Remuneration Planning Corporation Pty Ltd v Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 3 August 2000 Remuneration Planning Corporation Pty Limited ("the applicant") filed an application against the Commissioner of Taxation for the Commonwealth of Australia ("the Commissioner") seeking the following relief: "1. A declaration that Taxation Ruling 99/5 is invalid; 2. Alternatively, a declaration that Taxation Ruling 99/5 is invalid to the extent that it purports to apply to years of income prior to May 1999; 3. A declaration that Taxation Ruling 99/5 does not apply to the Applicant and its clients for the years of income prior to May 1999. 4. Costs. 5. Such further or other order as the Court considers appropriate." A statement of claim was filed on the same day. 2 On 4 December 2000 the Commissioner filed a notice of motion for the following orders: "1. That the proceeding be dismissed or permanently stayed (a) for want of jurisdiction or for want of standing on the part of the applicant; (b) in the alternative, pursuant to Order 20, Rule 2 of the Federal Court Rules; (c) in the further alternative, in the discretion of the Court. 2. In the alternative to Order 1, that the Statement of Claim be struck out pursuant to Order 11, Rule 16 of the Federal Court Rules. 3. That the applicant pay the respondent's costs." 3 During the course of hearing that motion an amended application was tendered and the argument proceeded on the basis that the amendment would be made in due course. The additional relief sought is as follows: "4. A declaration that the law applicable to the Applicant and its clients for the years of income commencing prior to May 1999 is by virtue of Public Ruling 92/20 and the continuous course of conduct engaged in by the Commissioner that expressed in the Advance Opinions provided to the Applicant. 5. A declaration that the Commissioner is estopped from applying to the Applicant and its clients for the years of income commencing prior to May 1999 the tax law other than in the manner expressed in Advance Opinions provided to the Applicant. 6. An order prohibiting the Commissioner from applying to the Applicant and its clients for the years of income commencing prior to May 1999 the tax law other than in the manner expressed in Advance Opinions provided to the Applicant." 4 Taxation Ruling 99/5 ("the Ruling") purports to be a public ruling within Pt IVAAA of the Taxation Administration Act 1953 (Cth) ("the Administration Act"). Sections 14ZAAE, 14ZAAF and 14ZAAG are as follows: "SECTION 14ZAAE PUBLIC RULINGS - CLASS OF ARRANGEMENTS 14ZAAE The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to any person in relation to a class of arrangements. SECTION 14ZAAF PUBLIC RULINGS - CLASS OF PERSONS 14ZAAF The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to a class of persons in relation to an arrangement. SECTION 14ZAAG PUBLIC RULINGS - CLASS OF PERSONS AND CLASS OF ARRANGEMENTS 14ZAAG The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to a class of persons in relation to a class of arrangements" 5 A public ruling is made by the Commissioner publishing it and notice of it in the Gazette (s 14ZAAI). 6 Section 74A(2) of the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the Fringe Benefits Act") provides as follows: "74A(2) [Assessment and amount of tax] Subject to sections 74C if: (a) there is a public ruling on the way in which a fringe benefits tax law applies to a person in respect of a year of tax in relation to an arrangement ("ruled way"); and (b) that law applies to that person in respect of that year in relation to that arrangement in a different way; and (c) the amount of fringe benefits tax under an assessment in relation to that person would (apart from this section and section 74C) exceed what it would have been if that law applied in the ruled way; the assessment and amount of fringe benefits tax must be what they would be if that law applied in the ruled way." 7 Section 74A is included in Div 2 of Pt V dealing with assessments (including amended assessments). The validity of any assessment is not affected by reason that any provision of the Act has not been complied with and an employer who is dissatisfied with an assessment may object against it in the manner set out in Pt IVC of the Administration Act (ss 78 and 78A). 8 The Commissioner argues that the proceeding as originally framed was misconceived for a number of reasons. Before considering that submission, it is convenient to refer to the system of private rulings pursuant to the Administration Act, provision for which was introduced in 1992 at the same time as that for public rulings. They are covered by Pt IVAA of the Administration Act, which provides for applications for and the giving of private rulings and the way in which, in the Commissioner's opinion, a tax law would apply to the person in respect of a year of income in relation to an arrangement or, with the written consent of another person, as to how the law would apply to that other person. Sections 14ZAZA, 14ZAZB and 14ZAZC are as follows: "SECTION 14ZAZA OBJECTIONS, REVIEWS AND APPEALS RELATING TO PRIVATE RULINGS 14ZAZA(1) [Objection] Subject to subsection (2), a rulee who is dissatisfied with a private ruling may object against it in the manner set out in Part IVC and such a ruling is a taxation decision for the purposes of that Part. 14ZAZA(2) [Objection not allowed] A rulee may not object against a private ruling if: (a) an assessment has been made in relation to the rulee in respect of the year of income, and in relation to the arrangement, to which the ruling relates; or (b) the ruling relates to withholding tax that has become due and payable. SECTION 14ZAZB SUCCESSFUL OBJECTION DECISION ALTERS RULING 14ZAZB(1) [Interpretation] In this section: "objection decision" and "taxation objection" have the same meanings as in Part IVC. 14ZAZB(2) [Commissioner's objection] If: (a) the Commissioner makes an objection decision allowing, wholly or in part, a taxation objection against a private ruling; and (b) the period in which an appeal against, or an application for the review of, the decision may be made has ended; and (c) neither such an appeal nor application has been made; the ruling is taken to be the ruling as altered by the decision. SECTION 14ZAZC APPLICATIONS AND OBJECTIONS NOT TO AFFECT OBLIGATIONS AND POWERS 14ZAZC The fact that there has been: (a) an application for a private ruling; or (b) an objection against the ruling; does not in the meantime affect: (c) a taxpayer's obligation to lodge a return or do any other act; or (d) the Commissioner's power to make or amend an assessment." 9 Section 74B(2) and 74C of the Fringe Benefits Act provide as follows: "74B(2) [Assessment and amount of tax] Subject to sections 74C, 74D and 74E, if: (a) there is a private ruling on the way in which a fringe benefits tax law applies to a person in respect of a year of tax in relation to an arrangement ("ruled way"); and (b) that law applies to that person in respect of that year in relation to that arrangement in a different way; and (c) the amount of fringe benefits tax under an assessment in relation to that person would (apart from this section and section 74C) exceed what it would have been if that law applied in the ruled way; the assessment and amount of fringe benefits tax must be what they would be if that law applied in the ruled way. SECTION 74C ASSESSMENT WHERE CONFLICTING RULINGS 74C(1) ["ruling"] In this section: "ruling" means: (a) a public ruling; or (b) a private ruling. 74C(2) [Expressions used as in sec 74A and 74B] Expressions used in this section have the same meanings as in section 74A or 74B. 74C(3) [Assessment and amount of tax] If: (a) there are rulings of different ways in which the same fringe benefits tax law applies to the same person in relation to the same arrangement; and (b) apart from this section, because of there being those different ways, there are conflicting requirements under section 74A or 74B, or both, of what the assessment and amount of fringe benefits tax in relation to that person are to be; the assessment and amount of fringe benefits tax must be what they would be if that law so applied in whichever of those ways would result in the lowest amount of fringe benefits tax." 10 The following paragraphs of the statement of claim give a sufficient indication of the interest claimed by the applicant in challenging the Ruling: "2. In about 1988 the Applicant developed an employee savings plan structure known as the Employee Benefits Trust whereby a trustee of a unit trust received contributions from an employer to be invested and the investments held on trust for employees who purchased units in the trust. … 13. From about July 1988 until July 1998 the Commissioner adopted the position that contributions to Employee Benefit Trusts were not subject to fringe benefits tax. 14. On the basis that the Commissioner had adopted this position, the Applicant: (a) commenced to market Employee Benefit Trusts to large and medium sized companies including through accountants and tax advisers; (b) entered into contracts with a number of companies to set up Employee Benefit Trusts; (c) entered into contracts with other persons for those other persons to set up Employee Benefit Trusts for companies. … 16. From about 1988 the Applicant set up Employee Benefit Trusts for various companies totalling in excess of 200 in the years of income 1988, 1990-1998. 17. Prior to July 1998 employer/companies made payments of sums of money to the trustees of Employee Benefit Trusts set up by the Applicant (the 'Applicant's Employee Benefit Trusts') as part of the remuneration arrangement of their employees. 18. Prior to July 1998 many employees of those employer/companies have purchased units in the Applicant's Employee Benefit Trusts and have become unitholders. 19. In respect of the said contributions to the Applicant's Employee Benefit Trusts the employer/companies have not treated the payments to trustees as liable to fringe benefits tax and have not paid fringe benefits tax on those contributions. … 24. Pursuant to his power to make public rulings the Commissioner has purported in Ruling 99/5 to apply the Ruling to steps taken prior to the date of the ruling under arrangements set up prior to the date of the ruling, which arrangements were made in accordance with the position adopted by the Commissioner from about July 1988 until July 1998. 25. Officers of the Australian Taxation Office have issued notices of intention to audit with a view to issuing amended assessments to the Applicant and to persons for whom the Applicant has set up Employee Benefit Trusts in respect of alleged fringe benefits tax liabilities for contributions made by each of those persons to its Employee Benefit Trust."