Commissioner of Taxation v Grimaldi

REASONS FOR JUDGMENT 1 By s 5(1) of the Income Tax Act 1986 (Cth) income tax was imposed in accordance with the Income Tax Act 1986 and at the relevant rates declared by the Income Tax Rates Act 1986 (Cth). 2 Section 7 of the Income Tax Act 1986 (Cth) levied the income tax imposed by s 5(1) as follows: '7 The tax imposed by subsection 5(1) is levied, and shall be paid, for the financial year commencing on 1 July 1986 and for all subsequent financial years until the Parliament otherwise provides.' 3 Under s 12(1) of the Income Tax Rates Act 1986 (Cth) the relevant rates of tax were as set out in Schedule 7 to that Act. That schedule has been amended to record the prevailing rates from time to time. 4 At all material times s 166 of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act') has made provision for the Commissioner to make assessments of the amount of the taxable income of a taxpayer and of the tax payable thereon and s 174 has made provision for the Commissioner to serve notices of assessment in writing upon persons liable to pay the tax the subject of the assessments.

The privative provisions of the 1936 Act 5 Section 175 of the 1936 Act provided: '175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.' 6 Section 177(1) of the 1936 Act provided for notices of assessment to have a conclusive evidentiary character both in respect of the due making of the assessment and that the amount and all the particulars of the assessment were correct. Section 177(1) provided: '177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.' 7 Under regulation 172(2) of the Income Tax Regulations 1936 a certificate, notice or other document bearing the printed name of a person who was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner was deemed to have been duly signed by that person unless it was proved that the document was issued without authority. 8 The present proceedings are not proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) ('the Administration Act'). 9 Section 175A of the 1936 Act provided for taxpayers who were dissatisfied with assessments made in relation to them to object against the relevant assessment 'in the manner set out in Part IVC of the Administration Act'. 10 As at April/May 2009, the period within which the relevant Notices of Assessment in this case were issued, Part IVC of the Administration Act commenced with s 14ZL and concluded with s 14ZZS. The Part consisted of five Divisions which bore the headings: Division 1 - Introduction Division 2 - Interpretative Provisions Division 3 - Taxation Objections Division 4 - AAT Review of Objection Decisions and Extension of Time Refusal Decisions Division 5 - Federal Court Appeals Against Objection Decisions 11 Section 14ZL(1) of the Administration Act provided a connection between Part IVC of the Administration Act and s 175A of the 1936 Act. It relevantly provided: '14ZL(1) This Part applies if a provision of an Act … provides that a person who is dissatisfied with an assessment, determination, notice or decision … may object against it in the manner set out in this Part.' Part IVC proceeded to provide for the review by the Administrative Appeals Tribunal of decisions by the Commissioner in relation to certain taxation objections and requests for extension of time and for appeals to this Court against decisions by the Commissioner in relation to certain taxation objections. 12 In McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 ('McAndrew') at 280-282 Taylor J said of s 177(1): 'The purpose of that sub-section [s 177(1)], is, subject to an important qualification, to make the production of a notice of assessment in judicial proceedings conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct. The qualification is that upon proceedings on appeal against the assessment, the production of the assessment does not constitute conclusive evidence that the amount and all the particulars of the assessment are correct. It will be seen that the sub-section contains two limbs and that the second limb applies only in proceedings which are not appeals of the character specified. In all other proceedings both limbs apply. But although doubts may exist as to what is comprised in each limb, the existence of these doubts in no way requires a modification of the view previously expressed. … There seems no doubt that s.177 (1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground and, accordingly, there is every reason for thinking that the second limb in s.177 (1) covers all grounds upon which an assessment may be challenged other than those covered by the first limb. … In my view s.170 (1) (sic) should be understood as precluding a taxpayer in proceedings other than an appeal (or a reference [now a review]) under the Act from challenging an assessment on any ground. …' 13 In F. J. Bloemen Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 360 at 375, Mason and Wilson JJ cited with approval the observations of Taylor J in McAndrew. 14 In Webb v Commissioner of Taxation (No 2) (1993) 47 FCR 394 at 400 Hill J said: '… the giving to the taxpayer of a notice which stipulates the taxable income and the tax payable referable to that taxable income in the year (a positive figure) will be a notice of assessment attracting the provisions of the objection and appeals procedure and s 177.' His Honour then continued at 400-401 by saying: 'My view is consistent with the decision of Hunt J in Deputy Commissioner of Taxation (Cth) v Clyne (1982) 60 FLR 45 and that of Enderby J in Commonwealth v Opiel (1986) 86 ATC 5,013. The former case is not greatly different from the present. In that case Mr Clyne, who had received a notice of assessment showing a credit for provisional tax, sought to argue that the giving of that credit constituted an admission by the Commissioner that payment had been made for that amount or that a claim was no longer made in respect of that amount, or alternatively that the provisions of s 177 rendered there conclusive evidence that the amount was no longer claimed by the Commissioner. This somewhat audacious argument was rejected by Hunt J who regarded the particulars of assessment referred to in s 177 of the Act as constituting merely the two ingredients taxable income and the tax assessed with respect to that taxable income. The other material on the notice, including the credit, were, his Honour thought, particulars of the notice but not particulars of the assessment. The decision of Hunt J was followed by Enderby J in Opiel in holding that details of a refund stated in the assessment to be due to a taxpayer did not attract the conclusive evidentiary protection of s 177.' See also Deputy Commissioner of Taxation of the Commonwealth of Australia v Richard Walter Pty Limited (1995) 183 CLR 168 ('Richard Walter'). 15 In Richard Walter, Mason CJ took the view that the relevant provisions of the 1936 Act did no more than require the making of an assessment, due compliance with the statutory provisions not being essential to the validity of the assessment (at 187). His Honour said at 187 - 188: 'The central element of the legislative regime is the making of an assessment by the Commissioner which ascertains the taxpayer's liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantial liability to tax.' 16 Mason CJ said of s 175 of the 1936 Act at 187: 'That provision is of critical importance because it indicates that compliance with any of the provisions of the Act is not essential to validity.' Earlier at 186 his Honour said: 'The effect of s 177(1) … is to condition the exercise of jurisdiction upon production of the notice of assessment or a copy of it so that it is treated as valid, otherwise than in Pt IVC proceedings.' At 187 His Honour said: 'Viewed in the light of s 175, s 177(1) is a provision which gives effect to the substantive expression of intention in the earlier section. The reference to "due making" of the assessment in s 177(1) reflects the content of s 175.' 17 Mason CJ observed at 187 that the paramount purpose of the 1936 Act was to ascertain the liability of taxpayers to tax and that the Act, with that object in view, set up a legislative regime whereby the Commissioner assessed the taxpayer to tax, the taxpayer being liable to pay the amount stated in the notice of assessment, subject to a reference to the Administrative Appeals Tribunals or an appeal under Part IVC to the Federal Court. His Honour said at 187: 'In such an appeal, it is for the taxpayer to show that the assessment is excessive.' (See also per Gyles J in Syngenta Crop Protection Pty Ltd (ACN 002 933 717) v Commissioner of Taxation [2005] FCA 1646 at [12]). 18 It will be appreciated that Part IVC of the Administration Act gives the taxpayer the option to seek review of reviewable objection decisions, as defined in s 14ZQ, in the Administrative Appeals Tribunal, or to appeal to the Federal Court against an appealable objection decision, as defined in that section (see s 14ZZ of the Administration Act). In relation to applications for review, s 14ZZK of the Administration Act dealt with the issue of grounds of objection and burden of proof as follows: '14ZZK On an application for review of a reviewable objection decision: (a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and (b) the applicant has the burden of proving that: (i) if the taxation decision concerned is an assessment … the assessment is excessive; …' 19 In relation to appeals to the Federal Court, s 14ZZO of the Administration Act relevantly dealt with the issue of grounds of objection and burden of proof as follows: '14ZZO In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision: (a) the appellant is, unless the Court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and (b) the appellant has the burden of proving that: (i) if the taxation decision concerned is an assessment …- - the assessment is excessive; …' 20 In Richard Walter, Mason CJ found that the first limb of s 177(1) of the 1936 Act was effective to preclude a challenge by a taxpayer, in proceedings in the Federal Court under s 39B of the Judiciary Act, to the validity of an assessment where the Commissioner had included the same amounts in the taxable income of more than one taxpayer. His Honour said at 188: 'Section 177 gives effect to the substantive provisions of the Act, in particular s 175, the effect of which is to ensure that the validity of an assessment does not depend upon compliance with any of the particular provisions of the [1936] Act or considerations of purpose. On this view, s 177(1) is consistent with the Hickman principle.' 21 In Richard Walter Brennan J, as his Honour then was, observed at 199: 'The jurisdiction of the Federal Court on appeal from, or of the Administrative Appeals Tribunal on review of, a decision on an objection extends to every issue which affects the amounts ultimately included in the taxable income or tax liability of a taxpayer. If any of these issues be resolved in favour of the taxpayer, an amendment of the assessment so as to reduce the taxable income or the tax liability of the taxpayer must follow. The width of that jurisdiction and the evident purpose of the Act to channel all issues as to the true tax liability of the taxpayer into the objection, review and appeal procedures found the clearest implication that exceptions to the broadest literal application of s 175 must be narrowly confined and a corresponding operation must be attributed to s 177(1).' (Footnotes omitted)