FEDERAL COURT OF AUSTRALIA Butler v Commissioner of Taxation [2009] FCA 1105 DERRICK EDWARD BUTLER v COMMISSIONER OF TAXATION SAD 74 of 2009 BESANKO J 2 OCTOBER 2009 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 74 of 2009 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: DERRICK EDWARD BUTLER Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: BESANKO J DATE OF ORDER: 2 OCTOBER 2009 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The applicant's notice of appeal dated 17 July 2009 be struck out. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 74 of 2009 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: DERRICK EDWARD BUTLER Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: BESANKO J DATE: 2 OCTOBER 2009 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 A party to a proceeding before the Administrative Appeals Tribunal ("Tribunal") may appeal to this Court, on a question of law, from the decision of the Tribunal in that proceeding: Administrative Appeals Tribunal Act 1975 (Cth) s 44(1). The party's notice of appeal must state the question or questions of law raised on the appeal, the order sought and briefly, but specifically, the grounds relied upon in support of the order sought: Federal Court Rules O 53 r 3(2). A notice of appeal which does not state a question or questions of law may be struck out. The Court may, depending on the circumstances, grant leave to amend the notice of appeal. In this case, the applicant's notice of appeal does not state a question of law. In this case, leave to amend should not be granted. 2 The applicant appeals from a decision of the Tribunal made on 27 April 2009. His notice of appeal provides relevantly: "THE QUESTIONS OF LAW raised on the appeal are: (specify each question of law) 1. Income generated overseas is GST exempt 2. All loans provided for offshore countries be not treated as income 3. A claim by AAT that I was reckless is not correct 4. That consideration is given to attachment 1 when making your order/s. ORDERS SOUGHT: (State the orders or relief sought by the applicant) 3. That Attachment 1 is accepted as supporting the questions of law. 4. That the income generated from Pure New Zealand Ltd ($NZD 86,000 Aust equivalent $AUD 83,495) be treated as GST exempt and therefore reduce the GST liability by $8,350 4. That all other deposits for / from overseas be treated as loans not income and therefore GST is considered to be exempt. All funds were provided as a means to pay credit cards to provide for credit for non GST expenditure. GROUNDS (Specify grounds relied upon in support of the orders sought) 5 That the attached document provides legitimate arguments that challenger [sic] the decision made by the AAT." 3 It is common ground that the second alleged question of law should read, "[a]ll loans provided from offshore countries be not treated as income". 4 On 29 July 2009, the respondent issued a notice of motion seeking an order that the applicant's notice of appeal be struck out. The respondent contends that the notice of appeal does not state a question of law. The requirement that a notice of appeal state a question or questions of law raised on the appeal has been discussed in a number of authorities. I refer to the summary set out in Comcare v Etheridge (2006) 149 FCR 522 at 526-527 [11]-[17]. 5 This Court has power to strike out a notice of appeal which does not state a question or questions of law: Australian Telecommunications Corporation v Lambroglou (1990) 12 AAR 515. In Bittmann v Australian Securities and Investments Commission (No 2) [2006] FCA 1786 Kenny J said (at [12]): "I also accept that, as the respondent submitted, the Court may make the orders that it seeks by way of its motion. In McGregor v Chief Executive Officer of Centrelink [2000] FCA 701 at [17], Spender J expressed the view that there was power under O 20 r 2 of the Rules to dismiss an appeal purportedly under s 44 of the AAT Act on the basis that it stated no question of law and thus disclosed no reasonable cause of action: see also Zoia v Administrative Appeals Tribunal [2003] FCA 303 at [6] per Carr J and Barghouthi v ING Custodians Pty Ltd [2003] FCA 1272 at [15] per Allsop J. In Lambroglou, Ryan J expressed the view (at 519) that O 53 r 15(1) of the Rules conferred a power sufficiently broad to allow the Court to strike out the whole or part of an appeal under s 44 of the AAT Act. Whatever the correct analysis of the Rules, s 23 of the Federal Court Act confers broad power on the Court to make orders of such kinds as it thinks appropriate. I accept that, pursuant to s 23, the Court has power to strike out a notice of appeal in reliance on s 44 where the notice does not state a question of law: compare also Lambroglou at 519-520." 6 The power will be exercised only where it is clear that no question of law is stated in the notice of appeal. 7 Before examining the alleged questions of law raised by the applicant in his notice of appeal, it is necessary to summarise the decision of the Tribunal. The decision of the Tribunal 8 The applicant's application to the Tribunal was for review of a decision made by the respondent to disallow a taxation objection lodged by him on behalf of B Butler and D E Butler trading as "D B Consultancy". The taxation objection was against assessments of the net amount of goods and services tax (GST) of D B Consultancy raised by the respondent pursuant to s 22(1) of the Tax Administration Act 1953 (Cth) ("the TA Act") for the quarterly tax periods from 1 July 2001 to 30 September 2004. The assessments gave rise to a GST shortfall notified as $62,658. A shortfall administrative penalty of 50 per cent was imposed under s 284-90 of Sch 1 of the TA Act, uplifted by 20 per cent under s 284-220 of Sch 1 of the TA Act. The total of the administrative penalty was $37,594.80. 9 The Tribunal described the issues before it in the following terms: "(a) Has the applicant's liability for GST on taxable supplies and entitlement to input tax credits for the quarterly tax periods from 1 July 2001 to 30 September 2004 been correctly assessed? (b) Is the applicant liable to an administrative penalty, and if so: (i) at what rate; and (ii) should the penalty be remitted?" 10 The Tribunal set out the provisions of the TA Act which were relevant to the issues before it. In that context, it referred to s 14ZZK of the TA Act which provides that, on an application for the review of a reviewable objection decision, the applicant has the burden of proving that, if the taxation decision concerned is an assessment (other than a franking assessment), the assessment is excessive. The Tribunal also set out the provisions of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) which were relevant to the issues before it. The Tribunal set out the information shown on the Business Activity Statements lodged by the applicant for each of the quarterly periods from 1 July 2001 to 30 September 2004. The Tribunal noted that, commencing in February 2005, the applicant had been the subject of "an expanded GST audit by the respondent". That audit resulted in an adjustment of the applicant's Business Activity Statements and the adjustment resulted in the respondent issuing notices of assessment on 18 August 2005. The adjustments resulted in the GST shortfall of $62,658. 11 The Tribunal summarised the applicant's evidence. It said that the applicant had been a director of SABC Project Management Pty Ltd ("SABC") from 2000 to 2003. The other director was a Mr Dennis Davies. SABC had no employees during that period and was not registered for GST. It allocated work to various businesses and individuals to conduct professional services. The directors of SABC entered into performance related projects, most of which were with overseas companies. The Tribunal described the projects. The Tribunal noted that the applicant was not in a position to provide a number of relevant documents. 12 The Tribunal set out the applicant's evidence as to the actual gross income derived by D B Consultancy during the period from 1 July 2001 to 30 September 2004. On the applicant's case, the actual gross income was $143,124.04. In continuing its summary of the applicant's case, the Tribunal said: "Other amounts were received while he was working on projects for overseas companies, such as Pure New Zealand Limited or Titan Resources Inc. These amounts were for expenses (such as travel) or were loans to be reimbursed when the projects were completed. But the amounts (including the loans) had nothing to do with Australian projects. They were all for overseas projects, so that GST was not applicable and the amounts were not income for Australian tax purposes either." 13 The Tribunal referred to the fact that, on the respondent's case, D B Consultancy had received income of $407,462 in the period from 1 July 2001 to 30 September 2004. The applicant said that the difference between his figure of $143,124.04 and the figure of $407,462 (that is, the sum of $264,337.96) resulted from moneys received from SABC which moneys represented loan funds. The Tribunal noted that the applicant had no documentation identifying the loan arrangements. The applicant's case was that the funds were advances made by SABC which would be taken into account when the relevant projects were completed. 14 The Tribunal said that the applicant was given ample time and the best opportunity to present his case. It noted that much of the material that the applicant put before the Tribunal was irrelevant and of little assistance in terms of understanding his case. The Tribunal referred to the burden of proof placed on the applicant by s 14ZZK(b)(i) of the TA Act and it discussed some of the authorities dealing with the effect of the burden of proof. The Tribunal said that s 14ZZK(b) effectively created a rebuttable presumption that an assessment is not excessive. The Tribunal then said: "Over four hearing days, the applicant was given every opportunity to produce documentation or other evidence to support his claims and to show that the GST assessments were excessive. As has been said, a considerable amount of documentation was provided to the Tribunal, but critical documents and evidence of third parties could not be furnished… The applicant submitted on several occasions during the hearing that the funds received by D B Consultancy were loans or advances associated with projects in which D B Consultancy or SABC were involved. Following the final hearing day, on 23 December 2008 and 5 February 2009, the applicant sought further time within which to produce third party witness statements demonstrating that the funds received by D B Consultancy were loan funds provided for projects facilitated by SABC. Although the applicant was given a further period within which to produce the witness statements for further consideration, the statements were not forthcoming." 15 The Tribunal then referred to the shortfall administrative penalty, and said that it was satisfied that the shortfall amount resulted from recklessness by the applicant. The base penalty amount is 50 per cent of the shortfall amount. The respondent indicated at the hearing that it did not pursue the recovery of the 20 per cent increase of the base penalty amount under s 284-220(1) of Sch 1 of the TA Act. 16 The Tribunal was satisfied that it was appropriate to allow input tax credits amounting to $2,520. The Tribunal expressed its final conclusions as follows: "For the reasons outlined above, the Tribunal is not satisfied that the applicant has discharged the onus of proving that the GST shortfall of $62,658, arising from the assessments for the quarterly tax periods from 1 July 2001 to 30 September 2004 is excessive. Input tax credits of $2,520 in respect of the relevant tax periods are properly allowable, reducing the GST shortfall to $60,138. As to the shortfall administrative penalty, the rate of 50 per cent for recklessness is appropriate in the circumstances and, with the waiver of the 20 per cent uplift in the base penalty amount under s 284-220 of the TA Act, this gives rise to a reduced shortfall penalty of $30,069. The objection decision is varied in part, as set out in paragraph 34 of these reason, by reducing the GST shortfall to $60,138 and reducing the shortfall penalty to $30,069." Issues on the application 17 Mr Butler appeared in person on the appeal and it seems that he prepared the notice of appeal. 18 The first alleged question of law is not a question but rather a statement. I will read the statement as raising a question of whether income generated overseas is exempt from the payment of GST. That question may be a question of law but it is not one raised on the appeal. Although the Tribunal does not specifically address the issue, there is nothing in its reasons to suggest that it was not proceeding on the basis that income generated overseas was exempt from the payment of GST. However, the applicant was unsuccessful because, on the facts, he could not discharge the burden of proof. 19 The second alleged question of law is not a question, but a statement of a desired result. Even if, in some way, it is to be read as raising a question of law, like the first matter it is not a question of law raised on the appeal. There is no suggestion in the Tribunal's reasons that it treated loans from offshore countries as income. The fact is that, having regard to s 14ZZK(b)(i) of the TA Act, the Tribunal was not satisfied as a matter of fact that the difference in question (that is, the sum of $264,338) was represented by loans or advances associated with projects in which DB Consultancy or SABC were involved. 20 The third alleged question of law is not, on the face of it, a question of law. The Tribunal found that the applicant had been reckless for the purposes of the provisions dealing with the shortfall administrative penalty and nothing was said by the applicant in the course of his oral submissions suggesting that his attack on that conclusion was other than an attack on the Tribunal's finding of fact. 21 The fourth alleged question of law is not a question of law, but rather a reference to further evidence. Conclusion 22 The notice of appeal does not identify a question of law and it should be struck out. This is not a case in which leave to amend should be granted. The applicant made oral submissions and nothing he said during the course of those submissions suggested that his complaints about the Tribunal's decision raise a question of law. His complaints are of findings of fact made by the Tribunal. The notice of appeal will be struck out and I will hear the parties as to costs and any other orders. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 2 October 2009 The Applicant appeared in person. Counsel for the Respondent: Mr S Cole Solicitor for the Respondent: ATO Legal Services Date of Hearing: 13 August 2009 Date of Judgment: 2 October 2009