FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Queensland Trading & Holding Company Ltd [2006] FCAFC 112 TAXES & DUTIES – income tax and related legislation – objections and appeals – where Commissioner assessed primary and additional tax – where notice of assessment incorporated notice of both – where taxpayer pursued objection and appeal including ground that Commissioner failed to remit additional tax – whether open to taxpayer to request reasons pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1997 (Cth) of decision not to remit additional tax – whether decision separate from objection decision Administrative Decisions (Judicial Review) Act 1977 (Cth) s 3(1), 13, Sch 1 (ga) Taxation Administration Act 1953 (Cth) ss 14ZL, 14ZQ, 14ZR, 14ZY Income Tax Assessment Act 1936 (Cth)ss 6(1), 175, 175A, 177, 227 Federal Commissioner of Taxation v Mostyn (1987) 18 FCR 260 distinguished COMMISSIONER OF TAXATION v QUEENSLAND TRADING & HOLDING COMPANY LIMITED NSD 646 OF 2005 COMMISSIONER OF TAXATION v INDUSTRIAL EQUITY LIMITED NSD 647 OF 2005 RYAN, HEEREY AND EDMONDS JJ 6 JULY 2006 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 646 OF 2005 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION Appellant AND: QUEENSLAND TRADING & HOLDING COMPANY LIMITED Respondent JUDGES: RYAN, HEEREY AND EDMONDS JJ DATE OF ORDER: 6 JULY 2006 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. Paragraph 1 of the Order of Conti J of 19 April 2005 be set aside. 3. Paragraph 2 of the Order of Conti J of 19 April 2005 be set aside and, in lieu thereof, it be ordered that the respondent pay the appellant Commissioner of Taxation's costs of the proceedings to the date of the said order. 4. The respondent pay the appellant Commissioner of Taxation's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 647 OF 2005 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION Appellant AND: INDUSTRIAL EQUITY LIMITED Respondent JUDGES: RYAN, HEEREY AND EDMONDS JJ DATE OF ORDER: 6 JULY 2006 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. Paragraph 1 of the Order of Conti J of 19 April 2005 be set aside. 3. Paragraph 2 of the Order of Conti J of 19 April 2005 be set aside and, in lieu thereof, it be ordered that the respondent pay the appellant Commissioner of Taxation's costs of the proceedings to the date of the said order. 4. The respondent pay the appellant Commissioner of Taxation's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 646 OF 2005 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION Appellant AND: QUEENSLAND TRADING & HOLDING COMPANY LIMITED Respondent AND: IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 647 OF 2005 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: COMMISSIONER OF TAXATION Appellant AND: INDUSTRIAL EQUITY LIMITED Respondent JUDGES: RYAN, HEEREY AND EDMONDS JJ DATE: 6 JULY 2006 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: Introduction 1 These appeals are brought from a judgment of a judge of this Court (Conti J) and raise the following issues for determination: 1. Whether each of Queensland Trading & Holding Company Limited ('QTH') and Industrial Equity Limited ('IEL') (collectively 'the taxpayers') is entitled to request reasons pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act') in respect of decisions made by the Commissioner of Taxation ('the Commissioner'), as part of his disallowance of objections filed by each taxpayer pursuant to s 14ZY of the Taxation Administration Act 1953 (Cth) ('the TAA'), not to further or fully remit additional tax pursuant to s 227(3) of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act'). 2. If the answer to 1 above is 'yes', whether the taxpayers should otherwise be entitled to orders in their favour pursuant to s 13(4A) of the ADJR Act. 2 On 19 April 2005, the learned primary judge ordered that: 'Upon the true construction of Schedule 1 to the [ADJR Act] and par (ga) thereof in particular, and in the events which have happened, [IEL] is entitled to make the request contained in its letter dated 15 March 2004 to the respondent Commissioner of Taxation for a statement of reasons in respect of the decision of the respondent made on 17 February 2004 under s 227(3) of the Income Tax Assessment Act not to further or fully remit additional tax imposed purportedly in accordance with Part VII thereof.' Background 3 QTH is a member of the IEL Group of which IEL is the parent. Each of IEL and QTH is a transferee of losses from Spassked Pty Ltd ('Spassked'), another member of the IEL Group. In Spassked Pty Ltd v Federal Commissioner of Taxation (2004) 136 FCR 441, a Full Court of this Court decided that Spassked Pty Ltd was not entitled to an allowable deduction in respect of interest incurred by it during certain years of income and that, as a result, Spassked Pty Ltd had no losses which it could transfer to other members of the IEL Group, including each of the taxpayers, pursuant to s 80G of the 1936 Act. 4 Following the decision at first instance in Spassked Pty Ltd v Federal Commissioner of Taxation (2003) ATC 4178, the Commissioner made amended assessments disallowing losses transferred to each taxpayer from Spassked Pty Ltd. Notice of the amended assessment for QTH was issued on 11 April 2003 and disallowed losses transferred to it for the year ended 30 June 1991. In addition to notifying an assessment of primary tax, it also notified an assessment of additional tax under Part VII of the 1936 Act. Notice of the amended assessment for IEL was issued on 14 April 2003 and disallowed losses transferred to it for the year ended 30 June 1996. In addition to notifying an assessment of primary tax, it also notified an assessment of additional tax under Part VII of the 1936 Act. 5 By virtue of s 14ZR(1) of the TAA, what were in fact two 'taxation decisions' (s 14ZQ of the TAA) in respect of each of the taxpayers, are deemed, for the purposes of s 175A of the 1936 Act and Part IVC of the TAA, to be one taxation decision. 6 Each of IEL and QTH objected against these amended assessments on 9 May 2003. Each objection included a ground that additional tax assessed to each taxpayer should have been remitted pursuant to s 227 of the 1936 Act. Pursuant to s 14ZY(1)(b) of the TAA the Commissioner disallowed each objection. In the case of QTH, he did so on 11 March 2004 and in the case of IEL, he did so on 17 February 2004. 7 Each of QTH and IEL lodged appeals to this Court against their respective objection decisions ('the Part IVC Proceedings'). QTH has filed a statement of facts, issues and contentions ('SFIC') in the Part IVC Proceedings in which it has stated that one of the issues for determination is: 'Whether the respondent erred in law in the manner in which he exercised the discretion conferred on him by section 227(3) of [the 1936 Act] by failing to remit additional tax in full or by some greater amount.' 8 IEL, in its SFIC in the Part IVC Proceedings, has also stated that this issue arises for determination. 9 On 11 August 2004 in the Part IVC Proceedings, Conti J ordered that the Commissioner give particulars to each of QTH and IEL concerning the manner in which, the amount in which, and the statutory provisions pursuant to which the Commissioner calculated such amounts as had been assessed for additional tax under Part VII of the 1936 Act. These particulars were provided by the Commissioner on 24 September 2004. Further particulars were requested by each of QTH and IEL of the way in which the Commissioner applied s 227 of the 1936 Act on 26 October 2004. Further and better particulars were supplied in accordance with this request by the Commissioner on 10 November 2004. 10 Neither IEL nor QTH has since sought further particulars of the way in which the Commissioner exercised his discretion under s 227(3) of the 1936 Act. 11 It is against this background that each taxpayer seeks reasons under s 13 of the ADJR Act in respect of the decisions of the Commissioner under s 227(3) of the 1936 Act not to further or fully remit additional tax. Relevant statutory provisions 12 Section 3(1) of the ADJR Act provides that a decision to which that Act applies excludes 'a decision included in any of the classes of decisions set out in Schedule 1'. 13 Subparagraph (ga) of Schedule 1 of the ADJR Act provides: 'decisions under section 14ZY of the Taxation Administration Act 1953 disallowing objections to assessments or calculations of tax, charge or duty.' 14 Section 227 of Part VII of the 1936 Act provided during the relevant years of income: '(1) The Commissioner shall make an assessment of the additional tax payable by a person under a provision of this Part. (2) Nothing in this Act shall be taken to preclude notice of an assessment made in respect of a person under subsection (1) from being incorporated in notice of any other assessment made in respect of the person under this Act. (3) The Commissioner may, in the Commissioner's discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of subsection 33 (1) of the Acts Interpretation Act 1901to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under subsection (1) of the additional tax.' 15 Here, consistent with s 227(2) of the 1936 Act, each assessment of additional tax has been incorporated into the notice of amended assessment issued to each taxpayer. 16 The provisions of ss 175 and 177(1) of the 1936 Act apply to an assessment of additional tax because the definition of 'assessment' in s 6(1) of the 1936 Act relevantly includes the ascertainment of the amount of additional tax payable under a provision of Part VII. Section s 175 provides: 'The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.' 17 Section 177(1) provides: 'The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.' 18 A taxpayer may object against an assessment of additional tax, as well as any assessment for primary tax, pursuant to s 175A of the 1936 Act in the manner set out in Part IVC of the TAA. Section 14ZY(1) of Part IVC of the TAA provides as follows: 'If the taxation objection has been lodged with the Commissioner within the required period, the Commissioner must decide whether to: (a) allow it, wholly or in part; or (b) disallow it.' 19 By force of s 14ZL of the TAA and s 175A of the 1936 Act a taxation objection includes an objection against an assessment of additional tax. Reasoning 20 As there can only be one objection by each of the taxpayers in respect of the assessment of primary tax and additional tax notified by the notice issued to each of them, there can, in our view, be only one decision in respect of each objection; and that is the objection decision referred to in s 14ZY of the TAA. The decision can accommodate both disallowance of the objection or an allowance of it, in whole or in part, and in the latter case irrespective of whether it involves reduction of the primary tax assessed, further remission of the additional tax assessed or both. 21 QTH and IEL concede that decisions disallowing objections to assessments of tax are not decisions to which the ADJR Act applies: see subpar (ga) of Schedule 1 of the ADJR Act. Their case is totally dependent on the premise that a decision not to further or fully remit the additional tax at the objection decision stage, is not part of the objection decision but a separate and discrete decision. However, the premise is false; the Commissioner's refusal to further or fully remit the additional tax is subsumed in the objection decision and, as a result, the objection decision is no less a decision under s 14ZY of the TAA disallowing an objection to an assessment of tax than it would be if the objection on which the decision is made had been grounded solely in matters going to primary tax. 22 If this be right, then issues as to whether additional tax payable pursuant to Part VII of the 1936 Act is a tax or charge for the purposes of subpar (ga) of Schedule 1 to the ADJR Act or whether, on the other hand, it is a penalty, do not arise. 23 On the facts of this case, the decision of the Full Court of this Court in Federal Commissioner of Taxation v Mostyn (1987) 18 FCR 260 has no relevance: Mostyn was concerned with an application to review the power to remit additional tax independently of the assessment and appeal process. Indeed, the request for remission had been made where the taxpayer had not lodged appeals against the relevant assessments. The Court made it clear that where, as here, the issue of remission forms part of the ordinary tax appeals process, it is the Part IVC process which is applicable. The Court said (at 268): 'We make it clear that our conclusions are not inconsistent with the accepted view that the ordinary provisions of the Act providing for objections and appeals (Pt V) apply to assessments of additional tax made pursuant to s 226 and that the Administrative Appeals Tribunal has power to review exercises of discretion by the Commissioner in refusing to remit additional tax. All that we are saying is that, because of the words, "after making any assessment", in s 226(3), the Commissioner is empowered to remit the additional tax long after the period limited for any objection to an assessment has passed and after the time limited for any appeal against the disallowance of such an objection has elapsed.' Conclusion 24 It follows, in our view, that the issue at [1.1], supra, in respect of each of the taxpayers is to be answered in the negative. On this view, the issue at [1.2] supra does not arise. 25 The appeals must be allowed. The respondents must pay the Commissioner's costs of both appeals and the proceedings before his Honour below. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 6 July 2006 Counsel for the Appellant: Ms M M Gordon SC Mr S H P Steward Solicitor for the Appellant: Australian Government Solicitor Counsel for the Respondents: Mr A H Slater QC Mr P M Fraser Solicitor for the Respondents: Blake Dawson Waldron Date of Hearing: 18 November 2005 Date of Judgment: 6 July 2006