IOOF Holdings Limited v Commissioner of Taxation of the Commonwealth of Australia

Federal Court of Australia|2013-11-15|Before: Middleton J

INTRODUCTION 1 The issue in this proceeding, which is an application for judicial review of the Second Respondent's ('the Tribunal') decision Re IOOF Holdings Limited and Commissioner of Taxation [2013] AATA 239, is whether the Tribunal erred when it decided that the following preliminary question should be answered 'no': For the purposes of undertaking its review of the Respondent's deemed disallowance of the Applicant's objection against the Respondent's failure to make a private ruling concerning its claim for a deduction under section 716-405 in Part 3-90 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), is it open to the Tribunal to apply the provisions of Part 3-90 of the ITAA 1997 before the amendments contained in the Tax Laws Amendment (2012 Measures No 2) Act 2012 (Cth) (2012 Amending Act)? 2 This preliminary question was formulated for determination by the Tribunal in advance of any other issues arising in the context of an application made by the Applicant ('IOOF') for review under Pt IVC of the Taxation Administration Act 1953 (Cth) ('the TAA'). The private ruling sought by IOOF, its objection against the First Respondent's ('the Commissioner') failure to make the private ruling sought, and its application before the Tribunal for review of the deemed disallowance of the objection, concerned the consolidation provisions in Pt 3-90 of the Income Tax Assessment Act 1997 (Cth) ('ITAA 1997') as they stood before they were amended, with retrospective effect by the Tax Laws Amendment (2012 Measures No 2) Act 2012 (Cth) ('2012 Amending Act'). IOOF continues to seek a private ruling determined under the previous form of the legislation notwithstanding that the 2012 Amending Act was enacted on 29 June 2012. 3 The preliminary question was framed by the parties to establish which law the Tribunal should apply in making its decision on review in circumstances where the 2012 Amending Act had been enacted after IOOF had applied to the Tribunal for review. The Commissioner submitted that the Tribunal correctly decided that it was required to apply the ITAA 1997 as amended by the 2012 Amending Act for the following reasons: (a) whether or not IOOF had an 'accrued right' for the purpose of subs 7(2) of the Acts Interpretation Act 1901 (Cth) ('the Acts Interpretation Act'), the application provisions of the 2012 Amending Act manifested a clear contrary intention for the purposes of subs 7(2) of the Acts Interpretation Act; accordingly, it is those application provisions that determine which law is to apply in each year of income; and (b) the possibility that the Tribunal might exercise its discretion under subs 43(6) of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act') to determine the date of effect of its decision on review was irrelevant to the question of which law should be applied by the Tribunal in making its decision.

BACKGROUND 4 The 2012 Amending Act received royal assent on 29 June 2012. It was given retrospective effect and repealed the right to tax deductions for 'rights to future income'. However, the 2012 Amending Act made specific provision where a favourable private ruling was issued before 31 March 2011. 5 Whilst no relevant private ruling had been issued before 31 March 2011, IOOF contended that it found itself in an unusual position by reason of the following: (a) IOOF had applied for a private ruling before 31 March 2011 (it applied on 30 December 2010); (b) Prior to the enactment of the 2012 Amending Act: (i) IOOF gave the Commissioner written notice requiring him to make the ruling (notice was given on 19 August 2011); (ii) IOOF objected to the Commissioner's failure to make the private ruling (it objected on 20 October 2011); and (iii) IOOF appealed to the Tribunal against the deemed disallowance of its objection (it appealed on 15 February 2012). 6 To fully understand the background to the principal issue raised in this proceeding, it is necessary to further detail the legislative amendments and IOOF's private ruling application. 7 The consolidation regime in Pt 3-90 of the ITAA 1997 commenced on 1 July 2002. The regime, as originally enacted, did not contain a provision conferring an entitlement to deduct amounts in respect of assets described as 'rights to future income'. 8 IOOF acquired the relevant shares in Australian Wealth Management giving rise to the claimed deductions on 30 April 2009. 9 On 3 June 2010, that is after IOOF acquired these shares, Pt 3-90 of the ITAA 1997 was amended by the Tax Laws Amendment (2010 Measures No 1) Act 2010 (Cth) ('the 2010 Amending Act') to introduce, among other things, an entitlement to a deduction for 'rights to future income' under s 716-405. Section 716-405 of the ITAA 1997, together with subs 701-55(5C), s 701-90 and s 716-410 (which are also relevant to the deduction), were introduced with retrospective effect from 1 July 2002. 10 I do not need to detail the provisions contained in the 2010 Amending Act, but observe that the form and structure of that Act (it also involving retrospective operation) was not dissimilar to that of the 2012 Amending Act. Both the 2010 Amending Act and the 2012 Amending Act operated retrospectively, and can be seen as a structured progression in the change of the income tax law affecting consolidated groups and the rights to future income. 11 On 30 December 2010, IOOF made an application under s 359-10 of Sch 1 to the TAA for a private ruling concerning IOOF's entitlement to a deduction under s 716-405 of the ITAA 1997 in respect of IOOF's acquisition of shares in Australian Wealth Management Limited. The term of the private ruling sought by IOOF under s 359-25 of Sch 1 to the TAA extended for a ten year period, from the year of income ending 30 June 2009 to the year of income ending 30 June 2018. 12 The application for a private ruling was received by the Commissioner on 10 January 2011. 13 The Commissioner did not make a written ruling on the private ruling application within the time frames stipulated by s 359-50 of Sch 1 of the TAA. Accordingly, IOOF activated the procedures allowing it to object against the Commissioner's failure to make the private ruling sought by IOOF. 14 The Commissioner did not make an objection decision in respect of IOOF's objection within the time frames stipulated by subs 14ZYB(1) of the TAA. Accordingly, the Commissioner was deemed to have disallowed IOOF's objection. That deemed disallowance occurred on 19 December 2011. 15 On 25 November 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation announced that the legislation creating the deduction entitlement for 'rights to future income' would be amended with retrospective effect, but that taxpayers who had the benefit of a private ruling issued before 31 March 2011 were not to be affected by the changed legislation. The 31 March 2011 date was apparently chosen because that was the day immediately after the then Assistant Treasurer had issued a Media Release asking the Board of Taxation to examine the operation of the relevant consolidation provisions in Pt 3-90 of the ITAA 1997. The Media Release made references to the reasons for the changes made to the legislation over time (including the 2010 and 2012 amendments), but the legislation speaks adequately for itself in this regard for the purposes of this proceeding. 16 Subsequently, on 15 February 2012, IOOF applied to the Tribunal for review of the Commissioner's deemed disallowance of IOOF's objection against the Commissioner's failure to make the private ruling. 17 On 29 June 2012, the amendments made by the 2012 Amending Act to the consolidation provisions in Part 3-90 of the ITAA 1997 commenced. Significantly, the amendments to the consolidation provisions were made in three specific tranches, with the 'pre rules' set out in Pt 1 of Sch 3, the 'interim rules' set out in Pt 2 of Sch 3 and the 'prospective rules' in Pt 3 of Sch 3. The commencement of each of these sets of rules was sequential: the pre rules commenced when the 2012 Amending Act received Royal Assent on 29 June 2012, the interim rules commenced immediately after the pre rules, and then the prospective rules commenced immediately after the interim rules. A very careful structure was put in place for the relevant operation of the new applicable regime. 18 The application rules set out in Pt 4 of Sch 3 also commenced when the 2012 Amending Act received Royal Assent on 29 June 2012. The 'main application' provision, in Item 50 of Pt 4 of Sch 3 to the 2012 Amending Act, set out the conditions for determining which of the rules apply to a particular taxpayer in a given year of income. Item 50 provides essentially for four situations: (i) The 'pre rules', being Pt 3-90 of the ITAA 1997 as amended by Pt 1 of Sch 3 to the 2012 Amending Act, apply for an income year in respect of the joining entity if the entity's joining time was before 12 May 2010 or the arrangement under which the joining entity joined the consolidated group commenced before 10 February 2010 (Items 50(2) and 52 of Pt 4 of Sch 3 to the 2012 Amending Act). (ii) The 'original 2002 law', being Pt 3-90 of the ITAA 1997 as it stood before the amendments made by the 2010 Amending Act, applies for an income year in respect of the joining entity if the head company's latest notice of assessment for the income year, that relates to the application of subs 701-55(6) of the ITAA 1997 (as it then was), was served on the head company before 12 May 2010 and no relevant amendments to that assessment have been requested (Items 50(5) and 50(6) of Pt 4 of Sch 3 to the 2012 Amending Act). (iii) The 'interim rules', being Pt 3-90 of the ITAA 1997 as amended by Pt 1 and Pt 2 of Sch 3 to the 2012 Amending Act, apply if either (Items 50(3) and 52 of Pt 4 of Sch 3 to the 2012 Amending Act): 1. the pre-rules would otherwise apply, but the head company's latest notice of assessment for the income year that relates to the application of the provisions of the 2010 Amending Act in respect of the joining entity was served on the head company on or after 12 May 2010 and on or before 30 March 2011; or 2. the joining entity's joining time is on or after 12 May 2010 and the arrangement under which the joining entity joined the group commenced on or after 10 February 2010 and on or before 30 March 2011. (iv) The 'prospective rules', being Pt 3-90 of the ITAA 1997 as amended by Pts 1, 2 and 3 of Sch 3 to the 2012 Amending Act, apply for the year of income in respect of the joining entity if the joining time is on or after 31 March 2011 and neither the pre rules nor the interim rules otherwise apply (Item 50(4) of Pt 4 of Sch 3 to the 2012 Amending Act). 19 There is also a special application rule in Item 51 of Pt 4 of Sch 3 to the 2012 Amending Act for private rulings and certain written advice. Item 51 provides the sole exception from the main application provision in Item 50. Item 51 relevantly states: (1) This item applies to: (a) a private ruling issued before 31 March 2011; or (b) a written advice given by the Commissioner before 31 March 2011 under an Annual Compliance Arrangement; to the extent that the ruling or advice has effect in relation to the application of subsection 701-55(5C) or (6) of the original 2010 law in respect of the joining entity mentioned in item 50. (2) Item 50 does not affect that effect of the ruling or advice. (3) However, if the head company requests an amendment of the assessment mentioned in item 50 after the issue of the ruling or the giving of the advice, this item does not apply to the extent that the request is inconsistent with or contrary to the ruling or advice." 20 As I have indicated, IOOF is primarily seeking to have its application for review before the Tribunal determined under the provisions of the ITAA 1997 as they stood before the enactment of the 2012 Amending Act (the original 2010 law), on the basis that it applied for the private ruling and filed its application for review before the provisions were amended by the 2012 Amending Act. 21 The Tribunal, at paragraph 23, seemed to accept IOOF's argument that in the absence of any inconsistent provisions in the 2012 Amending Act, it was entitled to pursue, and had, an 'accrued right' to a ruling based on the taxing rules operative before 31 March 2011 (although in paragraph 28 the Tribunal indicated it was unnecessary to resolve the issue). It found at paragraph 24 that: On lodging its application with the Tribunal, if not before, the Applicant had the substantive right to have its application determined by the Tribunal and, absent contrary intention in amending legislation, to have that right determined in accordance with the law as it stood when the right accrued 22 The Tribunal nevertheless held that s 7(2) of the Acts Interpretation Act did not apply because it held the 2012 Amending Act evinced a contrary intention. The Tribunal applied the principle that if a later statute includes transitional provisions, Parliament may intend those provisions to be exhaustive, in which case there will be no room for the operation of s 7(2) of the Acts Interpretation Act. According to the Tribunal: In the present matter, the transitional rule together with the three alternative sets of post-amendment rules, exhaust the possibilities. Either the taxpayer had a ruling or it did not. The rule covers all alternatives.

SUBMISSIONS OF IOOF 23 IOOF submitted that the Tribunal erred in arriving at this conclusion. It was submitted that the starting point is that when considering whether transitional provisions are exhaustive, there is a presumption that a statute is not intended to take away existing rights. There must be clear evidence of Parliament's intention to displace accrued rights, and the onus rests with the party attempting to show that there is such an intention, not on the party contending that such intention is absent. 24 IOOF made reference to the comments in Repatriation Commission v Keeley (2000) 98 FCR 108, per Lee and Cooper JJ: Unless a contrary intention is clearly disclosed, it is to be presumed that accrued rights are determined under the law as it stood when the right accrued. 25 It was then submitted by IOOF that the critical part of the amending provisions is Item 51 of the 2012 Amending Act. It provides that Item 50 (being the general application provision) does not affect the effect of a ruling that was issued before 31 March 2011. The term 'issued' was treated as being the same as 'made'. It was submitted that on its face Item 51 does not cover the field, being silent about taxpayers in a range of situations. Situations not covered were said to include: (a) a taxpayer may have received a favourable private ruling before 31 March 2011 and applied for a revised private ruling before that date, but been issued with the revised private ruling after that date. Under s 359-55(4) of Sch 1 of the TAA, the ruling in its initial form no longer applies when the revised private ruling is made. It was asked by IOOF: Would the taxpayer satisfy Item 51 of the Transitional Rules? (b) a taxpayer could have challenged the First Respondent's failure to issue a private ruling before 31 March 2011 and had the benefit of a favourable decision by the Tribunal before that date, but the decision might have been the subject of an appeal by the Respondent before the amending legislation was introduced. It was asked by IOOF: If the Court ultimately found in its favour, would its entitlement to the deductions be preserved? (c) a taxpayer could have received an unfavourable ruling before 31 March 2011 and commenced legal proceedings to challenge the ruling before that date. It was asked by IOOF: If the Court or Tribunal ultimately found in its favour, would its entitlement to the deductions be preserved? (d) a taxpayer may have commenced an appeal before 31 March 2011 following the Respondent's refusal to issue a private ruling. It was asked by IOOF: If the Court or Tribunal ultimately found in its favour, would its entitlement to the deductions be preserved? 26 Particular emphasis was placed on paragraph (c) referred to above - it being submitted that it would be an unusual result if IOOF would be in a worse position now with no ruling than if it had been given an unfavourable ruling. This proposition was advanced by IOOF on the basis that it seemed to be accepted by the Commissioner that in the latter circumstance, IOOF would be entitled to a ruling based on the taxing rules operative before 31 March 2013. 27 IOOF then submitted that the legislation in terms is directed at preserving the rights of taxpayers who had the benefit of a favourable private ruling issued prior to 31 March 2011. In these circumstances, it was contended that is improbable that Parliament should be taken as intending to abrogate the rights of taxpayers in the position of IOOF: the legislation does not purport to deal with the obvious case of taxpayers who had commenced court proceedings to seek a relevant private ruling before the amending legislation was introduced into Parliament or enacted.

CONSIDERATION 28 I will assume that IOOF had an 'accrued right' to a ruling based on the taxing rules operative before 31 March 2011, as seemed to be accepted by the Tribunal. 29 The question then arises as to whether a contrary intention was clearly disclosed to displace the continuation of that accrued right. 30 It is necessary to consider the operation of the 2012 Amending Act, having regard to its purpose and context. 31 In considering the operation of the 2012 Amending Act, it is also important to consider the form and the content of the application provisions contained therein. In interpreting the application provisions of the 2012 Amending Act, the interpretation that best achieves the purpose or object of that legislation should be preferred where it can be accommodated within the language of the provision. 32 The application provisions in the 2012 Amending Act were intended to deal exhaustively with which version of the ITAA 1997 applies in respect of all acquisitions made by consolidated groups from 1 July 2002. In many respects, they retrospectively amended the 2010 Amending Act. The 'main application' provision, in Item 50 of Pt 4 of Sch 3 to the 2012 Amending Act, is extensive and (subject to Item 51) establishes an exhaustive set of provisions for the purposes of determining which of the 'original 2002 law', the 'pre rules', the 'interim rules' and the 'prospective rules' applies to an assessment of the head company for an income year in respect of a joining entity in a given year of income. 33 The form and content of the 2012 Amending Act is of significance, particularly when read in light of the same structure adopted in the 2010 Amending Act, itself operating retrospectively. Focussing on the form and content was the approach taken by the High Court in GF Heublein & Bro Inc v Continental Liqueurs Pty Ltd (1962) 109 CLR 153, at 161: … in the end we think that the conclusive consideration in the case is the form and content of the special transitional provisions contained in the 1955 Act. We refer in particular to subss (4) and (6) of s 5. The first of these subsections provides that "the repealed Acts apply, notwithstanding their repeal, to and in relation to applications for the registration of trade marks made before the commencement of this Act" and subs (6) provides that "The repealed Acts apply, notwithstanding their repeal, to and in relation to applications for the registration of a person as the registered user of a trade mark made before the commencement of this Act". Close consideration of the special provisions of s 5 induces us to think that the express provision which it makes with respect to applications pending under the earlier Act must be read as exhaustive and that there is, therefore, no room for the application of s 8 of the Acts Interpretation Act, even if it were otherwise possible to bring the case within its terms … 34 See also the approach taken by Blackburn J in Agua Marga Pty Ltd v Minister of State for the Interior (1973) 22 FLR 136, at 146-148 and in Attorney-General (Qld) v Australian Industrial Relations Commission (2002) 213 CLR 485 at [63] to [65] per Gaudron, McHugh, Gummow and Hayne JJ. 35 It is, of course, accepted that each proceeding must be determined upon the proper construction of the specific legislation before the Court. 36 Returning then to the 2012 Amending Act, the only exception to the main application provisions in Item 50, and the only remaining circumstances in which the provisions of Pt 3-90 of the ITAA 1997 as they stood immediately before the 2012 Amending Act was enacted can apply, is described in Item 51. That exception can only apply where a private ruling was issued before 31 March 2011 or written advice was given before 31 March 2011 under an Annual Compliance Agreement. 37 Given the way in which Item 51 of Pt 4 of Sch 3 to the 2012 Amending Act is expressed, the presence of Item 51 does not reveal, as suggested by IOOF, a 'legislative intent to preserve the rights of taxpayers who applied for private rulings'. To the contrary, the legislative intention underlying Item 51 (when read in context with Item 50) is consistent with its express terms. The intention was to preserve the rights of taxpayers who had been issued with a private ruling or had been given certain written advice before 31 March 2011. 38 To the extent that resort to extrinsic materials is necessary or desirable in ascertaining whether the 2012 Amending Act evinces an intention that the amendments made by that Act apply in past and future years of income subject only to the limited exception in Item 51, the explanatory memorandum to the Tax Laws Amendment (2012 Measures No 2) Bill 2012 (Cth) indicates that the purpose of the 2012 Amending Act was to remove retrospectively the operation of provisions introduced by the 2010 Amending Act that permitted consolidated groups to access deductions not available to taxpayers outside the consolidation regime. Further, the explanatory memorandum states that the question of which law is to apply, out of the pre rules, the interim rules, the prospective rules and the original 2002 law, would be determined by reference to when the corporate acquisition to which the tax cost setting process is being applied took place. The only exception contemplated by the explanatory memorandum to the 2012 Amending Act rectifying the amendments made by the 2010 Amending Act with retrospective effect is where a claim is covered by a private ruling issued before 31 March 2011, or pursuant to written advice given before 31 March 2011 under an Annual Compliance Arrangement. 39 As indicated above, IOOF has submitted that Item 51 of Pt 4 of Sch 3 of the 2012 Amending Act does not 'cover the field' by suggesting various circumstances in which Item 51 is silent. If one correctly focuses on Item 50 and Items 51, Item 51 is merely an exception to Item 50, which is the main application provision that 'covers the field' subject only to the application of Item 51. It is of no significance that Item 51 does not refer to taxpayers who have appeals on foot. Nor is it of any significance that Item 51 does not refer to any of the hypothetical scenarios raised by IOOF: the facts and the operation of the relevant law will either bring the taxpayer in each of the hypothetical scenarios within Item 51, or they will not. There is nothing irrational or unreasonable with this approach in view of the whole operation of the 2012 Amending Act, keeping in mind the previous operation of the 2010 Amending Act, and the revenue risks that obviously prompted the 2010 Amending Act and the 2012 Amending Act. 40 As can be seen from the chronology of events, Item 51 does not apply to IOOF as IOOF was not issued with a private ruling before 31 March 2011 that had effect in relation to the application of subs 701-55(5C) or (6) of the ITAA 1997, before it was amended by the 2012 Amending Act. 41 Finally, the Tribunal correctly rejected IOOF's submission that subs 43(6) of the AAT Act may affect the law to be applied by the Tribunal in making its decision on review as both circular and unsupported by subsection 43(6) of the AAT Act. The Tribunal must apply the law as is applicable to its task, and could not apply 43(6) in the way suggested by IOOF. IOOF during oral submissions seemed to accept that unless it succeeded on the primary issue of the continuation of its 'accrued right', its position would not otherwise be advanced by sole reliance on the operation of s 43(6).

CONCLUSION 42 I should indicate that I have kept in mind the principle that before any citizen is made subject to taxation, the imposition of liability must be clear. In my view, the legislature by the 2012 Amending Act has made its intentions clear beyond doubt in setting out the taxation to be imposed. Once this conclusion is reached, it is then a matter of applying the rules that have been set out by the legislature. 43 For the above reasons, I would dismiss the application with costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

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