Skycorp Investments Pty Ltd v Commissioner of Taxation

1. Much complaint subsequently erupted from Skycorp about the contents of the Commissioner's responsive appeal statement. Skycorp then brought an interlocutory application for orders striking out the responsive appeal statement or for its removal from the Court file or both. It also sought orders requiring the filing of a substituted appeal statement as well as directions as to the form that the appeal statement should take.
2. I refused the interlocutory application and reserved the costs of that application: Skycorp Investments Pty Ltd v Commissioner of Taxation [2025] FCA 1184 (Reasons). In doing so, I directed the parties to file submissions of no more than two pages specifying the terms of any order sought as to costs and any submission in support of the order. I also provided for responsive submissions to any such submissions.
3. Skycorp now applies 'for a special order for its costs of its unsuccessful application, and on an indemnity basis'. The Commissioner applies for an order that Skycorp pay his costs of the interlocutory application including the costs of submissions on costs, such costs to be assessed if not agreed. In response to Skycorp's application for costs, the Commissioner says there is no basis for the costs order sought and says that if an order for indemnity costs is to be contemplated then that form of order should be made against Skycorp in respect of the Commissioner's costs submissions due to Skycorp pursuing 'a wholly baseless position on costs'. As there are no factual issues and the matters to be determined concern the application of established principles concerning the exercise of the discretion as to costs which have been addressed by written submissions, the determination of the matter would not be significantly aided by an oral hearing. Accordingly, I deal with the issue of costs on the papers.

1. For the following reasons, there should be costs orders substantially in the terms sought by the Commissioner.

1. Before considering the basis upon which Skycorp seeks an indemnity costs order in its favour even though it was unsuccessful on the interlocutory application, it is necessary to outline in broad terms (a) the reasoning in the objection decision; (b) the nature of the case that Skycorp now seeks to advance in the appeal; and (c) the Commissioner's position as stated in his responsive appeal statement.

1. In support of its objection, Skycorp claimed that the assessments issued to it for each of the 1998 to 2014 income tax years were excessive because Skycorp had underclaimed available deductions under Division 43 for those income years in respect of construction costs of the Building. There were also issues raised as to the application of Division 40, but they are no longer in issue in the appeal and can be put to one side.
2. On the objection, Skycorp relied upon a report by a quantity surveyor which estimated the relevant construction costs and professional fees incurred in constructing the Building to be $6,793,256 (subsequently reduced to $5,026,642). There was also a suggestion that there had been a separate construction contract awarded to fit out a function room and theatre complex as part of the Building.
3. In order to apply Division 43, it was necessary to identify a pool of construction expenditure that had been incurred on capital works attributable to a 'construction expenditure area'. It was concluded that the objection had been raised on the basis that it concerned a pool of construction expenditure that related to the construction of the Building.
4. It was accepted that there were circumstances in which relevant construction costs could be proved by an expert quantity surveyor. It was also not in issue that Skycorp was not the original owner of the Building which had been constructed as a government building and there were some public records concerning what had occurred which were still accessible despite the passage of time.
5. The Commissioner issued a number of requests for information to Skycorp as part of the objection process which produced responses from Skycorp based upon inquiries said to have been made of available public records. The Commissioner also made inquiries to obtain publicly available historical records as to the actual costs incurred to construct the Building.
6. Ultimately, the view was formed that the actual construction costs of the Building could be reasonably ascertained based on historical records. On that basis, it was concluded that it was not appropriate to rely on the estimate by the quantity surveyor. Some information was obtained about other construction within the first floor of the Building. However, that information was not brought to account because it would require the creation of a separate construction expenditure area for the purposes of Division 43 and it was concluded that there was insufficient information for that to occur.
7. On the basis of the historical records, a conclusion was reached as to the extent of the deduction that was allowable under Division 43 for each income year in issue, save for the 2014 income year (by which time the pool had been fully deducted). Deductions totalling $1,671,896 were allowed over the 1998 to 2013 income years.

The nature of the case that Skycorp now seeks to advance

1. Skycorp has invoked its statutory right to appeal the objection decision. That right is conferred by s 14ZZ of the Taxation Administration Act 1953 (Cth) (TAA). Relevantly for present purposes, it provides that '[i]f the person is dissatisfied with the Commissioner's objection decision', the person may 'appeal to the Federal Court against the decision'. The person bringing the appeal is limited to the grounds stated in the objection decision unless the Court otherwise orders (s 14ZZO(a)) and has the burden of proving that the assessment is excessive (s 14ZZO(b)(i)), noting that the terms of s 14ZZO were amended in 2014 to refer to a burden of proving that the assessment was excessive or otherwise incorrect and what the assessment should be.
2. By its replacement appeal statement, Skycorp maintains that it was dissatisfied with the objection decision because the Division 43 deductions that were allowed were 'too low in amount' (para 12). It says that if, after an objection decision, the Commissioner forms the view that the assessment to be issued should be for a higher amount than was decided on the objection then the Commissioner is under a duty to alter the assessment to reflect that view (para 15). Skycorp says that its burden on the appeal is to 'disprove those bases adopted by the Commissioner with which it is dissatisfied' (para 23). Skycorp says that it does not need to prove the actual expenditure it has incurred but must prove that it has 'incurred the expenditure as a whole and that it is allocable to each item in accordance with generally accepted accounting principles' (para 29). It maintains that the orders that should be made are orders for the objection decision to be varied so that the objection be allowed in full (para 31).
3. As to the facts, Skycorp alleges that there was a contract for construction of the Building (which it calls the Primary Works Contract) for which the cost was $3,703,385 (para 43). It also says that there was a separate contract to fit out the first floor and separate arrangements to construct a commercial kitchen and bar on the first floor.
4. On the basis of these matters, Skycorp contends that there are two construction expenditure areas for the purposes of Division 43. Area A is for the construction of the Building (said to have cost $3,703,385). Area B is for the first floor expenditure (said to have cost a separate amount of $1.1 million). Skycorp advances contentions as to adjustments to be made to those costs for the purposes of identifying the relevant pools of expenditure.
5. It is apparent from Skycorp's replacement appeal statement that it seeks to present its case on the basis that it can rely on the fact that the objection decision accepted that there are some deductions that may be allowed under Division 43 in respect of a pool of expenditure for the Building. On that basis, it seeks to focus the presentation of its case on whether there were additional costs that should be included in that pool and whether there should have been further deductions allowed on the basis of a separate construction expenditure area.

The Commissioner's responsive appeal statement

1. The Commissioner's overall position is summarised in his responsive appeal statement as follows:

The subject matter of these proceedings occurred decades ago. Many potentially relevant documents have been lost or destroyed and despite extensive searches in the State Archive, requests under the Freedom of Information Act 1992 (WA), third party discovery and various subpoenas having issued, there remains significant gaps in the contemporaneous documentation. [Skycorp] has not adduced evidence from any individual with reliable contemporaneous knowledge of the relevant expenditure incurred in around 1987. Further, despite asserting that it would do so, [Skycorp] has not adduced any admissible expert evidence in support of its case. As such, [Skycorp] cannot prove its case.

(footnotes omitted)

1. The Commissioner sets out his position as to the particular matters relied upon by Skycorp and concludes:

Whilst there are some documents available that might indicate towards a certain point, they cannot be taken as conclusive. For example, whilst it might be understood that contracts may have existed and payment certificates may have issued in respect of certain amounts, it does not necessarily follow that they were paid in those amounts or at all. Where there is a dearth of evidence the parties and the Court cannot know what they do not know. This undeniable fact creates unsurmountable issues for [Skycorp] as the party which at all times bears the onus of proof.

It is evident from [Skycorp's] frequent changes to its case, including the amounts alleged as the pool or pools of construction expenditure summarised ... above, that [Skycorp] does not know the necessary facts and therefore the amounts underpinning the claimed capital works deduction.

(original emphasis)

1. In effect, the Commissioner maintains that Skycorp's appeal must fail because it cannot prove that any expenditure was incurred of a kind that might found the claimed deductions under Division 43.
2. It is apparent that the Commissioner maintains that in order to succeed in its appeal, Skycorp must demonstrate that there is a basis for the claimed deductions under Division 43, that is to say it cannot approach the appeal on the basis that the issue is confined to whether there are deductions that are additional to the deductions that were allowed by the objection decision. However, as will emerge, that is not to say that the Commissioner is maintaining that there should be some increase to the assessment if Skycorp fails in its appeal. As I explain below, in that event, the objection decision will remain in effect and it will provide an ongoing basis for the assessments that have issued on the basis of the extent to which Division 43 deductions have been allowed. Any change in that position would require the Commissioner to identify a valid basis upon which to make a further assessment.
3. As to these matters, I note that when he filed his original appeal statement, the Commissioner had said (paras 23 and 24):

The [Commissioner] contends that [Skycorp] has not discharged its burden of proving, on the balance of probabilities, its entitlement to deductions in the amount claimed in the objections, to establish what it says is the true amount of its taxable income for the Relevant Years.

In particular:

(a) There is insufficient evidence that the claimed pool of construction expenditure is above that allowed in the ... Objection Decision ...

(b) There is insufficient evidence that the portion of the pool of construction expenditure is attributable to the area owned by [Skycorp].

1. In the course of what follows, I will refer to the above paragraphs from the original appeal statement as the Commissioner's Original Formulation.

The foundation for Skycorp's interlocutory application

1. After the Commissioner filed his responsive appeal statement, Skycorp complained that the Commissioner had resiled from his earlier position in the appeal which it said focussed on the extent to which there was a basis for Division 43 deductions over and above those that had been allowed as part of the objection decision. Two things were said. First, it was said that the responsive appeal statement could not be inconsistent with the Commissioner's Original Formulation which, it was said, did not dispute the whole of the deductions. Skycorp relied upon the language of the Commissioner's Original Formulation. Second, it was said that there were other reasons why the Commissioner, in any event, could not dispute that part of the objection decision which had allowed Division 43 deductions.
2. As to the first of those matters, it misunderstood what had occurred when Skycorp was given leave to change its case. At that point, it was determined that the Commissioner's response to the reformulated case was to be put on by way of responsive appeal statement. It meant that the Commissioner's existing appeal statement would be overtaken by that new responsive statement.
3. As to the second of those matters, Skycorp maintained that there were many reasons (including a constitutional point) as to why the Commissioner could not adopt a forensic approach that, in effect, disputed the basis upon which the objection decision had been determined, namely that there was a pool of expenditure that could be deducted under Division 43 for the Building (albeit for a much lower amount than had been sought by Skycorp). In particular, Skycorp maintained that by putting it to proof as to the whole of the deductions claimed, the Commissioner was both (a) seeking to refute his own assessment; and (b) going beyond the scope of the appeal which was said to be confined to the extent of matters in the objection decision with which Skycorp was dissatisfied, namely the failure to allow greater deduction amounts in each year.
4. Skycorp embarked upon a persistent course of correspondence in which it sought to extract some form of concession from the Commissioner to the effect that in the appeal the extent of the deductions that had been allowed were not in issue. As it now relies upon the correspondence to support the costs order it seeks, regrettably it is necessary to refer to it in some detail.
5. On 20 May 2025, the lawyers acting for Skycorp wrote to the lawyers acting for the Commissioner about the Commissioner's responsive appeal statement. The letter included the following statements:

Please confirm explicitly that your client is asserting that on its proper construction s14ZZO(b) TAA requires our client to reprove to the Court the Division 43 deductions that your client allowed in his objection decision.

...

Our client's position remains that it is not open to your client to contradict before the Court his own assessment and its particulars. The Commissioner's Division 43 particular is made prima facie correct by s14ZZO(b) and is not put in issue by [Skycorp]. So, it is not a matter of controversy attracting judicial power.

...

That is, the Court must be informed by your client of the facts that led your client to assessing our client under Division 43. This necessarily includes the facts as to why your client decided and reassessed on the basis that the construction expenditure was not deductible under Division 40.

It is then simply up to our client to demonstrate the facts that prove the Division 43 deductions allowed were too low in amount. If your client chooses to assert that additional items of expenditure ought to be allowed under Division 40 rather than Division 43, which he is free to do, then the assessments are ipso facto excessive within section 14ZZO(b) and remitter is required.

Please confirm that your client takes a contrary position as to the proper construction of section 14ZZO(b), including it seems the position that uncontradicted particulars of assessments are put in issue and attract Federal judicial power. Our client will then be in a position to determine if there is a true controversy as to the construction of section 14ZZO(b) that might require s78B notices.

Your client was clearly on notice of the issue. To the extent that 'Non-eligible expenditure' is but another way of articulating the same argument, it should be noted that this is repetitive and potential costs consequences are noted.

(original emphasis)

1. I note that, in the course of the appeal, Skycorp had pursued extensive forensic steps with a view to obtaining additional evidence that was not available as part of the objection process. Those steps produced a greater understanding of what was available by way of historical information. Skycorp also sought to reformulate its case as to the application of Division 43, a number of times. These are all reasons why the usual practice in relation to the filing of appeal statements has not been followed and, in my view, why it was appropriate for the terms of the Commissioner's responsive appeal statement to respond to the new formulation of Skycorp's case and to do so having regard to what had emerged during the course of the conduct of the appeal.
2. The letter of 20 May 2025 was sent on the eve of a case management hearing. The Commissioner's position in response was that the case management hearing should proceed.
3. At the case management hearing, Skycorp proposed orders that the responsive appeal statement be removed from the Court file and that the Commissioner be required to file and serve 'a substituted and complete responsive appeal statement'. Orders were made, in effect, requiring Skycorp to bring a formal interlocutory application.
4. On 22 May 2025, the lawyers for Skycorp sought a substantive response to the letter of 20 May 2025. In that follow up letter, it was said that preparation and filing of the interlocutory application would waste the Court's time 'if it is premised on a misapprehension by [Skycorp] of the [Commissioner's] responsive appeal statement'.
5. On 27 May 2025, the Commissioner's lawyers responded to the 20 and 22 May letters on a without prejudice basis. The letter was subsequently advanced on an open basis. Relevantly for present purposes, the response asked for the basis of the orders that were sought by Skycorp to strike out the Commissioner's responsive appeal statement and have it removed from the Court file. It provided a detailed explanation for the terms of the responsive appeal statement. As to the requests for clarification that had been made by Skycorp, the letter said:

Finally, we address the following two express requests for clarification set out in your letter of 20 May 2025:

a. Please confirm explicitly that your client is asserting that on its proper construction s14ZZO(b) TAA requires our client to reprove to the Court the Division 43 deductions that your client allowed in his objection decision.

Consistent with the authorities cited in the [responsive appeal statement], [Skycorp] is required to prove on the balance of probabilities that the assessment was excessive or otherwise incorrect by establishing affirmatively what the correct assessment in each Relevant Year should be.

In the [Commissioner's] view, this requires [Skycorp] to establish its entitlement under the taxation legislation to the claimed deduction in the amount claimed (limited to [Skycorp's] grounds of objection, unless leave is granted to rely on additional grounds).

b. Please confirm explicitly that your client asserts our client's appeal ought be dismissed if deductions are not allowable under Division 43 because they might be allowable under Division 40.

As is made clear in the [responsive appeal statement], it is for [Skycorp] to establish its entitlement to a deduction in the amounts claimed in accordance with the taxation legislation. If [Skycorp] elects to have the matter determined solely on the basis that it is entitled to a capital works deduction under Division 43, [Skycorp] must prove to the Court that all claimed expenditure is eligible for deduction under Division 43.

(original emphasis)

1. The letter indicated that the Commissioner considered the interlocutory application to be without merit and the letter would be relied upon on the question of costs.
2. On 21 August 2025, Skycorp's lawyers sent the following letter to the Commissioner's lawyers:

We are considering briefing senior counsel to attend the hearing on 2 September 2025. We hope that will be unnecessary.

In this regard, we refer to the [Commissioner's] concise Appeal Statement dated 21 October 2021. It identifies with particularity at para 24 the two bases of its Objection Decision dated 24 June 2021 that [Skycorp] must address by evidence to satisfy its onus of proving that the [Commissioner] has under­allowed deductions pursuant to Division 43 ITAA97:

(a) There is insufficient evidence that the claimed pool of construction expenditure is above that allowed in the [Commissioner's] Objection Decision dated 24 June 2021;

(b) There is insufficient evidence that the portion of the pool of construction expenditure is attributable to the area owned by [Skycorp].

Our client is proceeding on the basis that this is the case it must meet. Our client seeks confirmation of that. Our client also seeks clear confirmation that the [Commissioner] is not contending that the Court should disallow the Division 43 deductions it decided to allow in its Objection Decision dated 24 June 2021.

We seek your urgent reply in writing with a view to preserving the resources of [Skycorp], the [Commissioner] and the Court.

We seek your confirmation in writing by Friday 22 August 2025 at 10:00am WST.

(numbering omitted)

1. For reasons I have given, reliance upon the Commissioner's original appeal statement was misconceived. Otherwise, it appears that despite the clear terms of the Commissioner's responsive appeal statement, Skycorp was seeking to extract a concession from the Commissioner in response to its replacement appeal statement that the only insufficiency in the available evidence was as to deductions claimed above the amounts that had been allowed on the objection.
2. On 25 August 2025, the Commissioner's lawyers responded by saying that it was a matter for Skycorp as to how it chose to discharge its statutory onus. The response also pointed to relevant paragraphs in the responsive appeal statement setting out the Commissioner's position as to why Skycorp will not discharge its onus in the appeal. The response also referred back to the earlier letter of 27 May 2025.
3. Skycorp sought to characterize this response from the Commissioner as 'obtuse'. I do not agree. The Commissioner's position was clear. It maintained that Skycorp would not be able to succeed in its appeal as it would not be able to discharge its statutory onus on the appeal because it could not demonstrate that there was any expenditure that it could deduct under Division 43.
4. Skycorp's lawyers responded on the same day. Their response sought to maintain the position that the Commissioner's case on the appeal was as set out in the original appeal statement that had been filed by the Commissioner at the outset. The letter then sought 'plain, open answers' to a number of questions. As to those questions, the first was a flawed question because it sought to characterise key paragraphs of the responsive appeal statement as 'further and better particulars' of the Commissioner's original appeal statement. For reasons I have given, that appeal statement no longer operated. The second set of questions sought answers on the basis that the responsive appeal statement was not a form of further and better particulars. They were expressed in the following terms:

(a) confirm that your client maintains the [Commissioner's Original Formulation];

(b) identify with the same succinctness and clarity as [the Commissioner's Original Formulation], the further contentions your client now wishes to make to support his assessments; and

(c) confirm that your client is not purporting to put the bases he has adopted for his assessments in issue, in particular where he is seeking to contend that his allowance of Division 43 deductions in his Objection Decision can and should be reversed.

1. Two days later, the Commissioner's lawyers responded by letter in which they said, amongst other things:

(1) 'For the avoidance of doubt, the [Commissioner's responsive appeal statement] replaces the [Commissioner's original appeal statement] and fully sets out his case in this matter'.

(2) '[Y]our letter, ... proceeds on a mistaken view of the scope and nature of power being exercised in [the appeal] proceedings'.

(3) 'The [Commissioner's] case ... is that [Skycorp] is required to prove on the balance of probabilities that the assessments were excessive or otherwise incorrect by establishing affirmatively what the correct assessment in each Relevant Year should be'.

Skycorp's submissions in support of the indemnity costs order it seeks

1. Skycorp submits that by the end of the above exchange of correspondence, the Commissioner had finally made clear that he would proceed on the basis that 'the Division 43 deductions were all in issue'. Skycorp says that it was on that basis that it proceeded with the interlocutory application.
2. In the course of the hearing, in response to questions from the Court, counsel for the Commissioner (a) contended that the Commissioner had never accepted that part of the deduction amounts were uncontested; and (b) made clear that there was no attempt by the Commissioner to somehow assess for more tax.
3. The statement that there was no attempt by the Commissioner to assess for more tax is now said by Skycorp to have involved a reversal by the Commissioner of his position. It was said to be a reversal of a kind that would allow Skycorp to now proceed on the basis that the allowed deduction for Area A (the construction of the Building) was not in issue and the appeal could focus on Area B (the claim for an additional pool of expenditure). This approach was said to be possible because, 'the allowed Division 43 deductions remain entirely undisturbed'.
4. It was then said that the Commissioner had 'wrongfully instilled ... fear' in Skycorp 'by his obfuscation and eventual direct open answer to [Skycorp's] simple query'.
5. In aid of this submission, Skycorp now seeks to characterise a sentence in the Reasons as confirming that the appeal is to be decided on the basis that the Division 43 deductions that were allowed 'remain entirely undisturbed', which I take to mean that it is a matter that is admitted for the purposes of the conduct of the appeal.
6. These submissions are entirely misconceived. They fail to engage with a very important distinction. On the one hand, there are the matters that Skycorp must prove in order for it to succeed in its appeal. On the other hand, there are the steps that the Commissioner must take if the Commissioner was to assess Skycorp for more tax in the relevant years.
7. The only 'concession' made by the Commissioner in the course of the hearing of the interlocutory application was that the Commissioner does not seek, by the appeal, to assess Skycorp for more tax. That is to say, the Commissioner does not maintain that he can advance an affirmative case in the appeal that would result in some change to the objection decision that would then provide the foundation for Skycorp to be assessed for more tax.
8. However, the Commissioner did not admit or concede that the appeal was to be conducted on the basis that there was a demonstrated basis for the deductions that had been allowed. Indeed, given the consistent position of the Commissioner in the correspondence any such admission or concession would have been a very fundamental reversal of position. The Commissioner's position remains that in order for Skycorp to succeed in the appeal, Skycorp must prove the full extent of any deductions under Division 43. This position is entirely consistent with the nature of the statutory appeal. As was explained in Bosanac v Commissioner of Taxation [2019] FCAFC 116; (2019) 267 FCR 169 at [47] (Greenwood, Burley and Colvin JJ):

Although s 14ZZ provides for an 'appeal', it confers an original jurisdiction to determine a review claim 'against the decision' by the Commissioner on an objection. The Court is to determine the claim on the evidence presented to it in accordance with its usual practice and procedure for applications in its original jurisdiction. The onus is on the appellant to prove that the assessment the subject of the objection decision was excessive or otherwise incorrect and what the assessment should have been. As stated by Dowsett J in Weyers v Commissioner of Taxation [2006] FCA 818 at [146], '[t]he Commissioner need not justify the decision, save in response to an appropriate attack upon it'. The grounds that may be relied upon are confined to those raised before the Commissioner in the objection, unless the court otherwise orders. So, the evidence that may be led to discharge the onus is likewise confined. It is a matter for the parties whether they stipulate the correctness of factual matters before the Commissioner. However, in the absence of such matters being agreed or such matters being presented as evidence of the truth of those matters without objection, it is for the appellant to provide the necessary evidence on the hearing before the court on the 'appeal'. The court does not simply receive the record before the Commissioner on the objection and make its decision on that basis.

1. Further, as was said in Zappia v Commissioner of Taxation [2017] FCAFC 185 at [3] (Pagone J, Robertson and Bromwich JJ agreeing):

Statements made by the Commissioner in an objection decision do not establish the facts upon which tax was to be levied and do not bind the Commissioner, or the operation of the taxing provisions, except (perhaps) where the parties in proceedings have agreed to the facts for the purposes of the proceedings. The recital of facts found in an objection decision are not themselves the facts they purport to recite and their recitation does not bind the Commissioner, or the operation of the taxing statute, where a taxpayer is required to discharge the burden imposed by s 14ZZO to prove that an assessment is excessive. That can be done only by establishing the facts upon which the liability depends.

1. Therefore, unless the parties agree that particular aspects that determine the extent of the taxpayer's liability are not in issue then all those aspects must be established in the appeal. Further, unless it is expressly agreed that facts found in an objection decision are to be accepted for the purposes of the appeal, the taxpayer must prove those facts. In the present case, the parties are agreed that the only matter in issue as to the extent of the taxation liability of Skycorp concerns the extent of the deductions under Division 43 to which it is entitled in each of the relevant years. Otherwise, there is no agreement. Skycorp must prove the full extent of any available deductions under Division 43.
2. What the Commissioner has made clear is that, if Skycorp fails in the appeal, he does not seek to claim that a result of that failure should be some consequence for the objection decision and the assessments that have been issued as a result of that failure. The assessments will stand. In consequence, the Commissioner would have to demonstrate there was some other basis for issuing an amended assessment if a different taxation liability was to be imposed. Any such basis would have to confront the limitations on the Commissioner's powers to assess after the considerable passage of time and any legal consequences of the fact that the objection decision was undisturbed. As to the latter, as I have noted recently in a different context, the fact that the Commissioner fails in supporting on an appeal under s 14ZZ the basis upon which an objection decision was made does not undermine the ongoing legal authority conferred by the objection decision as a valid exercise of administrative power: South Seas Holdings Pty Ltd (Trustee) v Commissioner of Taxation [2025] FCA 848 at [716].
3. Finally, contrary to contentions advanced for Skycorp in support of its application for an indemnity costs order, these matters were made clear in the Reasons.
4. I expressed my substantive reasons for dismissing the interlocutory application commencing at [69] of the Reasons. The first point I made was as follows:

... since the outset of the appeal, there has been an issue between the parties as to the total amount of the pool of expenditure that ought to be used in undertaking calculations for the purposes of Division 43. Skycorp has maintained that more expenditure should be included in the pool. Significantly, it has not sought to identify some discrete component of expenditure that was omitted. Rather, it has sought to dispute the sufficiency of the overall amount allowed by the Commissioner in the objection decision and to establish the extent of appropriate deductions from that overall amount. The Commissioner has consistently maintained that Skycorp must prove the extent of the overall expenditure on the Building. To the extent that Skycorp has relied on evidence of project expenditure, the Commissioner has also maintained that Skycorp must prove the extent of amounts appropriately deducted from project expenditure in order to establish the pool of expenditure for the purposes of Division 43. Skycorp has the onus of demonstrating that the overall amount allowed for the pool of expenditure is insufficient. In order to discharge that onus, for reasons that have been given, it must prove the extent of all the expenditure. It follows that I do not accept the submission for Skycorp that the terms of the Commissioner's responsive appeal statement involve some change in his case of a kind that it would be unfair, as a matter of case management, to allow.

1. I concluded my substantive reasoning with the following statement at [80] of the Reasons:

The Commissioner's case is simply that Skycorp does not have sufficient evidence of the facts and circumstances at the relevant time to establish a pool of expenditure and hence cannot prove that the assessment is excessive.

1. Again, there is no room for the characterisation of the Reasons that Skycorp now seeks to advance which would hold the Commissioner to some form of admission or concession that part of the Division 43 deductions are not in dispute.
2. The submissions for Skycorp were myopically focussed on the following passage of the Reasons at [76]:

Skycorp also advanced a submission to the effect that if, despite its contentions to the contrary, the Commissioner's responsive appeal statement is not required to be removed, then the Commissioner 'should be ordered to provide particulars of its allowed Division 43 deductions that, ex hypothesi, [Skycorp] will be required to prove were correctly allowed' (original emphasis). This alternative, advanced it would seem by way of rhetorical flourish, should not be accepted. As has been explained, the Commissioner does not advance any case to the effect that some part of the objection decision incorrectly allowed deductions under Division 43. Therefore, there is no case of the kind asserted by Skycorp that is advanced by the Commissioner and consequently, no case to be particularised.

(italics added)

1. It is the italicised passage that was the particular focus of Skycorp's contentions. It was approached without any regard to the context to which I have referred. Earlier, at [70] of the Reasons I had explained:

... the Commissioner seeks no relief in the appeal. He advances no affirmative case. It does not seek to invite the Court to undertake the process of assessment. The nature of the appeal is that it involves a determination as to whether the taxpayer has discharged the onus of demonstrating that the tax as assessed is excessive. No issue arises in the appeal as to whether the tax as assessed is insufficient.

1. The sentence at [76] is to be read in context, as well as with due regard to the particulars that Skycorp was seeking. Its submission was that if the Commissioner was requiring Skycorp to prove in the appeal that the deductions allowed by the objection decision had been properly allowed then the Commissioner should have to particularise what it was that Skycorp had to prove. The answer given to the submission was that the Commissioner did not have a case to particularise. That is, the Commissioner does not advance his own case in the appeal to the effect that the objection decision is wrong in some way. Nothing in that statement could be taken to indicate, contrary to what had been said at the outset, that, in order to succeed in the appeal, Skycorp had to prove the full extent of the allowable Division 43 deductions that it alleged.
2. Again, there is a distinction between what Skycorp must establish in order to succeed in the appeal and what the Commissioner must do in order to change the assessment that was based on the objection decision. The point made at [76] was that the Commissioner does not advance a case in the appeal that anything in the objection decision was incorrect. The fact that the Commissioner does not advance such a case does not relieve Skycorp of its burden of proof in the appeal. In the absence of some admission from the Commissioner (which the Commissioner has been at pains to point out he does not make), Skycorp must prove in this Court the basis for the whole of the Division 43 deductions.
3. My reasoning did not contemplate some concession having been made on the part of the Commissioner to the effect that the deductions that had been allowed in the objection decision need not be proved in the appeal. Having regard to what was clearly stated at [69] of the Reasons and the context for what was said at [76], I regard the submission to the contrary to be one that lacked any reasonable foundation.
4. Further, I regard it to be disingenuous. If the alleged concession when made by counsel for the Commissioner was understood by senior counsel for Skycorp to have the character for which he now contends, then it would be expected that he would have maintained that the interlocutory application no longer needed to be pressed. However, that is not what occurred. In reply, senior counsel maintained that the Commissioner had changed his position and was now requiring Skycorp to prove the whole of the amount of the Division 43 deductions. Various arguments that had been advanced as to why the Commissioner could not dispute the extent of the Division 43 deductions that had been allowed on the objection continued to be maintained. I dealt with those other arguments in the Reasons. I concluded that the Commissioner could require Skycorp to prove the basis for all Division 43 deductions notwithstanding the Commissioner's Original Formulation: see Reasons at [69] and [71]. I also concluded that other arguments were a matter for the final hearing listed for February 2026: see Reasons at [73].
5. For those reasons, the basis upon which Skycorp sought its costs order has not been made out.

The Commissioner's submissions in support of the costs order he seeks

1. The Commissioner says he was successful on the interlocutory application and should have his costs. I can see no reason why costs should not follow the event. He also invites the Court to award indemnity costs in respect of the costs involved in responding to Skycorp's claim for costs. For reasons that I have given, I am persuaded that indemnity costs should be awarded. The principles to be applied are well known. They were summarised by Wigney J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246 at [6]‑[12], in terms with which I respectfully agree. There was no reasonable basis for Skycorp to seek an order for indemnity costs.

1. There will be an order that Skycorp pay the Commissioner's costs of the interlocutory application to be assessed if not agreed. In assessing costs pursuant to that order, the costs of and incidental to responding to Skycorp's claim for costs shall be assessed on an indemnity basis.

I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.