Dan v Commissioner of Taxation of the Commonwealth of Australia

REASONS FOR JUDGMENT (No 2) INTRODUCTION AND GENERAL BACKGROUND FACTS 1 These three proceedings were heard together. The applicant taxpayers attack purported determinations (from now on, I will not repeat the word "purported") made by the respondent ("the Commissioner") under s 177F of the Income Tax Assessment Act 1936 (Cth) ("ITAA 36"), and in the first two they also attack assessments of income tax made by the Commissioner. (I will use the word "assessment" to include a reference to an amended assessment, except where a contrary intention appears.) 2 In the first case, that of Dr Dan, what are attacked are two s 177F determinations made on 21 February 2000 and an amended assessment based on them for the year ending 30 June 1993, the subject of a notice issued on 29 February 2000. The amended assessment added two additional items of income $2,718,464 and $986,601 in Dr Dan's assessable income, as income of a resident trust estate to which a beneficiary (supposedly Dr Dan) was presently entitled pursuant to s 97 of the ITAA 36. I will discuss the background facts relating to Dr Dan's proceeding in more detail below. 3 In the case of the second taxpayer ("Kordan") what is attacked is a determination under s 177F also made on 21 February 2000 and an amended assessment for the year ending 30June 1998 based on it, the subject of a notice issued on 28February 2000. 4 On 3 May 1999 Kordan lodged a return of its taxable income for that year showing a taxable net income of $9,790,556 and the amount of tax payable as $3,524,600.16. That gave rise to a deemed assessment of tax in that sum by the Commissioner under subs 166A(1) of the ITAA 36. Kordan paid that amount on the day of lodgement, 3 May 1999. 5 On 15 July 1999 Kordan lodged a notice of objection against the deemed assessment. The ground of objection was that Kordan claimed that its taxable income should be reduced by $9,790,556 being an amount of losses transferred to it in the 1998 year by Adaston Pty Ltd pursuant to Subdivision 170-A of the Income Tax Assessment Act 1997 (Cth) ("ITAA 97") and constituting an allowable deduction to Kordan pursuant to Subdivision 36-A of that Act. 6 On 21 February 2000, when considering Kordan's objection, the Commissioner made a determination under s 177F by which he determined that $9,790,556, being the whole of the tax benefit referable to a deduction for losses transferred from Adaston Pty Ltd under Subdivision 170-A of the ITAA 97 being allowable to Kordan for the year ended 30 June 1998, should not be allowable to it. On the basis of that determination, on 28 February 2000 the Commissioner issued the notice of amended assessment that is attacked in this proceeding, stating Kordan's taxable income at the same figure, $9,790,556, and the tax on that amount at the same figure, $3,524,600.16. The notice (a certified copy of which is in evidence), also referred to an assessment of additional tax in respect of, or arising out of, the determination under s 177F. The amount of the additional tax was $1,762,300. On 24 February 2000, the Commissioner notified Kordan that his objection decision was to disallow Kordan's objection. 7 Kordan draws attention to the facts that the determination under s 177F of 21 February 2000 and the amended assessment of 28 February 2000 were made some ten months after Kordan's tax agent had calculated the amounts of taxable income and tax payable as shown in Kordan's return of income and Kordan had paid that amount, and that the amounts of taxable income and primary tax assessed by the Commissioner were no different from those amounts. 8 The third taxpayer ("Ryde Homes") attacks, not an assessment, but two determinations under s 177F made on 21February 2000 relating to the year of income ending 30June 1996. The determinations were that the tax benefits referable to two amounts that had been allowed to Ryde Homes as deductions for losses transferred to it from other companies, $4,772,024 from Austcorp No 268 Pty Ltd and $904,000 from Fernmist Investments Pty Ltd ("Fernmist"), both under s 80G of the ITAA 36, be cancelled. 9 On 29 March 1999 the Commissioner had made a determination under s 177F that an amount of $5,676,024, being the whole of the tax benefit referable to a deduction allowed to Ryde Homes for the year of income ended 30 June 1996, not be allowable to it for that year. The amount of $5,676,024 is the total of the amounts of $4,772,024 and $904,000 mentioned above. On the following day, 30 March 1999, relying on that determination, the Commissioner had issued a notice of amended assessment to Ryde Homes showing a taxable income of $5,910,715, which represented an increase in its taxable income by $5,676,024 from a previous figure of $234,691 (a certified copy of the notice is in evidence). 10 On 31 May 1999, Ryde Homes objected to the amended assessment. It was when considering that objection that the Commissioner made the two impugned determinations of 21 February 2000. On 24 February 2000 the Commissioner notified Ryde Homes of his objection decision which was to disallow the objection. 11 The two determinations dated 21 February 2000, which are attacked in this proceeding, although expressed in more detail, appear to be directed to achieving the same objective as the earlier determination dated 29 March 1999, that is, to support the amended assessment notified on 30 March 1999. BACKGROUND FACTS RELATING TO DR DAN 12 Dr Dan is a director of, inter alia, the following trustee companies - - Moti (No 5) Pty Ltd ("Moti (No 5)") as trustee of the Moti (No 5) Trust; - Makeeswell Pty Ltd ("Makeeswell") as trustee of the Baldan Trust. Dr Dan is also a director of the following companies, which conduct business on their own behalf: