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Taxing Matters: Part IVC Objection Proceedings
Know You of This Taxation?
PART IvC OBJECTION PROCEEDINGS
By Matthew Crowley
Francis Burt Chambers
Your grace, it would seem Wolsey did not enjoy the play
Part IVC in context
1. Forgive me the cliché of invoking Shakespeare to decorate a tax paper. It is a common pox, it seems.1 But bear with me. The line falls from the mouth of Henry VIII in the eponymous play.2 Cardinal Wolsey has fallen into royal disfavour when his machinations are exposed. Among those is Wolsey’s collection of an unlawful tax – a ‘Sixth part of each … a trembling contribution!’.
Queen Katherine petitions Henry on behalf of “not a few” warning his subjects are “in great grievance … and almost appear / in loud rebellion.” The Duke of Norfolk ‘mansplains’: “for, upon these taxations / The clothiers all, not able to maintain / The many to them longing, have put off / the spinsters, carders, fullers, weavers, who / Unfit for other life, compell’d by hunger / And lack of other means, in desperate manner / Daring the event of the teeth, are all in uproar / And danger serves among them!”
Henry is not amused: “Taxation! / Wherein? And what taxation? My lord cardinal / You that are blamed for it alike with us / Know you of this taxation?” Henry commands that the tax is not to be recovered: “Have you a precedent / Of this commission? I believe, not any. We must not rend our subjects from our laws / And stick them in our will.” Things do not end well for Wolsey. 2. Henry VIII is not a great play. Neither funny nor emotive, it is a morality play which is nowadays rarely staged.3 It is probably most memorable for the stage prop cannon, which was actually fired during a performance in 1613, setting fire to The Globe and burning it to the ground. But the constitutional point would probably have been pretty clear. Although Magna Carta – which (among other things) forbade taxation by royal fiat – was a dead letter by the early seventeenth century, at the same time jurists such as Sir Edmund Coke began invoking it as symbolic of a fundamental principle of English constitutional law subordinating the monarch to the law.4 That is, I think, the point of the words put into Henry’s mouth.
An organizing principle: No incontestable taxation
3. That rather large arc brings me to Part IVC of the Taxation Administration Act 1953 (Cth) (TAA). Part IVC can be seen as the fulfilment of the constitutional requirement that to be a valid exercise of the federal taxation power an assessment must be contestable.5 Of course, not all ‘objections’ or ‘objection decisions’ relate to assessments. A very recent example can be found in The Buddhist Society of Western Australia Inc v Commissioner of Taxation [2020] FCA 1126 involving the Commissioner’s revocation of the Society’s status as a deductible gift recipient. Private rulings are another. And not all objectionable decisions are ‘objection decisions’ engaging Part IVC. In fact, theoretically the validity of all decisions of the Commissioner are capable of challenge outside Part IVC for jurisdictional error. That is because the Parliament cannot oust the constitutionallyentrenched jurisdiction of the High Court to grant relief in respect of a legally invalid decision. That is, a decision vitiated by ‘jurisdictional error’ is always theoretically capable of challenge, ‘jurisdictional error’ being a conclusion that the decision was without any legal authority. But there’s the rub – Parliament does not always intend that the legal consequence of a decision wrongly made be invalidity. 4. I dare say most Part IVC proceedings do concern assessments, for obvious reasons. But in practical terms challenges to assessments must be funnelled through Part IVC. One reason is that even an otherwise meritorious challenge to an assessment made on judicial review to the High Court (or the Federal Court in its derivative statutory jurisdiction under section 39B of the Judiciary Act 1903 (Cth)) will almost certainly be refused on discretionary grounds because Part IVC has not been invoked.6 The other, more fundamental, reason is that the assessment conclusivity provisions7 mean that even assessments made wrongly are not invalid. They would not be vitiated by jurisdictional error.
5. True, a ‘provisional’ or ‘interim’ or ‘tentative’ assessment can be challenged outside Part IVC.8 But that is because they are not ‘assessments’ at all, and therefore do not engage the conclusivity provisions. Also true, an assessment affected by ‘conscious maladministration’ (bad faith) may be challenged outside Part IVC.9 But that way madness lies! There has never been a successful ‘conscious maladministration’ challenge, so far as my research has disclosed. The practically insuperable problem is a lack of evidence of bad faith.
6. Because of the assessment conclusivity provisions, an assessment would be effectively incontestable (and unconstitutional) but for Part IVC. But Part IVC is invoked on a ‘taxation objection’ –
not just assessments – being made: 14ZL TAA. A ‘taxation objection’ is capable of being made by a person ‘dissatisfied with an ‘assessment, determination, notice or decision’ where such a right is conferred by a provision of another instrument (except private rulings, which are automatically capable of being the subject of taxation objections). Not every decision (in its broad sense) invokes Part IVC. It is therefore important10 to locate Part IVC in the context of the wider Australian administrative law machinery.11
Part IVC not the Alpha and the Omega
7. Putting aside assessments for now, the Administrative Decisions (Judicial Review) Act 1974 (Cth) (ADJR) permits challenges to a range of the Commissioner’s decisions or proposed decisions in the Federal Circuit Court or Federal Court. Assessments are excluded,12 but many relevant decisions are not. Importantly, it is not necessary to establish jurisdictional error to obtain the very broad range of relief available on judicial review, including orders quashing a decision, declarations, and injunctions restraining certain conduct.
8. But most importantly, section 13 of the ADJR confers a right to written reasons for a decision (to which the ADJR applies). ADJR applications for review may be, and often are, coupled with applications for jurisdictional error under section 39B of the Judiciary Act. That is often because ADJR applications are attended with considerable complexity and particular limitations – of which 39B applications are free. Injunctions and declaratory relief may also be available under 39B irrespective of jurisdictional error. A convenient recent example highlighting the possibilities (and complexities) is supplied by Quach v Commissioner of Taxation [2019] FCA 1729; 168 ALD 130 where the taxpayer challenged the Commissioner’s decision under section 8AAG of the TAA to refuse to remit GIC under the ADJR and 39B grounds, as well as seeking declaratory relief. 9. Common decisions that can be challenged under the ADJR (and/or 39B) include: late lodgement penalties and charges, and refusals to extend the time for lodgement or to make certain elections;13 refusing to extend the time to pay tax or pay by instalments;14 GIC or SIC remission decisions;15 decisions to issue garnishee notices,16 and;notices to produce documents.17
Standing to object
10. Only a ‘dissatisfied person’ with ‘a taxation decision’ has standing to make a taxation objection. That connotes someone directly affected, not a busybody or someone with a collateral commercial interest.18 An interesting situation arose in Mark Van Gestel and Commissioner of Taxation [2014] AATA 396; 98 ATR 904 where the Tribunal accepted that a taxpayer was a ‘dissatisfied person’ on an objection decision involving disputed GST refunds because he was a victim of identity fraud. 11. But practically speaking, the requirement is mainly exclusionary. It excludes ‘partnerships’ because they are not legal persons. Rather, the individual partners have standing. It excludes bankrupts on a challenge to assessments, unless the liability would remain following discharge from bankruptcy.19 It is, ordinarily, the trustee in bankruptcy who has standing. Nevertheless, a bankrupt may still have standing before the Tribunal to seek an adjournment of a Part IVC review pending a Federal Court challenge to a bankruptcy trustee’s decision to take no steps to prosecute Part IVC proceedings already underway.20
12. A ‘taxation objection’ will (or should) produce an ‘objection decision’ which will in turn be productive of a ‘reviewable objection decision’ (which is an ‘objection decision that is not an ineligible income tax remission decision’) – the subject matter of the ‘review’ or ‘appeal’ under Part IVC. If no objection decision is made at all, a taxpayer may within 60 days after lodgement invoke section 14ZYA to require an objection decision to be made.
There is no statutory sanction for the Commissioner not doing so, but the objection decision is deemed to be disallowed so that a review or appeal can be pursued. For that reason, mandamus will probably not be available to compel its exercise.
13. Not infrequently, a review is lodged in the Administrative Appeals Tribunal (Tribunal) in circumstances where there has not been a valid ‘taxation objection’ but no one has noticed. In such a case, the Tribunal does have jurisdiction of the de facto decision but is limited in what it can do with it. The Tribunal’s jurisdiction is invoked because there is a decision in fact which is the subject matter of the review – it is not necessary for there to be a legally valid decision.21 14. But the stream cannot rise higher than the source: the Tribunal’s powers are limited by the enabling Act so that there may be no power to set aside or vary the ‘objection decision’ because the original decisionmaker’s power was not ever enlivened.22 A recent example of this is supplied in C and K Components Plus Pty Ltd and Commissioner of Taxation (Taxation) [2018] AATA 4666 where the taxpayer sought to have reviewed the Commissioner’s refusal to make a private ruling: A private ruling actually made is a reviewable objection decision, but not a decision not to make one at all. The problem most often arises where a ‘taxation objection’ is made outside the time limits set out at section 14ZW(1) TAA (and no extension has been requested under section 14ZW(2)).
‘Review’ in Tribunal or ‘appeal’ to Federal Court?
15. An important forensic choice. The most important forensic decision in Part IVC proceedings is, I suspect, also the least considered. Part IVC is a bifurcated system conferring on the taxpayer a choice between merits review in the Tribunal or a hybrid ‘appeal’ to the Federal Court: 14ZZ(1) TAA. While the subject matter – the ‘reviewable
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objection decision’ – is the same, there are fundamental differences. Tax agents have a right of appearance in the Tribunal, but not the Federal Court. There can arise the perception of a conflict of interest in a tax agent advising a client where the tax agent is likely to secure for herself a financial benefit only where one of those options are pursued. 16. Federal Court. An ‘appeal’ to the Federal Court is not a true appeal because it is an original jurisdiction application. It is really a hybrid proceeding, with some characteristics of a de novo hearing and others akin to judicial review. Where an assessment is being ‘appealed’, it is ‘necessary for the taxpayer to prove, by proper evidence put before the appeal Court, what is the correct amount of the taxpayer’s taxable income in respect of which the Commissioner should have made his assessment.’23 That may include evidence not before the Commissioner. It may involve questions of law or fact. These factors have the character of a de novo hearing. 17. However, where the objection decision involves the exercise of a discretion, the taxpayer on ‘appeal’ must demonstrate error on the part of the decision-maker. So, for example, an ‘appeal’ to the Federal Court challenging an amended assessment made outside the ordinary limitation periods on the basis of the Commissioner’s opinion of ‘fraud or evasion’ could prevail if: (a) they introduced evidence demonstrating on the balance of probabilities that the assessments were excessive in any event, or (b) demonstrating legal error in the formation of the opinion of ‘fraud or evasion’ on the basis of the evidence before the Commissioner.24 This latter point is more characteristic of an appeal in the ordinary sense. On the other hand, if a taxpayer prevails in establishing this latter challenge, then the Federal Court may exercise the discretion itself – and on the basis of evidence not before the Commissioner.25 The ‘appeal’ is a strange bird.
18. Tribunal. Conversely, a review in the Tribunal is a review de novo. Any discretion exercised by the Commissioner is reexercised by the Tribunal, and may be based upon any new information introduced by the taxpayer. Indeed, any relevant new information must be considered. It is not directed to the correction of error by the Commissioner. Where a precondition to an assessment is the formation of an opinion, for example an out-of-time assessment made on the basis of the fraud or evasion exception, then on review if the Tribunal can be persuaded that there has not been any fraud or evasion, the assessment will necessarily be excessive.26 19. How to decide? These considerations may be helpful. First, costs. A successful party on ‘appeal’ to the Federal Court will almost always be entitled to her costs. On a Part IVC challenge to an assessment, if there is a strong evidentiary case showing the assessment was in fact excessive, an ‘appeal’ is probably the best bet.
Second, privacy. Tribunal reviews (but not Federal Court appeals) are private if requested, and identities can be anonymized: section 14ZZJ TAA; 43 Administrative Appeals Tribunal Act 1975 (Cth). On the other hand, if either side appeals the privacy advantage may be lost: although the taxpayer’s identity will have renamed, the facts will often expose identity. Third, discretionary decisions. If the taxpayer seeks to impugn a discretionary decision, it will ordinarily be more strategic to seek a review in the Tribunal. Whereas error must be demonstrated in the Federal Court, the Tribunal simply exercises the discretion anew.
Fourth, admissibility of evidence. In the Federal Court the Evidence Act 1995 (Cth) regulates the admissibility of evidence, whereas the Tribunal is not bound by rules of evidence. ‘Borderline’ evidence, including hearsay-type evidence, would be better suited to a Tribunal review. On the other hand, the difference should not be exaggerated. ‘Adventurous’ modes of evidence may command little weight.27
Burden of proof
20. As everyone knows, the taxpayer has the onus of proof in either a review or appeal: section 14ZZO; 14ZZK TAA. Where there is a factual issue, such as a challenge to an assessment, the standard is the balance of probabilities. There is no standard of proof where the review or appeal concerns the exercise of a discretion. In the case of a Tribunal review, the Tribunal simply reexercises the discretion anew. On an appeal, error must be shown. Neither invoke any standard of proof. 21. Assessments. In the typical case of an assessment, the Commissioner need not lead any evidence at all, and just rely on the taxpayer’s burden of proof.28 Brennan J’s statement in Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at [12] is canonical:
The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the
Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection. 22. In fact in the absence of some sort of concession by the Commissioner, the taxpayer must establish every aspect of his (factual) case. Sometimes, the Commissioner will agree to confine a review in this way. An ATO position paper may lay the groundwork for such a concession.
23. A corollary is that the taxpayer cannot discharge the burden under Part IVC merely by pointing to an error by the Commissioner. On the other hand, it is a myth that a taxpayer’s own testimony evidence cannot be sufficient in itself to discharge her onus. 24. In Federal Commissioner of Taxation v Ma (1992) 37 FCR 225, Ma was a restaurateur and horse-racing punter. The Commissioner assessed all bank deposits as income as higher than could be accounted for from the business of the restaurant. Ma put on oral evidence from his bank manager, bookmaker, and an official from the Port Macquarie Racing Committee. Burchett J said at 230:
if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved.
25. A 5-member Full Court seemed to approve in Haritos v Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315. 26. Of course, the taxpayer has a positive burden to show what her income actually was and the tax payable. The point is that there are many paths to the mountain peak. That is why Brennan J said in Dalco ‘[t]he manner in which a taxpayer can discharge that burden varies with the circumstances’.29
27. It is possible for a taxpayer to simply depose to her income.30 If evidence from the taxpayer is to play any significant part, questions of credibility and weight should not be overlooked. On the other hand, one consequence of the so-called ‘Brigginshaw’ test directs that ‘dishonesty’ (or other serious allegation) should not be found on skinny evidence.31 And it would be unfair for the Commissioner to submit, or the Tribunal or Federal Court to find, that a taxpayer was being untruthful unless the allegation had been properly put to the taxpayer.32 28. For corporate taxpayers, section 1305 of the Corporations Act (Cth) directs that a ‘book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.’ Whereas the exception to the hearsay rule for business records is merely a rule of admissibility, section 1305 directs not only that the evidence is admissible but that it is prima facie evidence of what it says. Importantly, ‘books’ includes ‘financial records’ embracing ‘invoices, receipts … working papers and other documents needed to
explain… the financial statements.’ It does not follow that the evidence is ultimately accepted in the deliberative process, but it would ordinarily be unless it is somehow inconsistent with other cogent evidence.33 29. Hopefully there are some things in this paper that will help you navigate your next Part IVC proceedings. Before I sign off, there is one other reason I thought Shakespeare was apt. Recent scholarship has uncovered evidence that the Bard was himself a tax evader. A ‘lay subsidy’ was apparently imposed on persons of wealth . The Bard was listed on the ‘default roll’ of 1597 for non-payment of £5.3134 EXEUNT.
End notes
1 In the United States, papers have been written on the misuse of Shakespeare in tax papers. See Tax Notes (16 November 2009); 791-9 2 Act I, Scene 2 3 ‘Why Shakespeare’s Henry VIII remains a rarity’, BBC
News online (14 May 2010), http://news.bbc.co.uk/2/hi/ entertainment/8679613.stm 4 Garnett, G., ‘Sir Edward Coke’s resurrection of Magna
Carta’ (pp. 51-60), in Goldman, L. (ed.), Magna Carta: history, context and influence, Univ. of London Press (2018) 5 Federal Commissioner of Taxation v Futuris Corporation
Ltd [2008] HCA 32; 237 CLR 146, per Gummow, Hayne,
Heydon and Crennan JJ at [9]; MacCormick v Federal
Commissioner of Taxation (1984) 158 CLR 622 at 639640; [1984] HCA 20; Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 221-
222; [1995] HCA 23. 6 Federal Commissioner of Taxation v Futuris Corporation
Ltd [2008] HCA 32; 237 CLR 146 7 See Section 350-10(1), Item 2, Schedule 1, TAA 8 F J Bloemen Pty Ltd v Federal Commissioner of
Taxation [1981] HCA 27; 147 CLR 360; Federal
Commissioner of Taxation v S Hoffnung & Co Ltd [1928]
HCA 49; 42 CLR 39 9 Federal Commissioner of Taxation v Futuris Corporation
Ltd [2008] HCA 32; 237 CLR 146 10 See s 359–60 of Schedule 1 to the Taxation
Administration Act 11 See also limitations on objection rights at s 14ZVA of
Taxation Administration Act 12 Schedule 1 s 3(e) 13 Fitzgibbon and Federal Commissioner of Taxation (2004) 56 ATR 1131; Phelps and Federal Commissioner of Taxation (2009) 76 ATR 992 14 Ahern v Deputy Commissioner of Taxation (1985) 17
ATR 224; Elias v Federal Commissioner of Taxation (2002) 51 ATR 1; Nyack Investments Pty Ltd and
Federal Commissioner of Taxation (2005) 59 ATR 1116 15 Quach v Commissioner of Taxation [2019] FCA 1729; 168 ALD 130; Elias v Federal Commissioner of Taxation (2002) 51 ATR 1; Nyack Investments Pty Ltd and
Federal Commissioner of Taxation (2005) 59 ATR 1116 16 Shail v Federal Commissioner of Taxation (2007) 66 ATR 622 17 Deputy Commissioner of Taxation v Clarke and Kann (1984) 15 ATR 483 18 CTC Resources NL v The Commissioner of Taxation for the Commonwealth of Australia [1994] FCA 76 19 Nugawela v Commissioner of Taxation [2018] FCA 1458 at [27]; Robertson Jnr v Deputy Commissioner of Taxation of the Commonwealth of Australia [2004]
FCAFC 46; 137 FCR 513; McCallum v Commissioner of
Taxation [1997] FCA 533; 75 FCR 458 20 Nugawela v Commissioner of Taxation [2018] FCA 1458 at [32] 21 Collector of Customs (NSW) v Brian Lawlor Automotive
Pty Ltd (1979) 41 FLR 338; 24 ALR 307; Yilmaz v
Minister for Immigration and Multicultural Affairs (2000) 100 FCR 495 22 Commissioner of Taxation v Administrative Appeals
Tribunal, Cheryl Walters & Kevin Walters, unpublished (P)VID285/2013, per Gordon J; And see Walters and
Commissioner of Taxation [2013] AATA 834, per Forgie
DP. 23 Kajewski v Federal Commissioner of Taxation [2003]
FCA 258; [2003] ATC 4375 at [6]; Trautwein v Federal
Commissioner of Taxation (1936) 56 CLR 63 at 87 - 88 ; Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 at 336; McCormack v Federal
Commissioner of Taxation (1979) 143 CLR 284 at 303 . 24 Kajewski v Federal Commissioner of Taxation [2003]
FCA 258; [2003] ATC 4375 at [107] 25 Blues Pty Ltd v Deputy Commissioner of Taxation [2012]
FCA 320 at [14]; Kajewski v Federal Commissioner of
Taxation [2003] FCA 258; [2003] ATC 4375 at [107] 26 McAndrew v Federal Commissioner of Taxation [1956]
HCA 62; 98 CLR 263, per taylor J at 282-283 27 See Ileris and Comcare [1999] AATA 647 28 Federal Commissioner of Taxation v Cassaniti [2018]
FCAFC 212; 266 FCR 385, per Logan J at [17]; Federal
Commissioner of Taxation v Dalco [1990] HCA 3; 168
CLR 614 29 Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at [12] 30 Federal Commissioner of Taxation v Cassaniti [2018]
FCAFC 212; 266 FCR 385 31 Brigginshaw v Brigginshaw (1938) 60 CLR 336 32 Federal Commissioner of Taxation v Cassaniti [2018]
FCAFC 212; 266 FCR 385 at [45]; Browne v Dunn (1894) 6 R 67 33 Cf. Carter v Federal Commissioner of Taxation [2020]
FCAFC 10, in which special leave is pending 34 Academics claim that Shakespeare was a ‘ruthless’ businessman who evaded taxes’, Business Insider, 26
April 2016
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