Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Commissioner of Taxation

THE COURT: 1 This proceeding is concerned with the powers of the Administrative Appeals Tribunal ('the Tribunal') under s 43 of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act') on the hearing of a review under s 14ZZ of the Taxation Administration Act 1953 (Cth)('the Administration Act'). Section 14ZZ provides for review by the Tribunal of, inter alia, a decision by the respondent, the Commissioner of Taxation ('the Commissioner'), to disallow an objection against an assessment made under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth)('the Surcharge Act'). The question is whether the Tribunal can exercise the discretion conferred on the Commissioner by s 8(5)(b) of the Surcharge Act to approve a method for working out the amounts of surchargeable contributions in respect of which surcharge is assessed under the Surcharge Act. The question has been referred to the Federal Court of Australia pursuant to s 45 of the AAT Act.

The Surcharge Act 2 In s 8(3) of the Surcharge Act, the expression 'surchargeable contributions' is defined as follows: 'The surchargeable contributions for a financial year for a member of a defined benefits superannuation scheme are the amounts that constitute the actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, the member for the financial year.' 3 Section 8(5) then relevantly provides as follows: '(5) The actuarial value of the benefits that accrued to, and the value of the administration expenses and risk benefits provided in respect of, a member of a defined benefits superannuation scheme for the 1999-2000 financial year or a later financial year is an amount worked out using: (a) the method set out in the regulations, or (b) if the Commissioner approves in writing another method as being appropriate in relation to the member for the financial year, the method so approved.' 4 Section 13(2) of the Surcharge Act provides that a superannuation provider, as defined, other than a self assessing superannuation provider must, after the end of each financial year, but not later than, relevantly, 31 October following the financial year, give the Commissioner, in respect of each member in relation to whom the superannuation provider was a superannuation provider at the end of that financial year, a statement setting out, inter alia, the particulars referred to in s 13(7). In the case of a superannuation (defined benefits) provider, the particulars that are required to be given in a statement under s 13 is the amount of the surchargeable contributions of the member for the financial year. 5 Section 15(1) of the Surcharge Act provides that, for each financial year for which there are surchargeable contributions for a member of a superannuation fund, the Commissioner must make an assessment that calculates the member's adjusted taxable income, as defined in the Surcharge Act. If the adjusted taxable income is greater than the surcharge threshold, as defined in the Surcharge Act, the assessment must calculate the surchargeable contributions and the rate of surcharge that applies to the member and must specify the amount of the surcharge payable or, if no surcharge is payable, state that a nil amount of surcharge is payable. If the adjusted taxable income is equal to or less than the surcharge threshold, the assessment must state that a nil amount of surcharge is payable. 6 Under s 10(2), if a superannuation provider is the holder of the surchargeable contributions when an assessment of the surcharge on those contributions is made, the superannuation provider is liable to pay the surcharge. Under s 15(8) when an assessment or a determination is made, the Commissioner must give notice of the assessment or determination to the person who is liable to pay the surcharge and, if that person is the superannuation provider, must also give notice of the assessment or determination to the member. 7 Section 24(1) of the Surcharge Act relevantly provides that, if an assessment of surcharge on a member's surchargeable contributions is made and a superannuation provider who is the holder of the contributions is dissatisfied with the assessment, the superannuation provider may object against the assessment in the way set out in Part IVC of the Administration Act. An objection made by a superannuation provider may relate to all the assessments included in a class of assessments. 8 Section 24(3) of the Surcharge Act provides as follows: '(3) In making a decision on the objection in so far as the objection relates to the calculation of the member's adjusted taxable income, the Commissioner is entitled to rely on: (a) the latest assessment of the member's taxable income under the Income Tax Assessment Act; and

(b) the latest statement of the member's surcharageable contributions given to the Commissioner by the superannuation provider.' The term 'assessment' is defined in s 43 of the Surcharge Act as 'an assessment made under subsection 15(1)'.

The Administration Act 9 Part IVC of the Administration Act contains ss 14ZL to 14ZZS. Section 14ZL provides that Part IVC applies if a provision of an Act provides that a person who is dissatisfied with an assessment may object against it in the manner set out in Part IVC. Under s 14ZL(2), such an objection is called a taxation objection in Part IVC. Section 14ZY of the Administration Act requires the Commissioner to decide a taxation objection by allowing it wholly or in part or disallowing it. The decision of the Commissioner under s 14ZY is an objection decision. Section 14ZZ then empowers a person dissatisfied with an objection decision to apply to the Tribunal for a review of the decision.

The AAT Act 10 Section 25 of the AAT Act relevantly provides that an enactment may provide that an application may be made to the Tribunal:

• for review of decisions made in the exercise of powers conferred by that enactment; or · for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment.

Under s 25(3), where an enactment makes such a provision, the enactment is to specify the person to whose decisions the provision applies and may be expressed to apply to all decisions of the person or to a class of such decisions. Section 25(4) gives the Tribunal power to review any decision in respect of which application is made to it under any enactment. Section 27 of the AAT Act then provides that, where that Act or any other enactment (subject to some exceptions) provides that an application may be made to the Tribunal for a review of a decision, the application may be made by or on behalf of any person whose interests are affected by the decision. 11 The critical provision for the purposes of the present proceeding is s 43(1) of the AAT Act. Section 43(1) provides that, for the purposes of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who had made the decision. Under that provision, the Tribunal is required to make a decision in writing affirming or varying the decision under review or setting aside the decision and either making a decision in substitution for it or remitting the matter for reconsideration. 12 Section 45(1) of the AAT Act provides that the Tribunal may, of its own motion, or at the request of a party, refer to the Federal Court of Australia for decision, a question of law arising in a proceeding before the Tribunal. Section 45(2) confers on the Federal Court of Australia jurisdiction to hear and determine a question of law referred to it under s 45(1). That jurisdiction must be exercised by the Federal Court constituted as a Full Court. Under s 45(3), where a question of law arising in a proceeding has been referred, the Tribunal must not, in the proceeding, give a decision to which the question is relevant while the reference is pending or proceed in a manner or make a decision that is inconsistent with the opinion of the Federal Court of Australia on the question.

Findings of Fact 13 The referral by the Tribunal of a question of law was by means of a special case. The special case stated facts, the essence of which have been set out below. Both the Trustee and the Commissioner agreed as to those facts. Indeed, there could be little dispute as to the facts stated below and as set out in the special case. 14 The special case is signed by a Deputy President of the Tribunal and is sealed with the seal of the Tribunal. While there has been no formal finding by the Tribunal of the facts stated in the special case, it is clear that the question has been referred by the Tribunal on the basis of those facts. It would not be open to the Tribunal to depart from the facts when it embarks on the hearing of the review of the Commissioner's objection decision. 15 The Officers Superannuation Fund ('the Fund'), was established under the Commonwealth Banks Act 1959 (Cth) ('the Banks Act'). Pursuant to s 110 of the Banks Act, the Fund is governed by a trust deed executed on 11 July 1996 and amended on several occasions thereafter ('the Trust Deed'). The Fund is a superannuation fund and is a defined benefits superannuation scheme, as those terms are defined in s 43 of the Surcharge Act. The applicant, Commonwealth Bank Officers Superannuation Corporation Pty Ltd ('the Trustee'), is the trustee of the Fund. The Trustee is a superannuation provider for the purposes of the Surcharge Act. 16 The members of the Fund are employees or former employees of the Commonwealth Bank of Australia ('the Bank') or of existing or former associated employers of the Bank, as provided for in the Trust Deed, and dependants of those employees. Mr Eric Ian Cocks ('Mr Cocks') is an employee of the Bank and is a member of the Fund. In particular, Mr Cocks was relevantly a member of the defined benefits division of the Fund. 17 By letter dated 29 December 1999, the Bank informed the Trustee of its decision to modernise the accumulations division of the Fund and to offer members of the defined benefits division of the Fund, including Mr Cocks, the opportunity to be governed by the accumulations division. In July 2000, the Bank and the Trustee made an offer to members of the Fund, including Mr Cocks, to change their benefits from defined benefits to accumulation benefits. Some 4411 members of the defined benefits division, including Mr Cocks, accepted the offers made to them. Mr Cocks accepted the offer made to him on 13 October 2000. 18 During the year ended 30 June 2001, Mr Cocks and other members who accepted such offers ceased, relevantly, to have any right to benefits under the defined benefits division of the Fund and became entitled to benefits under the accumulations division. The starting value of the benefits in the accumulations division was the member's Transfer Value, as defined for the purposes of the Trust Deed. As provided for in that definition, the Trustee determined the starting values of members' benefits by using a method agreed between the Bank and the Trustee, after obtaining the advice of an actuary. 19 By letter dated 21 March 2001, as elaborated on by letter of 31 May 2001, the Trustee requested the Commissioner to approve another method under s 8(5)(b) of the Surcharge Act in respect of each transferring member, including Mr Cocks. On 29 June 2001, the Commissioner declined to approve the method that was the subject of the request. On 23 August 2001, in response to a request under s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act') made on 26 July 2001, the Commissioner provided a written statement of his reasons for his decision not to approve another method. 20 On or before 31 October 2001, pursuant to s 13 of the Surcharge Act, the Trustee notified the Commissioner of the surchargeable contributions, as defined in s 8(3) of the Surcharge Act, of members of the Fund, including Mr Cocks, for the year ended 30 June 2001 ('the 2001 year'). In the absence of approval by the Commissioner of another method under s 8(5)(b), the Trustee worked out the surchargeable contributions using the method prescribed by s 8(5)(a), namely, the method set out in the Superannuation Contribution Tax (Assessment and Collection) Regulations 1997 (Cth). The assessed surchargeable contributions in respect of Mr Cocks amounted to $235,856.67. 21 Pursuant to s 15 of the Surcharge Act, the Commissioner made an assessment of the amount of surcharge payable by members of the Fund, including Mr Cocks, for the 2001 year. Pursuant to s 15(8) of the Surcharge Act, the Commissioner notified the Trustee of the assessments to surcharge for the 2001 year in relation to members of the Fund, including Mr Cocks. By written advice dated 15 February 2002, the Commissioner notified Mr Cocks, pursuant to s 15(8) of the Surcharge Act, of the assessment made in relation to him. That notification showed a surcharge rate of 15 per cent and an amount payable of $35,378.50. 22 On 15 April 2002, the Trustee lodged an objection to, inter alia, the assessment issued in respect of Mr Cocks. The grounds of the Trustee's objection included that the Commissioner should have exercised favourably his discretion under s 8(5)(b) to approve another method of calculating the surchargeable contributions of Mr Cocks. 23 On 20 April 2004, Mr Cocks wrote to the Trustee acknowledging that the Trustee had objected to the assessment relating to him and confirming that he had not personally objected to that assessment and had no intention of doing so. On 26 August 2004, the Commissioner disallowed the Trustee's objection in respect of the assessment of the surcharge liability relating to Mr Cocks and on 14 October 2004 the Trustee applied to the Tribunal, seeking a review of the Commissioner's decision to disallow its objection in respect of the assessment of the surcharge liability relating to Mr Cocks.

Question of Law 24 On 4 May 2005, at the request of the parties, the Tribunal, acting under s 45(1) of the AAT Act, referred to the Court for decision the following question of law: 'On review, under section 14ZZ of Part IVC of the Administration Act, of a decision by the Commissioner to disallow an objection against assessments issued under the Surcharge Act to the Trustee, as Trustee of the Fund for the 2001 year, does the Tribunal have power, under sections 23 and 43 of the AAT Act or otherwise, to approve in writing, pursuant to section 8(5)(b) of the Surcharge Act, another method of calculating the actuarial value of the benefits that accrued to, and a value of the administration expenses and risk benefits provided in respect of, Mr Cocks, for the purpose of calculating surchargeable contributions for Mr Cocks.'

EARLIER PROCEEDING 25 On 21 September 2001, the Trustee commenced a proceeding in this Court under the ADJR Act claiming relief in respect of the Commissioner's decision denying the Trustee's request for approval of another method under s 8(5)(b) of the Surcharge Act. The Trustee claimed an order that the Commissioner's decision be quashed and that the matter be referred to the Commissioner for determination according to law. 26 Subsequently, the Trustee filed an amended application seeking, in addition, a declaration that, on review under s 14ZZ of the Administration Act of a decision by the Commissioner to disallow an objection against assessments issued under the Surcharge Act, the Tribunal would have power to approve another method of calculating surchargeable contributions. Branson J ordered that that question be heard and decided separately from, and before, the trial of other questions raised in the proceeding. Her Honour answered the question unfavourably to the Trustee, which then appealed to the Full Court. When the appeal came on for hearing on 16 February 2004, the Court was concerned as to its jurisdiction to entertain what, at that stage, was a hypothetical question. The hearing of the appeal was therefore vacated. 27 The appeal was listed for hearing again at the same time as this proceeding. Since the question raised by this proceeding would resolve the question posed and answered by Branson J, the parties consented to orders that the appeal from Branson J's orders be upheld, that the orders made by Branson J be set aside and that the matter be remitted to Branson J for determination, following the decision in this proceeding. The parties agreed that the costs of the proceeding before Branson J to date should follow the event of this proceeding but that there be no order as to the costs of the hearing on 16 February 2004.

REASONING ON REFERRED QUESTION 28 There is a well established distinction between the administrative functions of the Commissioner, on the one hand, and assessment functions on the other - see Meredith v Federal Commissioner of Taxation (2002) 125 FCR 308 at pars [36]-[37]. The Commissioner contends that approval of another method under s 8(5)(b) of the Surcharge Act is an administrative function and not part of the assessment function of the Commissioner. The exercise of a function that may either afford or deny a taxpayer the opportunity of altering the factual basis upon which that taxpayer's assessment to tax is to be made is not, for that reason, part of an assessment (Hadfield Finance Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 249 at 256 - 257). 29 Ultimately, the question turns upon the proper construction of s 43 of the AAT Act. Section 43 empowers the Tribunal to exercise all the powers and discretions conferred upon the original decision maker, provided it does so for the purpose of reviewing a decision. Provided the necessary purpose is present, the power conferred upon the Tribunal is not otherwise limited. It is neither necessary nor permissible to put a gloss upon s 43 that would permit the Tribunal to exercise the decision maker's powers and discretions only when those powers or discretions are necessarily interdependent with the decision under review, or where the power or discretion to be exercised by the Tribunal is necessarily involved in the making of the decision under review - see Secretary, Department of Social Security v Hodgson (1992) 37 FCR 32 at 39 - 40. 30 Thus, so long as the exercise of powers and discretions by the Tribunal is for the purpose of reviewing a decision, all of the powers and discretions conferred by any relevant enactment on the decision maker who made the decision, can be exercised by the Tribunal. Clearly, the Surcharge Act is a relevant enactment. Section 8(5)(b) of the Surcharge Act confers a discretion on the Commissioner to give or withhold approval of another method. The decision that is to be reviewed by the Tribunal is the Commissioner's objection decision of 26 August 2004 in respect of the assessment of the surcharge liability relating to Mr Cocks. The unequivocal words of s 43(1) are that, for the purpose of reviewing that decision, the Tribunal may exercise all the powers and discretions that are conferred by the Surcharge Act, as a relevant enactment, on the Commissioner. 31 In theory, it would be open to the Commissioner to make a different decision as to approval of another method in relation to each member of the Fund for each relevant financial year. Realistically, of course, one would expect the Commissioner to make consistent decisions. In particular, one would expect that the Commissioner would approve the same method for all members of a particular defined benefits superannuation scheme and, ordinarily, one would expect that the same method would be used for successive years. That might suggest that the function of approving another method is an administrative function rather than an aspect of the assessment function in respect of a particular member for a particular financial year. 32 However, the power to give approval under s 8(5)(b) is a power to be exercised in relation to the member for the financial year. The power must be exercised in relation to each individual member and the approval affects or alters that member's substantive liability to tax. The grant of approval in relation to a member for a financial year has no operation that is independent of the assessment of that member under s 15. 33 The Trustee contends that an assessment under s 15 is not, in any material respect, different from an assessment under s 166 of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act'). An assessment under the 1936 Act means the completion of the process by which the provisions of the 1936 Act relating to liability to tax are given concrete application in a particular case, with the consequence that a specified amount of money will become due and payable as the proper tax in that case - see Batagol v FCT (1963) 109 CLR 243 at 252. Where the Commissioner is required to form an opinion or make a determination in the course of an assessment, the formation of that opinion and the making of such a determination are within the powers of the Tribunal in reviewing an objection decision in respect of such an assessment. The Trustee contends that the exercise of a discretion to adopt one method of calculation of an integer in the assessment process, rather than another, is as integral to the assessment as the formation of an opinion or the making of a determination. 34 If the objection and subsequent review process described above proceeded to finality, the Tribunal, if it were not empowered to reconsider the method by which relevant amounts are to be worked out, would be bound by the Commissioner's decision of 29 June 2001. If the Tribunal dismissed the Trustee's application for review and the Court subsequently quashed the decision of 29 June 2001 under the ADJR Act, the Commissioner would then need to reconsider the exercise of discretion under s 8(5)(b) of the Surcharge Act. If the Commissioner then approved another method, there would be real questions as to the standing of the intermediate steps, consisting of the Commissioner's objection decision refusing the Trustee's objection and the Tribunal's decision dismissing the application for review. 35 The process of objection and review could not be undertaken again unless the earlier process were set aside in some way. On the other hand, there would be no entitlement of the Trustee or Mr Cocks to have the earlier process set at nought. On that view, the Trustee's victory under the ADJR Act would be Pyrrhic indeed, since it would be too late for the Trustee and Mr Cocks to enjoy any fruits from that victory. The Tribunal's decision would stand, based though it was on a wrong decision of the Commissioner that had in the meantime been quashed. On that view, the Court's quashing of the decision of 29 June 2001 would be an exercise in futility because that decision is no longer operative. 36 Section 19(1)(a)(ii) of the Surcharge Act relevantly provides that s 19 applies if, after the making of an assessment of surcharge on a member's surchargeable contributions for a financial year, the amount of the contributions is greater or less than the amount that was taken to be the amount of the contributions for the purposes of the assessment. Section 19(3) provides that the Commissioner may amend the assessment to take account of such a matter. Under s 19(5) if, as a result of the amendment of the assessment, the amount of surcharge is reduced, the Commissioner must refund the amount of any surcharge overpaid. However, s 19 is subject to s 17A. 37 Section 17A(1) of the Surcharge Act relevantly provides that, subject to the section, the Commissioner may, at any time, amend an assessment of surcharge on a member's surchargeable contributions by making such alterations or additions as the Commissioner thinks necessary. Such an amendment may be made on the Commissioner's own initiative or at the request of the member or the relevant superannuation provider. However, under s 17A(4), an amendment effecting a reduction in the amount of surcharge payable under an assessment is not to be made after the end of four years from the date upon which the surcharge became due and payable under the assessment. 38 The Commissioner contends that if, consequent upon a successful application under the ADJR Act for review of the decision under s 8(5)(b) after the making of an assessment, the Commissioner exercised his discretion to approve another method, the Commissioner would be under a duty under s 19(3), after receiving from the Trustee revised surchargeable contributions information, to recalculate the liability and to amend the assessment, if time limits permitted. 39 The Commissioner also contends that, if the decision under s 8(5)(b) were quashed under the ADJR Act subsequent to the making of an objection decision and after an application had been made to the Tribunal, while s 26 of the AAT Act would prevent the Commissioner from amending the assessment unilaterally, the Trustee would be entitled to rely on the other method before the Tribunal, since the correct or preferable assessment decision in relation to the objection against the assessment would then be calculated by reference to the altered liability resulting from the other method. 40 However, the Commissioner does not suggest that, if the successful application under the ADJR Act were determined after dismissal by the Tribunal of the review of the objection decision, the Trustee or Mr Cox would have any remedy. That is to say, in those circumstances, the Commissioner appears to have accepted that the Trustee's victory under the ADJR Act would be a Pyrrhic one. 41 That consequence indicates the answer that must be given to the question posed by the Tribunal. That is to say, the consideration of the method to be adopted for working out the relevant amounts is an essential part of the process of making an assessment under s 15 of the Surcharge Act. Section 8(5) of the Surcharge Act, in its form, requires the Commissioner to work out an amount using either the method set out in the Regulations or another method. In substance, it has the effect that the amount may be worked out using a method determined by the Commissioner as being appropriate in relation to the member for the financial year in question. 42 The only significance of the form of s 8(5) is that the method set out in the Regulations is to be used unless the Commissioner approves another method in writing as being appropriate. Nevertheless, the process of making an assessment under the Surcharge Act in respect of an individual member in respect of a particular year involves the consideration of the appropriate method for working out relevant amounts. Approving a method as being appropriate in relation to a particular member for a particular financial year has no consequence except in relation to that member for that year. That, coupled with the consequence of there otherwise being no effective review of the exercise of discretion, indicates that the discretion under s 8(5)(b) of the Surcharge Act is a discretion that may be exercised by the Tribunal in dealing with an application under s 14ZZ of the Administration Act.

CONCLUSION 43 The question referred by the Tribunal should be answered in the affirmative. The Commissioner should pay the Trustee's costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Emmett and Edmonds.

Counsel for the Applicant: Mr A Slater QC with Mr M Robertson

Counsel for the Respondent: Mr A Robertson SC with Mr J Hmelnitsky

Solicitor for the Respondent: Australian Government Solicitor