McGrouther v Commissioner of Taxation

Factual Background 4 The factual background is not in dispute.

Assessments and Objections 5 On dates ranging from 9 to 12 November 2012, the Commissioner issued notices of amended assessment of income tax and notices of assessment of shortfall penalty to the applicants for the years of income ended 30 June 2000 to 30 June 2007 inclusive. 6 On 2 January 2013, the applicants lodged objections against the assessments ("objections"). 7 Over 14 months later, on 10 March 2014, the Commissioner served a notice on the first applicant pursuant to s 264 of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") requiring him to attend an examination on 11 April 2014. 8 Evidence was filed in support of the Commissioner's interlocutory application that his purpose in issuing the s 264 notice was to gather evidence concerning the applicants and their associated entities to assist the Commissioner in determining the objections, but no details of the evidence sought were provided. 9 On 12 March 2014, the applicants served notices on the Commissioner pursuant to s 14ZYA(2) of the TAA in relation to the objections ("s 14ZYA notices"). 10 On 26 March 2014, the applicants' solicitors wrote to the Commissioner in relation to the proposed s 264 examination alleging that it was being conducted for improper purposes. 11 On 28 March 2014, the Commissioner wrote to the applicants' solicitors in response and advised that the examination would proceed on the appointed day, namely, 11 April 2014.

Judicial Review Proceedings 12 On 7 April 2014, the applicants' solicitors informed the Commissioner that the first applicant intended to commence judicial review proceedings in relation to the proposed s 264 examination. They also wrote to the Commissioner's solicitors on 7 April 2014 requesting that the s 264 examination be deferred until after the final determination of the proposed judicial review proceedings. 13 On 8 April 2014, the Commissioner's solicitors wrote to the applicants' solicitors advising that any deferral of the s 264 examination would be subject to a condition that the first applicant withdraw his s 14ZYA notice. 14 On 9 April 2014, the respective solicitors exchanged email correspondence in relation to the form of words of the proposed withdrawal of the s 14ZYA notice. 15 On 9 April 2014, the respective solicitors conversed and Ms Whan of the Commissioner's solicitors said words to the following effect: "I'm instructed that Vickie served a s 14ZYA notice as well as Tod. We need Vickie to withdraw her notice as well". 16 Later on 9 April 2014, the respective solicitors exchanged email correspondence about the requirement for the second applicant to withdraw her s 14ZYA notice. 17 At 4.15 pm on 9 April 2014, the judicial review proceedings came briefly before Nicholas J as duty judge. His Honour asked the parties to draft short minutes and provide them to his associate the next day. 18 The judicial review application was lodged electronically late on 9 April 2014 and was sealed on 10 April 2014. In the judicial review proceedings the first applicant sought orders which would have the effect of preventing the Commissioner from conducting the s 264 examination pursuant to the notice which he had issued on 10 March 2014. 19 On 10 April 2014, the parties agreed on draft short minutes of order. The applicants' solicitors sent a copy of signed draft short minutes to the associate to Nicholas J by email. Those draft short minutes included the following notations: 5. The Respondent has agreed to adjourn the interview pursuant to the section 264 notice issued to the Applicant and dated 10 March 2014 to a date at least 7 days after the making of final orders in this proceeding. 6. The Applicant and Vickie McGrouther withdraw the notices dated 12 March 2014 issued to the Commissioner of Taxation under s 14ZYA of the Taxation Administration Act 1953 (Cth) immediately and agree that they will not issue any further notices under s 14ZYA of the Taxation Administration Act 1953 (Cth) until after the making of final orders in this proceeding. 20 On 10 April 2014, Nicholas J made orders largely in accordance with the draft short minutes. They included the same notations but as paras 4 and 5 rather than 5 and 6. 21 Later on 10 April 2014 the respective solicitors exchanged email correspondence to the effect that the first applicant was not required to attend the Australian Taxation Office ("ATO") for the proposed s 264 examination the next day. 22 The judicial review proceedings (NSD 365/2014) were allocated to the docket of Perry J and on 27 May 2014 her Honour made orders listing the proceedings for hearing on 15 July 2014. 23 On 23 June 2014, the Commissioner's solicitors received a letter from the applicants' solicitors by email advising that they were of the view that s 14ZYA notices cannot validly be withdrawn and foreshadowing the commencement of proceedings under Part IVC of the TAA. 24 On 30 June 2014, the Commissioner's solicitors sent a letter to the applicants' solicitors by email in response to their letter of 23 June 2014, inter alia, rejecting the view that a s 14ZYA notice cannot be withdrawn. 25 The judicial review proceedings were heard by Perry J on 15 and 16 July 2014. Judgment is presently reserved.

Part IVC Proceedings 26 The present (Pt IVC) proceedings were commenced on 10 July 2014. This was the 60th day after 11 May 2014, the latter date being the end of the period of 60 days after the day (12 March 2014) on which the Commissioner was given the s 14ZYA notices.

Observations and Findings on the Evidence 27 The delay within the ATO in arriving at a decision on the objections has been considerable. As noted in [7] above, over 14 months elapsed from the time the objections were lodged on 2 January 2013 to the time that the s 264 notice was served on the first applicant on 10 March 2014; and there has been no subsequent decision on the objections absent their deemed disallowance by operation of s 14ZYA(3) on 11 May 2014. No evidence was put on by the Commissioner to explain the delay: cf., Re Federal Commissioner of Taxation; Ex parte Australena Investments Pty Ltd (1983) 50 ALR 577. Indeed, by email communication sent on 7 May 2012 from the ATO Case Officer to the applicants' tax agent (Ex B) it was stated: "We are endeavouring to have responses to you by … 1 October 2013", and on that latter date a further email communication was sent in the following terms: Both objections have been progressed significantly and are close to being finalised, currently they are in final checking with senior officers however there has been a delay there. We aim to have them to you by the beginning of November, if not earlier. 28 My review of all the evidence filed in support of and in opposition to this interlocutory application leads me to make the following findings: (1) The only reason the applicants agreed to withdraw the s 14ZYA notices was to secure the Commissioner's agreement to defer the s 264 examination of the first applicant. (2) The only reason the Commissioner has brought this interlocutory application is to try and preserve for himself the opportunity to examine the first applicant pursuant to the s 264 notice, or pursuant to a new s 264 notice if the existing one is held to be invalid, free of any risk of being in contempt of Court. 29 Section 14ZY(3) of the TAA requires the Commissioner to serve on the person lodging the objection written notice of the Commissioner's objection decision. Although it is far from being clearly expressed in s 14ZY or s 14ZYA, presumably it was intended that the s 14ZY(3) duty also apply in respect of a disallowance of an objection arising by operation of s 14ZYA(3). The Supplementary Explanatory Memorandum to Taxation Laws Amendment Bill (No 3) 1991 (Cth) circulated by the authority of the Treasurer of the day when the Bill was in the Senate, says as much (at 2, 3): If the Commissioner has not made a decision on the objection within 60 days of receiving a notice under subsection 14ZYA(2), the Commissioner is deemed to have made a decision under subsection 14ZY(1) to disallow the objection. The Commissioner will then be required to serve a notice of the objection decision on the person under subsection 14ZY(3). The significance of the service of an objection decision notice is this: s 14ZZN of the TAA provides: An appeal to the Federal Court against an objection decision must be lodged with the Court within 60 days after the person appealing is served with notice of the decision. See, too, s 29 of the Administrative Appeals Tribunal Act 1975 (Cth) as amended by s 14ZZC of the TAA. 30 It was common ground that the Commissioner has not served on the applicants notice of the Commissioner's objection decisions disallowing the applicants' objections. That is because the Commissioner takes the view that the provisions of s 14ZYA(3) have not been triggered because the s 14ZYA notices were withdrawn. On the other hand, the Commissioner's senior counsel conceded, correctly in my view, that if the s 14ZYA notices could not be withdrawn so that the provisions of s 14ZYA(3) were triggered, the Commissioner should have served notice of disallowance of the objections on the applicants as required by s 14ZY(3) of the TAA. In practical terms, if the s 14ZYA notices could not be withdrawn so that the provisions of s 14ZYA(3) were triggered, the Commissioner would not take the point that he had not served notice of those objections decisions on the applicants as a basis for the relief he seeks on this interlocutory application. 31 Hence, the crucial issue to the resolution of this interlocutory dispute is whether the applicants could withdraw the s 14ZYA notices as they purported to do to secure the Commissioner's consent to postpone the date of the first applicant's s 264 examination. It is to that issue I now turn.

Can a section 14ZYA Notice be Withdrawn? 32 No express power, or right, to withdraw or revoke a s 14ZYA notice is conferred by the statute; nor is there any express provision denying a power, or right, of withdrawal or revocation of such a notice. On that premise, the question that arises is whether such a power, or right, can be implied from the terms of the section, reviewed in its context including the mischief one may discern the statute was intended to remedy: CIC Insurance Ltd v Bankstown Football Club Ltd (1995-1997) 187 CLR 384 at 408. 33 Prior to the introduction of s 14ZYA into the TAA, there were a number of cases where there had been significant delays by the Commissioner in addressing and deciding objections lodged against assessments of income tax. These were the subject of comment and observation in an article which appeared in Sorensen H, "Part IVC: The New Objection Procedure" (1992) Vol 27 (No 4) Taxation in Australia at 206: In Case L29 79 ATC 143, Dr Beck, then sitting as a member of the No. 3 Board of Review, noted (at 153) - with some concern, it seems - that the Commissioner had in that case delayed responding to the taxpayer's objection for more than 14 months. In Higgs v FC of T 84 ATC 4680, there was no decision 30 months after the lodging of the objection. Such delays were not prejudicial to the revenue; the Commissioner could proceed to recover the tax assessed, notwithstanding that he had still to notify a decision on the objection to the taxpayer in accordance with sec. 186 of the Tax Act: DFC of T v Niblett [1965] NSWLR 1552. No doubt, sec. 142YA [sic] was intended to offer to the taxpayer some positive non-curial course of action in the event of any perceived delay by the Commissioner in processing the taxation objection. (Footnotes omitted.) 34 In the present case, the evidence is that the Commissioner commenced recovery proceedings against both of the applicants on 14 December 2012 (within days of the issue of the amended assessments) and, on that day, secured freezing orders from this Court against the first applicant's Australian assets, which orders remain in place today. Coupled with the considerable effluxion of time since the lodgement of the objections against the amended assessments, this factual scenario would seem to be the archetypal example of the circumstances to which s 14ZYA was directed. 35 In deciding whether a person has an implied power, or right, to withdraw, or revoke, a s 14ZYA notice previously given, it is necessary to properly appreciate what it is that service of a s 14ZYA notice on the Commissioner does: it does nothing other than "starts the clock ticking" by which the Commissioner is to make his objection decision, failing which, on the sixtieth day after the giving of the notice he is deemed by the statute to have disallowed the objection. Contrary to the Commissioner's written submissions at para 22 it does not provide "a process by which a taxpayer can require the Commissioner to make a decision on the taxpayer's objection". That requirement exists, in the form of a duty through s 14ZY of the TAA, from the time the taxpayer lodges his objection. Section 14ZYA does not add to that requirement. Indeed, a s 14ZYA notice does not require the Commissioner to do anything. If, after having been served with a s 14ZYA notice, the Commissioner does nothing, a position he may well take, even if it is in breach of his statutory duty, then after a period of 60 days from service of the s 14ZYA notice, he is deemed to have disallowed the objection. 36 So understood, the giving of a s 14ZYA notice does not have the consequences that the giving of other notices have, such as a notice of objection to an assessment, or a notice by way of application for a permit or licence to do something. A s 14ZYA notice does not require the Commissioner to do anything; it merely starts time running so that if the Commissioner does not perform his duty to decide the objection within a certain time, on the expiration of that time, the objection is deemed to be disallowed. 37 For this reason, the Commissioner's reliance on authority that has concluded that a taxpayer can withdraw a notice of objection to an assessment, is misconceived. In Higgs v Commissioner of Taxation (1984) 2 FCR 556, Sweeney J was dealing with the power to withdraw an objection, lodged at that time pursuant to s 186 of the 1936 Act. At 559, his Honour dealt with a submission made by the applicant that an objection, once lodged could not be withdrawn: In my opinion this contention is not well founded. While there is no express provision in the Income Tax Assessment Act 1936 dealing with the withdrawal of objections, it would be absurd to read s. 186 as requiring the respondent to consider an objection, and either disallow it, or allow it wholly or in part, and serve the taxpayer with written notice of his decision, when the taxpayer had communicated to him that the objection was withdrawn. (see Dymock's Book Arcade v. Federal Commissioner of Taxation (1936) 3 A.T.D. 373 at 373-374 per McTiernan J.). In my opinion the applicant was at liberty to withdraw his objections and communicate that withdrawal to the respondent (see Boal Quay Wharfingers Ltd v. King's Lynn Conservancy Board [1971] 1 W.L.R. 1558). 38 But no such absurdity arises in the case of a s 14ZYA notice because, unlike a notice of objection, the giving of a s 14ZYA notice does not require the Commissioner to do something he was not required to do before the giving of the notice; it merely starts time running so that if the Commissioner does not perform his duty to decide the objection within a certain time, on the expiration of that time, the objection is deemed to be disallowed. There is nothing absurd about taxpayers being confronted with the requirement of choosing whether or not to commence their appeals after they have made an election to expedite the objection process. 39 The Commissioner also relies on Boal Quay Wharfingers Ltd v King's Lynn Conservancy Board [1971] 1 WLR 1558 where the Court of Appeal concluded that an applicant for a licence could withdraw the application prior to determination at any time: at 1566 (Lord Denning MR); 1569 (Salmon LJ) and 1571 (Karminski LJ). The Commissioner specifically referred to Salmon LJ at 1569: If you apply for a licence, I cannot for my part see why you are not entitled to withdraw your application, unless, of course, there is any section in this Act which would prevent you from doing so. Whenever an application is made to a tribunal or to the courts for that matter, as a rule, there is nothing to compel you to go on with it. You are entitled to withdraw your application at any stage. I cannot see any reason for holding that an employer who makes an application under this Act has no power to withdraw it. It is quite true that the legislature sometimes, for policy reasons, lays down that an application made under a statute cannot be withdrawn in specified circumstances. … [Q]uite independently of authority it seems to me to follow on principle that in the absence of a statutory prohibition, once you have made an application you can always withdraw it; and once you have withdrawn the application, it ceases to exist. 40 The Commissioner notes that this principle has been applied in the context of the withdrawal of a request for review of a decision of the Determining Officer pursuant to the Health Insurance Act 1973 (Cth) to the Professional Services Review Tribunal: Christie v Neaves (2001) 113 FCR 279 (Conti J); and a withdrawal of a request for a refund of customs duty: Uniden Australia Pty Ltd v Collector of Customs (1997) 74 FCR 190 at 200-201 (Foster J). 41 But as with a notice of objection, all these cases involved the giving of notices or the making of applications where the body or entity served with the notice or application had to consider, address and decide something which they otherwise did not have to consider, address and decide. Consequently, there was utility in implying a power or right of withdrawal on the part of the person or applicant giving or making the notice or application if they no longer wanted the body or entity served with the notice or application to consider, address and decide it; the exercise of that implied power or right would relieve that body or entity from the obligation or duty imposed by the statute. 42 That is not this case. The exercise of any implied power or right of withdrawal or revocation by the giver of a s 14ZYA notice would not relieve the Commissioner of anything; he would remain under the duty to decide the notice of objection in accordance with s 14ZY. All that would occur is that the running of time under s 14ZYA(3) would cease, at least until a new s 14ZY notice was given. 43 The question which arises is whether this consequence is sufficient to lead to a construction of s 14ZYA as containing an implied power or right of withdrawal or revocation of a notice given to the Commissioner in accordance with its terms. 44 The Commissioner submitted that given s 14ZYA's purpose, the provision should be interpreted beneficially. Therefore, the provision should be construed to include an implied right for a taxpayer to revoke the notice prior to the 60 day period provided for in s 14ZYA(3). According to the Commissioner, that would ensure a taxpayer is not irrevocably bound by the decision to issue to s 14ZYA notice. Otherwise, the Commissioner submitted a taxpayer could suffer prejudice. For example, by requiring an objection decision by the Commissioner, or deeming such an objection decision, it may limit the opportunity for settlement or limit the opportunity to provide further information to the Commissioner. 45 I reject these examples of prejudice a taxpayer may suffer if he were to validly give a s 14ZYA notice but had no implied power or right to withdraw or revoke the notice. Neither the opportunity for settlement nor the opportunity to provide further information to the Commissioner is in any way limited or inhibited by the absence of any such implied power or right of withdrawal or revocation of a s 14ZYA notice; and the Commissioner did not provide any particularisation to the contrary. 46 The Commissioner's contention that s 14ZYA should be construed as containing an implied power or right of withdrawal or revocation of a s 14ZYA notice on the part of the taxpayer carries with it, and the Commissioner so submitted, the right to give successive s 14ZYA notices in respect of the same objection provided the preceding s 14ZYA notice had been withdrawn or revoked. In my view, this would not be consistent with the policy and purpose of s 14ZYA, namely, of providing a non-curial mechanism for a taxpayer to expedite the objection process and bring it to an end, so that the taxpayer is free, but only if the taxpayer wishes, to appeal to this Court or refer the objection decision to the Administrative Appeals Tribunal. Not only is it inconsistent with the policy and purpose of s 14ZYA, but the wording of s 14ZYA gives no indication that the option of expediting the objection process is exercisable on more than one occasion in relation to the same objection. 47 The applicants contended that, in general, the determination of whether a statute evinces a legislative intention that an instrument should be revocable focuses on three separate matters. A common theme in authorities that consider the existence of an implied power of revocation is identification of: (1) Whether the putative power to revoke would cause inconvenience and difficulty in public administration; (2) whether (as a matter of statutory construction) the primary power under which the instrument or application is granted is exercisable only once, or "from time to time"; and (3) whether the absence of a power of revocation would lead to highly unreasonable or absurd outcomes. 48 The applicants submitted that in the present case, all three of these considerations tell against the existence of the implied power for which the Commissioner contends. I agree. I have already dealt with considerations (2) and (3). So far as consideration (1) is concerned, if taxpayers are permitted to serve and then withdraw s 14ZYA notices at will the effect is to create administrative inconvenience in public administration by forcing the allocation of resources to objections that ultimately do not need to be satisfied within 60 days. A power of revocation destroys the very certainty s 14ZYA otherwise creates. 49 There has been no decision on the construction of s 14ZYA. However, Gray J in McLaren v Deputy Commissioner for Taxation (2001) 46 ATR 421 at [14] said in passing that he was "by no means certain that it is possible for a taxpayer who has given a notice under s 14ZYA to withdraw it". The observation was made in the context of an application brought for an interlocutory injunction restraining the Commissioner from conducting a s 264 examination pending the resolution of judicial review proceedings challenging the validity of the s 264 notice. The relevant applicants had all issued s 14ZYA notices, and in this context his Honour examined the balance of convenience: [10] The effect of such a notice is that the Commissioner has a period of 60 days from the lodgement of the notice in which to consider the objections before him. If he fails to make a decision on those objections by the end of the period of 60 days, then at the end of that period the Commissioner is taken to have made a decision to disallow the taxation objections. That period of 60 days is presently running. If I were to grant an injunction restraining the conduct of the proposed examination of the first applicant until the hearing and determination of the proceeding, or some time after it, or indeed until further order, that would effectively ensure that the period of 60 days expired without the first applicant having been examined. The Commissioner would therefore be unable to take into account any evidence that the first applicant might give in considering the assessment of the second, third and fourth applicants pursuant to the notices of objection. In my view that would be a serious detriment to the Commissioner. [11] Counsel for the applicants sought to establish that the only prejudice arising from the expiration of the 60 day period would be prejudice to the applicants, because their objections would be taken to have been disallowed. I do not agree with that. In my view the Commissioner, in undertaking a proper decision with respect to the objections, is entitled to make use of a notice under s 264 directed to the first applicant, and to use any evidence that the first applicant is able to provide. (Emphasis added.) 50 His Honour went on to conclude (at [14]): I am therefore left with the choice of effectively ending any opportunity the Commissioner might have to ask questions of the first applicant or allowing the interview to proceed. I considered at one point the possibility of granting an injunction but making it conditional upon the withdrawal of the notice under s 14ZYA and the non-delivery of a further similar notice. I am by no means certain that it is possible for a taxpayer who has given a notice under s 14ZYA to withdraw it and thereby to prevent the 60 day period from running. My concern would be that a withdrawal could be regarded as ineffective and that therefore the result that would flow from the s 14ZYA notice would flow in any event. In my view that would be extremely undesirable. (Emphasis added.) 51 In my view, his Honour's uncertainty as to whether it is possible for a taxpayer who has given a notice under s 14ZYA to withdraw it and thereby to prevent the 60 day period from running was totally justified. 52 The Commissioner submitted that his construction would be consistent with s 33 of the Acts Interpretation Act 1901 (Cth) in relation to instruments of a legislative or administrative character. Subsection 33(3) provides: Where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws) the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument. But the Commissioner did not press the relevance of s 33(3) of the Acts Interpretation Act any higher. It need not be considered further. 53 The Commissioner further submitted that he and the applicants adopted a common assumption that the s 14ZYA notices could and would be withdrawn, that the withdrawal would be effective and that no deemed disallowance of the objections would therefore arise by reason of s 14ZYA(3). He submitted that in reliance upon the common assumption, the Deputy Commissioner agreed to postpone the s 264 examination of the first applicant until after the determination of the judicial review proceedings. The Deputy Commissioner, on behalf of the Commissioner, thereby altered his position to his detriment in that, if he had not relied upon that common assumption, the Commissioner would have proceeded to conduct the s 264 examination pursuant to the notice in order that such examination be completed sufficiently within the 60 day period to allow the Commissioner to use any information obtained to make an objection decision. So much may be accepted. However, as Kitto J said in Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 at 117: No conduct on the part of the commissioner could operate as an estoppel against the operation of the Act: cf. Commissioners of Inland Revenue v. Brookes [(1915) A.C. 788 at pp 491, 492]; Maritime Electric Co., Ltd. v. General Dairies, Ltd [(1937) A.C. 610]. The reference to "the Act" was, of course, a reference to the 1936 Act, but it equally follows that no conduct on the part of the applicants could operate as an estoppel against the operation of the TAA.

Conclusion 54 For the foregoing reasons, I am of the view that s 14ZYA is not to be construed as containing an implied power or right, on the part of the person giving the s 14ZYA notice, to withdraw or revoke it. I therefore propose to dismiss the orders sought in paras 1, 2, 4 and 5 of the interlocutory application and order that the Commissioner pay the applicants' costs of that application. At the time of pronouncing those orders, I will hear the parties as to why these proceedings should be stayed in accordance with the order sought in para 3 of the interlocutory application. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.