Commissioner of Taxation v Rozman

Federal Court of Australia|2010-04-01|Before: Perram J

Number of paragraphs: 48

Counsel for the Applicant / Cross-Respondent: Mr B J Sullivan SC with Ms C A Burnett

Solicitor for the Applicant / Cross-Respondent: Australian Government Solicitor

Solicitor for the Respondent / Cross-Applicant: Djekovic Hearne & Walker

The parties bring in short minutes of order reflecting these reasons for judgment within seven days. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

REASONS FOR JUDGMENT 1 On 12 April 2006 the Commissioner amended Ms Rozman's income tax assessment for the year ended 30 June 2001 to include an amount of $167,610. On the same day, he issued an assessment of an administrative penalty of 75% of the additional amount assessed. Ms Rozman objected to these assessments but the Commissioner disallowed that objection on 8 February 2007. Ms Rozman then applied for a review of that objection decision which was heard by the Administrative Appeals Tribunal ("the Tribunal") on 22 July, 22 September and 18 December 2008 and decided on 18 May 2009. The Tribunal reduced the additional amount assessed by 50% but left the rate of penalty unaltered: Reid v Commissioner of Taxation [2009] AATA 357 (the difference in the names arises from the use of a pseudonym before the Tribunal). 2 Neither Ms Rozman nor the Commissioner were content with the Tribunal's decision. The Commissioner appealed to this Court pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) seeking to set aside the Tribunal's decision to reduce the additional amount included in the assessment by 50% and to restore the Commissioner's original decision; Ms Rozman cross-appealed seeking to set aside the Tribunal's decision but in lieu thereof sought a determination that the Commissioner's original decision to reject her objection should itself be set aside and replaced with a decision upholding her objection in full. 3 The issues between the parties are largely concerned with the operation of a set of provisions in the Income Tax Assessment Act 1936 (Cth) ('the Act") known as the deemed dividend provisions. These provisions require a taxpayer who is a shareholder in a private company to bring to tax payments made to it by that private company as if those payments had been paid as dividends even if the form of the payment properly bears some other legal characterisation.

Facts 4 Before turning to those provisions, however, it is useful first to say something of the facts giving rise to the issues between the parties. The relevant events all occurred in the fiscal year ended 30 June 2001. In that year, Ms Rozman was a shareholder in a company called Tredex Pty Ltd ("Tredex") which was incorporated in New South Wales. Its business was that of importing and exporting shredded recycled waste paper as well as renting out shipping containers. 5 Apart from Ms Rozman herself there was only one other shareholder in Tredex and that was a Mr Holland. Matters are complicated somewhat by the fact that in the year ended 30 June 2001 Ms Rozman and Mr Holland were in a de facto relationship. In that same year, Tredex made sales (presumably of recycled paper) to a United States corporation called Fibre Trade Inc ("Fibre") in the amount of AUD$144,533 and earned commission on containers from another United States' corporation, Triton Container Inc ("Triton"), in the sum of AUD$26,525. Tredex's return for the year ended 30 June 2001 should have included, but did not, those two items as income totalling AUD$171,058. In fact, although that money was earned by Tredex it was never received by it. This is because, at Tredex's direction, the two debtors, Fibre and Triton, paid the moneys owed to Tredex elsewhere. 6 So far as Fibre is concerned, its debt to Tredex (or nearly all of it) was discharged by wire transfers on dates between 10 April 2001 and May 2001 to an account with the Bank of America held in Ms Rozman's name. At the end of that process AUD$141,085.26 had been deposited to the credit of that account. So far as Triton is concerned, its debt to Tredex was discharged by wire transfers by it to a Bank of America account in the name of a company associated with Mr Holland and from there on to Ms Rozman's account. By that mechanism, and between May and June 2001, a further amount of AUD$26,525 was transferred to Ms Rozman's account. The sum of those two sets of transfers was $167,610.26 which, rounded to the nearest dollar, is the sum which the Commissioner assessed as income in Ms Rozman's hands when he issued the amended notice of assessment for the year ended 30 June 2001. 7 As has already been noted, Tredex did not declare the $167,610.26 received into Ms Rozman's account as assessable income in its return for the year ended 30 June 2001. However, on or about 14 January 2005, Tredex voluntarily disclosed to the Commissioner that it had earned this income. What moved Tredex to this act of honesty was not disclosed in this proceeding. However, it is permissible to note that Mr Holland and Ms Rozman's de facto relationship had come to an end by January 2004 as a result of which two events had taken place. First, Mr Holland and Ms Rozman had settled a property dispute arising from their relationship. Secondly, perhaps connected to that proposition, Ms Rozman had ceased, on 20 February 2004, to be involved in any way in the affairs of Tredex. The voluntary disclosure by Tredex subsequently in January 2005 that it had not accounted to the Commissioner for the funds put in Ms Rozman's account is susceptible to many interpretations, some of which may not be especially flattering. However, those issues are neither relevant to this proceeding nor does the material permit any ready resolution of them.

The Commissioner's determination. 8 The Commissioner considered the matter governed by s 109C of the Act which requires certain payments made by private companies to their shareholders to be treated as payments of dividends. Section 109C provides (relevantly): Payments treated as dividends When private company is taken to pay a dividend (1) A private company is taken to pay a dividend to an entity at the end of the private company's year of income if the private company pays an amount to the entity during the year and either: (a) the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or (b) a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time. Amount of dividend (2) The dividend is taken to equal the amount paid, subject to section 109Y. What is a payment to an entity? (3) In this Division, payment to an entity means: (a) a payment to the extent that it is to the entity, on behalf of the entity or for the benefit of the entity; and (b) a credit or an amount to the extent that it is: (i) to the entity; or (ii) on behalf of the entity; or (iii) for the benefit of the entity; and (c) a transfer of property to the entity. … 9 Within sub (3) itself it was (a) and (c) which were pertinent. Ms Rozman sought to outflank the operation of s 109C by contending that she never received the funds for her own benefit; that she did so only at Mr Holland's direction; that he was seeking to keep as much income of Tredex as he could off-shore; and that she dealt with the funds in her account entirely as instructed by him. In short, her point was that the money was not received by her beneficially. 10 The Commissioner did not agree and concluded that Ms Rozman had used the moneys for her own benefit and that s 109C applied. Consequently, he concluded that the payments made by Fibre to Triton were taken to be dividend payments to Ms Rozman by Tredex. On the issue of the penalty the Commissioner observed that Ms Rozman was a chartered accountant and, in effect, should have known better and determined to maintain the 75% penalty on the shortfall.

The Tribunal's decision 11 Before the Tribunal Ms Rozman contended: first, that for s 109C(1) to be engaged there had to be a payment by Tredex; secondly, that a direction by Tredex to a debtor to discharge a debt by paying a third party was not, relevantly, a payment by Tredex; thirdly, that the discharge of a debt could not constitute a transfer of that debt to Ms Rozman; fourthly, that in any event, even if those matters were not accepted, Ms Rozman never received the moneys beneficially but, at all times, they were held by her on behalf of Mr Holland and used at his direction; and, fifthly, that the 75% penalty should be reduced because her position was reasonably arguable. 12 The Tribunal rejected the first three of these arguments outright. It held that the direction by Tredex to Fibre and Triton to pay the moneys into Ms Rozman's account was a payment to which s 109C(1) applied and that it also operated as a transfer of Tredex's choses in action against the debtors to her, that is, was a payment within s 109C(3)(c). Having seen Ms Rozman cross-examined, it rejected her evidence that she received the funds only for Mr Holland. It did conclude, however, that the evidence suggested that she and Mr Holland lived off the proceeds as a couple and that, consequently, she held moneys received from Fibre and Triton for the both of them. The Tribunal reasoned that accordingly she received, for herself, only 50% of those moneys. It observed that no argument had been advanced that the penalty should be reduced. In the circumstances, it varied the objection decision so that the additional income assessed was reduced by 50% and left the penalty determination at 75%.

The proceedings in this Court 13 The Commissioner has now appealed challenging the Tribunal's conclusion that the assessment should be reduced by half and seeking the restoration of his original decision. Ms Rozman has also sought the setting aside of the Tribunal's decision but, by contrast, seeks the setting aside of the Commissioner's original decision and in its place the upholding of her objection.

The submissions of Ms Rozman 14 Ms Rozman's principal submission rested upon the language of s 109C(1)(a). It was a deeming provision which would be activated, on its terms, "if the private company pays an amount to the entity during the year" and "the payment is made when the entity is a shareholder in the private company" (my emphasis). The first expression, so it was said, required an act of payment by the company itself. It was true that the second only required that a payment be made without necessarily identifying who was making the "payment" and that "payment" was defined in s 109C(3)(a) in terms which likewise did not identify the payer. However, it was necessary - and this was lynchpin of the argument - to undertake a grammatical transformation in which the pith of s 109C(1)(a) - which contemplated the verb "pays" governed by the subject "private company" - was transplanted into the definition in s 109C(3). The consequence was that "payment" was a concept inherently linked to the idea of an act of payment by the private company. The last step was to observe that the payments were made not by Tredex but, instead, by Fibre and Triton. 15 This approach was said to be supported by the explanatory memorandum which accompanied the introduction of s 109C. That introduction was achieved through the passage of the Taxation Law (Amendment) Act (No 3) 1998 (Cth). The original form of the bill included a version of the definition of "payment" in s 109C(3) in which the word "includes" appeared in place of the word "means" (as was eventually enacted). Putting the matter shortly, during the bill's passage the definition of "payment" was changed from an inclusive definition to an exhaustive one. 16 Ms Rozman sought support for her construction from statements made explaining that change. The were two upon which reliance was placed. The first was paragraph 4.11 of the Replacement Supplementary Explanatory Memorandum which said: Amendment 45 will replace the word 'includes' with 'means' to provide an exhaustive definition of payment for the purposes of the new Division 7A. 17 The second was a statement made by Senator Kemp in Committee in the Senate in the following terms: After reviewing the submissions that the definition of "payment" was too broad, the government decided to amend the definition to make it exhaustive. A minor consequential amendment is necessary to ensure that the definition covers payments made directly to a shareholder or associate. 18 On this basis, Ms Rozman says that s 109C(3)(a) should receive a strict construction. I take from this that s 109C(3)(a) should be construed consistently with s 109C(1) and not in a way which contradicts that provision's operation.

Consideration 19 There is no doubt that s 109C(1) requires there to be a payment by the private company - no other conclusion may be reconciled with the words "if the private company pays an amount to the entity". Further, it may be accepted that the definition of "payment" in s 109C(3) cannot operate in a way which is inconsistent with s 109C(1). If s 109C(1) properly construed is not activated by a payment by direction then the definition of payment in s 109C(3) should be construed consistently with that conclusion. The question which arises, therefore, is whether a direction by a private company to a debtor to discharge the debt by payment to a shareholder can be described as being a situation in which "a private company pays an amount to an entity". 20 I have no doubt that it does. As a matter of ordinary English, the verb "to pay" includes amongst its many meanings notions of satisfaction and discharge. Thus, only a pedant would protest that a woman who buys a pair of shoes on a credit card has not paid for them; and this is so notwithstanding that every credit card purchase conceals at least one payment by direction: Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300 at 320-321 [71]-[74] per Tamberlin J. So too, it would be idle to suggest that a man who buys a hat by cheque has not paid for it simply because a cheque is a direction to a financial institution to pay a sum certain to another person: s 10 Cheques Act 1986 (Cth). 21 In this case it could scarcely be suggested that had Tredex drawn a cheque upon its bankers in favour of Ms Rozman and delivered that cheque to her that it would not have paid her any money because the true flow of funds was from its bankers to hers. Yet, if that be not so, there is no plausible way of distinguishing other kinds of payment by direction. If a direction to pay given by cheque can be a payment why not a direction given by letter, email or telephone call? If a direction given to a bank is a payment, why not a direction given to some other kind of business, such as Fibre or Triton? 22 In truth, there is no reason to construe "pay" as requiring a direct flow of money from payer to payee. Only in a world in which the concept of money was confined to cash and coin could such a notion even begin to work, for once it be accepted that that concept includes debts and other choses of action, it becomes nonsensical to speak about money literally moving from the payer to the payee. Ms Rozman's construction of the word "pay" is, therefore, to be rejected. It ignores ordinary usage and it does so for no good reason. 23 Ms Rozman's attempt to confine the word "pay" to situations where actual money changes hand is not novel and, when raised, has generally been rejected. Thus, for example, the rule in Spargo's Case (Re Harmony and Montague Tin and Copper Mining Company (1873) LR 8 Ch App 407 at 412 per Sir James LJ) holds that, for the purposes of company law, when a liability upon shares and a liability on a cross-demand against the company of a sum certain immediately payable are set-off against each other this constitutes payment for the shares in cash: see also Whim Creek Consolidated (NL) v Federal Commissioner of Taxation (1977) 17 ALR 421 at 425 per Bowen CJ, Franki and Deane JJ; Commissioner of Taxation v P Iori and Sons Pty Ltd (1987) 15 FCR 363 at 368 per Fox J. The rule in Spargo's Case is "not a principle confined merely to the company law context in which it was decided": East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 90 ALR 457 at 469 per Hill J. Thus "payment of a dividend may occur in a variety of ways not involving payment in cash or by bill of exchange, as, for example, by an agreed set-off, account stated or an agreement which acknowledges that the amount of the dividend is to be lent by the shareholder to the company and is to be repaid to the shareholder in accordance with the terms of that agreement": Brookton Co-operative Society Limited v Federal Commissioner of Taxation (1981) 147 CLR 441 at 455 per Mason J (with whom on this point, each of the other Justices agreed). It is difficult to identify how payments by direction might be distinguished from any of those arrangements: cf. Fruehauf Finance Corporation Pty Ltd v Zurich Australia Insurance Ltd (1993) 32 NSWLR 735 at 740 per Giles J; Skourdoumbis v Findlay (2002) 190 ALR 554 at 582-583 [83]-[84] per Gray J. The statement of de Jersey CJ in an obiter dictum in Starco Developments Pty Ltd v Ladd [1999] 2 Qd R 542 at 546 [4] that a party directing a debtor to pay another "is to be regarded as making the payment" is, in those circumstances, hardly surprising. There is, therefore, no reason to read "the private company pays" in s 109C(1) as precluding payment by direction. 24 The Tribunal, it will be recalled, also concluded that there was a transfer of property to Ms Rozman from Tredex. If that were right it would fall within s 109C(3)(c) and be deemed thereby to be a payment. Ms Rozman submitted, and I accept, that no such a transfer took place. The only property involved was the debts owned by Tredex to Fibre and Triton. The payment or discharge of those debts did not operate as a transfer of them, rather, it extinguished them. 25 In the event, however, payments by direction are countenanced by s 109C(3)(a). Accordingly, s 109C(1) did apply to Ms Rozman. The payments into her account were to be treated as dividends. 26 In this Court Ms Rozman pursued an additional argument that the moneys were not received by her beneficially. This was not a matter appearing in her amended notice of cross-appeal. It was inconsistent with the written submissions filed on her behalf in relation to the Commissioner's amended notice of appeal where it was said (relevantly): In the Commissioner's appeal from the decision of the Tribunal below, the Respondent, in this Court, does not seek to defend or uphold any part of the decision of the Tribunal below. (emphasis added) 27 Of course, one of the Tribunal's conclusions which Ms Rozman did not seek to defend or uphold was that she had received 50% of the money on behalf of Mr Holland and not for herself. The delivery of that submission appears to involve an unequivocal abandonment of a case based on a non-beneficial receipt. 28 The actual submission advanced on her behalf on the cross-appeal was, at least initially, that the funds were received by her on a resulting or constructive trust for Tredex. When the Commissioner pointed out in his submissions that no such a case had been run before the Tribunal it was expressly withdrawn but then replaced, in purported reply, with the claim that the moneys had been held on Mr Holland's behalf. 29 A number of observations should be made about that reformulated submission. First, such an argument was indeed advanced by Ms Rozman in the Tribunal and was rejected. The Tribunal specifically said: The Tribunal finds as a matter of fact that it cannot be said of the moneys paid into the Applicant's [Ms Rozman's] US account that they were used and could only be used now when Mr Head so directed. (Mr Head was Mr Holland's pseudonym in the Tribunal) 30 Secondly, the amended cross-appeal does not seek to interfere with this conclusion and none of the questions of law set out in the amended notice of cross-appeal seeks to raise a challenge to that finding of fact. Thirdly, even if it did, a challenge to such a finding would not be a question of law within the meaning of s 44 of the Administrative Appeals Tribunal Act 1975. Fourthly, its raising would, in any event, be inconsistent with the position adopted by Ms Rozman on the Commissioner's appeal where she accepted that the Tribunal's finding that she had received half the money for Mr Holland was to be set aside. Fifthly, far from being in reply, this adjustment to her case was an unnotified attempt to lead an already abandoned case in chief. 31 In those circumstances, I decline to deal with it. 32 Ms Rozman's cross-appeal also sought to challenge the Tribunal's treatment of the penalty imposed upon her. For reasons which will become apparent it is useful to defer a consideration of that issue until after determination of the Commissioner's appeal.

The submissions of the Commissioner on his appeal 33 The Tribunal concluded that Ms Rozman and Mr Holland had behaved, fiscally, just as a married couple would have, by using the joint resources to fund their expenses. Consequently, the Tribunal felt constrained by this Court's decision in MacFarlane v Commissioner of Taxation (1986) 13 FCR 356 ("MacFarlane") to conclude as follows: I have come to the conclusion, not without some hesitation, that in light of MacFarlane and notwithstanding the fact that there are differences which are relevant, MacFarlane does furnish authority for the proposition that where a couple live and work together and make contributions to the business, money appropriated (or to be more accurate, misappropriated) by them from that business, should be taxed in their hands as to one half each. The evidence before the Tribunal while in some respects unsatisfactory does indicate that the moneys paid into the US account were paid in for use by them as a couple and so that it is not possible to say that it was paid into the US account for either of them alone. 34 That statement has to be read in light of the Tribunal's conclusion that there was no trust in favour of Mr Holland: … I would add though that I find as a matter of fact that there was no evidence before the Tribunal as to the Applicant's contention that all of the relevant monies were held on constructive trust for Mr Head. One admission (by way of example) by the Applicant is sufficient to establish that this cannot possibly be so. When the relationship terminated, there was a balance of between $16,000 and $20,000 in the US account (admitted in AS1 to be about $18,000). If those monies were held on trust for Mr Head they would and should have been paid to him but they were not and the Applicant did not for one moment accept or admit that there was any obligation on her to do so. On the contrary, she insisted that she was entitled to use those monies for her own (living expenses) purposes. Her evidence that she was entitled to those moneys pursuant to a property settlement cannot be accepted because her evidence was that she needed and used the moneys for living purposes when the relationship broke down and at a point in time when the property settlement agreement to which she referred, but did not produce, would not have been executed. It is likely having regard to all of the circumstances that such an agreement would not have been entered into until the conclusion of negotiations which may well have been lengthy and thus at a much later time. The Tribunal finds as a matter of fact that it cannot be said of the moneys paid into the Applicant's US account that they were used and could only be used when Mr Head so directed. While I do not accept that the relevant monies were held on constructive trust for Mr Head, I consider that the Applicant has furnished evidence which would support the proposition that the monies in question were not hers alone. She was in a de facto relationship with Mr Head; she lived with him in the B house which had previously belonged to him alone until he transferred one half of the property to her. She was a shareholder in and a director of the Company and she furnished services to the Company. She and Mr Head were partners both personally and professionally at the relevant time. 35 The critical aspects of this reasoning are: (a) a conclusion that there was no trust in favour of Mr Holland; (b) a conclusion that there was no constructive trust in favour of Mr Holland; and (c) a finding that Mr Holland and Ms Rozman were partners both professionally and personally. 36 The Commissioner argued that MacFarlane did not provide support, on those findings, for the conclusion that Ms Rozman held half the moneys on trust for Mr Holland.

Consideration 37 I agree. On this issue the principal judgment in MacFarlane was that of Beaumont J (with whom, on this issue, both Fisher and Burchett JJ agreed) and that reasoning shows that the result in that case depended upon the existence of a trust whether constructive or otherwise. Beaumont J said (at 367): I turn first to the question whether Miss Masterman was beneficially entitled to one-half of the investment income. His Honour found that the appellant and Miss Masterman expressly agreed that the business generating the earnings represented by the investments was to be beneficially owned by himself and Miss Masterman in equal shares. There was also evidence that, in discussions between them, the appellant and Miss Masterman agreed that the investments were jointly owned in equal shares. In any event, the investments could be traced back to the earnings of the business. Moreover, as has been said, Miss Masterman made an equal contribution to their venture. She injected a cash amount equal to that provided by the appellant. She also matched his contribution to the profits of the business by way of services rendered. In these circumstances, equity would regard the appellant and Miss Masterman as beneficially entitled in equal shares to the assets and income of their joint venture, including the income from the investments in question. Given the express agreement of the parties, it is appropriate to characterise their relationship as involving an express trust. However, if the appellant sought to raise the possible application to such a trust of the Statute of Frauds 1677 (UK) (see Conveyancing Act 1919 (NSW), s 23C), equity would declare a resulting or constructive trust in favour of Miss Masterman: see Calverley v Green (1984) 59 ALJR 111; Muschinski v Dodds (1985) 60 ALJR 52; Last v Rosenfeld [1972] 2 NSWLR 923. The appellant, of course, has never sought to deny the beneficial entitlement of Miss Masterman. Moreover, before us, the respondent disclaimed any reliance upon the Statute of Frauds. It follows, in my view, that since the appellant held the investment income as to a one-half share upon trust for Miss Masterman under an express or, alternatively, resulting or constructive trust, the appellant was beneficially entitled to the remaining one-half share of income only. 38 Since the Tribunal had concluded that there was no trust in favour of Mr Holland that meant that it was not open to it to conclude that Ms Rozman had only received a part of the money beneficially. The highest the matter can be put is that the Tribunal found that Ms Holland and Ms Rozman were partners "personally". That finding, by itself, is insufficient to ground the existence of a trust: cf. Muschinski v Dodds (1985) 160 CLR 583 at 590 per Gibbs CJ, 598 per Mason J and 618-620 per Deane J. 39 It follows that the Tribunal erred when it said that MacFarlane stood "for the proposition that where a couple live and work together, and make contributions to the business, money appropriated (or to be more accurate, misappropriated) by them from that business should be taxed in their hands as to one half each". Without an intermediate finding that a trust arose, MacFarlane was authority for no such proposition. 40 In those circumstances, the Commissioner's appeal must be allowed. For completeness, as already noted, Ms Rozman did not seek to uphold this aspect of the Tribunal's decision. 41 The consequence of the conclusions so far is that Ms Rozman's challenge to the applicability of the deemed dividend provisions to the payments made to her by Tredex by its directions to Fibre and Triton fails, but the Commissioner's challenge to the Tribunal's decision to reduce Ms Rozman's assessable share of that money by 50% succeeds.

Penalty 42 I turn then to that part of Ms Rozman's cross-appeal dealing with the issue of penalty. In dealing with Ms Rozman's objection to the imposition of the penalty, the Commissioner concluded that the shortfalls in the amounts she had returned arose "as a result of your intentional disregard of the relevant taxation law". Section 284-75 of Schedule 1 to the Taxation Administration Act 1953 (Cth) provides: 284-75 Liability to penalty (1) You are liable to an administrative penalty if: (a) you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a taxation law; and (b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and (c) you have a shortfall amount as a result of the statement. (2) You are liable to an administrative penalty if: (a) you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under an income tax law; and (b) in the statement, you or your agent treated an income tax law as applying to a matter or identical matters in a particular way that was not reasonably arguable; and (c) you have a shortfall amount as a result of the statement; and (d) item 4, 5 or 6 of the table in subsection 284-90(1) applies to you. (3) You are liable to an administrative penalty if: (a) you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and (b) that document is necessary for the Commissioner to determine a tax-related liability of yours accurately; and (c) the Commissioner determines the tax-related liability without the assistance of that document. 43 It is not clear from the objection decision whether the Commissioner was proceeding under subsection (1)(b) or subsection (2)(b), that is, it is not clear whether he determined that Ms Rozman had made a false statement or that she had relied upon a position which was not reasonably arguable. His conclusion that her position arose from intentional disregard of a relevant taxation law related not to s 284-75, but, instead, to the table in s 284-90 which provided, if a penalty were found to be due, for the imposition of a base penalty of 75% of the shortfall in cases of intentional disregard of taxation laws. 44 Ms Rozman submitted to the Tribunal that her position was "reasonably arguable" because despite MacFarlane there was a decision in the United Kingdom, Stephens v Pittas (1983) BTC 367, which justified her position. By invoking the terminology of "reasonably arguable" Ms Rozman assumed that the Commissioner had applied s 284-75(2)(b) - that is, that the Commissioner believed that her position was not reasonably arguable. As I have already noted, it was also possible that the Commissioner had proceeded under s 284-75(1)(b), namely, that on the basis Ms Rozman had made a false or misleading statement. 45 The Tribunal's treatment of the matter was to observe that Ms Rozman had not sought a reduction in the penalty. This was, regrettably, incorrect. Contrary to the submissions made on the Commissioner's behalf, it is plain that the Tribunal overlooked a significant submission being made to it. It was simply not correct to say that no submission had been made to it on this topic and the only inference which may be drawn is that it was overlooked. A Full Court of this Court in Dennis Wilcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267 has described such an error as an error of law (at 276-277 per Jenkinson J). I so conclude. 46 Prophylactically, the Commissioner contended that this Court could determine that Ms Rozman's argument that her position was reasonably arguable because of Stephens v Pittas was itself hopeless because that issue involved a question of law. That is a matter, however, which is not presently ripe for decision. The difficulty is that there has been no determination, as yet, of the issues necessary for a conclusion on the penalty issue. Those issues are, as a matter of statutory form, as follows: (a) to determine which part of s 284-75 has been used to impose the penalty, that is, whether the case is within subs (1) or subs (2); (b) to determine the base penalty in s 284-90(1); and (c) to determine whether to remit the penalty under s 298-20. 47 In relation to (c), it is to be particularly noted that a case on remission was in fact advanced to the Tribunal. Only once the Tribunal determines which subsection of s 284-75 applies can that inquiry begin. In that regard, one view may be that s 284-75(2)(b) cannot apply where there is a finding of intentional disregard. This is consistent with commonsense - a position cannot be reasonably adopted if done with intentional disregard. It is consistent with the language of s 284-75(2)(d) which may prevent an administrative penalty being imposed under s 284-75(2) if there is a finding of intentional disregard. Until those matters are clarified there is no feasible way for those questions to be resolved. The Commissioner's submission that there should be no remitter of the penalty question to the Tribunal cannot in those circumstances be accepted.

Conclusion 48 The Commissioner's appeal must be allowed. Ms Rozman's cross-appeal to the extent that it deals with penalty must also be allowed and the penalty issue remitted to the Tribunal for further determination. The parties are to bring in short minutes of order reflecting these reasons for judgment within seven days. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

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