Commissioner of Taxation v Bakarich

1. The Applicant and Fourth Respondent's joint application to make declarations and to impose a penalty be stood over until after the determination of the proceedings against the First, Second and Third Respondents. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PERRAM J: 1 The Applicant, the Commissioner of Taxation ('the Commissioner'), and the Fourth Respondent, Ms Nguyen jointly ask the Court to make declarations by consent and to impose upon Ms Nguyen an agreed penalty of $100,000. The declarations identify three contraventions by Ms Nguyen of s 290-50(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) ('the TAA'). Relevantly, this provision prohibits a person from promoting a tax exploitation scheme. 2 It is said that Ms Nguyen promoted three tax exploitation schemes involving: Compass Global Markets Pty Ltd ('Compass') between March 2016 and September 2016; Harbour Business Solutions Pty Ltd ('HBS') between late 2015 and May 2016; and Implemented Portfolios Pty Ltd ('Implemented Portfolios') between February 2016 and September 2016. 3 In the Commissioner's Amended Consolidated Statement of Claim he also alleges that the First, Second and Third Respondents promoted these three tax exploitation schemes. In each case he alleges that the facts surrounding the three entities constituted a 'tax exploitation scheme' within the meaning of s 290-65 of Sch 1 of the TAA: ss123-125, 235-237, 269-271. This is the same allegation that is made against Ms Nguyen and which she now admits. The declarations sought by the Commissioner against Ms Nguyen (to which she agrees) assume that in each case there was a tax exploitation scheme. At [68] of their Joint Submissions, the Commissioner and Ms Nguyen submit as much: Each of the schemes involving Compass, HBS and Implemented Portfolios was a tax exploitation scheme for the purposes of the promoter penalty regime, with respect to which Ms Nguyen was a promoter, because: a. the services provided by Ms Nguyen to each taxpayer constituted a scheme within the meaning of s 995-1(1) of the 1997 Act, the dominant purpose of which was to obtain an R&D tax offset for the taxpayer; b. the taxpayer was not entitled at law to the R&D tax offset that they claimed and it was not reasonably arguable that the offset claimed was available at law within the meaning of s 284-15 and 290-65 of Sch 1 TAA 1953; c. Ms Nguyen marketed each scheme to the relevant taxpayer and encouraged their interest in it within the meaning of s 290-60(1)(a) of Sch 1 TAA 1953; d. Ms Nguyen (as a consequence of her role in and being an associate of TDA) received consideration in respect each scheme, both in the form of monies paid and promises to pay; e. Ms Nguyen had a substantial role in the promotion of the schemes for the purposes of s 290-60(c) Sch 1 TAA 1953; f. Ms Nguyen's role vis-à-vis the schemes was not akin to mere advice; g. Ms Nguyen engaged, and caused TDA to engage, in conduct which resulted in her being a promoter of each of the schemes concerning Compass, HBS and Implemented Portfolios. 4 In the proceedings against the First, Second and Third Respondents, these are matters which the Court will be called upon to decide. In the event that the Commissioner's case against the First to Third Respondents be rejected, this would mean that the Court would have made a declaration against Ms Nguyen on a basis thereafter found by the Court to be incorrect. The presence of inconsistent orders on the face of the Court's record would be apt to bring the administration of justice into disrepute. 5 I do not think therefore it is appropriate to grant the declaratory relief sought by the parties at this stage. Once the disputed question of whether the three schemes above are tax exploitation schemes is resolved, then the proposed declaration may be revisited. 6 That leaves the question of penalty. The imposition of a penalty on Ms Nguyen would not give rise to the direct inconsistency to which I have just referred. However, to conclude that a penalty should be imposed I would need to accept the submission at [68] (above) that, on the agreed facts, the three tax exploitation schemes were established. One part of that submission is that the three taxpayers (Compass, HBS and Implemented Portfolios) were not entitled at law to the research and development (R&D) tax offset that they had claimed: at [68(b)]. The reference given to this is to ss123-124, 235-236, 269 and 270 of the Amended Consolidated Statement of Claim. These paragraphs, inter alia, are admitted by Ms Nguyen in the Agreed Statement of Facts at [3]. 7 Since Ms Nguyen admits these facts, it would be possible in the case of each scheme to reach a conclusion whether, on those facts, a tax exploitation scheme was established. If, subsequently, it emerged that the agreed facts were wrong and that on the facts as found there was no tax exploitation scheme then this would be, on one view, Ms Nguyen's problem for agreeing to facts which were incorrect. However, there is a possibility that such a circumstance might itself be relevant to penalty. 8 There is another problem. To impose a penalty on Ms Nguyen at this stage, I will need to form a view on whether on the agreed facts the tax exploitation schemes are made out. This carries a risk that I may be disqualified from the trial by reason of pre-judgment. 9 In those circumstances, I have concluded that the best course is to stand over the parties' joint application for declaration and the imposition of penalty until after the determination of the proceedings against the other respondents. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perram.