Hii v Commissioner of Taxation

Under Part 30 of the Federal Court Rules 2011 (Cth), the following questions be heard separately from the other questions in the proceeding: Question 1 Whether the respondent, in making his decision pursuant to s 14ZY of the Taxation Administration Act 1953 (Cth), was required to form an opinion that: (a) the avoidance of tax was due to evasion, pursuant to s 170(2)(a) of the Income Tax Assessment Act 1936 (Cth) ("ITAA"), in relation to the income years ended 30 June 2001 to 30 June 2004; (b) there had been evasion, pursuant to item 5 of the table to s 170(1) of the ITAA, in relation to the income years ended 30 June 2007 to 30 June 2008, (c) in amending the applicant's income tax assessments for the 2001 to 2004 and 2007 to 2008 income years. Question 2 Whether the respondent formed such an opinion in relation to each of the 2001 to 2004 and 2007 to 2008 income years. Question 3 If the respondent was not required to form the opinion as set out in Question 1, whether he relied on his opinion recorded in the Reasons for Decision dated 26 June 2012. Question 4 If the answer to Question 3 is "Yes", whether his opinion is vitiated by error of law, namely, whether the respondent misconstrued or misapplied s 170(2) of the ITAA and item 5 in the table to s 170(1) of the ITAA by failing to understand that a connection was required by those provisions between the acts he identified as evasion and the avoidance of tax. Question 5 Whether any or all of the factors considered relevant by the respondent to the formation of his opinion for the purposes of s 170(2) of the ITAA and item 5 in the table to s 170(1) of the ITAA, as recorded in the Reasons for Decision dated 26 June 2012, were capricious or otherwise incapable of rationally allowing that opinion to be formed. Question 6 Whether, if one or more of those factors was capricious or incapable of rationally allowing the respondent's opinion to be formed within s 170(2)(a) of the ITAA or item 5 in the table to s 170(1) of the ITAA, that opinion was vitiated by error of law. Question 7 If the respondent did not form any relevant opinion or if the relevant opinion was vitiated by error of law, whether the Court has jurisdiction to form its own opinion: (a) for each of the 2001 to 2004 income years, as to whether the avoidance of tax was due to evasion under s 170(2)(a) of the ITAA; (b) for the years 2007 and 2008, as to whether there had been evasion under item 5 in the table to s 170(1) of the ITAA. Question 8 If the answer to Question 7 is "Yes", whether the Court should do so. 1. The applicant file and serve an outline of submissions and any evidence upon which they seek to rely by fifteen (15) business days prior to the date set for hearing. 2. The respondent file and serve an outline of submissions and any evidence upon which they seek to rely by ten (10) business days prior to the date set for hearing. 3. The applicant file and serve an outline of submissions in reply and any evidence upon which they seek to rely in response by five (5) business days prior to the date set for hearing. 4. Proceedings be listed for hearing for two (2) days on 14 and 15 October 2014. 5. Parties have liberty to apply on giving two days' notice in writing. 6. The applicant pay the respondent's costs of today, but the costs of the application for the hearing of separate questions is otherwise reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT 1 On 1 August 2014, upon the applicant's application, I ordered that eight questions be heard separately from other questions in this proceeding. These are my reasons for making that order. 2 On 20 December 2013, a delegate of the respondent ("the Objections Officer") made a decision to uphold in part the applicant's objection to decisions made by another delegate of the respondent ("the Audit Officer"). The Audit Officer had decided to amend the applicant's income tax assessments for the 2001, 2002, 2003, 2004, 2007 and 2008 income years ("the amendment years"). The Audit Officer made original assessments for the 2005 and 2006 income years. The Audit Officer also made an assessment for the 2009 income year, but there is a dispute as to whether the assessment was an original or amended one. 3 The Objections Officer's decision was a "reviewable objection decision" made under s 14ZY of the Taxation Administration Act 1953 (Cth) ("the TAA"). The applicant has appealed to this Court against the reviewable objection decision pursuant to s 14ZZ of the TAA. 4 The Objections Officer decided that the applicant was an Australian resident for each of the years from 2001 to 2009, not a foreign resident as the applicant had claimed. The decision concerning the amended assessments for the amendment years was made on the basis that there had been an avoidance of tax due to evasion. The current form of Item 5 of s 170(1) of the Income Tax Assessment Act 1936 (Cth) ("ITAA 1936") provides that: The Commissioner may amend an assessment at any time if he or she is of the opinion there has been fraud or evasion. 5 The applicant submits that the reviewable objection decision should be set aside on the grounds that: (a) in deciding the objection to the decisions to issue the amended assessments, the Objections Officer was required to form his own opinion that tax had been avoided due to evasion, rather than merely adopting the opinion that had been formed by the Audit Officer; (b) even if the Objections Officer was entitled to merely adopt that opinion, the Audit Officer's opinion that there was evasion is vitiated by error of law because the taking into account of particular factors was capricious or irrational, and because the Objections Officer misconstrued or misapplied s 170; and (c) the Objections Officer erred because the applicant was not in fact a resident of Australia for any of the years from 2001 to 2009, or alternatively, the Objections Officer erred in his calculation of the applicant's worldwide income and expenses. 6 The respondent disputes these grounds and submits that even if the first two are made out, the Court can, and should, substitute its own opinion that there was avoidance of tax due to evasion. 7 The determination of the first two grounds will involve construction of the Objections Officer's and the Audit Officer's reasons for decision and, at least, s 14ZY of the TAA and s 170 of the ITAA 1936. It was not suggested by either party that it will be necessary to call oral evidence in order to determine those arguments. The third ground involves a much larger factual enquiry. The applicant's solicitor estimates the trial will take at least five weeks and that it will be necessary to call some 70 witnesses. 8 The applicant applied for summary judgment pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) in relation to the first two of his grounds. On 2 May 2014, apparently without opposition from the respondent, Logan J ordered that this application be set down on a date to be determined by the docket judge. After the summary judgment application had been set down for hearing, the applicant filed an application for the determination of separate questions. 9 The applicant submitted that the determination of the separate questions would involve a significant saving of time and resources for the parties and the Court. He submitted that as the application for the summary judgment involves the same issues and would proceed in any event, there would be a waste of time and resources if the Court considered that triable issues were raised and did not, therefore, decide the issues. The applicant submitted that the determination of the proposed separate questions would ultimately produce a shorter trial. The applicant's solicitor deposed to his opinion that, based on the reduction in the number of witnesses required to less than 20, the length of the trial would be reduced to less than two weeks if the separate questions were answered in the applicant's favour. He also deposed that in that event, there is a strong likelihood that the outstanding issues for the 2005 and 2006 years may be mediated successfully. 10 The respondent submitted that the hearing and determination of the separate questions would not involve any more efficiencies than the hearing and determination of the summary judgment application. He submitted that there would have to be a trial in any event in respect of the 2005, 2006 and 2009 income years and that evidence concerning the applicant's residence in the amendment years would still be relevant at the trial. The respondent submitted that any determination of the separate questions would be likely to lead to an appeal, delaying the ultimate resolution of the proceeding and increasing costs. He submitted that the separate questions posed by the applicant were imprecise and, in some cases, of no utility. His written submissions contended that the Court should proceed to hear the summary judgment application. 11 The parties referred in their written submissions to a number of relevant passages from authorities concerning the principles upon which applications for the determination of separate issues are decided. Section 37M of the Federal Court of Australia Act is also relevant. 12 The principal factor affecting my decision to order the separate hearing of the eight questions was one not specifically dealt with in the authorities to which I was referred. It was that if such an order was not made, the application for summary judgment would proceed in any event. The parties agreed that the issues of law to be determined in the summary judgment application are complex. The parties' written submissions for the summary judgment application alone extend to over 55 densely written pages. That application would be unlikely to be completed within a day. It would require judgment to be reserved and reasons to be produced. My concern was that if I concluded that the respondent had raised triable issues, they would not be decided, and there will have been a significant waste of the Court's time and resources as the issues would have to again be argued at the trial and then decided. 13 On the other hand, that risk would be avoided by the hearing of the separate questions, given that they raise the same issues as the summary judgment application. Whichever way they are decided, there will be a saving of time at the trial (although probably not to the extent suggested by the applicant's solicitor) and in the writing of the reasons for the final judgment. The additional resources expended by the parties and the Court in the hearing and determination of the separate questions would be little more than in the hearing and determination of the summary judgment application. I considered that the savings were not outweighed by the risk of an appeal, bearing in mind that there is always the possibility of an appeal following the summary judgment decision in any event. 14 I was also satisfied, by the end of the hearing, that the separate questions proposed by the applicant were formulated with sufficient precision. In summary, I was satisfied that the efficient use of judicial resources and those of the parties favoured the hearing of the separate questions. 15 I should record that I was not asked to and did not give reasons at the conclusion of the hearing. I have now been asked by the applicant to provide reasons if I consider it appropriate to do so. I did not understand the respondent to ultimately submit that I lack the power to provide reasons at this stage, but to submit that it is inappropriate for me to now do so, particularly having seen his proposed notice of appeal against my judgment. 16 The parties pointed to authority dealing with the obligation of the Court to provide reasons. I consider it appropriate that I do so now. I have seen the draft notice of appeal in the course of my duties as the Queensland judge assigned to deal with interlocutory applications concerning appeals. I have not taken it into account in writing these reasons. These reasons are my reasons for my judgment. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah.

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