Marijancevic v Mann

The decision of the primary judge 5 The primary judge recorded that "[t]he essence of [Mr Marijancevic's] case is that the assessment was not an attempt to assess income but an attempt to 'justify' a garnishee notice designed to prevent the return of the money to him"; i.e, to ensure "that the total of the assessments would at least equal the amount in the garnishee notice". See Marijancevic v Mann at [14]. His Honour noted (at [14]) that: The Commissioner conceded that in computing the amount assessed for 2002 he had included two sums $31,141.62 and $255,571.52, totalling $286,713.14. The first was the amount of a cash deposit in [Mr Marijancevic's] bank made on 21 February 2002. The second was the amount of a deposit on the same date made up in part by cash and the balance by cheque. [Mr Marijancevic] relies on a 'Notice of acquisition of an interest in land' relating to the sale by [him] of land at Sunshine for $285,000 payable by a deposit of $28,500. The notice does not disclose the date of the payment of the balance, but the date of possession/transfer is given as 20 February 2002. That was one day before the two bank deposits referred to above. Those bank deposits were doubtless the consideration received from the purchaser. Indeed, when [Mr Marijancevic] objected to the 2002 assessment, the Commissioner allowed the objection so far as it related to the $255,571.52 and part of the $31,141.62. [Mr Marijancevic] contends that the Commissioner's inclusion of the two amounts in his computation for 2002 is 'indicative of bad faith when you take into account the need … to boost the assessable income in order to justify the garnishee'. 6 Referring to the audit report and the Commissioner's 5 February 2003 letter informing Mr Marijancevic of the making of the assessments under s 167 of the ITAA36, the primary judge found that the Commissioner's "assessments and garnishee actions were the result of an audit of [Mr Marijancevic's] affairs in respect of the years ended 30 June 1998 to 2002": Marijancevic v Mann at [15]. In relation to bank account credits, his Honour found (at [21]-[23]): The list of credits to [Mr Marijancevic's] bank accounts used by the Commissioner to increase [his] taxable income for the year ended 30 June 2001 was in evidence. Credits relating to one savings account total $206,538, all but one item relating to interest. The other item was a cheque deposit of $200,000, which a note describes as an 'unexplained deposit'. Credits relating to another savings account total $69,847, made up of cash deposits of $13,900, a cheque deposit of $55,616.83 and interest. These credits were all 'treated as unidentified resulting in the Income Adjustment Increase of $69,847 being $331 for interest and $69,515 as unexplained deposits'. The Commissioner's list of credits to [Mr Marijancevic's] bank accounts for the year ending 30 June 2002 total $363,463. Apart from interest of $61, the other credits were included in the taxable income as 'unexplained'. The total amount includes the two credits derived from the sale of the Sunshine property. Other documents show cash withdrawals of $76,900 between March 2001 and February 2002. 7 At the time the primary judge delivered the judgments under appeal, the decision of the High Court of Australia in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 ("Richard Walter") was the most authoritative statement concerning the relationship between ss 175 and 177(1) of the ITAA36, having regard to R v Hickman; ex parte Fox and Clinton (1945) 70 CLR 598 ("Hickman"). His Honour essentially decided this case by reference to Richard Walter, and rejected Mr Marijancevic's contentions. 8 The primary judge held that "the Commissioner proceeded in a methodical way to collect information about [Mr Marijancevic's] financial affairs in order to determine whether any amounts should be included in his taxable income": see Marijancevic v Mann at [24]. His Honour held (at [24]) that the fact, as the Commissioner subsequently accepted, that two items had been wrongly included in Mr Marijancevic's income for the 2002 year did not establish a want of bona fides on the Commissioner's part in making the original assessment. Further, his Honour accepted (at [26]) that, as the Commissioner submitted, there was no evidence that the deposits in the sums of $200,000 and $55,316.83, both made on 7 July 2000, related to the sale of property and that Mr Saunders' observation in January 2003 about a change of address was insufficient to establish a lack of good faith. In relation to the garnishee notice issued to the Queensland Police, the primary judge said (at [31]-[32]): The Commissioner accepts that because notices of assessment had not been served on [Mr Marijancevic] before the garnishee notice was given to the Police, [Mr Marijancevic] was not at that time indebted to the Commonwealth, so that the garnishee notice was invalid. In my view the fact that the garnishee notice was sent to the Police prior to the assessments being made does not demonstrate or contribute to demonstrating that there was no bona fide attempt to make assessments. It may show carelessness or fumbling under pressure. But I am not prepared to infer from the matters relied on by [Mr Marijancevic] that the Commissioner intentionally took a course that resulted in the garnishee notice being ineffective. In any event, the invalidity of the garnishee notice had no effect on the assessments themselves, which were later served. His Honour also held (at [34]) that there was no absence of bona fides to be inferred from the fact that the Commissioner sought to use the garnishee process to prevent the return of money to Mr Marijancevic. His Honour rejected (at [36]) the submission by Mr Marijancevic's counsel that "the person who sent the copy [garnishee] notice to the wrong address did so in order that [Mr Marijancevic] would not know it had been served on the Police". His Honour also rejected (at [39]) counsel's submission that, since the issues in dispute were within the knowledge of the officers of the Tax Office, their failure to give evidence gave rise to an inference that their evidence would not have assisted the Commissioner. Since the challenge to the assessments failed, the primary judge held that the Commissioner was entitled to judgment in the recovery proceeding. Mr Marijancevic appeals against the orders in each of the assessment proceeding and the recovery proceeding.

The parties' submissions 9 Relying on the decision of the High Court in Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32 ("Futuris"), counsel for Mr Marijancevic argued on appeal that there was sufficient evidence to justify an inference of deliberate maladministration on the Commissioner's part in making the default assessments, with the consequence that these assessments were invalid. Counsel submitted that this inference should be drawn, having regard to the circumstances prior to the issue of the default assessments, which are outlined at [3] above, including the following: (1) Mr Saunders' notes of 24 January 2003 and 3 February 2003 (referred to at [3] above); (2) the issue of the garnishee notice without there being any debt to support it; (3) default assessments in an amount justifying the sum the subject of the garnishee notice; (4) the garnishee notice letter being addressed to "Mr John William Henderson" at the Yarraville address, being an address that, to the Commissioner's knowledge, was no longer Mr Marijancevic's address; (5) the default assessment letter being sent to Mr Marijancevic at the Maribyrnong address without mention of the garnishee notice; and (6) the Commissioner's failure to adduce evidence from the relevant officers in the Tax Office, who would have knowledge of the matters in issue. In this regard, Mr Marijancevic's counsel relied on the decision of the High Court in Weissensteiner v R (1993) 178 CLR 217 ("Weissensteiner") at 227 and Martin v Wagga Wagga City Council [2004] NSWCA 289 at [24]-[27], contending that "[t]he material that needs to be [led] in support of the inferences favourable to [Mr Marijancevic] needs to be very slight in order to require an explanation". 10 Mr Marijancevic's case on appeal was partly based on the allegation that the Commissioner knew as at 21 January 2003 that Mr Marijancevic's address was no longer the Yarraville address but had become the Maribyrnong address. Relying on this, Mr Marijancevic asserted that, when the garnishee notice letter was sent, the Commissioner knew that he had sent it to the wrong address. Mr Marijancevic also relied on the fact that, at the time the assessments were issued, cheques had been paid into his account on 21 February 2002 in the sums of $31,141.62 and $255,571.52, which were assessed as income on the basis that they were "unexplained credits", even though they related to the sale of land, a possibility that Mr Saunders had noted in his file note of 21 January 2003. Counsel for Mr Marijancevic argued that the purported default assessments were not made in due exercise of power but "related to the restraint of a sum of cash that may have been returned to [him]" and were intended only to support the garnishee notice. This was, so counsel submitted, a "corrupt" exercise of statutory powers in the sense discussed in Futuris, and, further, the Commissioner's actions were an attempt to "keep [him] in the dark" about the existence of the garnishee notice. Thus, so counsel for Mr Marijancevic said, the default assessments were invalid, and the primary judge had erred in dismissing his application for relief under s 39B of the Judiciary Actand in ordering the payment by him to the Commissioner of $121,068.01. 11 On appeal, as before the primary judge, the Commissioner accepted that the garnishee notice was invalid since it had preceded the making of the default assessments and there was no debt to support it. The Commissioner argued, however, that the invalidity of the garnishee notice had no bearing on whether there had been deliberate or conscious maladministration of the ITAA36 or the assessment process. The Commissioner submitted that there was no evidence to justify an inference of deliberate maladministration and that, on the contrary, the evidence as to the circumstances in which the assessments had been made supported the primary judge's finding that the Commissioner had proceeded carefully to gather information to determine what, if any, amounts should be included in his taxable income. The Commissioner argued that the fact that the default assessments were shown to be incorrect to some extent on objection and review by the Tribunal did not establish the deliberate or conscious maladministration alleged by Mr Marijancevic. The Commissioner further argued that there had been no misuse of the power conferred by s 260-5 of Schedule 1 to the TAA to issue a garnishee notice, since this was a power that the Parliament had conferred to facilitate the Commissioner's statutory duty to recover revenue for the Commonwealth and, in this case, the Commissioner's officers had sought to exercise the power in order "to ensure that the funds seized by the Queensland Police were available to satisfy [Mr Marijancevic's] taxation obligations". The Commissioner submitted that the evidence adduced by Mr Marijancevic did not give rise to any circumstance that attracted the rule in Jones v Dunkel (1959) 101 CLR 298 ("Jones v Dunkel") and Weissensteiner had no application.

Consideration 12 Section 167 of the ITAA36 relevantly provides that, if any person makes default in furnishing a return, the Commissioner may make an assessment of the amount upon which, in his judgment, income tax ought to be levied, and that amount shall be the taxable income of that person for the purposes of s 166. Section 175 of the ITAA36 provides that "[t]he validity of any assessment shall not be affected by reason that any of the provisions of the [ITAA36] have not been complied with". Section 177 states in part that: (1) 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 [TAA] on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. … (4) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced. Section 177 of the ITAA36 is an evidentiary provision, designed to facilitate proof by the Commissioner of the making of an assessment: see Futuris at [64]-[67]. As noted already, certified extracts of the relevant notices of assessment were in evidence before the primary judge. Any income tax assessed is due and payable by the person liable to pay the tax at the time for which s 204(1) of the ITAA36 provides. 13 Also as noted above, the primary judge decided the assessment proceeding by reference to Richard Walter. In the meantime, however, the High Court has delivered judgment in Futuris, in which Gummow, Hayne, Heydon and Crennan JJ decided (at [66]-[70]) that there is no scope for the Hickman principle as arguably expounded in Richard Walter in a judicial review application challenging the validity of an assessment within s 6(1) of the ITAA36, whether such application was made under s 75(v) of the Constitution or s 39B of the Judiciary Act. The majority in Futuris held (at [68]) that s 175 of the ITAA36 permits a challenge to an assessment on the basis that it was not made bona fide, although this is not by application of the Hickman principle as variously explained in Richard Walter: compare Bonnell v Commissioner of Taxation [2008] FCAFC 146 at [20] per Lindgren and Edmonds JJ. Before it can be said that an assessment has not been made bona fide, it must be shown that there was "conscious maladministration" of the assessment process or the ITAA36 (Futuris at [25], [52]) or some deliberate failure to administer the law according to its terms (Futuris at [55]). 14 It was common ground on this appeal that, leaving aside discretionary considerations, to attract a grant of relief under s 39B of the Judiciary Act, Mr Marijancevic had to establish that, having regard to the evidence before the Court, on the balance of probabilities, the making of the default assessments was not bona fide in the sense explained in Futuris. That is, it was common ground that Mr Marijancevic had to establish that, in making the default assessments under s 167 of the ITAA36, the Commissioner had engaged in deliberate or conscious maladministration of the ITAA36, or deliberately or consciously acted in excess of his powers. 15 Mr Marijancevic's submissions on appeal amounted, for the most part, to an attack on the validity of the garnishee notice as opposed to the default assessments. As already noted, the Commissioner did not attempt to support the garnishee notice, which was indisputably invalid. The invalidity of the garnishee notice is, however, separate and distinct from the status of the default assessments. Indeed, it is difficult to see how the invalidity of the garnishee notice could be said to affect the default assessments, since the notice and the assessments depend on different statutory powers. 16 Further, an examination of the evidence before the primary judge lends no support to Mr Marijancevic's allegation of deliberate or conscious maladministration. We agree with the primary judge that the Commissioner's audit of Mr Marijancevic's financial affairs was a methodical one. The audit involved the Commissioner's gathering and analysis of information in order to determine what, if any, amounts should be included in Mr Marijancevic's taxable income. The assessments were the product of a genuine and considered attempt by the Commissioner to arrive at an amount that was properly to be included in Mr Marijancevic's taxable income, based on the information then available to the Commissioner. 17 The nature of the audit undertaken by the Commissioner appears from the audit report (referred to at [3] above), which read in part as follows: Mr William Marijancevic … was referred to Townsville SNCC by the Queensland Police (Cairns). The police officer noted that the information was the result of a drug operation during which Mr Marijancevic was held with approximately $600,000 in his possession. After reviewing all the taxpayer information contained within the office it was established that Mr Marijancevic had not lodged income tax returns since registering in 1995 and that he has had minimal contact with the ATO. It was decided to pursue a "Proforma" assessment for the money in possession for the year ended 30 June 2002. … Review Point #1 Original Auditor's comments Review Point 1: … Initial advice from Centrelink confirms that Marijancevic is on carers support benefit. Initial profiling action confirms that no income tax returns have been lodged since registration in 1995. Bank account statements were obtained which showed large amounts of deposits which were not in line with a person on a Centrelink Benefit. Original Plan 1. Continue to obtain and analyse bank account details to determine if action is warranted on other years. 2. Obtain property searches in both Vic, NSW & Qld to determine if private expenditure correlates with known income. 3. Prepare S167 Submission and Issue Report based upon current information whilst awaiting full bank accounts statements and analysis. … 4. Liaise with Receivables staff about the issue of garnishees once S167 action approved. Noting that the taxpayer uses several names and different banks. Auditor's Comments Update The bank account statements were received from the proceeds of Crime Unit (QPol) which allowed an analysis of … known bank accounts since 1997. S167 submission approved and S167 Assessments raised as per submission for approx $1,000,000. Garnishee orders issued by Receivables on the various known alias and banks plus on QPol Property Officer, Cairns. … Property search from Victoria indicates the purchasing and selling of various properties usually in joint names. Crime Misconduct Commission (CMC) has placed a restraining order on the seized money held by QPol under new legislation for suspected proceeds of crime legislation. … Risks … If [Mr Marijancevic] is able to overturn the CMC Restraining Order then we (ATO) have to ensure that the money is correctly paid to us on the basis of the garnishee order. … 18 The evidence showed that the audit that resulted in the default assessments was undertaken by the Commissioner in consequence of advice from the Queensland Police following Mr Marijancevic's arrest in April 2002. The evidence also established that the default assessments were made because Mr Marijancevic had not lodged income tax returns for the four years ended 30 June 1998 and 30 June 2000 to 30 June 2002 and the audit led the Commissioner to identify amounts representing taxable income apparently derived by him. In this circumstance, s 167 of the ITAA36 enabled the Commissioner to make an assessment of the amount upon which in his judgment income tax should be assessed. 19 Further, the audit report and other documents on the Commissioner's file showed that the Commissioner endeavoured to estimate Mr Marijancevic's taxable income for each of the relevant years, based on the information obtained about Mr Marijancevic's financial affairs. These documents revealed that the Commissioner's officers had made a detailed analysis of the funds flowing in and out of Mr Marijancevic's bank accounts during the relevant period. We accept that, as the Commissioner submitted, the Commissioner "examined each of those movements and included those which he believed could not otherwise be explained in the [a]ssessments". 20 We accept that, as the Commissioner argued, deliberate or conscious maladministration is not shown by reason of the fact that the assessments under s 167 were subsequently the subject of objections (which were successful in part) and review (which was successful in an even greater part). This was no more than the working out of the processes for which Part IVC of the TAA provides. It will be recalled that Part IVC makes provision for the making of taxation objections and their disposition and for review by the Tribunal (as well as provision for what is termed an "appeal" to this Court against decisions of the Commissioner upon certain taxation objections). In making default assessments under s 167 of the ITAA36, the Commissioner is entitled to exercise his judgment to arrive at the figure upon which income tax ought to be levied even though he is not in possession of all relevant information and he is aware that the figure may well be incorrect: see R v Deputy Commissioner of Taxation (WA); ex parte Briggs (1987) 14 FCR 249 ("Briggs") at 270 per Sheppard J; and Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87-8 per Latham CJ. As Sheppard J said in Briggs (at 270): The essential question … is whether there was any assessment at all. The fact that it may have been able to be better done than it was will not make it a nullity if in truth the process of assessment, however unsatisfactorily, or even erroneously, it may have been done, was carried out. What is involved is a judgmental exercise to determine whether what [the Commissioner] did constituted an assessment or was an exercise unrelated to the prosecutor's circumstances. The Commissioner is entitled to exercise his judgment in making an assessment of the amount upon which income tax ought to be levied, provided that the Commissioner makes a genuine attempt at assessing what this amount should be: see Madden v Madden (1996) 65 FCR 354 ("Madden v Madden") at 394-95 per Foster J, with whom Sheppard J agreed. The documentary evidence established that the Commissioner had in this case made a genuine attempt to exercise his power under s 167 to make the default assessments in respect of Mr Marijancevic's taxable income. 21 This in substance deals with the matter of the inclusion in Mr Marijancevic's taxable income for the year ended 30 June 2002 of the sums of $31,141.62 and $255,571.52. As noted above, the primary judge found that at the time the default assessments were made, there was no evidence available to the Commissioner that these sums constituted the proceeds of the sale of land owned by Mr Marijancevic. Mr Marijancevic's subsequent objection was successful as regards these amounts, since the Commissioner was subsequently satisfied that they bore the character alleged by Mr Marijancevic. This circumstance does not provide any evidence that the relevant default assessment was the product of deliberate maladministration. 22 Mr Marijancevic's submission that the default assessments were invalid because they were merely a device to support the garnishee notice must also fail. Plainly enough, the Parliament intended that the power conferred on the Commissioner by s 260-5(2) of Schedule 1 to the TAA ("s 260-5(2)") should assist the recovery of debts payable to the Commonwealth under a taxation law. In this case, the Commissioner sought (unsuccessfully) to exercise the power conferred by this provision to facilitate the recovery of the debt that was to have arisen by the issue and service of the notices of the default assessments. This is consistent with the fact that, by the time the garnishee notice had been sent to the Queensland Police, the Commissioner had concluded his examination of Mr Marijancevic's bank accounts and had determined the amounts for the default assessments. There is nothing in this inconsistent with the Commissioner's bona fide exercise of the power conferred on him by s 167 of the ITAA36. Foster J reached a like conclusion in Madden v Madden in respect of a submission very similar to that of Mr Marijancevic. As his Honour said (at 395): In the first place, I am unable to attribute any significance to the fact that the assessment was issued in conjunction with and motivated by a desire to take advantage of s 218 [equivalent to s 260-5(2)]. There is sufficient indication of urgency in the situation to warrant the steps that were taken. In my opinion, the s 218 connection is a purely neutral fact in the determination of whether the assessment itself was invalid. 23 As it happened, the Commissioner failed to issue and serve the notices of default assessments before he issued the garnishee notice, which was in consequence invalid. Doubtless, this was a mistake on the Commissioner's part. The fact that the Commissioner acted too hastily in issuing the garnishee notice, or too slowly in issuing and serving the notices of the default assessments does not, however, evidence deliberate or conscious maladministration. Most importantly, there is nothing in the process that the Commissioner undertook, as shown in the documentary record in evidence, that would support Mr Marijancevic's claim that the default assessments were raised solely to support the garnishee notice. This is to look at the garnishee notice and the default assessments in a back to front way: compare also Madden v Madden at 395-96. The documentary record showed that the Commissioner had acquired and analysed information upon which the Commissioner assessed the amount for which, in his judgment, income tax ought to be levied. There was therefore no evidence of deliberate or conscious maladministration of the assessment process or the ITAA36. 24 Counsel for Mr Marijancevic made much of the fact that, whilst the garnishee notice letter was sent to the wrong address, the default assessments letter was sent to the correct address, both letters being dated 5 February 2003. There are at least two explanations for this circumstance. The first is that it was the product of a mistake and the second, that it was the outcome of a deliberate decision, but there is no evidence that could lead the Court to prefer the latter explanation. There was some evidence indicative of a mistake. Mr Saunders' file note of 21 January 2003 indicated that Mr Saunders knew as at that date that Mr Marijancevic had changed his address, but Mr Saunders' email to Ms Lynch on 3 February 2003 indicated that he was on leave at the critical time. The responsibility for the garnishee notice letter and the default assessments letter apparently rested with different officers in different parts of the Tax Office. This points to the fact that the garnishee notice letter was sent whilst Mr Saunders was away by an officer who was unaware of Mr Marijancevic's correct address. 25 We accept that, as the Commissioner submitted, the rule in Jones v Dunkel has no application in the present case. The inference that Mr Marijancevic submitted might, in the absence of testimony from the relevant officers, be more comfortably drawn, is not open on the evidence. The principle discussed in Weissensteiner also has no application. There is no evidence of deliberate maladministration on the part of the Commissioner. The failure of the Commissioner to adduce evidence from his officers concerning the assessment process or otherwise could not "provide positive evidence, nor … fill up any gap in evidence": see Kordan Pty Limited v Federal Commissioner of Taxation (2000) 46 ATR 191 at [48] per Hill, Dowsett and Hely JJ. 26 For the foregoing reasons, we would dismiss the appeals with costs. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Kenny & Stone.

Associate: Dated: 8 September 2008 Counsel for the Appellant: Mr S Gillespie-Jones

Solicitor for the Appellant: Ferraro Pruscino & Co

Solicitor for the Respondent: Australian Government Solicitor