessment" (s. 199). In that context, Brennan J. said [17] that it would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed unless the Court was satisfied that the amount to which it proposed to alter the assessment represented the "true tax liability" of the taxpayer. The judgment of Toohey J. was to the same effect. Mason C.J., Deane, Dawson, Gaudron and I agreed with the reasons of Brennan J. and Toohey J. In Dalco, the taxpayer established an error in the Commissioner's application of the Act. But the taxpayer failed to establish that his true tax liability was less than the Commissioner's assessment. Accordingly, the Court held that his appeal must fail.

1. (1990) 168 C.L.R. 614. 2. ibid., at p. 621. 3. ibid., at p. 621.

Relying on Dalco, counsel for the Commissioner argued that, in the appeal to the Federal Court, the present taxpayer had to prove that the assessment was excessive and not merely that the Commissioner had erred in making his assessment. It followed from the terms of s. 190(b), according to the argument, that the Commissioner could argue that the assessment was not excessive and that the interest payments were not allowable deductions having regard to the findings of the Full Court. In my view, however, there was at the relevant time a real difference between an appeal against an assessment under s. 166 and an appeal against an assessment under s. 167.

An assessment made under s. 166 ordinarily involves "a number of distinct stages namely, the ascertainment of the components of assessable income, the ascertainment of any deductions to be made from assessable income for determining taxable income, the determination of the amount of taxable income and the calculation of tax" [18] . Error may occur at any stage. A taxpayer's objection to a s. 166 assessment is ordinarily based on an error in that process. The challenge to the assessment is ordinarily the consequence of a challenge to the process. An assessment made under s. 167, on the other hand, involves only one component in the assessment - the final figure. As Mr. Bloom correctly submitted, there are no separate components of assessable income on one side or allowable deductions on the other side. An objection to a s. 167 assessment, therefore, has to be against the final figure. At the relevant time s. 190(b) required the taxpayer to prove that that figure was excessive.

1. Federal Commissioner of Taxation v Offshore Oil N.L. (1980), 49 F.L.R. 159, at p. 167; 32 A.L.R. 193, at p. 200; 11 A.T.R. 189, at p. 195; 80 A.T.C. 4,457, at p. 4,462.

Whatever may have been the position before the 1986 amendments to the Act, I think that there are real difficulties in applying the reasoning in Dalco to an appeal against an assessment made under s. 166, particularly after the 1986 changes. That is to say, there is a real difficulty in holding that on an appeal against a s. 166 assessment the taxpayer is bound to establish that the assessment was excessive. Indeed, Mr. Bloom cited Henderson v Federal Commissioner of Taxation [19] as an illustration of an appeal, heard before the 1986 amendments, where the taxpayer successfully appealed on "the unusual and surprising ground that [the assessments] were too low" [20] . It is arguable that s. 190(b) was always a procedural section concerned with the onus of proof in cases where a taxpayer challenged either the final figure or some component in that figure and that it was not concerned with the ultimate issue in the appeal or with the jurisdiction of the Court.

1. (1970) 119 C.L.R. 612. 2. (1970) 119 C.L.R., at p. 618.

Whatever may have been the effect of s. 190(b) before the 1986 amendments, however, those amendments made an important change to the nature of a taxpayer's appeal: the Court no longer had the power to alter the assessment. In hearing an appeal, it was required to consider the decision on the objection made by the Commissioner and was constrained by the issues that arose from that decision. Plainly, the jurisdiction of the Court was determined by the Commissioner's decision. Consequently, the Court was given power to make orders confirming or varying the decision, not the assessment (s. 199). The Commissioner was required to give effect to those orders (s. 200B). Only indirectly did the Court's order affect the assessment. These changes in the nature of the appeal indicate that after the 1986 amendments the purpose of s. 190(b) was procedural, not jurisdictional. The Commissioner's decision could have been wrong without the assessment being excessive. The facts in Henderson are an example.

Because s. 190(b) remained in the Act after the 1986 changes, it may be that the ultimate question in an appeal against a s. 167 assessment continued to be whether the amount assessed as taxable income was excessive. But the reasoning that led this Court to that conclusion in Dalco does not seem to me to be applicable to an appeal against an assessment under s. 166 after the 1986 amendments.

Although the Court's jurisdiction was controlled by the "decision on the objection" (s. 189(3)), nevertheless the power conferred by s. 199 was very wide. It enabled the Court to make such order "in relation to the decision" as it thought fit and that included an order that varied the decision. In their natural and ordinary meaning, the words of s. 199 were wide enough to enable the Court to make an order concerning a matter that had a relevant connexion with the Commissioner's decision. The power to make such an order necessarily requires the conclusion that the Federal Court could hear evidence and submissions concerning the matter.

In this case, the question of the deductibility of the interest payments was a matter that was connected with the Commissioner's decision on the objection. The Federal Court, therefore, had jurisdiction to deal with the matter.