Metlife Insurance Ltd v Commissioner of Taxation

THE AGREED FACTS 13 The Taxpayer is an Australian resident. Before 1 January 2000, the Taxpayer, pursuant to s 18 of the 1936 Act and with the leave of the Commissioner, adopted an accounting period ending 31 December in lieu of 30 June. Accordingly, the accounting period of the Taxpayer for the year ended 30 June 2001 was the 12 month period that ended on 31 December 2000 (the 2001 Year of Income). The Taxpayer was a full self assessment taxpayer, within the meaning of s 166A(3) of the 1936 Act, in respect of the 2001 Year of Income. 14 From before 1 January 2000, the Taxpayer was carrying on a life insurance business in Taiwan (the Business). On 19 July 2000, the Taxpayer and Fubon Life Assurance Co Limited (Fubon) entered into a Transfer of Business Agreement. By the Transfer of Business Agreement, the Taxpayer agreed to sell the Business to Fubon. Settlement of the sale occurred during January 2001. The capital proceeds from the sale of the Business amounted to $ 43,359,741 as follows: · net tangible assets: $ 1,998,656 · policy rights: $ 12,491,602 · goodwill: $ 28,869,482 15 On 16 July 2001, the Taxpayer lodged its income tax return for the 2001 Year of Income (the Return). In the Return, the Taxpayer disclosed that the capital proceeds from the sale of the Business were as indicated above. The Taxpayer showed its taxable income in the Return on the basis that, on the sale of the Business, it derived a taxable capital gain of $ 28,869,482. 16 The Taxpayer and the Commissioner agree, for the purposes of the proceeding, that: · By the force of s 104-10(3) of the 1997 Act, the time of the disposal of the Business is taken to be 19 July 2000, the date of the Transfer of Business Agreement. · But for the operation of s 104-10(3), the time of the disposal of the Business, within the meaning of s 104-10(2) of the 1997 Act, would be January 2001, when the disposal actually occurred. · By the operation of ss 166A(3)(c), (d) and (e) of the 1936 Act: (i) the Commissioner was taken to have made an assessment of the taxable income of the Taxpayer, and of the tax payable on that income, equal to the amounts specified in the Return; (ii) that assessment was taken to have been made on 16 July 2001, the day on which the Return was lodged; (iii) the Return lodged on 16 July 2001 was taken to be a notice of assessment served on the Taxpayer on 16 July 200l, the day on which the Commissioner was taken to have made an assessment. · By the operation of s 204(1A)(b) of the 1936 Act, the tax payable by the Taxpayer for the 2001 Year of Income, under the assessment taken to have been made under s 166A, became due and payable on 1 June 2001. 17 On 15 July 2005, the Commissioner issued to the Taxpayer a notice of amended assessment for the 2001 Year of Income. By that notice, the Taxpayer's assessable income was increased by including, as assessable income, the capital gain attributable to the disposal of policy rights of the Business, in the sum of $ 12,491,602.

THE QUESTION 18 It is common ground that the time within which the Commissioner was empowered to issue a notice of an amended assessment to the Taxpayer in respect of the 2001 Year of Income expired on 1 June 2005, unless that time was to be determined by the operation of s 170(10AA) of the 1936 Act. The question that has been posed for separate determination is whether the amendment of the Taxpayer's deemed notice of assessment of 16 July 2001, by the notice of amended assessment issued on 15 July 2005, was an amendment made, within the meaning of s 170(10AA) of the 1936 Act, for the purpose of giving effect to s 104-10(3) of the 1997 Act. 19 The Taxpayer contends that the power to amend an assessment conferred by s 170(10AA), to give effect to the provisions listed in the Table, is triggered only if a subsequent event occurs after the original assessment is made, so necessitating its amendment. The Commissioner, on the other hand, contends that the amendment power may be exercised regardless of whether the subsequent event occurs before or after the making of the assessment sought to be amended, so long as it occurs after the end of the relevant year of income.

THE TAXPAYER'S REASONING 20 The Taxpayer contends that, notwithstanding the change in language from s 160U(10) to s 170(10AA), the policy underlying s 170(10AA) is the same as that to be gleaned from s 160U(10). Thus, the Taxpayer says, the power to amend at any time conferred by s 170(10AA), is triggered only if the subsequent event occurs after the original assessment is made or is deemed to be made, so necessitating the amendment of the original assessment. The Taxpayer contends that in a provision that concerns the amendment of assessments, a power that arises from the occurrence of subsequent events is naturally to be read as one that arises from events subsequent to the assessment to be amended. The Taxpayer says that s 170(10AA) assumes, as a premise, that there is an antecedent assessment and that it is that assessment that is the event by reference to which all the time limits in the section are fixed. 21 The Taxpayer argues that, if an event that retrospectively alters the incidence of tax in a year of income occurs before the making of an assessment, that event is part of the matrix of facts upon the basis of which a subsequent assessment is made. If that assessment erroneously deals with that event, the amendment power is subject to the time limits for amendment described above. It is only if the relevant event occurs after the original assessment has been made, so that it could not have been taken into account in the making of that assessment, that the unlimited power in s 170(10AA) is attracted. Since a retrospective alteration in circumstances could occur at any time and, in particular, could occur outside the ordinary amendment period, so too the requisite amendment should be permitted to be made at any time. 22 The Taxpayer says that, if s 170(10AA) were construed otherwise, it would have a scope that is inconsistent with the scheme of amendment powers described above. Section 170(10AA) is not directed to tax avoidance or evasion by fraud or tax schemes but only to giving effect to certain provisions, including but not limited to capital gains tax provisions, by authorising amendment to assessments in accordance with alterations in tax liabilities arising from subsequent events. The Taxpayer says that a construction that would confer on the Commissioner an amendment power greater than that given in the case of participation in tax avoidance schemes and equivalent to that given in the case of tax evasion by fraud should be rejected. 23 The Taxpayer attaches significance to the phrase 'where the time of disposal is taken to have been before the making of the assessment' in s 160U(10), which the Taxpayer says was subsumed in s 170(10AA), and contends that the legislative intention was to draw a distinction between the case where settlement of a contract for a disposition takes place before the date of an assessment or deemed assessment, on the one hand, and the case where settlement occurs after the date of an assessment or deemed assessment, on the other. The Taxpayer says that it is only in the first case that the Commissioner could exercise the power to amend at any time. In the second case, the power would have to be exercised within the four year period; the present proceeding is an instance of the second case. 24 The Taxpayer contends that the common thread running through the provisions in the Table is the potential for those provisions to operate by reason of facts that occur after the original assessment is made or deemed to be made, thus making that original assessment wrong, ex post facto, by operation of law, not because of a mistake in treatment of facts existing at the time of the original assessment. Because such facts might occur at any time, the Commissioner can amend the original assessment if and only if he is giving effect to provisions that did not operate on the facts as they existed at the time of the original assessment. 25 The Taxpayer asserts that, in each case referred to in the Table, the question of whether there is a liability to tax and the question as to the amount of any such liability turn on whether there is an event that occurs after the original assessment is made or deemed to have been made. The Taxpayer draws attention to a number of the Items in the Table in that regard. 26 Item 1 in the Table refers to Sub-Division 20-B of the 1997 Act, which reverses the effect of deductions for lease payments for a car leased to a taxpayer, if the taxpayer makes a profit by disposing of the car after acquiring it from the lessor. Item 1 must be considered in conjunction with Items 10 and 210. Item 10 refers to Division 28, which deals with car expenses, and Item 210 refers to Division 900, which is concerned with substantiation. Division 900 makes the retention of records for a period of five years a requirement for deductibility under certain provisions, including Division 28. 27 Accordingly, if a taxpayer has not in fact retained records for the requisite period, which is longer than the four year amendment period, Division 28 or Division 900 can operate to deny the taxpayer a deduction that was allowed, more than four years earlier under an original assessment. Since the operation of Sub Division 20-B depends on deductibility of lease payments under Division 28, the profit on disposal of a car will not be assessable under Sub Division 20-B if the lease payments are not deductible under Division 28 because of the failure to retain records for five years. In amending the original assessment, the Commissioner will be doing so on the basis of the new fact that has arisen, thus giving effect to the provisions, the operation of which has changed from the time of the original assessment because of the new facts, namely, failure to keep records for five years. 28 Item 5 refers to s 26-25(3), which provides that a taxpayer cannot deduct interest or a royalty if the Taxation Administration Act 1953 (Cth) requires the taxpayer to withhold an amount from the interest or royalty and the taxpayer fails to withhold that amount. If, apart from that provision, a taxpayer can deduct interest or a royalty for an income year, and the withholding tax payable for the interest or royalty is paid, the taxpayer can deduct the interest or royalty for that income year. At the time of an original assessment, no withholding tax might have been paid. Accordingly, the deduction is not allowed. It might be more than four years later that the withholding tax is paid. There is potential for a new fact to arise that alters the operation of the provision as it operated under the original assessment. 29 Item 20 refers to s 42-290, under which a taxpayer may exclude an amount that has been included in the taxpayer's assessable income for plant as a result of a balancing adjustment calculation, to the extent that the taxpayer chooses to treat that amount as an amount deducted for depreciation of replacement plant. The taxpayer can only make that choice for the replacement plant if the taxpayer acquires it within two income years after the end of the income year in which the balancing adjustment occurred. Thus, Item 20 refers to a concession to a taxpayer that is dependent on a condition subsequent. The taxpayer is entitled to choose that a balancing adjustment not be treated as assessable income if it is treated as depreciation for replacement plant. However, the taxpayer must acquire the replacement plant within two income years after the year of income and if he does not the liability to tax in the income year increases. Thus, a new fact arising after the original assessment, namely, non-acquisition of replacement plant, will change the tax liability for that year of income. 30 Each of Items 40, 130 and 140, which refer to ss 104-15(4)(a), 126-5(3) and 126-45(3) respectively, is concerned with CGT Event B1. Under s 104-15, CGT Event B1 happens if a taxpayer enters into an agreement with another entity under which the right to the use and enjoyment of a CGT asset owned by the taxpayer passes to another entity and the title to the asset will or may pass to the other entity at or before the end of the agreement. The time of the CGT Event is when the other entity first obtains the use and enjoyment of the asset. However, s 104-15(4)(a) provides that a capital gain or capital loss made by the taxpayer is to be disregarded if title in the asset does not pass to the other entity at or before the end of the agreement. Under s 126-5(3), there is a rollover if a CGT Event happens involving an individual and his or her spouse as the consequences of certain marital property orders. However, there is no rollover if, for CGT Event B1, title in the CGT asset does not pass to the transferee at or before the end of the agreement. Under s 126-45(3), there may be a rollover if a CGT Event happens involving a company and another company in circumstances set out in s 126-50. However, there is no rollover for CGT Event B1 if title in the CGT asset does not pass to the transferee at or before the end of the agreement. Thus, a new fact arising after the original assessment, such as cancellation of the agreement, will change the tax liability for a particular year. 31 Item 50 refers to s 104-40(5). CGT Event D2 happens if a taxpayer grants an option to an entity. The time of the event is when the taxpayer grants the option. However, a capital gain or capital loss made from the grant is disregarded if the option is exercised. Thus, a new fact arising after then original assessment, being exercise of the option, may change the tax liability for the relevant year. 32 Item 60, which refers to s 108-15, and Item 70, which refers to s 108-25, are similar. Under s 108-15, if a taxpayer owns collectibles that are a set that would ordinarily be disposed of as a set and the taxpayer disposes of them in one or more transactions for the purpose of trying to obtain an exemption under s 118-10, the set of collectibles is taken to be a single collectible and each of the taxpayer's disposals is a disposal of part of that collectible. Under s 104-25, if a taxpayer owns personal use assets that are a set, which would ordinarily be disposed of as a set, and the taxpayer disposes of them in one or more transactions for the purposes of trying to obtain an exemption under s 118-10, the set of personal use assets is taken to be a single personal use asset and each of the taxpayer's disposals is a disposal of part of that asset. Thus, a new fact arising after the original assessment, being the further transactions, may change the tax liability for that year; that new fact could occur more than four years later. The Taxpayer says that the unlimited time to amend is required, not because these are anti-avoidance provisions, but because a fact subsequent to the facts existing under the original assessment must occur for the provision to operate for the year of income. 33 Item 80 refers to s 116-45, under which the capital proceeds from a CGT Event are reduced if the relevant taxpayer is not likely to receive some or all of the proceeds and that is not because of anything the taxpayer has done or omitted to do and the taxpayer took all reasonable steps to get the unpaid amount paid. The capital proceeds are reduced by the unpaid amount. Thus, a taxpayer is assessed on the capital proceeds from CGT Events, including amounts that the taxpayer receives or is entitled to receive. However, if it later transpires that the taxpayer is unlikely to receive some or all of the amounts, the amount of the capital proceeds from the CGT Event is reduced. Thus, a new fact arising after the original assessment, namely, non-receipt of proceeds, will change the tax liability for the earlier year. Similarly, if the proceeds are reduced by the unpaid amount but the taxpayer later receives a part of that amount, the capital proceeds from the CGT Event are increased by that part. 34 Item 90 refers to s 116-50, under which the capital proceeds from a CGT Event are reduced by any part of them that the taxpayer repays or any compensation that the taxpayer pays that can reasonably be regarded as a repayment of part of the proceeds. However, the capital proceeds are not reduced by any part of the payment that the taxpayer can deduct. The provisions referred to in Item 90 contemplate that a taxpayer might be obliged to repay amounts received as capital proceeds from a CGT Event. Thus, a new fact arising after the original assessment, namely, repayment of part of the capital proceeds will change the tax liability for an earlier year. 35 Items 100, 110 and 150 deal with provisions, ss 122-25(4), 122-135(4) and 126-50(3) respectively, providing for a CGT rollover on the disposal of assets. A condition for choosing such a rollover is that a rolled over option may not be exercised to acquire an asset that becomes trading stock upon acquisition. Such an exercise of the option has the result that the rollover was not available in the year of income. There would therefore be a tax liability for the disposal of the assets in that year. Thus, a new fact arising after the original assessment, being acquisition of trading stock, will change the tax liability for the earlier year. 36 Item 120 deals with Sub-Division 124-B, which provides a rollover for a CGT Event that depends on a taxpayer's buying a replacement asset within one year. If the taxpayer does not do so, that new fact changes the tax liability under the original assessment. The rollover was not available in the year of income and there would be a tax liability for the disposal of the asset in that year. Again, a new fact arising after the original assessment, being non acquisition of a replacement asset, will change the tax liability for the earlier year. 37 Item 160 deals with s 126-70, which provided that wholly owned companies could choose not to rollover a CGT loss made on the transfer of a CGT asset between them, if a particular intention was held. Section 126-170 denied that choice and disallowed that loss if the intention was not subsequently realised or if certain other circumstances arose within a four year period after the intention was realised. Once again, a new fact arising after the original assessment, being non realisation of the relevant intention, changes the tax liability for the earlier year of income. 38 Item 170 deals with s 165-115ZA(2), which sets out tax consequences for an entity that has an interest in a loss company at a certain time. If at the same time, or at a later time, s 245-10 of Sch 2C to the 1936 Act applies in respect of a debt to which s 165-115ZA applied, s 165-115ZA is taken not to have been applicable. Once again, a new fact arising after the original assessment may change the tax liability for the earlier year. 39 The Taxpayer also argued that, if the construction contended for by the Commissioner were correct, an unlimited power of amendment would be conferred when any of the CGT Events listed in Item 30 occurred and there was a back-dating altering the occurrence or the amount of a capital gain or loss. The Taxpayer says, on the Commissioner's construction, it would be unnecessary to make provision for the situation where some part of the capital proceeds was not received or was repaid; the provisions in Items 80 and 90 expressly contemplated an unlimited power to amend in respect of backdated CGT Events, but those provisions would be otiose. The Commissioner's response is that, so far as Item 80 is concerned, capital proceeds may be agreed to be paid over a number of years. However, unknown to the seller of an item, the buyer might in a later year, because of bankruptcy or some similar event, occurring prior to an assessment in respect of the first year, be unable to pay.

THE MEANING OF SECTION 170(10AA) 40 When construing the terms of a provision in a statute, the Court must consider any other parts of the statute that throw light upon the intention of the legislature and that may serve to show that the particular provision ought not to be construed as it would be, if considered alone and apart from the rest of the statute (see Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 at 372-373). That is to say, the context of the provision being interpreted must be considered. It is appropriate to consider the context in the first instance, and not merely at some later stage, when ambiguity might be thought to arise. The context includes such things as the existing state of the law and the mischief that one may discern that the statute was intended to remedy. Thus, if apparently plain words of a provision are read in the light of the mischief that the statute was designed to overcome and of the objects of the legislation, they may be seen to have quite a different meaning (see CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408). 41 On the other hand, the task of construing a statute involves the determination of the meaning of the words used by the Parliament. While the meaning of words may be affected by the context and the object of the statute, the words are to be given their ordinary English meaning in the light of the relevant context. Where the provisions of a statute are repealed and re-enacted in a different context, the words must ordinarily be construed in that new context. 42 The question of construction that arises in relation to the operation of s 170(10AA) in the present case concerns the way in which the disputed amended assessment is for 'the purpose of giving effect to' s 104-10(3). The effect of s 104-10(3) is that a disposition that takes place on settlement of a contract for sale is deemed to have occurred at the time when the contract for sale was entered into, rather than at the time of settlement, when there would be a change of ownership, as a matter of law. In the present context, CGT Event A1 happened in relation to the disposal of the Business by the Taxpayer when the Taxpayer entered into the Transfer of Business Agreement. It is the happening of that CGT Event that gave rise to a capital gain. An amendment to take account of the fact that a CGT Event is deemed by the operation of s 104-10(3) to have occurred at a time prior to the time when, by operation of law, that CGT Event would otherwise occur, is an amendment to give effect to that deeming. Thus, it is necessary to amend the assessment for the year of income when the disposal is deemed to have occurred, notwithstanding that the disposition may actually have occurred, as a matter of law, during a different year of income. 43 The construction contended for by the Taxpayer would allow an unlimited power to amend only in circumstances where the lodgement of a return, giving rise to a deemed assessment, occurred prior to the settlement of the contract for the disposal of an asset. The Taxpayer's contention would therefore give rise to the anomaly that the time of the lodgement of a return, in the case of a full self-assessment taxpayer such as the Taxpayer, relative to the settlement of a disposition, would be determinative of the extent of the Commissioner's amendment power. If the return happened to be lodged prior to the date of settlement, there would be an unlimited power to amend. On the other hand, if the return were lodged after the date of settlement of the contract for the disposition, the Commissioner's power would be limited to the period of four years. There is no rationale for such a distinction. 44 Section 170(10AA) constitutes a departure from the scheme of s 170 described above, in so far as it authorises an amendment at any time, even in the absence of fraud or evasion on the part of a taxpayer. There is something to be said for the proposition that, where an assessment is made or deemed to be made after the subsequent event that might give rise to a change in the incidence of tax, the Commissioner's powers to amend should be limited, in accordance with the scheme described above, to a period of four years, in the absence of fraud or participation in a tax evasion scheme. However, the language of s 170(10AA) must be construed in its present context. Section 170(10AA) relates to all of the provisions set out in the Table. It may be that there is a common thread running through those provisions in the way described above. Nevertheless, it would have been open to the Parliament to enact a provision which made clear that the unlimited power of amendment applied only in relation to an event subsequent to the end of the year of income that occurred after the original assessment or deemed assessment. The Parliament did not do so. 45 There is no rationale for saying that the Commissioner's power to amend in order to give effect to the deeming, provided for in s 104-10(3) and other provisions referred to in the Table, should depend upon when a tax return, giving rise to a deemed assessment, is lodged by a taxpayer. Section 170(10AA) states unequivocally that the Commissioner may amend at any time to give effect to any of the provisions referred to in the Table. The anomaly, if there is one, is that the Parliament gave such an unlimited power to the Commissioner. It may have been possible, for example, to say that the Commissioner could amend during the period of four years after any subsequent event that is referred to in the provisions in the Table. Rather, however, the Parliament provided that, in order to give effect to any of those provisions, the Commissioner could amend at any time. I consider that the phrase must be given its clear and unequivocal meaning, despite the legislative history of s 170(10AA). 46 It may be that s 170(10AA) is intended to express the same idea as is expressed in s 160U(10). However, it expresses additional ideas as well and its language must be construed in the full context in which it appears. While s 160U(10) provided for a power to amend where "the time of an acquisition or disposal is taken to have been before the making of the assessment", s 170(10AA) provides for a power to amend to give effect to s 104-10(3) and other sections. Section 170(10AA) clearly operates in more circumstances than the circumstances in which s 160U(10) operated. 47 In any event, it is by no means clear that the words "this Act" in s 1-3 should be read to include the 1936 Act. The definitions in s 995-1(1) are said to operate except so far as the contrary intention appears. Section 1-3 intends to draw a distinction between this Act and the 1936 Act, which is referred to as that Act in s 1-3(2)(a). That intention is contrary to the inclusive definition in s 995-1. That conclusion is buttressed by a contextual reading of s 1-3: although the definition in s 995-1 is designed to facilitate a broad intention that the 1936 Act and the 1997 Act be read together as a single scheme of income taxation legislation, s 1-3 has a more specific operation to facilitate the progressive rewriting and reincorporation of the provisions of the 1936 Act into the 1997 Act. Accordingly, s 170(10AA) is unaffected by s 1-3 and should be given its plain meaning.

CONCLUSION 48 I consider that the amendment of the deemed notice of assessment of 16 July 2001 by the notice of amended assessment of 15 July 2005 was an amendment within the meaning of s 170(10AA) for the purpose of giving effect to s 104-10(3) of the 1997 Act. The question posed for the Court should therefore be answered in the affirmative. The Taxpayer should pay the Commissioner's costs of the determination of that question. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 29 April 2008 Counsel for the Applicant: Mr A H Slater QC, Mr M Robertson Solicitor for the Applicant: KPMG Tax Lawyers Counsel for the Respondent: Mr B J Sullivan SC, Mr S J McMillan Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 11 March 2008 Last Written Submission: 2 April 2008 Date of Judgment: 29 April 2008