Pearson v Deputy Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 16 March 2005, I gave judgment in three proceedings, Q 264, 265 and 266 of 1999, which were appeals pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth), against appellable objection decisions in respect of the 1992, 1993, and 1994 financial years of income of Janette Ann Pearson (the appellant) advised to her by notices of decisions on objections dated 9 September, 14 September, and 14 September 1999 respectively. 2 The appellant sought in those applications to have the decisions varied by allowing the objections to the extent of reducing the taxable income for each year to $392,183.00, $199.00, and $7,260.00 respectively by the remission of all additional tax and the re-calculation of the Medicare levy in each year. 3 On 5 July 2006, the Full Court of the Federal Court (Dowsett, Allsop and Edmonds JJ) allowed the appellant's appeals in part: Pearson v Commissioner of Taxation [2006] FCAFC 111. 4 In my reasons of 16 March 2005, I said, at [22]: There is no dispute in these proceedings as to the Commissioner's power to issue amended assessments and his approach to the quantification of additional tax payable by the appellant, should his contentions concerning the income and the asserted disclaimers be accepted. 5 And, at [92], I said: The parties are agreed that if I should find for the Commissioner in respect of the issues concerning the trust income of [Corplan Financial Network Unit Trust (CFNUT)] and [Corplan Financial Group Unit Trust (CFGUT)] in the relevant years and find against the appellant on the question of disclaimers, the monetary amounts should be as in the table annexed to these reasons. 6 This table was set out as Appendix 1 of the Full Court's reasons, and is Appendix 1 to these reasons. 7 The judgment of Edmonds J (with whom Dowsett and Allsop JJ agreed) said concerning this issue: 34 On the hearing of the appeal, Senior Counsel for the appellant accepted that [22] and [92] accurately reflect what his Honour was asked to do. He also accepted, although as it subsequently transpired he should not have, that no submission, written or oral, was put below as to the absence of a basis for recklessness and moreover, that he did not even draw his Honour's attention to the allegedly live question of additional tax. He said that the matter was raised as an issue in the initiating application to the Court, although it seems it was not raised as an issue in the statement of facts, issues and contentions filed by the parties as part of the interlocutory processes. 35 If these were the only facts then, in my opinion, by the time the case came on for hearing before his Honour below, the issue of additional tax was no longer a live discrete issue; it may have remained an issue in name, but only on the basis that it stood or fell by reference to the outcome of the substantive issue. 36 While, on the hearing of the appeal, Senior Counsel for the appellant did not accept this view of the matter, he did accept that it would be more appropriately framed as an application for leave to agitate the issue rather than as a challenge to his Honour's disposition of the matter. I tend to agree and on those facts and concessions, I would not be prepared to grant leave. 37 However, following the hearing of the appeal, papers, including transcript below, were filed with the Court which indicate that the factual basis of the imposition of additional tax, namely recklessness, was still an issue so far as the appellant was concerned, even if the respondent and the Court thought otherwise…. 8 However further material then came to be filed subsequent to the hearing of the appeal (as to which see Carr v Finance Corporation of Australia (No 1) (1981) 147 CLR 246 per Mason J, as he then was, at 257-8 and Jackson v Conway [2000] FCA 1530 per Branson J at [29]. The transcript of closing submissions of the trial of the matter, make it plain that it was contended for the appellant that there had been neither recklessness on her part, nor hindrance of the Commissioner on her part. 9 Hence the remission to me to enable discrete findings concerning additional tax to be made, independently of the substantive issues in the appellable objection decision applications. 10 Consent orders were made for the filing of submissions, and the matter was to be determined on the papers. Written submissions by the appellant and the Deputy Commissioner of Taxation were filed in accordance with those directions, but at that time, the matter was not recorded as "judgment reserved" and remained recorded in the Casetrack as "adjourned pre-hearing". 11 For this reason, the matter remained dormant until the status of the remitted matters was brought to my attention only at the end of March this year. 12 The parties are agreed as to the factual matters presently in issue: Factual Matters 2. This matter relates to re-assessments of income tax assessments made by the Commissioner for the years ended 30 June 1992, 1993 and 1994. The relevant entities were found by the Court to be the following: (a) Corplan Financial Group Unit Trust ("CFGUT"); (b) Corplan Financial Network Unit Trust ("CFNUT"); and (c) Jancy Trust ("Jancy"). 3. Jancy, in its capacity as trustee of the Jancy Trust, is the holder of all of the units in CFGUT as well as being the holder of all the issued "B" class income units in CFNUT. 4. In respect of the 1992 financial year, Jancy, by minutes signed by the Applicant's husband, Cyril Pearson, resolved that the income be distributed equally between Cyril John Pearson and Jeanette Ann Pearson ("the Appellant"). In the 1993 financial year the minutes of Jancy were unsigned and the unsigned copy distributed $9,000.00 to Jeanette Ann Pearson and the balance equally between Cyril John Pearson and Jeanette Ann Pearson. In the 1994 financial year the minutes gave 100% of the income to Jeannette Anne Pearson and were signed by the Appellant. 5. The tax returns for the CFNUT were not signed by the appellant for any of the applicable financial years. The CFGUT return is only applicable with respect to the 1992 year and it also is not signed by the Appellant. The Jancy income tax returns were not signed by the Appellant. The Appellant was a director of Jancy Pty Ltd as was her husband, Cyril John Pearson, in each of the relevant tax years. 6. The Appellant signed her income tax returns in respect of each of the three financial years in question. … 13 The parties are further agreed that the legal considerations are: Additional Tax 1992 8. The legislative provision with respect to penalty for a false or misleading statement for the 1992 financial year was Section 223 of the Income Tax Assessment Act 1936 [(the Act)] and is in the following terms:- "223(1) [Penalty for false or misleading statement in a material particular] Where - (a) a taxpayer - (i) makes a statement to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, that is false or misleading in a material particular; or (ii) omits from a statement made to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, any matter or thing without which the statement is misleading in a material particular; and (b) the tax properly payable by the taxpayer exceeds the tax that would have been payable by the taxpayer if it were assessed on the basis that the statement were not false or misleading, as the case may be, the taxpayer is liable to pay, by way of penalty, additional tax equal to double the amount of the excess." 9. The Commissioner issued Ruling No. IT2141 as to how the Department would apply Section 223 in paragraph 14 set out below:- "14. A statement as to a particular view of the proper operation of the law is not false or misleading even though it may be inaccurate. In context, and as a matter of the proper interpretation of the expression 'false or misleading statement', it is clear that the legislature is directing its attention to statements of fact that are false or misleading and not to statements as to the application or interpretation of the law. A taxpayer who claims a deduction under a particular description, and who does so in a way that is not, having regard to the disclosure made, false or misleading in relation to the facts, will not incur a penalty even though the amount may not be deductible as a matter of law. While there will be some situations where the distinction is not entirely clear, it is unlikely to be difficult to make in the vast majority of practical situations. Where there is some doubt, fine distinction s are not to be made and the statement should be treated as one of law and not penalisable." … Additional Tax 1993 and 1994 11. The legislative provisions with respect to penalty where there is a shortfall are: (a) section 226G - where shortfall caused by lack of reasonable care; (b) section 226H - where shortfall caused by recklessness; (c) section 226J - where shortfall caused by intentional disregard of law. 12. Section 222F of the Income Tax Assessment Act is in the following terms:- "222F If a person omits from a return given under this Act or the regulations, being a return of income derived by the person, a partnership or a trust estate during a period, any assessable income derived by the person, the partnership or the trust estate during the period, the person is taken, for the purpose of this Part, to have made a statement in the return to the effect that the person, the partnership or the trust estate did not derive the assessable income during that period."