Dan v Commissioner of Taxation [2000] FCA 459

FEDERAL COURT OF AUSTRALIA

Dan v Commissioner of Taxation [2000] FCA 459 ALEXANDER MORVEN DAN v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA N 255 of 2000 LINDGREN J 3 APRIL 2000 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 255 OF 2000

BETWEEN: ALEXANDER MORVEN DAN

APPLICANT

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

RESPONDENT

JUDGE: LINDGREN J

DATE OF ORDER: 3 APRIL 2000

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application for interlocutory relief be refused. 2. The costs of the application for interlocutory relief be reserved. 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 N 255 OF 2000

BETWEEN: ALEXANDER MORVEN DAN

APPLICANT

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

RESPONDENT

JUDGE: LINDGREN J

DATE: 3 APRIL 2000

PLACE: SYDNEY

REASONS FOR JUDGMENT (ex tempore) 1 By his application filed on 24 March 2000, the applicant ("Dr Dan") seeks relief in respect of an amended assessment of income tax issued on 29 February 2000 for the year ended 30 June 1993. He seeks a declaration that the amended assessment is void and of no effect for the purposes of the Income Tax Assessment Act 1936 (Cth) ("the Act") and an order pursuant to s 39B(1) of the Judiciary Act 1903 (Cth) prohibiting the Commissioner from taking any action to recover the amount of the amended assessment ($3,779,635.55). Importantly for today, the amended application also seeks an interlocutory order in the nature of an injunction restraining the Commissioner from taking any action to recover the amount of the assessment. 2 The Commissioner has tendered the notice of the amended assessment bearing a certificate that the document is a true copy of the amended assessment for the year ended 30 June 1998. Section 177 of the Act provides, in effect, that the production of this document is to be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. Similarly, s 175 of the Act provides that the validity of an assessment is not to be affected by reason that any of the provisions of the Act have not been complied with. 3 The present proceeding is not a proceeding under Part IVC on a review or appeal relating to the assessment. As is well known, however, there is an exception to the apparent effect of a provision of the kind found in s 177. The exception is sometimes referred to as the "Hickman exception" or the "Hickman principle" by reference to The King v Hickman and Others; Ex parte Fox and Another (1945) 70 CLR 598. In that case, Dixon J stated (at 615) that privative provisions were effective to immunise from attack the relevant decision of a court or other judicial body: "provided always that its decision is a bona fide attempt to exercise its power, that it relates to the subject matter of the legislation, and that it is reasonably capable of reference to the power given to the body". 4 Hickman was decided with reference to a decision of a Local Reference Board provided for by the National Security (Coal Mining Industry Employment) Regulations but the parties have treated the principle recognised by Dixon J as applicable to the production of the notice of assessment in the present case; cf San Remo Macaroni Company Pty Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5,138 at paras [50]-[57]. 5 The facts of the present matter can be outlined briefly. Dr Dan is a director of, relevantly, two trustee companies, Moti (No 5) Pty Limited as trustee for the Moti (No 5) Trust established by a deed dated 11 May 1983 and Makeeswell Pty Limited as trustee for the Baldan Trust established by a trust deed dated 20 July 1981. As well, he is a director of Fernmist Investments Pty Limited ("Fernmist"). 6 The case concerns multiple assessments in respect of the same income. 7 According to minutes in evidence, on 25 June 1993 the directors of Makeeswell Pty Limited resolved to distribute the income of the Baldan Trust for the year ended 30 June 1993 in a certain way which involved the sum of $2,718,464 going to Fernmist. According to a letter in evidence on 30 June 1993 Fernmist was appointed an income beneficiary of the Moti (No 5) Trust and according to minutes in evidence on 30 June 1993 the directors of Moti (No 5) Pty Limited resolved that, of the Moti (No 5) Trust income for the year ended 30 June 1993, an amount of $986,601 be distributed to Fernmist. 8 On 15 April 1997 the Australian Taxation Office wrote to Dr Dan informing him that an audit was being conducted in relation to his income tax affairs which would be concerned with matters arising from, inter alia, a transfer of losses by Adaston Pty Limited and the acquisition of Fernmist. 9 On 31 March 1999 the Commissioner purportedly made a determination under s 177F of the Act that the amount of $986,601 being the whole of the tax benefit referable to an amount that had not been included in the assessable income of Moti (No 5) Pty Limited as trustee for the Moti (No 5) Trust, be included in that assessable income. Accordingly, on 6 April 1999 the Commissioner issued a notice of assessment to Moti (No 5) Pty Limited as trustee for the Moti (No 5) Trust assessing its income for the year ended 30 June 1993 at $986,601 and the tax on that income at $463,702.47. Other amounts were also included in the notice of assessment. 10 On 31 March 1999 the Commissioner made a determination under s 177F of the Act that the amount of $2,718,464 being the whole of the tax benefit referable to an amount not included in the assessable income of Makeeswell Pty Limited as trustee for the Baldan Trust for the year of income ended 30 June 1993 be included in the assessable income of that taxpayer for that year by virtue of s 99A of the Act. Accordingly, on 6 April 1999 the Commissioner issued a notice of assessment to Makeeswell Pty Limited as trustee for the Baldan Trust on a taxable income of $2,718,464 assessing the tax on that amount at $1,277,678.08. Other amounts were also included in that notice of assessment. 11 If one were to stop there one might have thought that the case was simply one of a non distribution of income so that there was no beneficiary presently entitled to the income mentioned. Indeed, one might have thought that the case was simply one of the purported distributions of $986,601 and $2,718, 464 to Fernmist being considered by the Commissioner not to have been ineffective and that that was the end of the matter. But apparently Fernmist itself was not assessed on the two supposed distributions of income either, and on 30 March 1999 the Commissioner advised Fernmist of an adjustment to its taxable income of nil, by increasing its taxable income to $3,705,065, that is, the total of the two amounts of $986,601 and $2,718,464. On 30 March 1999 the Commissioner issued to Fernmist a notice of assessment on a taxable income of $3,705,065 and the gross tax payable was stated in the notice to be $1,444,975.35. As well, the notice included "Additional Tax for Understatement" by way of penalty and interest. 12 Nearly a year later, on 21 February 2000, the Commissioner made two determinations under s 177F of the Act that $2,718,464 and $986,601, being the whole of the tax benefits referable to amounts not included in Dr Dan's assessable income for the year ended 30 June 1993, be included in that assessable income by virtue of s 97 of the Act. 13 On 24 February 2000, the Commissioner wrote to Dr Dan advising him that as a consequence of the ongoing review of the income tax affairs of himself and other entities which he controlled, an amended assessment was to issue in respect of his income tax assessment for the year ended 30 June 1993. The letter advised him that determinations had been made under s 177F of the Act that income be included in his taxable income pursuant to s 97 of the Act, being income from the Moti (No 5) Trust totalling $986,601 and income from the Baldan Trust totalling $2,718,464. These were the amounts that had, nearly a year earlier, been assessed to Fernmist and in the case of the $986,601 also to Moti (No 5) Pty Limited as trustee of the Moti (No 5) Trust, and in the case of the sum of $2,718,464 also to Makeeswell Pty Limited as trustee of the Baldan Trust. 14 I do not think I need to outline the course of objections and the disallowance of them by the Commissioner. In the present proceeding it is said to demonstrate bad faith on the part of the Commissioner that he has assessed tax to more than one taxpayer in respect of the same item of income. This does not quite do justice to the submission of Dr Dan but it will suffice by way of introduction. It is clear that the Commissioner is entitled to tax the same item of income in respect of more than one taxpayer: see Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 and Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 especially at 201 and following per Brennan J. 15 On more than one occasion the Commissioner has undertaken to Dr Dan and the entities associated with him that where he has assessed different taxpayers in respect of the same income on alternative bases, he will collect tax on only one assessment. This is important because it meets a contention that the Commissioner would not be entitled to recover part of the tax assessed to one taxpayer in respect of an item of income from that taxpayer and part of the tax assessed to another taxpayer in respect of the same item of income from that other taxpayer. In effect, the Commissioner's undertaking proceeds on the basis that he will "elect" in the sense that once he collects on one assessment in respect of an item of income, he will not collect on another in respect of the same item of income. 16 In submissions, Dr Dan's counsel referred to the inconsistency to be found in the Commissioner's objection decisions in relation to the two Trusts and the assessment to Dr Dan in respect of the year ended 30 June 1993. Essentially, the point is that each trustee is assessed on the footing that there was no beneficiary presently entitled while Dr Dan is assessed on the basis that he was a beneficiary presently entitled. I do not think, however, that this kind of inconsistency is anything other than what is inherent in the acceptance in Richardson and Richard Walter that truly alternative assessments are permissible. 17 I have to decide the application at this stage simply on the documentary evidence and submissions before me and I am not persuaded that there is a serious question to be tried that the assessment was made in bad faith. 18 The application for interlocutory relief is refused. 19 [There followed short argument on costs.] 20 I reserve the costs of the application for interlocutory relief. 21 Dr Dan also seeks an expedited final hearing. The notion of an order for an expedited hearing poses something of a conundrum in the docket system because, even without such an order, the case will be given the earliest hearing date that the Docket Judge's docket allows. However, in the event that that proves to be not soon enough, it is possible for a proceeding to be transferred to the docket of another judge. 22 [There was discussion about a date for the final hearing and a hearing date was fixed and directions were made for the filing and service of submissions.] I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.