Russell v Commissioner of Taxation

REASONS FOR JUDGMENT 1 On 2 August 2007 Anthony Whitworth Russell filed an application in Form 55D by which he has at least purportedly appealed against the following objection decisions identified in that application: (a) the disallowance on 30 May 2007 of an objection against an assessment of GST net amount for the tax periods from 1 July 2000 to 30 June 2006, and against an objection against a related assessment of administrative penalty, each of which assessments related to a partnership once conducted by him and his now former wife, Catherine Patricia Felicity Russell under the firm name A W Russell & Co; and (b) the disallowance on 6 June 2007 of an objection against an income tax assessment in respect of him alone and against a related assessment of administrative penalty. 2 A number of questions in relation to practice and procedure have arisen as a result of the course adopted by Mr Russell, who is not legally represented. They are: (a) may more than one objection decision be joined in the one application; (b) if so, should they be heard together; and (c) is Mr Russell alone a proper party to the appeal against the objection decision in respect of the GST and related additional tax assessments? 3 These questions arose incidentally in the course of a directions hearing on 8 February 2008. Submissions concerning them were heard at a further directions hearing on 22 February 2008, following the lodgement of an outstanding appeal statement by the Commissioner and the filing by direction of written submissions and an affidavit by Mr Russell. On 22 February 2008, I made certain directions for the further conduct of the two appeals but reserved for further consideration whether the answering of these questions required the giving of any further directions. 4 Section 14ZZN of the Taxation Administration Act 1953 (Cth) ("TAA") provides: Section 14ZZN Time limit for appeals An appeal to the Federal Court against an appealable objection decision must be lodged with the Court within 60 days after the person appealing is served with notice of the decision. 5 There is no suggestion that Mr Russell did other than lodge the application within 60 days of his being served with notice of each of the objection decisions. Order 52B, r 4(3) makes provision for the commencement of a taxation appeal by the filing of an application in Form 55D. 6 Section 14ZZN is found within Part IVC of the TAA. Section 14ZL of the TAA materially provides that Part IVC applies if a provision in an Act provides that a person who is dissatisfied with an assessment or decision may object against it in the manner set out in that part. Relevantly, the following are provisions of the kind referred to in s 14ZL: (a) section 175A of the Income Tax Assessment Act 1936 (Cth) with respect to an objection against an income tax assessment; (b) section 105-40 in Schedule 1 to the TAA with respect to an objection against an assessment of a net amount for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (Cth)("GST Act"); and (c) section 298-30(2) in Schedule 1 to the TAA with respect to an objection against an assessment of administrative penalty. 7 Section 14ZZ of the TAA provides: Section 14ZZ Person may seek review of, or appeal against, Commissioner's decision If the person is dissatisfied with the Commissioner's objection decision (including a decision under paragraph 14ZY(1A)(b) to make a different private ruling), the person may: (a) if the decision is both a reviewable objection decision and an appealable objection decision - either: (i) apply to the Tribunal for review of the decision; or (ii) appeal to the Federal Court against the decision; or (b) if the decision is a reviewable objection decision (other than an appealable objection decision) - apply to the Tribunal for review of the decision; or (c) if the decision is an appealable objection decision (other than a reviewable objection decision) - appeal to the Federal Court against the decision. 8 The Commissioner conceded that it is permissible to join in the one form of application an appeal against each of the objection decisions to which Mr Russell makes reference in his Form 55D. In my opinion, that concession was correctly made. 9 In Krampel Newman Partners Pty Ltd v Commissioner of Taxation (2001) 113 FCR 306 at 312, [15], Ryan J concluded that s 14ZZN of the TAA does not evince an intention contrary to the effect of s 23 of the Acts Interpretation Act 1901 (Cth), which is that the singular includes the plural. I respectfully agree. Thus, there is nothing in s 14ZZN of the TAA which forbids the inclusion in the form of initiating application which is lodged with this Court of appeals against more than one objection decision. 10 Krampel Newman concerned objection decisions each of which related to objections against income tax assessments. Does it make any difference here that one of the primary tax liabilities is in respect of income tax and the other is in respect of a net amount for the purposes of the GST Act? In my opinion it does not, for the following additional reasons. 11 Another feature of s 14ZZN is that it makes indifferent, generic provision for an appeal in respect of whatever constitutes an "appealable objection decision", as defined. That definition is to be found in s 14ZQ of the TAA. The effect of that definition is that, subject to an exception that is of no present relevance, an "appealable objection decision" is any "objection decision", another term defined by s 14ZQ. That definition, in turn, directs one to s 14ZY(2) of the TAA. Again subject to an exception of no present relevance, the effect of that subsection is that an "objection decision" is any decision of the Commissioner in respect of a "taxation objection". "Taxation objection", too, is a defined term (again, s 14ZQ) and that definition provides that a "taxation objection" has the meaning given in s 14ZL. I have already made some reference above to s 14ZL. It suffices to add that the effect of s 14ZL(2) is that an objection to which Part IVC of the TAA applies is a "taxation objection". 12 By this circuitous path the position reached is that each of the objection decisions with which Mr Russell is dissatisfied and to which he refers in the application he filed may be the subject of an appeal to this court under s 14ZZN of the TAA. Each is an "appealable objection decision". There is nothing in s 14ZZN which explicitly mandates that an "appeal" lodged with the Court is competent only if it concerns one or more assessments in respect of the same type of taxation liability. 13 There is also good reason not to imply any such intention. In Deputy Commissioner of Taxation v Brown (1957-1958) 100 CLR 32, at 40-41 Dixon CJ noted, albeit as he acknowledged without at the time a judicial decision to that effect, that it was generally assumed that "under the Constitution liability for tax could not be imposed upon a subject without leaving open to him some judicial process by which he could show that he was not taxable or not taxable in the sum assessed". As Dawson J later noted in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1994-1995) 183 CLR 168, at 222, the general assumption to which Sir Owen Dixon referred did receive later judicial recognition: (His Honour referred to MacCormick v Federal Commissioner of Taxation (1984) 158 CLR 622; Deputy Commissioner of Taxation v Truhold Benefit Pty. Ltd. (1985) 158 CLR 678 at 684; Air Caledonie International v The Commonwealth (1988) 165 CLR 462 at 467). Section 14ZZN of the TAA therefore serves the important constitutional end of expressly providing for recourse by the person affected to the judicial power of the Commonwealth for a challenge to an administratively assessed taxation liability. Section 15A of the Acts Interpretation Act 1901 (Cth)counsels that Acts should be read and construed subject to the Constitution and so as not to exceed Commonwealth legislative power. Section 14ZZN provides for a fixed time limit within which to engage this constitutionally necessary right of challenge. In the face of language that did not expressly forbid the practice and whose language was broad enough on its face to permit it, it would be a strong thing to discern by implication a prohibition as to joinder which would foreclose by a technicality of form such an important and necessary right. 14 Moreover, the prospect that out of a single investigation by the Commissioner's staff there might emerge controversies in respect of both a GST and an income tax liability is by no means remote. The present case apart, in Peerless Marine Pty Ltd v Commissioner of Taxation (2006) 63 ATR 1303 what emerged from the one investigation was a controversy as to whether the taxpayer was carrying on a business such that it was entitled to allowable deductions for expenditure incurred in the construction of what was alleged to be a prototype for a class of luxury motor cruiser and a related GST controversy as to whether, in respect of that same expenditure, it was entitled to input tax credits. The taxpayer elected to challenge the objection decisions in the Administrative Appeals Tribunal ("Tribunal") rather than in this Court and the Tribunal heard and determined the GST and income tax controversies together. Had it sought to appeal those decisions, s 14ZZN of the TAA would have permitted the joinder of those appeals in the one application, in my opinion. A construction of s 14ZZN which would facilitate such joinder has about it such an obvious convenience and practicality that it is to be preferred to one which would not. 15 Thus, the mere fact that Mr Russell has chosen to join in the one form of application appeals in respect of both income tax and GST assessments and related administrative penalty assessments does not, of itself render any of the appeals incompetent. 16 That is not to say that the adoption of such a course binds the Court to hear each of the appeals together. On some occasions it may be convenient to hear and determine a GST appeal together with an income tax appeal; on other occasions it may not be. Order 52B r 3 incorporates by reference, inter alia, the directions hearing provision made by O 52A r 13. Questions as to whether there ought to be separate hearings would be apt subjects for determination at a directions hearing. 17 As it happens, in this case Mr Russell wishes all appeals to be heard and determined at the one time and the Commissioner does not oppose this course. It seems to me that this is the convenient course to take in the circumstances. To explain why that is so requires some brief reference to the background facts at least insofar as they are presently revealed by the appeal statements that the Commissioner has filed as well as in an affidavit sworn and filed by Mr Russell in which he details the history and nature of a partnership of which he and his now former wife were once members. 18 By a written agreement executed in New Zealand on 1 January 2000 Mr Russell and his then wife formed a partnership for the purpose of carrying on the business of the provision of public accounting and corporate administration services in New Zealand and elsewhere under the name "A W Russell & Co". Their agreement specified that the partnership was to commence after 1 April 2000. In, it seems, February 2000 Mr Russell and his then wife arrived in Australia from New Zealand. 19 Mr Russell is an accountant by profession. Juan International Limited [formerly known as The Ancath Corporation Ltd ("Ancath")] is a New Zealand company whose sole shareholder was Mr Russell's former wife. Mr Russell was a signatory on Ancath's bank account. 20 In August 2000 Mr Russell applied for a position of Office Manager with Tradecorp International Pty Ltd ("Tradecorp") in Mackay, Queensland. 21 On 4 August 2000, Tradecorp and Ancath entered into a contract for the accounting services of Ancath's senior accountant, Mr Russell. The contract sum was $45,000 per annum plus 8% superannuation. Under the contract Mr Russell was entitled to, inter alia, 8 days paid sick leave and 4 weeks annual paid leave in addition to statutory holidays. 22 On 24 September 2001, Tradecorp and Ancath made a variation to their contract. The contract sum was varied to $65,000 per annum plus a superannuation allowance. 23 Mr Russell provided his services at the premises of Tradecorp from September 2000 to June 2004. 24 Ancath issued monthly tax invoices to Tradecorp for professional services. 25 After 20 March 2001, Ancath instructed Tradecorp to pay GST to A W Russell & Co, described in such invoices as its Australian agent. 26 Tradecorp made monthly payments by telegraphic transfer to Ancath's bank account in New Zealand for Mr Russell's services, less an amount for GST which was paid to the partnership's bank account in Australia. 27 Mr Russell included partnership distributions (amounts equal to the GST paid by Tradecorp to the partnership) as income in his tax returns for the income years ended 30 June 2001, 2002, 2003 and 2004 ("relevant income years"). Mr Russell did not include any other income in his tax returns for the relevant income years. 28 Mr Russell and his now former wife separated on 23 February 2004. Effective from that date she also resigned as a member of the partnership. She no longer lives in Australia. She is said by Mr Russell to be presently at a locale in the French countryside where the mail service is slow and where she has no access to the internet. She has informed Mr Russell that she has no desire to return to Australia. Later in 2004, Mr Russell registered the name "A W Russell & Co" as a name under which he carried on business in Australia. 29 Relying on s 84-5 of the Income Tax Assessment Act 1997 (Cth), the income tax assessments issued by the Commissioner for the relevant income years have included income from what is said to be the rendering of personal services by Mr Russell. 30 The GST net amount assessed by the Commissioner comprises: (a) an amount of $43,898 GST collected by the partnership as agent for Ancath Corporation Ltd pursuant to s 57-5 of the GST Act less $3,909 reported by the partnership by its business activity statements (resulting in a net amount of $39,989 and (b) the disallowance by the Respondent of various input tax credits totalling $31,545 ("the ITC amount") that had been claimed by the partnership in the business activity statements. The sum of $31,545 comprised the following amounts of input tax credits in respect of three enterprises purportedly carried on by the partnership: (a) $27,284 in respect of accountancy practice; (b) $1,522 in respect of a forestry activity; and (c) $2,739 in respect of a naturist retreat. 31 It is controversial in the GST appeal whether any of these activities amounted to the carrying on of an "enterprise" or whether the items the subject of the claimed input tax credits were of a private or domestic nature. 32 Having regard to the foregoing, it seems likely that there will be common issues of fact to be decided in relation to each of the appeals in relation to the affairs of the partnership and Ancath. Hence it is convenient to hear the appeals together. 33 The remaining issue, whether Mr Russell alone is a proper party to the GST appeal, is controversial. 34 The Commissioner's submission is that the proceedings should be brought in the name of the "entity" which lodged the relevant business activity statements or at least that Mr Russell's former wife should be a party to the proceeding. He does not, in terms, contend that the GST appeal as lodged is incompetent for want of a proper party, only that there is an irregularity which ought to be rectified. For his part, Mr Russell does not wish to involve his former wife in the appeal but is prepared so to do if needs be. 35 The Commissioner's submissions take as their starting point a feature of GST, which is that liability in respect of this tax, like sales tax before it, is not dependent on the issue of an assessment. Rather, liability for GST arises upon the due date for payment: see s 33-5 of the GST Act and s 105-15 in Schedule 1 to the TAA. So much may be accepted. 36 It is then submitted that the TAA nonetheless permits the making of an assessment of a net amount and that such an assessment is and was in this case appropriately raised in respect of the relevant GST "entity". That "entity" is in this case a partnership. Under the general law a partnership does not have a legal personality separate from its members. By definition though a partnership is an "entity" for the purposes of the GST Act: s 184-1(1) of the GST Act. Within the GST Act the expression "you" applies to "entities" generally in the absence of a contrary intention: definition of "you" in s 195-1 of the GST Act. The right of objection to a GST assessment is expressed by s 105-40 of Schedule 1 to the TAA to be exercisable by "you" in respect of a reviewable indirect tax decision "relating to you". These matters are said by the Commissioner to have the consequence that a taxation appeal in respect of a GST assessment should be brought either in the name of the relevant GST "entity or at least in the names of each of the partners. It is further submitted that this position is not affected by the subsequent dissolution of the partnership between Mr Russell and his former wife as the cause of action accrued prior to the dissolution of that partnership. 37 Were a partner's liability for GST only joint, the Commissioner's submission might have some attraction. Under the general law of partnership (and prior to the death of any of the partners) every partner in a firm is liable jointly with the other partners for alldebts and obligations of the firm incurred while a partner: s 12(1) of the Partnership Act 1891 (Qld). The rules of court provide that, subject to any grant of leave to the contrary, where an applicant claims relief to which any other person is entitled jointly with him, all persons so entitled shall be parties with him: O 6, r 3(1) of the Federal Court Rules. Further, O 42 r 2 of the Federal Court Rules permits a claim brought by two or more persons claiming as partners to be brought in the name of the partnership. When so brought any party may apply on notice to be furnished with the names and places of residence of those who were partners at the time when the cause of action arose: O 42 r 3 of the Federal Court Rules. It is possible for a partner to institute proceedings in the name of the partnership without the prior consent of his fellow partners but, if such a course of action is taken, the court may direct that the proceeding be stayed until that partner has given his fellow partners a full indemnity, together with security in respect of costs: Seal and Edgelaw v Kingston [1908] 2 KB 579, at 582. 38 As it happens, in Sutherland v Gustar (Inspector of Taxes) [1994] Ch 304, an analogous controversy arose in the United Kingdom in respect of the competency of the purported institution of an appeal by one partner, against the wishes of his fellow partners (who had reached an agreement satisfactory to them with the Inspector of Taxes), in respect of a joint assessment of the partnership to income tax which had been confirmed by the general commissioners. Under the then applicable legislation in the United Kingdom, a partner's liability to income tax was joint. The then Vice Chancellor, Sir Donald Nicholls, who delivered the judgement of the Court of Appeal (Nicholls V-C, Leggatt and Henry LJJ) identified the problem raised in that case in a way which resonates in the present: "[Partners] do not always have the same interest in challenging an assessment. What is important to one partner may not matter to another. Similar divergences of interest, and differences of view about what is the best course for the partnership, can and do arise regarding other aspects of partnership business. Here, as elsewhere in the law, the courts evolved practical solutions. In the context of litigation, the courts devised procedures which protect a would-be plaintiff partner by permitting him to go ahead with court proceedings but also protect the partners who do not wish to become embroiled in the proceedings. The traditional means used to achieve this end was for the minority partner to be permitted to bring the proceedings in the name of the partnership. Every partner is an agent of the firm, a principle now enshrined in section 5 of the Partnership Act 1890 (53 & 54 Vict. c. 39). But the other partners had to be protected by an adequate indemnity." [1994] Ch at 310." 39 Section 5 of the Partnership Act 1890 (UK) finds its local analogue in s 8 of the Partnership Act 1891 (Qld). 40 The Court of Appeal solved the problem thus posed by construing the statutory procedural code for the institution of taxation appeals in a way which enabled any person assessed to tax to institute an appeal in respect of the assessment irrespective of whether he had been assessed alone or jointly with others. In the case of an appeal against a joint assessment, Their Lordships opined: "In the latter case, in contemplation of law the notice of appeal is given on behalf of all those assessed in the sense, but only in the sense, that the notice effectually triggers an appeal against the joint assessment. This does not enable the person giving the notice then to conduct the appeal as though he were acting for all the partners. He has authority only to act and speak for himself, unless his co-partners authorise him to act for them. If they do not, and if they wish to pursue a different line, they may do so. But an appeal against the joint assessment having been set in motion, they, along with the partner who gave the notice of appeal, are appellants for the purposes of the Act of 1970. Accordingly, notice of the hearing must be given to them, and their concurrence is needed if the appeal is to be settled or abandoned pursuant to section 54." [1994] Ch at 312. 41 Primacy must, of course, be given to the language of the applicable Australian legislation. Nonetheless, were liability in respect of a GST assessment joint, there would, with respect, be much to commend in the adoption of a similar approach to that adopted in Sutherland v Gustar to the construction of the right to appeal to this Court against an objection decision conferred by s 14ZZ of the TAA on a "person dissatisfied" and in related practice and procedure. The "person dissatisfied" with the Commissioner's objection decision in respect of a GST assessment might well, for just the reasons identified by the Court of Appeal in Sutherland v Gustar, be but one of a number of partners. 42 Yet a partner's liability in respect of GST and any related administrative penalty is not just joint, but rather joint and several. Within Schedule 1 to the TAA, s. 444-30 provides, materially: "444‑30 Partnerships (1) Obligations that are imposed under this Schedule or an indirect tax law on a partnership are imposed on each partner, but may be discharged by any of the partners. (2) The partners are jointly and severally liable to pay any amount that is payable under this Schedule or an indirect tax law by the partnership." 43 Prior to the introduction of this provision into Schedule 1 the now repealed provisions formerly found in ss 50(1) and 50(2) of the TAA made identical provision in respect of the GST liability of partners. It would seem incongruous in these circumstances to construe the right of appeal conferred by s 14ZZ of the TAA as being dependent upon the consent of each partner or even to require that each other partner be given notice of a challenge to an objection decision by one of them. 44 The word "person" in s 14ZZ of the TAA bears its ordinary meaning of referring to natural persons as well as bodies corporate and bodies politic: s 22 Acts Interpretation Act 1901 (Cth) and includes the singular as well as the plural: s 23 Acts Interpretation Act 1901 (Cth). As earlier noted, under the general law a partnership is not a separate legal entity. A partnership is not a "person". The liability in respect of GST being joint as well as several s 14ZZ of the TAA would certainly permit the members of a partnership jointly to institute an appeal against an objection decision in respect of a GST assessment if so disposed but the effect of that section is that it is not mandatory that each partner be a party to the institution of an appeal for that appeal to be competent. 45 It follows, in my opinion, that the GST appeal was regularly instituted by Mr Russell in his own name. Neither do I see any need for him to give his former wife notice of the institution of the appeal. 46 For these reasons I direct that: (a) the proceedings, including the GST appeal, may continue in the name of Anthony Whitworth Russell as applicant alone; (b) the income tax appeal and the GST appeal be heard together.