Featherby v Commissioner of Taxation

Agreed Facts 8 The preliminary questions proceeded upon the basis of agreed facts. It is sufficient to set out only the following: (1) On 22 December 2006 the applicant lodged his year ended 30 June 2005 Tax Return with the respondent. The 2005 Tax Return did not report the sale of any shares in Regal Petroleum plc. (2) On 26 February 2007 the respondent made an income tax assessment for the year ended 30 June 2005 in relation to the applicant. The assessment was made pursuant to s 166 of the ITAA36. Thereafter, on 26 February 2007, the respondent issued a notice of assessment to the applicant pursuant to s 174 of the ITAA36 ("the Assessment"). (3) On 22 April 2008 the respondent commenced a review of the applicant's tax affairs. (4) On about 17 December 2008 the respondent commenced an income tax audit in relation to the applicant. The audit included the applicant's tax affairs for the year ended 30 June 2005. (5) By 4 February 2014 the respondent formed an opinion that there had been fraud or evasion for the purposes of Item 5 of section 170(1) of the ITAA36 on the part of the applicant. This opinion was recorded in either or both of a document entitled "Reasons for Decision" dated 14 January 2014 and a document entitled "Fraud or Evasion Opinion" dated 16 January 2014. (6) On 4 February 2014 the respondent issued the applicant with an amended assessment in relation to the tax year ended 30 June 2005 relying upon his power to amend as set out in Item 5 of section 170(1) of the ITAA36 ("Amended Assessment").

Question A: Does s 175 of the ITAA36 preclude the Amended Assessment being "Invalid" assuming Question B is answered in the affirmative? 9 The applicant's judicial review proceedings challenge the validity of the amended assessment on the basis that, in issuing the amended assessment, the Commissioner acted beyond power due to the operation of s 171 of the ITAA36 as it affects the power to amend in s 170. 10 The applicant's complaint then is one of alleged non-compliance on the part of the Commissioner with the power to amend pursuant to s 170 of the ITAA36. Question A, as I have observed, assumes that this complaint is made good. 11 The Commissioner contends that by reason of the effect of s 175 of the ITAA36, as explained in a series of authorities commencing with Commissioner of Taxation of the Commonwealth of Australia v Futuris Corporation Limited (2008) 237 CLR 146, the basis for review under s 39B of the Judiciary Act 1903 (Cth) is limited to two established categories to which I earlier referred. 12 The applicant's case, that the Commissioner acted beyond power, does not invoke either of the two established grounds of jurisdictional error that may arise in the context of an income tax assessment. Accordingly, the Commissioner submits that the applicant's claim, even if established, cannot invalidate the amended assessment. Thus, section 175 maintains the validity of an assessment despite a failure to comply with a provision of the ITAA36, including s 170. 13 The applicant's contention is that there is an additional category of jurisdictional error that may be considered in judicial review proceedings which emanates from the fact that the amendment provisions contained in ITAA36 s 170 were amended by the Tax Laws (Improvements to Self-Assessment Act (No 2) (2005) (Cth). This Act received Royal Assent on 19 December 2005. 14 The applicant submits that prior to this amendment the Commissioner had unlimited power under s 170 to amend an assessment. It was, to employ the applicant's language, a 'carte blanche' power. He submits that the effect of the 2005 amendments was to significantly limit the Commissioner's power of amendment. 15 He then submits that as Futuris concerned amended assessments for the year ended 30 June 1998 and was decided under the pre 2005 version of s 170, it does not speak to the present case. 16 These submissions do not withstand scrutiny for a number of reasons. 17 The 2005 amendments, on any view, did not effect changes of substance. Rather, relevantly, they merely refashioned and reordered the then existing s 170. It is unnecessary to articulate this fact at length. It is a matter which is self-evident upon a comparison of the pre and post 2005 iterations, a matter that was ventilated at length in argument. The principle vice in the applicant's contentions is his disregard of the words of limitation in the pre-2005 version of the provision in s 170(1) - "subject to this section". What follows this phrase in the rest of the provision are a series of limitations, including ones of a temporal nature. Both before and after the 2005 amendments the Commissioner's power to amend was statutorily limited in defined ways. Moreover, in both cases, where there is the formulation of an opinion going to evasion or fraud then there is no temporal limitation. 18 Even were it the case that the applicant's submissions were made good, that the 2005 amendments introduced significant limitations to the Commissioner's powers to amend this would avail the applicant nothing. This too is for a number of reasons. 19 First, the amendment to s 170 did not operate to amend s 175. The scope of the privative clause and its limitation on the available grounds is unaltered. Futuris and the cases in this Court which have followed it going to the operation of s 175 provide a complete answer to the applicant's case. I will refer to these authorities in more detail below. 20 Second, the text of s 175 cannot permit of any change to its effect merely because of any change in the power to amend under s 170.

The Statutory Framework 21 Part IV of the ITAA36 is entitled "Returns and Assessment". The Commissioner is granted various powers to make assessments. Section 166 sets out the circumstances in which the Commissioner "must" make an assessment. Section 166A provides for deemed assessments by the Commissioner. 22 There are other provisions which grant the Commissioner discretion to make an assessment: s 167 (default assessments), s 168 (special assessments) and s 169 (assessments on persons liable to pay tax). 23 The Commissioner must give notice of the assessment to the person liable to pay the tax: s 174. 24 The Commissioner may in circumstances as prescribed amend an assessment: s 170. Except as otherwise provided every amended assessment is an assessment for all the purposes of the ITAA36: s 173. 25 Pursuant to ITAA 36 s 175A, a taxpayer who is dissatisfied with an assessment, including, given s 173, an amended assessment, may object against it in the manner set out in Part IVC of the TAA53. Part IVC of the TAA53 by s 14ZZ provides for a staged process: an objection determination by the Commissioner (Div. 3 of Part IVC); if the person is dissatisfied with the Commissioner's objection decision than where the decision is a reviewable objection decision the person may apply to the AAT for review of the decision (Div. 4 of Part IVC) or appeal to this Court (Div. 5 of Part IVC). Otherwise the person may appeal to this Court. 26 The taxpayer, both on review and on appeal, has the burden of proving that the assessment is excessive or otherwise incorrect: TAA53, s 14ZZK(b)(i) (AAT review) & s 14ZZO(b)(i) (Federal Court appeal). 27 It is the Commissioner who is required to implement any decision or order following a review or appeal. This includes amending any assessment as is necessary to give effect to the decision: TAA53, s 14ZZL(1) (AAT review) & s 14ZZQ(1) (Federal Court appeal). Accordingly at all times the assessment process remains a matter for the Commissioner although, in the context of Part IVC of the TAA53, he must necessarily implement any decision of the AAT or the Federal Court. 28 That a review or appeal is pending does not interfere with or affect the assessment and any tax may be recovered as if no review or appeal were pending: TAA53, s 14ZZM (AAT review) and s 14ZZR (Federal Court appeal). Though the operation of these provisions may be harsh they reflect a long-standing legislative policy to protect the interests of the revenue: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [44]. 29 Section 175 provides: That the validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. 30 Section 175 of the ITAA36 must be read with s 175A and s 177(1): Futuris at [24]. 31 Section 177(1) of the ITAA36 was relevantly in these terms prior to 1 July 2005: 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 TAA53] on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. (Emphasis added) 32 As to this conclusive evidence provision, the plurality in Futuris identified the evident policy reflected in its terms as the facilitation of proceedings for the recovery of tax which are commenced by the Commissioner. That policy is reflected also in ss 14ZZM and s 14ZZR of the TAA53.

The Futuris Decision 33 The effect of s 175 of the ITAA36 and its implications for s 39B judicial review proceedings were examined by the High Court in Futuris. 34 Gummow, Hayne, Heydon & Crennan JJ stated: [24] Section 175 must be read with ss 175A and 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act. … Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act. [25] But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an 'assessment'. Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an 'assessment' to which s 175 applies. Whether this be so is an important issue for the present appeal. (Emphasis added.) 35 Indeed the plurality at [55]-[56] held that conscious maladministration would manifest jurisdictional error. 36 The errors asserted in Futuris were held to be errors that occurred within the exercise of the powers of assessment under the ITAA36 and which could be considered in Part IVC proceedings. However they did not constitute jurisdictional error: at [45] and [66]. 37 Accordingly, where s 175 of the ITAA36 applies, factual or legal errors in the process of assessment do not go to jurisdiction or otherwise vitiate the assessment. Only where the purported assessment is not an "assessment" for the purpose of s 175 will jurisdictional error arise. This occurs in but two circumstances: where the purported assessment is tentative or provisional; or where the purported assessment is the product of conscious maladministration.

The authorities after Futuris 38 There is one Tasmanian Supreme Court decision which held that it is arguable that Futuris does not provide for a definitive limiting of the categories of cases in which income tax assessments are capable of being reviewed for jurisdictional error: Woods v Deputy Commissioner of Taxation [2011] TASSC 68 at [50]. 39 However, there are decisions of this Court, including Full Courts, which are either authoritative on this question and therefore binding on me, or, in obiter, are persuasive: Commissioner of Taxation v Administrative Appeals Tribunal (2011) 191 FCR 400 at [23] (Keane CJ; Downes & Gordon JJ). Mount Pritchard & District Community Club Ltd v Federal Commissioner of Taxation (2011) 196 FCR 549 at [47] & [52] (Edmonds, Middleton & Jagot JJ). Roberts v Deputy Commissioner of Taxation (2013) 228 FCR 280 at [19] & [36]-[42] (Besanko J). Roberts v Deputy Commissioner of Taxation [2015] FCA 238 at [10] and [32] (Mansfield J). Gashi v Commissioner of Taxation (2013) 209 FCR 301 at [43] (Bennett, Edmonds & Gordon JJ). Hii v Commissioner of Taxation (2015) 230 FCR 385 at [90] (Collier J). Allan J Heasman Pty Ltd v Commissioner of Taxation [2015] FCAFC 119. Commissioner of Taxation v Donoghue [2015] FCAFC 183. Pratten v Federal Commissioner of Taxation [2015] FCA 1357. 40 The applicant suggests that Justice Collier in Hii found at [46] that a claim of invalidity arising from an amended assessment unauthorised by s 170 of the ITAA36 "had a reasonable chance of success". This is not so. Her Honour rejected such a contention of invalidity, acknowledging that any such challenge must be based in jurisdictional error within the two established categories. 41 Hii is essentially on all fours with the present case. There, the contention for invalidity in s 39B judicial review proceedings concerned an allegation that the Commissioner had acted beyond power in exercising the discretionary power under s 170 of the ITAA36 to amend an assessment. 42 Justice Collier held (at [90]): "In summary, and even assuming that the Commissioner has failed to comply with other provisions of the ITAA36 (in this case, s 170 of the ITAA36 both prior to and following the 2005 amendment) in respect of the second amended assessments, the combined effect of ss 175 and 177 of the ITAA36 is that any failure by the Commissioner to comply with a provision of the tax legislation when issuing an assessment does not thereby render the assessment invalid. The decision of the High Court in Futuris, in particular as subsequently applied in this Court, is authority for the proposition that unless an assessment is tentative or provisional, or is produced as a result of conscious maladministration, it is not susceptible to challenge pursuant to s 39B of the Judiciary Act. Other than in these very limited circumstances, the appropriate challenge by a taxpayer is pursuant to Part IVC of the TAA53 …" (Emphasis added) 43 Her Honour later reiterated that it was not open for Mr Hii, the applicant in that case, to seek orders by way of declaratory relief, certiorari, mandamus or prohibition pursuant to s 39B of the Judiciary Act 1903 (Cth) against the Commissioner where the relevant assessments were neither tentative or provisional nor attended by conscious maladministration (at [102]) and further, that the correct approach was to challenge the assessments in separate proceedings under Part IVC of the TAA53 (at [103]). 44 Her Honour's conclusion is unremarkable in her orthodox application of binding authority. That same authority binds me. I reject the applicant's submission that the decision in Hii is clearly wrong. I respectfully agree with her Honour's conclusions and reasoning in this respect. 45 Since this matter was heard, yet another decision of this Court has been delivered acknowledging that the categories of jurisdictional error, identified in Futuris and the cases in this Court to which I have referred, are confined to tentative or provisional assessments or those produced by conscious maladministration: Commissioner of Taxation v Bosanac [2016] FCA 448 at [28]-[31]. 46 The applicant's reliance upon the decisions in Australasian Jam Co v Federal Commissioner of Taxation (1953) 88 CLR 23 at 27; McDonald v Commissioner of Business Franchises (1992) 175 CLR 472; and Fitzroy Services Pty Ltd v Commissioner of Taxation [2013] FCA 471, is, in each case, misconceived. 47 Australasian Jam was a decision of Fullagar J concerning the then equivalent of Part IVC proceedings. It was an appeal against an assessment. It was not a judicial review case. Similarly, the decision of Edmonds J in Fitzroy Services was a tax appeal under Part IVC. Again, it was not a judicial review proceeding. It is of course unexceptional that in each of those cases, issues of whether the assessments were beyond power arose. These are orthodox Part IVC issues. 48 McDonald concerned the power of the Commissioner of Business Franchises to make an assessment under the Business Franchise (Tobacco) Act 1974 (Vict). It did not concern ITAA 36. It turned on the proper construction of certain provisions in that legislation. However the applicant submits that the observation of Brennan J concerning McDonald in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 194 is apt to the present case. It is not. 49 There, Brennan J, citing McDonald observed, in line with the so called 'Hickman principle' referring to R v Hickman: Ex parte Fox and Clinton (1945) 70 CLR 598, that s 175 operates as a privative clause only if the purported exercise of power is a bona fide attempt to exercise the power, it relates to the subject matter of the legislation and it is reasonably capable of reference to the power given to the body purporting to exercise it. 50 There can be no suggestion in this case, nor was there any, that the exercise of the power to amend the assessment by the Commissioner was not reasonably capable of reference to the power given to the Commissioner under s 170. 51 Further, I reject the applicant's submission that he has put forward a conscious maladministration case. He has not. It did not emerge from the originating process. Such a serious allegation would require to be pleaded and with some specificity. It has not been. 52 I advised counsel during the course of the hearing, when this purported issue was raised, but objected to on behalf of the Commissioner, that I would be considering only the questions raised and nothing beyond those.

Conclusion 53 Futuris establishes that, on the proper construction of s 175 of the ITAA36, an income tax assessment is not invalidated by mere factual or legal error in the assessment process. Only where the purported assessment is not an "assessment" for the purposes of s 175 will jurisdictional error arise. That occurs only if the purported assessment is either tentative or provisional, or is the product of conscious maladministration. The Commissioner's submission in this respect is correct. I am bound by Futuris and the later decisions of the Full Court of this Court to which I have referred such as Mount Pritchard & District Community Club Ltd v Federal Commissioner of Taxation. 54 Moreover, I am also bound by the various single Judge decisions of this Court, particularly Hii, which is directly on point. I reject the applicant's submission that the earlier decisions are clearly or plainly wrong. Indeed I accept their correctness. 55 Neither of the established grounds of jurisdictional error is open on the Agreed Facts on which this trial of separate questions was conducted. 56 The supposed error as alleged in para (jj-A) of the amended originating process concerns the making of the opinion under item 5 of s 170(1) of the ITAA36. I accept the Commissioner's submission that this is concerned with the due making of the amended assessment and whether it is correct, i.e. the assessment process - not whether the assessment is vitiated because it is tentative or provisional, or alternatively, the product of conscious maladministration: see e.g. McAndrew v Commissioner of Taxation (1956) 98 CLR 263, at 270-271, 274-275 & 281-282. 57 The alleged error, if there be one, ought be addressed in the Part IVC review proceedings that the applicant has commenced in the AAT: Futuris at [43] and [45]. 58 I would answer Question A, for these reasons, in the negative.

Question B: Was the issuing of the Amended Assessment beyond power under s 170 due to the operation of s 171? 59 It is not necessary to answer this question for reasons I have already explained.

Costs 60 The applicant is to pay the costs of the Commissioner of and concerning the trial of the Preliminary Questions. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.