Kocharyan v Commissioner for Taxation

REASONS FOR JUDGMENT 1 This is an appeal on questions of law, pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), from a decision of the Administrative Appeals Tribunal, made on 24 January 2014, in which an objection decision, made by the respondent Commissioner on 14 January 2011, in relation to amended assessments of the applicant's income tax liability for the years ended 30 June 2006 and 2007, and associated assessments of administrative penalty, was affirmed. 2 The disposition of the applicant's three grounds of appeal does not require an understanding of the merits of the Commissioner's assessment of the income tax that was payable by the applicant in the years in question. Those grounds are: (1) The Tribunal erred in holding that the applicant's 2007 tax return was valid. (2) The Tribunal erred in holding that the amended assessments had been served upon him. (3) The Tribunal erred in holding that the amended assessments had been served within time. 3 With respect to the applicant's first ground, it was his project in the Tribunal to establish that the ostensible return lodged electronically in his name by his tax agent had not been lodged with his authority and was not, therefore, a "valid" return. The Tribunal approached that issue within the framework of s 164 of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act"), which provided: Every return purporting to be made or signed by or on behalf of any person shall be deemed to have been duly made by the person or with the person's authority until the contrary is proved. 4 Addressing the question whether the applicant had proved the contrary within the meaning of this provision, the Tribunal said in its reasons for decision: Bearing all of these matters in mind, the evidence is equivocal. It is consistent with various scenarios. First, it is consistent with the actions of a person who cares enough about his own affairs to ask questions but so distracted by his work that he does not ask other questions he should ask and take the actions he should take. At the same time, it is consistent with the actions of a person who has permitted and authorised [the tax agent] to manage his investment and his tax affairs and to take the steps that she considers appropriate, but who has realised too late that all is not as it should be, has not known what to do and has not set aside time to deal with the issue. Third, it is consistent with the actions of a person who is set upon creating a trail to make his past actions in authorising [the tax agent] to act on his behalf to appear something other than what they were. Left in that state, I conclude that [the applicant] has not discharged his burden of proof under s 164. The consequence is that his return for the 2007 income year is deemed to have been duly made by operation of s 164 of [the 1936 Act]. The validity of the Commissioner's assessments or amended assessments cannot be challenged on the basis of that the return was not duly made. 5 In his appeal in this court, the applicant did not contend that the Tribunal's decision that he had not discharged the onus under s 164 involved, of itself, an error of law. His point, rather, was that the Tribunal was in error to have regarded his case as one to which s 164 was relevant at all. 6 The applicant's case commenced with s 161A(1) of the 1936 Act, which required his return to be in "the approved form". The next proposition was that the Tribunal had held that the 2007 return had not been in the approved form. In the final paragraph of its reasons, the Tribunal said: On his own evidence, [the applicant] had not approved the return submitted to him by the day required for its lodgement i.e. 15 May 2007. [sic] Whether or not it contained the information he wanted in it, he had not signed it and so it was not in an approved form. As it happened, this paragraph was not part of the Tribunal's reasons for the decision which it reached on this aspect of the applicant's case. The paragraph was associated with a passage in the Tribunal's written reasons which was included merely by way of a hypothetical, in order to demonstrate that any success which the applicant might achieve in demonstrating that his failure to sign the declaration required by s 388-50(1)(b) of Sch 1 ("the Schedule") to the Taxation Administration Act 1953 (Cth) ("the Administration Act") produced the result that his return was a "nullity" (as was his then submission) would most likely have resulted in him being liable to pay an administrative penalty under s 286-75 of the Schedule. 7 With respect to the operative reasons of the Tribunal, the applicant sought to find error of law in the application of s 164 to circumstances in which the return in question had not been in the approved form. He submitted that the reference in the section to a "return" was confined to something which constituted a "valid" return, and a return which was not in the approved form was not a valid return. 8 So far as I can see from a reading of the reasons of the Tribunal, this point, at least in the form advanced in this proceeding, was not part of the applicant's submissions at that level at all. Compendiously identifying the applicant's argument, the Tribunal said: In outline, [the applicant]'s submissions centred on his contention that the return lodged by [his tax agent] for the 2007 income year had not been lodged with his authority. He had not given her a written authority as required by s 388-65 of [the Schedule] …. Relying on [26] and [27] of the Law Administration Practice Statement PS LA 2008/11 issued by the Commissioner, … [the applicant] submitted that an authority given to [the tax agent] in a previous year was not an enduring authority. As the return had not been lodged with his authority, the Commissioner could not make an assessment upon it. Dealing with that argument, the Tribunal referred to ss 175 and 177 of the 1936 Act, the result of which was that no failure on the applicant's part to authorize the lodgement of the return which was in fact lodged (or, one might add here, to cause the return to be lodged in the approved form) would impugn the assessment (or, of course, the amended assessment). The Tribunal then considered the limited circumstances in which the validity of an assessment might be questioned. 9 The Tribunal turned next to the question whether the applicant's 2007 return had been "duly made". It canvassed the provisions of the 1936 Act and of the Schedule which laid out the requirements with which a return had to comply. It distinguished two authorities upon which the applicant had relied with respect to the significance of a form not having been signed as required by the (different) legislation which had been under consideration in those cases. Then, with respect to the case at hand, the Tribunal said: Application of that broader principle requires me to have regard to s 164 of [the 1936 Act]. That broader principle is that, when [the applicant]'s returns purport to be signed by or on his behalf, they shall be deemed to have been duly made by him or with his authority until the contrary is proved. There has been no suggestion in this case that the return for the 2007 income year did not "... purport... to be made or signed on his behalf ..." i.e "to profess by its appearance ... to convey; to imply ..." … that it was "... made or signed by or on his behalf ...". Therefore, it is deemed to have been duly made until [the applicant] proves, on the balance of probabilities, that it was not. Finally in this department of the case, the Tribunal considered whether the applicant had discharged the onus of proof to which s 164 referred, and, in the passage which I have set out at para 4 above, held that he had not. 10 Given the nature of the case which the applicant conducted before the Tribunal, there were only two issues which arose: first, whether the 2007 return purported to have been made on behalf of the applicant, and, if so, whether the applicant had proved that the return had not been made on his behalf. The Tribunal noted in its reasons that there was "no suggestion" that the return did not purport to have been made on the applicant's behalf. The second issue then fell to be decided, and it did not involve a question of law. As mentioned above, it was decided adversely to the applicant. 11 With respect to the specific argument advanced by the applicant in this court, I would be reluctant to make the present case a vehicle for a consideration of the question whether the failure of a taxpayer to sign an authorization provided to his or her tax agent had the result that a return lodged by the agent was not in the "approved form". Subject to that reservation, the position appears to be as follows. By s 388-50(1) of the Schedule, a return was in the approved form if, and only if, amongst other requirements, "it contains a declaration signed by a person or persons as the form requires", with a parenthetical reference to s 388‑75. That section, in turn, provided that a return lodged electronically by a taxpayer's agent "must contain the agent's declaration … with the agent's electronic signature", with a parenthetical reference to s 388‑70. That section, in turn, provided as follows: If an agent gives a return, notice, statement, application or other document to the Commissioner in the approved form on behalf of another entity, the agent must, if the document so requires, make a declaration in the approved form stating that: (a) the document has been prepared in accordance with the information supplied by the other entity; and (b) the agent has received a declaration from the other entity stating that the information provided to the agent is true and correct; and (c) the agent is authorised by the other entity to give the document to the Commissioner. 12 I was not addressed in any detail upon the workings of these provisions. But it was submitted on behalf of the Commissioner that, in the case of an electronic return lodged by a tax agent, whatever else was required to render such a return into the "approved form", it did not include the absolute truth of the declaration for which s 388-70(c) provides. On the limited treatment which the question received in the present case, I would be disposed to accept that submission. The applicant's submissions proceeded as though the contrary was self-evident. I cannot see anything in the legislation which would provide support for that submission. 13 However it is looked at, the applicant's first ground cannot be sustained. 14 Turning to the applicant's second ground, his submission here was that the amended assessments for 2006 and 2007 had been sent to a post office box, rather than to his "preferred" address as communicated to the Commissioner. My attention was drawn to no statutory provision, however, which would require the Commissioner to use only the latter. Undoubtedly the Commissioner was required to serve the amended assessments on the applicant, but this could be done "by post or otherwise": 1936 Act, s 174. The legally relevant question was, therefore, not whether the amended assessments had been sent to the applicant's preferred address, but whether they were served on him by post or otherwise. 15 Here the applicant was confronted by the following finding on the part of the Tribunal: "In this case, [the applicant] has clearly received the notices of assessment." The applicant sought to circumnavigate this finding of fact by arguing that there was no evidence for it. So to submit, however, seeks to stand the correct order of things on its head. My attention was drawn to no evidence given before the Tribunal by the applicant himself that he did not receive these notices. In this court, his case, in relevant respects, appeared to proceed first by submitting that the post office box to which the notices had in fact been sent was not his stated preferred address, and secondly by expecting the Commissioner then to prove that the notices had been received by him in point of fact. The Commissioner was under no such obligation: Administration Act, s 14ZZK(b). 16 There was no error of law in the way the Tribunal disposed of the applicant's case that the amended assessments had not been served on him. I would reject the applicant's second ground. 17 The applicant's third ground concerns the application of s 170(1) of the 1936 Act to the circumstances of the case. The amended assessments were within the 4-year period for which item 4 in the table to that subsection provided, but that item applied only if none of items 1, 2 and 3 applied. In the present case, the applicant's position was that item 1 applied, which provided for a 2-year time limit in the case of "an assessment of an individual for a year of income". If item 1 did apply, the amended assessments would have been out of time. But item 1 did not apply in a number of situations, one of which was as follows: (e) if it is reasonable to conclude that any person entered into or carried out a scheme (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year …. 18 In this part of the case, the Tribunal commenced with the definition of "scheme", supplied by s 995-1(1) of Income Tax Assessment Act 1997 (Cth) ("the 1997 Act"): … scheme means: (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 19 The Tribunal turned next to the definition of "scheme benefit", supplied by by s 284-150(1) of the Schedule: An entity gets a scheme benefit from a scheme if: (a) a tax-related liability of the entity for an accounting period is, or could reasonably be expected to be, less than it would be apart from the scheme or a part of the scheme; or (b) an amount that the Commissioner must pay or credit to the entity under a taxation law for an accounting period is, or could reasonably be expected to be, more than it would be apart from the scheme or part of the scheme. 20 Applying these provisions to the case at hand, the Tribunal made two findings of fact. First: These matters satisfy me that there was a scheme in the sense of an arrangement, plan, course of action or course of conduct. It was a scheme carried out by [the applicant's tax agent]. Secondly: …[T]he material points to [the applicant's tax agent] carrying out the scheme, whether alone or with others, for the sole or dominant purpose of, among others, [the applicant]'s obtaining a scheme benefit in relation to income tax from the scheme in the years in which he and others participated in it. 21 On their face, these findings are unexceptionable. However, the applicant submitted that they contained an error of law in that there could never be a "scheme benefit" where the putative scheme involved nothing more than a misconceived or erroneous attempt to claim a tax deduction. In his own case, he had, following his tax agent's advice, claimed partnership losses in relation to managed investment schemes when his circumstances did not bring him within rulings given by the Commissioner under which losses of that nature would have been accepted as allowable. Insofar as there was a scheme, there was no benefit which would ever have been available to the applicant in relation thereto, because, under the normal operation of s 8-1 of the 1997 Act, there would never have been a deduction. This was, in the applicant's submission, to be contrasted with a situation in which the point of a scheme was to avail the taxpayer of some aspect of the operation of the legislation which would, absent an anti-avoidance provision, deliver a tax benefit to him or her. 22 The applicant's submission cannot be accepted. It involves reading into the relevant provisions words which were not there, and impressing upon them a perspective which is informed by the context of Pt IVA of the 1936 Act. Under item 1(e) in the table in s 170(1) of the 1936 Act, the only questions which arose were those which yielded the conclusions referred to in para 20 above. Unlike Pt IVA, s 170 did not invest the Commissioner with a power to render deductions non-allowable. Instead, it gave the Commissioner a longer period within which to amend. The provision in question was particularly apposite to a situation in which an assessment - including a self-assessment - claimed apparently uncontroversial deductions, but where the truth of the matter, once it emerged, was that deductions were not allowable at all; that is to say, a situation such as the applicant's in 2006 and 2007. 23 For the above reasons, I would reject the applicant's third ground. 24 The appeal will be dismissed with costs. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.