FEDERAL COURT OF AUSTRALIA Allan J Heasman Pty Ltd v Commissioner of Taxation [2014] FCA 1282 Citation: Allan J Heasman Pty Ltd v Commissioner of Taxation [2014] FCA 1282 Appeal from: RepairCo and Commissioner of Taxation [2014] AATA 414 Parties: ALLAN J HEASMAN PTY LTD v COMMISSIONER OF TAXATION File number(s): NSD 714 of 2014 Judge(s): JAGOT J Date of judgment: 28 November 2014 Legislation: Administrative Appeals Tribunal Act 1975 (Cth) s 44(1) Income Tax Assessment Act 1936 (Cth) ss 171A(1), 175, 177(1), 177F(1)(b), 226J, 226X Income Tax Assessment Act 1997 (Cth) s 8-1 Judiciary Act 1903 (Cth) s 39B Taxation Administration Act 1953 (Cth) Pt IVC, ss 14ZZJ, 144ZZK Cases cited: Allied Pastoral Holdings v Federal Commissioner of Taxation (1983) 70 FLR 447 Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243; [1963] HCA 51 Branson v Commissioner of Taxation (2008) 73 ATR 864 Collector of Customs v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307 Commissioner of Taxation v Dalco (1990) 190 CLR 614 Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146; [2008] HCA 32 Commissioner of Taxation v Hoffnug & Co Ltd (1928) 42 CLR 39 Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 Federal Commissioner of Taxation v Bayly (1952) 86 CLR 506; [1952] HCA 31 Federal Commissioner of Taxation v Brixius (1987) 16 FCR 359; [1987] FCA 612 Federal Commissioner of Taxation v Day (2008) 236 CLR 163; [2008] HCA 53 Federal Commissioner of Taxation v Payne (2001) 202 CLR 93; [2001] HCA 3 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1; [1994] HCA 39 Federal Commissioner of Taxation v Ryan (2000) 201 CLR 109; [2000] HCA 4 Federal Commissioner of Taxation v Wade (1951) 84 CLR 105; [1951] HCA 66 Gashi v Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566; [2008] FCAFC 124 Lever Bros Pty Ltd v Federal Commissioner of Taxation (1948) 77 CLR 78; [1948] HCA 25 McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; [1956] HCA 62 Mulherin v Commissioner of Taxation [2013] FCAFC 115 NBKE v Minister for Immigration [2007] FCA 125 Ogden v Commissioner of Taxation [2014] FCA 1111 Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 243 ALR 728; [2007] FCAFC 154 RepairCo v Commissioner of Taxation [2014] AATA 414 Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15 Spriggs v Commissioner of Taxation (2009) 239 CLR 1; [2009] HCA 22 TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 Date of hearing: 4 November 2014 Place: Sydney Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 88 Counsel for the Appellant: J Hyde Page and B Symons Solicitor for the Appellant: Dormer Stanhope Counsel for the Respondent: M J O'Meara Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 714 of 2014 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: ALLAN J HEASMAN PTY LTD Appellant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JAGOT J DATE OF ORDER: 28 NOVEMBER 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The application for relief under s 39B of the Judiciary Act 1903 (Cth) be dismissed. 3. The appellant pay the respondent's costs of the appeal and the application, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 714 of 2014 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: ALLAN J HEASMAN PTY LTD Appellant AND: COMMISSIONER OF TAXATION Respondent JUDGE: JAGOT J DATE: 28 NOVEMBER 2014 PLACE: SYDNEY REASONS FOR JUDGMENT Questions of law 1 In this appeal from the Administrative Appeals Tribunal (the Tribunal) the appellant contends that three questions of law arise as follows: (1) Whether the Respondent [the Commissioner of Taxation, referred to below as the Commissioner] had power to make amended assessments for 1998 and 1999 in the absence of original assessments for those years? (2) Whether the Tribunal failed to properly apply s 8-1 of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act) in respect of the payments to the Employee Welfare Fund made by the [appellant]? (3) Whether the Tribunal erred in respect of the application for review of penalties by either: (i) failing to exercise its jurisdiction to review the penalty assessments; or (ii) failing to draw inferences from the evidentiary record on the balance of probabilities; or (iii) failing to apply the principle in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 (Jones v Dunkel) in respect of the omission of Vanda Gould, the appellant's external accountant, to give evidence? 2 As explained below, questions 2 and 3 do not involve questions of law such as to found the jurisdiction of this Court under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act). That section provides that a "party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding". As recently observed in Ogden v Commissioner of Taxation [2014] FCA 1111 (Ogden) at [13]: In an oft-cited passage in TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178, Gummow J explained the change wrought by the enactment of s 44 of the AAT Act: "The existence of a question of law is now not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself": cited with approval in Mulherin v Commissioner of Taxation [2013] FCAFC 115 at [7]; see also Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 243 ALR 728; [2007] FCAFC 154 at [40] and [73]. In Branson v Commissioner of Taxation (2008) 73 ATR 864 at [36], Emmett J observed of the question of law that: "[I]t and it alone, is the subject matter of the appeal and the ambit of the appeal is confined to that question of law". 3 Be that as it may, the three questions should be answered as follows: (1) This question does not arise. (2) No. (3) No. 4 An associated application for relief under s 39B of the Judiciary Act 1903 (Cth) (the Judiciary Act) must also be dismissed. 5 My reasons follow. The Tribunal's decision 6 In the proceedings brought under Pt IVC (Pt IVC) of the Taxation Administration Act 1953 (Cth) (the TAA Act) which permits review of the Commissioner's objection decisions, the Tribunal decided, relevantly, to affirm the objections decisions in relation to the 1998 and 1999 tax years (RepairCo v Commissioner of Taxation [2014] AATA 414). 7 The objection decisions are the decisions of the Commissioner disallowing the appellant's objection to the Commissioner's assessment of tax payable for the years 1998 and 1999 and the associated imposition of administrative penalties. 8 The Tribunal's reasons refer to the appellant and related companies and persons by pseudonyms under s 14ZZJ of the TAA Act. The section does not apply to an appeal in this Court. Accordingly, references to RepairCo in the Tribunal's reasons should be understood as references to the appellant. References to Arthur and Desmond Holbrook should be understood as references to Allan and Douglas Heasman. References to related companies should be understood as references to companies related to the appellant. 9 The Tribunal found that the Heasman group of companies had carried on business for some 50 years (at [12]). Allan and and Douglas Heasman are the directors and shareholders of each company in the group. Allan looks after financial issues, based on professional advice. Douglas looks after the "workshop" (at [15]), it being common ground that the workshop is for the repair of vehicles. The group includes the appellant and four other companies referred to by the Tribunal (after the pseudonym RepairCo) as (Sales), (Holdings), PartsCo (No 1) and PartsCo (No 2) (at [14]). 10 Allan and and Douglas Heasman were both employed by the company designated (Sales) (at [16]). 11 Since 1994 the group was funded by debt finance obtained from the Hua Wang Bank Berhad (HWBB) which had been established in that year by Mr Gould (at [13]). 12 In 1998 Mr Gould contacted Allan Heasman and recommended that the group create an offshore welfare fund to enable benefits to be paid to employees (at [18]). As the Tribunal put it (referring to Allan Heasman as Arthur Holbrook): 18. The idea appealed to Arthur Holbrook. He told Mr Gould he would like to progress it but indicated that Mr Gould would need to attend to it. 19. It seems that arrangements relating to "employee welfare funds", "employee benefit trusts", "employee share schemes" and "discretionary non-complying superannuation funds" had been the subject of active promotion within some sectors of the tax profession for some time prior to Mr Gould's approach to Mr Holbrook. Indeed, Mr Gould's own accountancy practice had already established an Employee Welfare Fund for its employees, apparently as a result of approaches to it by tax and financial advisory firms in Melbourne and Adelaide. 20. Mr Gould had received correspondence in June 1997 from one of those advisory firms, which claimed to be the Australian tax advisers for a company by the name of Asiaciti Trust (New Zealand) Limited. It also claimed to have favourable opinions from eminent senior counsel and favourable private rulings from the Australian Taxation Office – claims designed, no doubt, to provide some comfort to Mr Gould that the establishment of a welfare fund may provide substantial tax benefits. 13 On 24 June 1998 Transgate Limited as settlor and Asiaciti Trust (New Zealand) Limited (Asiaciti Trust) as trustee entered into a Deed of Trust for the creation of a discretionary trust fund known as the "[RepairCo (Sales)] Employee Welfare Fund". The deed of trust in evidence was incomplete (at [21]). 14 On 25 June 1998 a meeting of the directors of the appellant was held and a resolution passed to establish the employee welfare fund, the beneficiaries to be "limited to selected employees of the Company who are invited by the Company to become Members of the Fund and their dependants (at [27]). 15 Another meeting of the appellant held on the same day resolved to invite certain persons to become members of the fund being, Allan Heasman, Douglas Heasman and his wife (at [28]). 16 Also on the same day Allan Heasman, Douglas Heasman and his wife completed an application form to become members of the fund (at [33]). 17 On 29 June 1998 the appellant transferred $400,145 from its local Westpac bank account to an account of Asiaciti Trust (at [34]). 18 On 1 July 1998 Mr Gould directed Asiaciti Trust (New Zealand) Limited to place $399,946.13 of the amount deposited by the appellant to be transferred to HWBB in Samoa (at [35]). 19 On 27 August 1998 an amount of $544,977.86 from HWBB was deposited into the appellant's local account (at [37]). 20 On 15 December 1998 another company in the group, the (Sales) company, opened a bank account under the name (Sales) Employee Welfare Fund. The appellant deposited $10,000 into that account. These funds were used to make monthly health fund payments to HCF for a policy of Allan Heasman and another policy of Douglas Heasman and his wife (at [38]). 21 On 29 June 1999 the appellant transferred $25,000 plus a $25 fee from its local account to the account of Asiaciti Trust (at [39]). 22 In the Tribunal's words at [40]): In its accounts for the year ended 30 June 1999, the [appellant] recorded expenditure of $35,025 against the item "Employee welfare fund". This represents the sum of the $10,000 deposit … and the $25,000 deposit (plus the $25 fee) referred to …above. 23 On 27 August 1999 Asiaciti Trust transferred $22,780 to the account of the (Sales) company, the (Sales) Employee Welfare Fund account. That amount, the Tribunal continued at [41]: was then used to make payments in respect of the HCF policies …and, later, a further HCF policy in the name of Philip Vincent, one of the "key employees" of the …group, who was invited to become a member of the Employee Welfare Fund on 25 July 2000 24 The Tribunal said at [42]: None of the amounts that have been deposited to the local Westpac account in the name of the RepairCo (Sales) Employee Welfare Fund since August 1999 have come from Asiaciti. With two exceptions (minor deposits from HCF, probably premium adjustments), the deposits have come by way of transfer from a local account held by the [appellant]. Mr [Heasman] explained that "we found it easier to just top up that account directly from [RepairCo], described as a welfare fund contribution". 25 In respect of the tax position of the companies in the group, the Tribunal found as follows: 43. In its 1998 income tax return the [appellant] declared total income of $1,347,574, total expenses of $1,394,843 (including the amount of $400,145 paid to Asiaciti on 29 June 1998…) and a resultant loss of $47,269. Included in the T-documents is a notice dated 11 March 1999, emanating from the Australian Taxation Office and headed "1998 Company/Fund Assessment for ATO use only", showing "Taxable Income $0" for the year ending 30 June 1998. 44. In its 1999 income tax return the [appellant] declared total income of $1,366,040, total expenses of $1,320,772 (including the total amount of $35,025…) and "total profit" of $45,268. It applied a corresponding amount as a loss carried forward from the 1998 year, resulting in taxable income of zero. Included in the T-documents is a notice dated 27 April 2000, emanating from the Australian Taxation Office and headed "1999 Company/Fund Assessment for ATO use only", showing "Taxable Income $0" for the year ending 30 June 1999. 26 The Tribunal identified the subsequent actions of the Australian Taxation Office (the ATO) in these terms: 46. On 20 April 2012 the Commissioner issued a "Notice of amended assessment" for the year ended 30 June 1998. In that notice the Commissioner notified the [appellant] that its taxable income had been amended from $0 to $352,876. This resulted from the Commissioner's disallowance of the $400,145 deduction claim for the contribution to the Employee Welfare Fund and adding that amount back to the previously calculated loss of $47,269. 47. On 26 March 2012 the Commissioner issued a "Notice of amended assessment" for the year ended 30 June 1999. In that notice the Commissioner notified the [appellant] that its taxable income had been amended from $0 to $80,293. This resulted from the Commissioner's disallowance of the $35,025 deduction claim for the contribution to the Employee Welfare Fund and adding back the carry over losses from the 1998 year in the amount of $45,268. 48. Furthermore, on 19 October 2012 a delegate of the Commissioner made two determinations under s 177F(1)(b) of the [Income Tax Assessment Act 1936 (Cth)]: one to the effect that the amount of $400,145 not be an allowable deduction for the taxpayer for the 1998 year of income, and another to the effect that the amount of $35,025 not be an allowable deduction for the taxpayer for the 1999 year of income. However, in accordance with s 169A(3) of the 1936 Act, those determinations are deemed to have been made when the assessments underpinning the notices …were made. 27 The Tribunal thereafter considered whether the disputed amounts of $400,145 and $35,025 were deductible under s 8-1 of thethe 1997 Act. Section 8-1, as the Tribunal set out in [50] of its reasons, provides that: (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) ...; or (c) ...; or (d) ... 28 The Tribunal identified the contentions of the appellant. First, at [51], the Tribunal said that the appellant's contentions were as set out in its statement of facts, issues and contentions in these terms: (i) The payments had nexus with the Applicant's business of providing personnel to other entities in the [RepairCo] group, and the provision of remuneration and emoluments to these employees through the Welfare Fund was an expenditure that was incidental to this business; and (ii) The payments were on revenue account because they were intended to relieve the Applicant from the necessity of providing such emoluments. As such, the character of the advantage sought had a revenue character. 29 At [62] the Tribunal reiterated that the appellant's case was: …put on the basis that it conducts a "business of providing personnel to other entities in the [RepairCo] group. 30 At [65] the Tribunal noted that: In her closing address the [appellant's] counsel still sought to press the argument that the [appellant] was conducting a "business of providing personnel to other entities in the [RepairCo] group", as follows: ... the [appellant] was responsible for securing employees for the [RepairCo] group and as such the contributions to the fund were necessary to meet the expenses of the employees in the [RepairCo] group. 31 At [52] and [53] the Tribunal referred to the observations of the High Court in Spriggs v Commissioner of Taxation (2009) 239 CLR 1; [2009] HCA 22 at [54], [55], [74] and [75] in which it was said: [54] The issue, in respect of s 8-1(1)(a), is whether a particular "loss or outgoing" was "incurred in gaining or producing ... assessable income". ... [55] It is well settled that incurred "in" gaining or producing means incurred "in the course of" gaining or producing assessable income (footnote omitted). In Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47, this Court explained: "it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income." The essential question, rephrased in Federal Commissioner of Taxation v Payne [2001] HCA 3; (2001) 202 CLR 93 at 100 [11] per Gleeson CJ, Kirby and Hayne JJ, is: "is the occasion of the outgoing found in whatever is productive of actual or expected income?" In Federal Commissioner of Taxation v Day [2008] HCA 53; (2008) 236 CLR 163 at 180 [33] per Gummow, Hayne, Heydon and Kiefel JJ, the majority said: "That no narrow approach should be taken to the question of what is productive of a taxpayer's income is confirmed by cases which acknowledge that account should be taken of the whole of the operations of the business concerned in determining questions of deductibility." (footnote omitted) … [74] The broad application of s 8-1(1)(a) of the ITAA, including its application to income derived from a business, means that, on the facts here, s 8-1(1)(b) adds little. [75] In Ronpibon Tin, the overlap between the limbs of the predecessor section to s 8-1(1) of the ITAA [that is, s 51(1) of the 1936 Act], which often renders the second limb otiose, was noted. It was held that a loss or outgoing will be "necessarily incurred in carrying on" a business if it is "clearly appropriate" or "adapted" for the carrying on of the business. Restating the test another way, the loss or outgoing will be "necessarily incurred" if it is "reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business" (footnotes omitted). 32 Having rejected the Commissioner's alternative argument that the employee welfare fund and payments to it were a sham (at [54] to [59]), the Tribunal said at [60]: Here, to prove the assessments excessive, the [appellant] must establish either (i) that the deductions are allowable and are not otherwise negated by Part IVA or (ii) that the assessments are out of time… 33 At [61] the Tribunal said: It is on the general principles relating to deductibility – the question of connection, or nexus, with its income producing activity – that the taxpayer encounters a significant problem. 34 The Tribunal concluded that the appellant's case, that it conducted a business of providing personnel to other companies in the group, was not supported by the evidence. Allan Heasman's description of the activities of the companies, as the Tribunal put it, at [63], "bears no resemblance to an assertion that RepairCo conducts a business of "providing personnel to other entities in the [RepairCo] group". His description was that: In the period 1993-2005 [RepairCo (Sales)] employed [Douglas] and me and paid our salaries. The other companies would pay management fees to [RepairCo (Sales)] which it would return as income, and this money helped fund my salary and [Douglas's] salary during those years. 35 This description itself the Tribunal found to be incorrect at [63] because in cross-examination of Allan Heasman it emerged that: (a) "management fees" was a convenient label applied by Mr [Heasman] to any inter-company transfer of funds; (b) funds could be transferred in either direction – both into and out of RepairCo; (c) as a result, and despite Mr [Heasman's] suggestion that the external accountants would "generally come up with [..] the net final figure", in some years the expression "management fees" represented both an income item and an expenditure item in RepairCo's financial statements. 36 The Tribunal, accordingly, rejected the "suggestion that "management fees" in the accounts of any of the companies in the group can properly be regarded as representing a contribution by one of the companies towards the salaries paid by another" (at [64]). 37 The Tribunal identified a "further significant problem for the taxpayer [being] the way the Employee Welfare Fund was set up and then operated" (at [67]). The Tribunal then set out nine matters which constituted the problem at [68] to [78]. Those matters, in summary, were that: (1) The appellant had not identified any need to provide for the retention or rewarding of its employees or the employees of any of the related companies. Mr Gould came up with the idea of the fund, because of a perception that the arrangement might provide substantial tax benefits for the appellant (at [68]). (2) The implementation of the idea was "sloppy". The directors of the appellant resolved to establish the fund the day after it was in fact established (at [69]). (3) The basis on which the fund was to be used remains opaque. Due to the trust deed in evidence being incomplete: Critical concepts such as "benefits" and "welfare purposes" are not explained. The basis on which Beneficiaries may benefit pursuant to clause 7.1 is not explained. No light is shed on the "trusts, powers and provisions as are hereinafter declared" that guide Asiaciti's investment of the assets of the Fund. There is no definition of "Member". There is no definition of "Dissolution Date". (at [70]) (4) While the trust deed provides that the trustee admits members to the fund, no documents show the trustee admitting any person as a member (at [71] and [72]). (5) The quantum of the contributions bears no apparent relationship to the needs, whether perceived or real, of those who are apparently to benefit from the contributions. Instead, the contributions were calculated to secure the outcome of "extinguishing what would otherwise have been a positive amount of taxable income" (at [73]). (6) The largest single contribution to the Fund, $400,145, found its way (as part of the larger amount of $544,977.86), via HWBB, back to the appellant two months after it was made rather than being used for any employee welfare purposes, which makes it difficult to accept that the true purpose of the contribution was as asserted (at [74]). (7) Over 90% ($22,780) of the second largest contribution to the Fund, $25,000, was transferred by Asiaciti Trust to the local Westpac bank account of the RepairCo (Sales) Employee Welfare Fund and was then used to pay the private health insurance premiums of certain individuals, which constituted "nothing more than an attempt to recharacterise non-deductible private expenditure of the individuals as allowable deductions for the company", and the third payment of $10,000 has "the same look about it" (at [75]). (8) The payment of $22,780 is the only payment ever made out of the fund, and the circumstances of that payment are not clear (at [76]). (9) There is some doubt about the true identity of the trustee. The New Zealand company registration number 671265 (shown in the incomplete trust deed as the apparent registration number of the Trustee of the Welfare Fund, Asiaciti Trust (New Zealand) Limited) actually belongs to a company named Asiaciti Trustees N.Z. Limited, which was deregistered in 2002. Despite this, no attempt was made to have a new trustee appointed or the money transferred to a new trustee. Given the fund is meant to have in the order of $400,000 in it, the Tribunal described the position as "a surprising state of affairs" (at [78] and [79]). Contrary to Allan Heasman's evidence that the fund still had about $400,000 in it the Tribunal found that was not the case, the true position being that the money came back to Australia in August 1998 and was used for the benefit of the group (at [82]). 38 The Tribunal concluded as follows at [83]: The payments made in June 1998 and June 1999 are not deductible. They were made not for the purpose of gaining or producing the taxpayer's assessable income but for the purpose of generating tax deductions. 39 At [84] the Tribunal identified the issue about time limits before it in these terms: The [appellant] submits that the 2012 assessments are amended assessments and that they were made outside the time limits specified in s 170 of the 1936 Act. On the other hand, the Commissioner submits that the 2012 assessments are original assessments and that they were made within the time limits specified in s 171A of the 1936 Act. 40 The Tribunal concluded as follows: 86. In my view, the taxpayer's submission is misconceived, at least as far as the 1998 and 1999 years are concerned. 87. The Commissioner's original notices, issued on 11 March 1999 for the 1998 year and on 27 April 2000 for the 1999 year, were not notices of assessment under the law that applied at the time; so much is clear from Commissioner of Taxation v Ryan (2000) 201 CLR 109; [2000] HCA 4. It follows that the notices issued in 2012 in respect of those income years are not notices of amended assessment. 88. Those later notices do not offend any principle to be found in Prestige Motors [Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1; [1994] HCA 39]. They are perfectly clear in their terms. If there is any criticism to be made of them, it is that the labels that were given to them are not accurate. But to suggest that they cannot operate as the documents that they are – notices of original assessment, not notices of amended assessment – because of the labels they were given, is to prefer form over substance. 89. Time limits relating to the amendment of assessments have no relevance to the 1998 and 1999 years. Those years fall squarely within s 171A. 41 On this basis the Tribunal was satisfied the assessments for the 1998 and 1999 tax years were within item 3 of the table to s 171A(1) of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act), with the consequence that the making of the assessments was within the time specified for that item (at [100] and [101]). 42 In respect of the issue of penalties, the Tribunal said this: 112. The Commissioner assessed the [appellant] as liable to additional tax by way of penalty, in relation to the 1998 and 1999 years, under s 226J of the 1936 Act. It also assessed the [appellant] as liable to administrative penalty, in relation to the 2002 year, under Division 284 in Schedule 1 to the TAA, but that administrative penalty must fall away now that the amended assessment for that year cannot be sustained. 113. The amount of additional tax for the 1998 and 1999 years is equal to 75 per cent of the [appellant's] tax shortfall, imposed for "intentional disregard by the taxpayer or by a registered tax agent of this Act or the regulations". An uplift of 20 per cent was applied for the 1999 year, under s 226X, on the basis that the [appellant] had been assessed to additional tax under s 226J for a prior income year: s 226X(b)(iii). 114. The question is whether the [appellant] has discharged its burden, under s 14ZZK of the TAA, of proving that the additional tax assessed is excessive. 115. The consideration of that question is not assisted by the fact that Mr Gould, the driver of the arrangement and the creator of many of the implementation documents, did not give evidence in these proceedings. In that circumstance there is no basis on which I could be satisfied that the shortfall did not result from intentional disregard of the law by him. The lack of any evidence from him also severely restricts the [appellant's] chances of satisfying me that there should be any remission of the additional tax. 116. I am not satisfied that there are grounds for remission and I therefore uphold the penalty at 75 per cent for the 1998 year and 90 per cent for the 1999 year. Question 1 and s 39B Judiciary Act (amended or original assessments?) 43 As noted, the Tribunal found that the assessments the Commissioner issued in 2012 for the 1998 and 1999 tax years were original assessments and thus made within time. 44 The appellant contended that in concluding the assessments were original assessments the Tribunal erred in three respects. 45 First, it was said by the appellant that the notices issued are "definitive of the administrative decision" the Commissioner made (citing, in support, Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243; [1963] HCA 51 (Batagol)). 46 Second, it was said by the appellant that amended and original assessments are subject to different statutory regimes, have different consequences, and are not interchangeable. 47 Third, it was said by the appellant that amended and original assessments are made under different statutory provisions and an assessment issued under one provision cannot be supported under another provision (citing, in support, Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 at 334 and 351 – 352 (Danmark) and Federal Commissioner of Taxation v Wade (1951) 84 CLR 105; [1951] HCA 66 (Wade)). 48 I do not accept that any of these errors arise. 49 Batagol does not stand for the proposition put for the appellant. In Batagol Kitto J said that the "assessment" means the "completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case" (at 252). Owen J said also that tax becomes due and payable on service of written notice of the assessment on the taxpayer (at 256). For present purposes, Batagol is authority directly contrary to the appellant's case. This is because in Batagol the point that was being made, and which the appellant has overlooked, is that there has been an assessment only if, by the giving of a notice, a specified amount of money has become due and payable. In Batagol the Commissioner had assessed that no tax was payable for certain tax years. The Commissioner later determined that tax was payable for those years, and served notices styled amended assessments to require payment of the amounts so ascertained. The taxpayer challenged the Commissioner's power to make the amended assessments. Kitto J held at 252 that because the Commissioner had previously determined that no tax was payable (and, I note, issued a notice of refund to this effect), the so-called amended assessments were in fact original assessments, and there was power for them to be made. Menzies J agreed at 254, and Owen J reached the same conclusion at 256. 50 In Federal Commissioner of Taxation v Ryan (2000) 201 CLR 109; [2000] HCA 4 (Ryan), the decision on which the Tribunal (correctly) relied to support its conclusion, the High Court approved the reasoning in Batagol, to the effect that where no tax has been determined to be payable for a tax year, there has been no assessment made for that year. 51 For these reasons, the appellant's submission that the Tribunal was reviewing amended, not original, assessments and in purporting to characterise the amended assessments as original assessments was not reviewing the decision appealed against is misconceived. The Tribunal had to characterise the subject matter of the objection decisions in order to determine a central issue in the review, being the time limitations. The Tribunal carried out that task consistently with authority, and correctly. 52 The appellant's other propositions, based on the differences between amended and original assessments, do not arise. It is true that amended assessments are made under different provisions from original assessments and have different consequences. That is not the point. Although the Commissioner described the notices as concerning amended assessments, in law, this was a misdescription. Consistent with High Court authority, the Commissioner had made original assessments. The fact that amended and original assessments are different does not arise because the Commissioner had only made original assessments. 53 Danmark and Wade do not assist the appellant. Neither concerns original and amended assessments. Danmark is concerned with the scope of an application for review. Because a taxpayer's review right is limited to the grounds of objection, it was concluded that it would be unfair for the Commissioner to be able to defend the assessment in the review by reference to another source of power. But that is far from saying that an assessment issued under one power can never be supported by another power. In Wade, while Kitto J's explanation of Danmark does not expressly confine the context to review applications, the comment to which he is referring is one made by the review board. Kitto J said at 116: …[the review board] referred to certain observations made by Latham C.J. and Starke J. in Danmark Pty. Ltd. V. Federal Commissioner of Taxation. I do not understand those observations to mean more than this, that where there are two provisions of an assessment Act, each giving the commissioner a power to make an assessment, and each creating a liability to tax in the event of the power it confers being exercised, an assessment made in exercise only of the power given by one of those sections cannot be supported as effective under the other. 54 Danmark and Wade relate to substantive provisions by which a liability to tax is created, not the powers to make original and amended assessments. The Tribunal, exercising its review function in the present case, was not concluding that the appellant's liability to tax unsupportable by one head of power was supportable by another. The Tribunal was determining, as it had to do given the time limits issue, whether the assessment made was an original or amended assessment. The context is not analogous to that in Danmark or Wade. 55 The appellant, relying on s 39B of the Judiciary Act, also contended that if the Commissioner had made original assessments then the notices served were not legally effective, and sought declarations that the notices were invalid. 56 The appellant submitted that the application under s 39B was strictly unnecessary because the issue was able to be determined as part of the appeal. According to the appellant there was conflicting authority about this issue but McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; [1956] HCA 62 (McAndrew), in particular, supported the proposition that the Tribunal was able to determine that it was beyond the power of the Commissioner to make the amended assessments. On the other hand, according to the appellant, the Tribunal was not able to determine that the assessments, as original assessments, were valid. 57 To the extent it is necessary to say anything about this issue, I consider that the appellant's submissions rest on a series of misunderstandings of the law as explained in the various cases to which the appellant referred. The true position is that: - (i) a taxpayer cannot allege in Pt IVC proceedings that an assessment is invalid (Gashi v Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30 at [41] to [43]); and (ii) a purported assessment (or, more to the point, an objection decision about a purported assessment) is sufficient to enable a review in Pt IVC proceedings (Collector of Customs v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307 and Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566; [2008] FCAFC 124. There is no inconsistency between these propositions. Provided the Commissioner has purported to make an assessment (and a related objection decision) the Pt IVC review power is available. This is so whether or not the assessment is valid or invalid. In the Pt IVC review the issue is whether the assessment is excessive. That does not encompass the question whether the assessment is valid or not. 58 McAndrew does not stand for any contrary proposition. McAndrew, to the extent relevant, concerned the conclusive evidence provision in s 177(1) of the 1936 Act, which provides as follows: 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. 59 It is convenient to adopt the Commissioner's submissions about McAndrew as follows: McAndrew v FCT concerned an amended assessment issued by the Commissioner outside of the time in which an amendment could otherwise be made, which amendment was made on the basis that the taxpayer had not made full and true disclosure of all material facts necessary for his assessment and there had been an avoidance of tax. The point at issue was whether, in an appeal under the predecessor of Part IVC of the Administration Act, the onus lay on the taxpayer to prove that there has been full and true disclosure. As a step to this conclusion, it was decided that the absence of full and true disclosure by a taxpayer leading to an avoidance of tax was a condition precedent to the imposition of the increased taxation liability by the amended assessment. As a condition precedent to the substantive liability imposed by the amended assessment, the absence of full and true disclosure was a matter the taxpayer could ventilate on an appeal against the assessment as "excessive", but bore the onus in doing so: at 269-271 per Dixon CJ, McTiernan and Webb JJ; at 275-276 per Kitto J; see also, the discussion of McAndrew v FCT in Commissioner of Taxation v Dalco (1990) 190 CLR 614 (FCT v Dalco) at 621-622 per Brennan J, at 631-632 per Toohey J. The statement by Taylor J in McAndrew v FCT at 282 that "there is no reason thinking that an assessment, made in purported but not justifiable exercise of a statutory power, may not properly be described as excessive" was read by Toohey J (Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreeing) in FCT v Dalco (at 632) to mean no more than that "no compliance with the statutory conditions precedent to imposition of liability … will render an assessment open to challenge". So understood, it does not support a contention that a challenge to the validity of an assessment as an "assessment" (as opposed to its excessiveness) can be agitated in an appeal under Part IVC of the Administration Act and thus is consistent with Gashi v FCT. 60 Contrary to the appellant's submissions, s 177(1) of the 1936 Act does not assist its case. The appellant submitted that s 177(1) operated so that the notices of assessment constituted conclusive proof that the notices were amended, not original, assessments. This conflates the assessment with the notice. The effect of s 177(1) is that, in Pt IVC proceedings, the notices of assessment are conclusive proof of the due making of the assessment. In the present case the assessments constituted the ascertainment of the tax payable on the appellant's taxable income (see the definition of "assessment" in s 6(1) of the 1936 Act). The notices served are conclusive proof of the due making of those assessments – that is, the ascertainment of the the tax payable on the appellant's taxable income. The notices are not conclusive proof of the character of the assessments as amended or original assessments. That question is to be determined in accordance with the relevant principles established in Batagol and Ryan. 61 The appellant submitted that it should obtain the relief sought under s 39B of the Judiciary Act, first, because Danmark and Wade supports its case and, second, because two other decisions, Federal Commissioner of Taxation v Bayly (1952) 86 CLR 506; [1952] HCA 31 (Bayly) and Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1; [1994] HCA 39 (Prestige Motors), support the contention that "a notice of amended assessment cannot be a notice of original assessment". 62 Danmark and Wade have been considered above. They do not assist the appellant. 63 Nor do Bayly or Prestige Motors. 64 In Bayly the Commissioner had sent a letter of demand to a taxpayer. The issue was whether the letter engaged the conclusive evidence provision then in force. Williams J held it did not. In Prestige Motors the High Court rejected an argument that a notice of assessment must state the name of the taxpayer. Mason CJ, Brennan, Deane, Gaudron and McHugh JJ said at [14]: This leads us to the conclusion that it is not essential to the validity of a notice of assessment that it state the name of the taxpayer liable to pay the tax. But we do not consider that this conclusion is a complete answer to the question which has arisen. That is because, on the view which we take of the provisions, it is necessary that the notice should bring to the attention of the person on whom it is served that the assessment to which it relates is an assessment of that person to tax. The principal purpose of the notice of assessment is to bring to the attention of the person on whom it is served that such person is liable to pay on the due date the amount of tax assessed in the notice on the income stated in the notice…No doubt service of the notice on a taxpayer goes some way towards achieving this purpose. But whether the purpose is achieved in a given case must depend upon the form and contents of the particular notice of assessment. Thus, to take an example given by Hill J in the Federal Court, a notice assessing A to tax but served on B instead could not stand as a notice assessing B to tax. 65 Consistent with this reasoning, the notices of assessment in the present case are valid. The only potential deficiency is that the notices identify themselves as amended assessments. This has nothing to do with the function of the notices to bring to the attention of the appellant that the assessments to which the notices relate are an assessment of the appellant to tax. The defect, if properly termed that, is one of form only. It cannot affect the validity of the notices. 66 The application for relief under s 39B must fail for another reason. Section 175 of the 1936 Act provides that: The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. 67 As the Commissioner submitted: In Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146 (FCT v Futuris) at [25] the High Court indicated that the limits of the protection of s 175 of the 1936 Act were to be found in the statutory description of an "assessment". That limit was exceeded where an assessment was tentative or provisional (eg., Commissioner of Taxation v Hoffnug & Co Ltd (1928) 42 CLR 39) or where the assessment was the product of "conscious maladministration"; that is, "a deliberate failure to comply with the provisions of the Act": see FCT v Futuris at [55]. The taxpayer disclaims any allegation of conscious maladministration ... The assessments issued to the taxpayer in 2012 for the 1998 and 1999 income years could not be, and are not, described by the taxpayer as "tentative" or "provisional". In the result, s 175 of the 1936 Act will apply to those assessment even if the mislabelling of the notices of assessment as "Notices of amended assessment" represented some kind of failure to comply with the provisions of the 1936 Act. In the result, no relief can be available to the taxpayer under s 39B of the Judiciary Act. 68 The Commissioner also relied on Lever Bros Pty Ltd v Federal Commissioner of Taxation (1948) 77 CLR 78; [1948] HCA 25 (Lever Bros) to support the argument that a mere misdescription in a notice of assessment of an assessment as an amended assessment did not invalidate the notice. In Lever Bros Williams J noted at 81 that: no reliance was placed by Mr. Weston, rightly in my opinion, on this misdescription. They were expressed to be assessments made under s. 136 and the fact that they were called amended assessments was an irregularity covered by s. 175 of the Act. 69 The appellant submitted that Lever Bros could not be relevant to the s 39B application as s 175 of the 1936 Act applies only to a valid notice of assessment. Further, according to the appellant, Lever Bros has been overturned (albeit implicitly) by Batagol and McAndrew. I disagree with both submissions. Section 175 operates for all purposes including for the purpose of applications under s 39B of the Judiciary Act. Batagol and McAndrew, insofar as relevant to the issue in Lever Bros, are consistent with the reasoning in that case. 70 For these reasons question 1 must be answered as follows: "This question does not arise." 71 Further, the application for relief under s 39B of the Judiciary Act must be dismissed. Question 2 (failure to properly apply s 8-1?) 72 The appellant submitted that the Tribunal erred because it did not address the inquiry required by s 8-1 of the 1997 Act. As the appellant put it: In effect there were two limbs in the Tribunal's reasoning. The first limb ([61]-[66]) was that the conferral of benefits on personnel did not have sufficient nexus for s.8-1. The second limb ([68]-[82]) was to the effect that payments to the Employee Welfare Fund were not what they purported to be. They were not contributions to the welfare of Heasman group employees; they were payments designed to generate tax deductions. This appears from [82] of the Tribunal reason. … With respect, neither limb of the Tribunal's reasoning properly addressed the s.8-1 test. The conclusion the Applicant was not in the business of providing personnel did not resolve the question of nexus, which looks to the connection between expenditure and the taxpayer's income-earning activity. One way of demonstrating nexus in this case was showing that the Applicant was in the business of employing people. It was not only way. Nor could it substitute for the actual words of s.8-1. Secondly, in the absence of a finding of sham, or application of one of the recognized tests for apportioning an outgoing between deductible and non-deductible purposes, the matters set out by the Tribunal at [68]-[82] could not deny the Applicant's payments their character as contributions to a fund designed to benefit employees. … In order to determine the existence of appropriate nexus for s.8-1 the Tribunal needed to look at the Applicant's revenue from repairing automobiles and fitting shock absorbers, and determine whether the Applicant's conferral of benefits on the persons who helped perform this revenue-raising activity was 'appropriate' or 'adapted' to earning this revenue. What the Tribunal did instead was embark on a materially different inquiry into whether the payments of money to the Employee Welfare Fund has some precedent in the activities of the Applicant and the Applicant was in the business of 'providing personnel'. 73 The problem for the appellant is that it is apparent from the Tribunal's reasons that it dealt with the case precisely as it was put by the appellant. The appellant contended to the Tribunal that the payments were deductible in accordance with s 8-1 because the "payments had nexus with the [appellant's] business of providing personnel to other entities in the [RepairCo] group, and the provision of remuneration and emoluments to these employees through the Welfare Fund was an expenditure that was incidental to this business" (see the Tribunal's reasons at [51], [62] and [65]). No other basis for the required nexus was proposed. The appellant cannot now complain that the Tribunal, on the merits, rejected the case the appellant put forward. 74 As the respondent submitted, question 2 is not a question of law in any event. At best, the question is one of mixed fact and law. While put by the appellant on the basis that the Tribunal's statutory function miscarried, the essence of the appellant's complaint is that the Tribunal should have found some other facts, not proposed by the appellant, and on the basis of those findings reached a different conclusion on the merits of the appellant's claim. Such a case does not involve a question of law under s 44(1) of the AAT Act. 75 The case is analogous to that in Federal Commissioner of Taxation v Brixius (1987) 16 FCR 359; [1987] FCA 612. At 365 the Full Court, in the context of a claim for the deductibility of rent, said: The difficulty which confronts the Commissioner is that, once having identified the correct principles of law (a matter which was not challenged) the question for determination by the Tribunal is, in a matter of this nature, essentially a question of fact, or of fact and degree. 76 Edmonds J made the same point in Ogden at [13] to [17], and at [25] said: Not only do the documents filed by the applicant identify no question of law, it is readily apparent that the applicant seeks to have this Court reconsider whether the evidence adduced by the applicant discharged the onus of proving that there is the necessary nexus between the derivation of income and the expenditure, and that the essential nature of the expenditure is not of a private or domestic nature. These are questions of fact and degree rather than questions of law: see Brixius at 365–367; [Price Street Professional Centre v Commissioner of Taxation (2007) 243 ALR 728; [2007] FCAFC 154)] at [37]-[44]. Consequently, the applicant's appeal in this respect must be dismissed as incompetent. 77 The same point applies to question 2 in the present case. 78 The appellant's references to other decisions in which deductions have been allowed does not assist. Those cases turned on their own facts. 79 It is also incorrect to suggest, as the appellant did, that unless it made a finding that the Employee Welfare Fund and the payments made to it were a sham, the Tribunal should have or was somehow bound to have found that the payments were deductible. The Tribunal identified the correct statutory provision, identified the relevant principles engaged by the principle, assessed the case as it was put, and rejected it. No question of law arises from the Tribunal having done so. 80 Nor can the appellant now contend that the Tribunal should have engaged in some exercise of apportionment. The facts as found by the Tribunal do not support any such exercise. The appellant did not suggest to the Tribunal that such an exercise should be undertaken. The appellant ran its case below on an all or nothing basis and cannot now invite this Court to find facts different from those found by the Tribunal to support a case for apportionment never put to the Tribunal. 81 For these reasons question 2 must be answered "No". Question 3 (penalties) 82 The appellant submitted that the Tribunal did no more than observe that Mr Gould was not available to give evidence and thereby found against the appellant. However, the Tribunal was obliged to make a decision based on the entirety of the evidentiary record. The appellant said that the errors of law arising from this could be characterised as: (i) A refusal to consider whether a taxpayer's case was established by the evidentiary record because desirable corroborative evidence had not been led although it could have been: Allied Pastoral Holdings v Federal Commissioner of Taxation (1983) 70 FLR 447 at 454 – 456. (ii) Jurisdictional error caused by the Tribunal's failure to deal with an aspect of the Applicant's case and its neglect of cogent evidence that tended to establish that aspect of the Applicant's case: NBKE v Minister for Immigration [2007] FCA 125 at [16]-[19], Aronson et al., Judicial Review of Administrative Action (4th edition) at [4.445]. (iii) A failure to apply Jones v Dunkel, which is the applicable principle where a litigant neglects to call a witness the litigant would ordinarily be expected to have called. 83 I am unable to accept these contentions. 84 The relevant provisions were s 14ZZK of the 1953 Act (imposing the burden of proof on the appellant) and s 226J of the 1936 Act, which provided that: Subject to this Part, if: (a) a taxpayer has a tax shortfall for a year; and (b) the shortfall or part of it was caused by the intentional disregard by the taxpayer or by a registered tax agent of this Act or the regulations; the taxpayer is liable to pay, by way of penalty, additional tax equal to 75% of the amount of the shortfall or part. 85 The Tribunal quoted this provision at [113] of its reasons and concluded at [115] that, without Mr Gould giving evidence, there was no basis upon which it could be satisfied that the shortfall in tax paid "did not result from intentional disregard of the law by [Mr Gould]". 86 Given the terms of s 226J it cannot be concluded that the Tribunal erred in so concluding. None of the cases on which the appellant relied are engaged in the present circumstances other than to the extent that, perhaps, the Tribunal's conclusion reflects a proper understanding of the principle in Jones v Dunkel. If not, the Tribunal's conclusion nevertheless reflects the common sense position that where the onus was on the appellant to prove that the shortfall in tax did not result from intentional disregard of the law by it or Mr Gould, and Mr Gould had not given evidence, it would not be possible in the circumstances of this case for the onus to be discharged. This was because the Tribunal had found that Mr Gould put the proposal for the Employee Welfare Fund forward to the appellant (at [68]) and was the "driver of the arrangement and creator of many of the implementation documents" (at [115]). The "entirety of the evidentiary record" on which the appellant relied supports the Tribunal's characterisation of Mr Gould's pivotal role. Without Mr Gould giving evidence, the Tribunal was entitled to treat that evidence as doing nothing more than exposing the role of Mr Gould. It was not bound to draw inferences favourable to the appellant or to Mr Gould from the face of the documents. It was open to the Tribunal to reason that given Mr Gould's role the onus could not be discharged without him giving evidence. How else, it might be asked, was the Tribunal to satisfy itself that Mr Gould had not intentionally disregarded the law? Why, without Mr Gould giving evidence, should the Tribunal draw any inference favourable to Mr Gould or to the appellant about what he might have said had he given evidence? The appellant's submissions attempt to convert a conclusion that was reasonably open on the available material into some error of principle by references to cases which (other than Jones v Dunkel itself) are not analogous to the present case. 87 Accordingly, while the Tribunal's reasons about the penalties are short, they are cogent and disclose no error of principle. To the contrary, they disclose a conclusion dependent on the particular facts of the present case. Conclusions 88 For the reasons set out above, the appeal and the application for relief under s 39B of the Judiciary Act must be dismissed, with costs. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 27 November 2014