purpose of the notices
65 In the course of argument, Dr Griffiths was asked to identify a standard by reference to which an exercise of statutory power could be characterised as "excessive" and therefore beyond the power conferred by statute. He submitted that the test, in the present context, was whether there was a "rational relationship" between the purpose the Commissioner was purporting to implement and the exercise of the power. To put it another way, he contended that the exercise of power had to be "proportionate to", or not "too remotely linked with" the identified purpose.
66 The next step in the argument was to identify the relevant purpose for which the notices had been issued. Based on the statements of reasons, Dr Griffiths submitted that the purpose was to identify and understand current tax planning arrangements in respect of which E & Y was giving advice or promoting and to identify clients of the firm who had been put into "aggressive tax planning arrangements". The vice in the notices, according to Dr Griffiths, was that they went too far.
67 There was, I think, a shift in the applicants' submissions in the course of the argument. At one point Dr Griffiths seemed to accept that a notice issued to a partner who was in fact heavily engaged in promoting and implementing tax planning arrangements, requiring the partner to provide a complete list of his or her clients, was sufficiently related to the purpose identified in the statement of reasons in the present case. That is, a notice issued in those circumstances would not be disproportionate to, or too remotely linked with, the purpose of identifying the current tax planning arrangements promoted by the partner and of identifying clients who had been encouraged to enter such arrangements. To that point in the argument, as I followed it, Dr Griffiths had not suggested that the purpose identified in the statement of reasons was not itself sufficiently related to the discharge of the Commissioner's statutory functions.
68 In submissions in reply, however, Dr Griffiths said that he had not intended to concede that an inquiry into aggressive tax planning would be sufficiently related to the Commissioner's statutory functions "if it was not an exercise being carried out with the object or purpose of ascertaining the taxable income of taxpayers" (Ts 96). The point was not developed, but Dr Griffiths seemed to suggest that the purpose identified in the statement of reasons was not concerned with ascertaining the taxable income of taxpayers.
69 In my opinion, there are several difficulties with the applicants' submissions. The first is that I do not think it is correct to say (if this is what Dr Griffiths intended) that the purposes for which the power in s 264(1)(a) of the ITAA may be exercised are confined to obtaining information to enable the Commissioner to ascertain or verify the taxable income of a particular taxpayer or group of taxpayers. It is true that courts have sometimes identified the functions of the Commissioner in terms that refer to the ascertainment of taxpayers' taxable income. In Industrial Equity v DCT, for example, the High Court upheld the validity of a notice issued under s 264(1)(b) of the ITAA to a corporation selected randomly as one of the "top hundred companies" in Australia. The joint judgment held (at 660) that it was consistent with the ITAA that the Commissioner should choose to examine more closely the affairs of particular categories of taxpayers with a view to ascertaining their taxable income. Their Honours said (at 661) that:
"[i]nevitably, there will be a random aspect to those who are finally selected for closer examination; but the Commissioner will still be acting for the purposes of the Act so long as he is endeavouring to fulfil his function of ascertaining the taxable income of taxpayers".
70 These comments must be read in context. The notice in that case was issued pursuant to s 264(1)(b) of the ITAA, which requires the notice to concern the recipient's or any other person's income or assessment. In my opinion, the High Court was not saying, explicitly or implicitly, that a notice can be issued under s 264(1)(a) of the ITAA only in order to gather information which enables the taxable income of particular taxpayers to be ascertained. Such a conclusion would not be consistent with the broad functions and responsibilities of the Commissioner identified earlier in the High Court's judgment: see [34] above. I agree with the view expressed by Goldberg J in Deloitte v DCT (at 450):
"The fact that he [the Commissioner] may be concerned about the existence or prevalence of a particular arrangement or proposal which may have implications in relation to provisions of the ITAA…rather than whether a particular taxpayer has entered into such an arrangement or adopted such a proposal does not put an investigation into the arrangement or proposal outside the scope of s 264(1)(a)."
71 The point is illustrated by Knuckey v Commissioner of Taxation (1998) 87 FCR 187. There the Commissioner implemented a "Work Related Expenses Audit Program" under which selected clients of selected tax agents were told in advance of lodging their returns that they would be audited. The Full Court accepted (at 198), that the Commissioner intended the Program to modify the conduct of tax agents and persuade them to exercise greater diligence in preparing returns in which work-related expenses are claimed. The Court said (at 198) that the
"Program and its implementation must be looked at in the context of the overall purpose sought to be achieved. The evidence establishes that the end or ultimate purpose is that proper assessments be made in respect of work related expenses. This overall purpose will colour the intermediate result sought to be achieved; namely, to obtain more accurate returns. The evidence does not show that the desired change in the conduct of tax agents is an end in itself. That change is a step towards achievement of the overall purpose which is the assessment of taxable income."
72 Secondly, I do not think it is accurate to say that a notice issued under s 264(1)(a) of the ITAA is invalid if it is not issued for the reasons identified in the statement provided by the decision-maker pursuant to s 13 of the ADJR Act. The statement may be taken as recording the decision-maker's actual reasons for making the decision: cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 180 CLR 1. But, as the High Court pointed out in Industrial Equity v DCT, at 661, there is a distinction between the reason for performing an act and the purpose sought to be achieved by the doing of the act: see also Knuckey, at 197-198. The purpose sought to be achieved by a notice issued under s 264(1)(a) of the ITAA might not be limited to the particular reasons given in a s 13 statement.
73 In determining whether the power to issue a notice under s 264(1)(a) has been exercised for a permitted purpose (that is, for the purpose of enabling the Commissioner to perform his or her statutory functions), it is necessary to take account of all relevant circumstances. These are likely to include the terms of the notice, the nature of the information sought, the material before the decision-maker and the decision-maker's stated reasons for issuing the notice. The decision-maker's reasons will be relevant to the inquiry and, perhaps, depending on the circumstances, they may be very important in assessing the ultimate purpose. But they will not necessarily be determinative.
74 Thirdly, even if (contrary to my view) the reasons recorded in the statements in the present case were determinative of the ultimate purpose, I would construe them more broadly than Dr Griffiths suggested. The statement of reasons given to Mr McCormack twice expressly refers (pars 5,33) to the ATO's strategy of identifying current tax planning arrangements which may pose a risk to the revenue, as outlined in the Commissioner's speech of 17 September 1999. That speech, as extracted in par 5 of the reasons, makes it clear that the strategy is also aimed at identifying clients who have been put into "aggressive arrangements". Paragraphs 36 and 39 of the statement indicate that the notices were issued as the "initial steps" or the "first step" in the process referred to in par 34, that is in identifying, considering, understanding and responding to arrangements which may pose a threat to the revenue. Among the responses that would be available to the Commissioner would be to issue assessments or amended assessments to any clients of the firm who had entered into "aggressive" tax planning arrangements. In addition, obtaining a better understanding of current "aggressive" tax planning arrangements may allow the Commissioner to develop strategies to encourage taxpayers and their advisers to take a more cautious approach to entering dubious arrangements, thereby making it more likely that proper assessments of income will be made.
75 The ultimate end or purpose of the notices was to ensure that taxpayers entering into or contemplating entering into tax planning arrangements which are considered by the Commissioner to be a threat to the revenue pay the appropriate amount of tax attributable to their assessable income calculated in accordance with the provisions of the ITAA. In so far as the immediate objectives of the ATO included ascertaining tax planning arrangements that were promoted or employed by tax advisers and enabling the ATO to understand the nature and scope of those arrangements, the objectives were consistent with the ultimate end or purpose of issuing the notices.
76 In my view, the notices were issued for the purpose of enabling the Commissioner to perform his statutory functions. In particular, they were issued for the purpose of enabling the Commissioner to ascertain or verify the proper taxable income of taxpayers. In my opinion, this is so even if attention is confined to the statements of reasons prepared pursuant to s 13 of the ADJR Act. The conclusion is a fortiori if regard is had to all relevant circumstances, including the Commissioner's expressed concern about tax planning arrangements threatening the revenue and the findings relating to the involvement of E & Y and the partners in tax planning arrangements or in giving advice about such arrangements.