Ierna v Commissioner of Taxation

1. The respondent pay the costs of the applicant of and incidental to the appeal in a lump sum amount to be fixed by a Registrar, if not agreed: (a) on a party and party basis up to and including 11:00am on 22 August 2022; and (b) on an indemnity basis after 11:00am on 22 August 2022.
2. The parties bear their own costs in respect of the hearing on the awarding of costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

LOGAN J: 1 On 10 June 2024, upon publication of reasons for judgment in respect of those of the taxation appeals which had proceeded to substantive hearing, I stood over until today the issues as to the orders which should be made in respect of costs. Also outstanding were questions as to costs in respect of other taxation appeals which had, save in respect of costs, come to resolve themselves consensually last year. These reasons for judgment must be read in conjunction with the reasons for judgment in respect of the contested taxation appeals (Ierna v Commissioner of Taxation [2024] FCA 592), as well as the reasons which were given in respect of the tax appeals which resolved consensually last year (Ierna Beneficiary Pty Ltd v Commissioner of Taxation [2023] FCA 725). 2 I was informed this morning by counsel for the applicants that an agreed position had been reached in respect of costs. Draft orders in that regard were provided. The existence of an agreed position as set out in those draft orders was confirmed by counsel for the Commissioner. An affidavit of the applicant's solicitors was read. Annexed to that affidavit were a series of what were said to be offers to compromise under the Federal Court Rules 2011 (Cth). 3 Although the cost discretion conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) is not relevantly fettered, it would, in my view, be a perverse exercise of the cost discretion to seek to undo a position consensually reached in respect of costs by legally represented parties. That is not to say that I would have made a special order as to cost had the subject been contested, only that, agreement having been reached, I do not consider it appropriate to do other than act on that. 4 The offers which were made, as disclosed by the solicitor's affidavit, in effect offered a sum well short of the primary tax in dispute by way of so-called "compromise". 5 The assessed income tax, when it was due, became a debt due to the Commonwealth. But the offers were not to compromise a proceeding for the recovery of tax. Instead, they were offers to compromise substantive tax appeals. On the strength of these offers, it would not, in my view, have been lawfully possible for the Commissioner to have amended any of the assessments which became the subject of the challenged objection decisions. 6 The position with these offers is, in my view, different to a situation where, for example, default assessments have issued assessing taxable income in a particular amount, and a taxpayer by way of compromise puts to the Commissioner that the true income is some lesser sum. If the Commissioner were disposed to accept such a submission, it would be possible, in my view, for the Commissioner then to amend assessments accordingly. The same might follow where the essence of a dispute was as to the market value of a particular property which became the subject of capital gains tax assessment. If, it was put to the Commissioner that the market value was a sum less than that upon which the Commissioner had acted and the Commissioner, in good faith and upon examination and reflection, agreed that the market value was the lesser sum, amended assessments might follow in that circumstance. 7 Here, though, all that has occurred is an offer to pay in each instance a lesser sum than that which is assessed, but without any accompanying rationale upon the strength of which amended assessments might issue. If the offer were accepted, truly all that is put forward in substance, in each instance, is an offer to compromise a right of recovery and, as I have said, these are not recovery proceedings. 8 I had the benefit of submissions which took me to two cases: JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 and Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Edenborn Pty Ltd (No 2) [2020] FCA 1083. All that need be said of each of these cases is that neither concerned a cost sequel to a substantive tax appeal. 9 I make these observations because I should not wish it to be thought that there is some precedent to be had in my making the orders promoted jointly by the parties so far as costs in tax appeals in the future are concerned. In such cases, particularly where, as here, there are novel provisions of the income tax legislation at issue, it is hardly a case for indemnity costs if the Commissioner chooses to have the benefit of an exercise of judicial power as to the meaning and effect of those provisions. The same also may be said if taxpayers challenging objection decisions choose to have the benefit of a judicial decision. 10 For these reasons, although I make the orders promoted by the parties as to costs, I emphasise that the orders so made should not be regarded as having any precedential value whatsoever. The orders will be in terms of the drafts which have been handed up. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Logan.