FEDERAL COURT OF AUSTRALIA

Shord v Commissioner of Taxation [2017] FCAFC 167

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed on the basis that the Administrative Appeals Tribunal (the Tribunal) denied the Appellant procedural fairness in finding that he was not an employee.

2.    The orders of the primary judge made on 29 June 2016 are set aside.

3.    The matter is remitted to the primary judge for consideration of the Appellant’s appeal insofar as it concerns the application of s 23AG(6) and s 23AG(6A) of the Income Tax Assessment Act 1936 (Cth) and whether, in the light of the determination of those questions, the order of the Tribunal of 21 May 2015 affirming the objection decision should also be set aside and the matter remitted to the Tribunal for further hearing.

4.    By 4 pm on 3 November 2017, the appellant is to file and serve any affidavit and written submissions on the issue of costs.

5.    By 4 pm on 10 November 2017, the first respondent is to file and serve any affidavit and written submissions on the issue of costs.

6.    The costs submissions referred to at orders 4 and 5 above are not to exceed 4 pages in length (including any annexures).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

SIOPIS AND WHITE JJ:

1    This is an appeal from a judgment of a judge of this Court (Shord v Commissioner of Taxation [2016] FCA 761) dismissing an appeal from a decision of the Administrative Appeals Tribunal (the Tribunal) (Shord v Commissioner of Taxation [2015] AATA 355).

2    During the period 2006 to 2011, the appellant, Mr Michael Shord, worked as an oilfield diver or diving supervisor in the oil and gas industry for overseas entities. His practice was to travel from Australia to a nominated overseas location for a work assignment. After he had carried out the work assignment at an overseas location, Mr Shord would then typically return to Western Australia for a period before embarking upon one or more other overseas assignments. Mr Shord remitted the monies he earned from the work he carried out overseas to his Commonwealth Bank account in Australia. Mr Shord is, and was, during the relevant time, married; and with his wife, owned two properties in Western Australia. One of the properties was an investment property and the other was the house in which Mr Shord and Mrs Shord, when Mr Shord was present in Australia, resided.

3    Mr Shord was born in the United Kingdom and came to Australia as an adult after he had served in the United Kingdom armed forces. During the relevant period, Mr Shord held a British passport and an Australian passport. Mr Shord did not lodge tax returns during the period 2006 to 2011 because he said that he understood that he was during that period a non-resident of Australia for tax purposes.

4    After the Commissioner of Taxation (the Commissioner) carried out an audit into Mr Shord’s tax affairs for the years ended 30 June 2006 to 30 June 2011, the Commissioner issued Mr Shord with an audit position paper which recorded the Commissioner’s view that Mr Shord was a resident of Australia for those income tax years.

5    In November 2012, Mr Shord lodged his income tax returns for the years 2006 to 2011 which reported net rental income from his investment property in Western Australia but no assessable foreign sourced income.

6    On 15 May 2013, the Commissioner issued amended assessments which included within each assessment Mr Shord’s foreign sourced income and a shortfall interest charge. Further, the Commissioner issued notices of assessment by which the Commissioner imposed a tax shortfall penalty of 50% of the shortfall amount. The increased amount of income tax payable by Mr Shord under the amended assessments was $149,967.75. The total in respect of the interest charges and penalty for the period amounted to approximately $134,000.

7    Mr Shord objected to the amended assessments and imposition of the penalty. The objection was disallowed.

8    The notice of the objection decision was given on 23 December 2013. The Commissioner found that Mr Shord was an Australian resident for the 2006 to 2011 financial years. The reasons for the objection decision stated:

During this period, you did not have any enduring relationship with or ties to other countries to which you visited. Your connection to other countries apart from the UK was based entirely on your work assignments. You have family and assets in Australia. You returned to Australia regularly. It is considered that you have retained a continuity of association with Australia.

Therefore, you are considered to be a resident of Australia under the ordinary concepts for the period 1 July 2005 to 30 June 2011.

9    The notice of reasons for the objection decision also referred to s 23AG of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) and rejected Mr Shord’s claims that his foreign sourced income for the years 2006 to 2009 was exempt from tax under s 23AG(1) of the ITAA 1936. The Commissioner did, however, accept that some of Mr Shord’s foreign sourced income during those years was exempt under that subsection.

10    The relevant provisions of s 23AG, as applied at the relevant time, stated:

(1)    Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service are exempt from tax.

…

(2)    An amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the following:

…

(c)    provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax:

(i)    income derived in the capacity of an employee;

(ii)    income from personal services;

(iii)    similar income;

(d)    the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c);

…

(6)    For the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service:

(a)    absent on recreation leave, other than:

…

(iii)    leave without pay or on reduced pay; or

(b)    absent from work because of accident or illness.

…

(6A)    2 or more periods in which a person has been engaged in foreign service are together taken to constitute a continuous period of foreign service until:

(a)    the end of the last of the 2 or more periods; or

(b)    a time (if any), since the start of the first of the 2 or more periods, when the person’s total period of absence exceeds 1/6 of the person’s total period of foreign service;

whichever happens sooner.

(7)    In this section:

…

foreign service means service in a foreign country as the holder of an office or in the capacity of an employee.

11    The Commissioner’s reasons for decision stated, relevantly:

Based on the information you provided at the objection and to the auditor, we conclude that each time when you finished your job in one country and returned to Australia is one “period of foreign service”. When you left Australia to work in another country is the commencement of another “period of foreign service”. Therefore, whether your income earned overseas is assessable in Australia depends on if each of the foreign services satisfies the 91 days rule required in [s] 23AG.

12    The objection decision also rejected Mr Shord’s claim in respect to being entitled to foreign tax credits or foreign income tax offsets by reason of having paid income tax in the foreign countries where he worked overseas. The Commissioner’s reasons for decision stated:

You claimed you paid local taxes in source countries for your foreign source income. You made reference to an email from Craig Staggs of Technip stating Global Industries paid local taxes in source countries, including India and Thailand.

However, you did not provide evidence to prove the amounts paid in each country and when the taxes were paid. Therefore, we cannot allow the foreign tax credit or foreign income tax offset.

THE TRIBUNAL

13    Mr Shord commenced a proceeding in the Tribunal to review the Commissioner’s objection decision.

14    Before the hearing in the Tribunal, each of the parties filed a statement of facts, issues and contentions.

15    The statement of facts, issues and contentions filed on behalf of Mr Shord was dated 9 February 2015. The issues were stated as:

(a)    whether Mr Shord was a resident for tax purposes for the relevant years;

(b)    if Mr Shord was “deemed” to be a resident, whether all or some income may be exempt pursuant to s 23AG of the ITAA 1936 for the years ended 30 June 2006 to 30 June 2009;

(c)    whether, if Mr Shord has taxable foreign income, he is entitled to an amount of foreign tax offset pursuant to Division 770 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997);

(d)    whether the tax shortfall penalty should be remitted.

16    The statement of facts, issues and contentions filed by the Commissioner recognised, in essence, the same issues as identified by Mr Shord. The Commissioner also made a number of contentions.

17    First, the Commissioner contended that during each of the relevant years, Mr Shord was a “resident of Australia”, within the meaning of s 6(1) of the ITAA 1936, within the ordinary meaning of that term; alternatively, that Mr Shord’s domicile was Australia and that he had no permanent place of abode outside of Australia.

18    As to the issue of the exemption from tax under s 23AG of the ITAA 1936, the Commissioner contended as follows:

4.8    The exemption of foreign earnings derived from foreign service (“foreign source income”), in subsection 23AG(1) of the ITAA 1936, does not apply in respect of the income earned in Brunei because the laws of Brunei do not provide for imposition of income tax. Such foreign source income, therefore, falls within the exception to the exemption in paragraphs 23AG(2)(c) and (d) of the ITAA 1936.

4.9    In respect of foreign source income derived from foreign service in countries other than Brunei, where that foreign service is not apparently for a period of more than 91 days, the Applicant has not shown that he has been engaged in foreign service for a continuous period of more than 91 days within the extended meaning of the term “engaged in foreign service” in subsection 23AG(6) of the ITAA 1936.

4.10    Whilst not disputed at the audit and objection stages, the Applicant’s description of the terms of his engagement by the Overseas Entities indicates that, at all material times, he was not engaged in service as the holder of an office or in the capacity of an employee within the meaning of “foreign service” in subsection 23AG(7) of the ITAA 1936.

(Original emphasis.)

19    As appears below, the Commissioner’s contention made at para 4.10, has assumed some importance in this appeal proceeding.

20    At the hearing before the Tribunal on 9 April 2015, Mr Shord was represented by an accountant, Mr Richard Wytkin, and the Commissioner was represented by Ms Fiona Vernon, a barrister acting on the instructions of the Australian Government Solicitor. At the commencement of the hearing, the following exchange occurred:

SENIOR MEMBER: Yes, Mr Wytkin, can we hear from you?

MR WYTKIN: What would the Member like to hear from me to begin with? Is there any summary you need to have or would like to have?

SENIOR MEMBER: Well, do you have any opening submissions or are you just relying on your statement of facts, issues and contentions?

MY WYTKIN: I’ve got a submission. Extensive. Fully written. I wasn’t planning to labour through that and we have Mr Shord here to give evidence.

SENIOR MEMBER: So you’d prefer to wait to give closing submissions, is that what you’re - - -

MR WYTKIN: Yes.

SENIOR MEMBER: That’s fine. Well, then, Ms Vernon, do you have opening submissions?

MS VERNON: I’m happy to proceed on the basis that we deal with submissions in closing.

SENIOR MEMBER: Yes. And relying on your statement of - - -

MS VERNON: And relying on the statement of facts, issues and contentions, although I should draw to your attention, Senior Member, that there is reference in the respondent’s statement of facts, issues and contentions the matter that the respondent no longer pursues. Just find the paragraph. It’s 4.10 – sorry, the pages aren’t numbered in this document but it’s the second-last page which refers to the question of whether or not the applicant was engaged in the capacity of an employee.

SENIOR MEMBER: So that’s no longer an issue?

MS VERNON: That’s no longer pursued by the respondent. Should perhaps also confirm what you have before you, Senior Member, in terms of documents. There are two volumes of T documents.

21    Thereafter, Mr Wytkin called Mr Shord to give evidence. Mr Shord gave evidence and was cross-examined.

22    Mr Shord was the only witness. At the conclusion of the evidence, Mr Wytkin handed up his written submissions. Mr Wytkin then went on to make some short points orally.

23    A substantial portion of Mr Wytkin’s closing written submissions was directed to the question of whether Mr Shord was ordinarily resident in Australia in the relevant years.

24    However, Mr Wytkin’s submissions also addressed further questions. The first was the question of whether certain periods of Mr Shord’s work away from Australia should be regarded as continuous with another period, so that the total period was more than 91 days – thereby rendering the income earned during each of those separate periods of work exempt foreign income under s 23AG(1) of the ITAA 1936.

25    In general terms, Mr Shord contended that the intervals between the non-continuous periods, were to be characterised as Mr Shord being on recreational leave so as to bring the absences within the purview of s 23AG(6)(a). Mr Wytkin contended that the Commissioner’s contention that the continuity of service ceased every time Mr Shord returned to Australia was not supported by evidence and was not realistic.

26    Further, Mr Shord contended that there were six occasions during the relevant tax years (namely, 2006 to 2009) when the intervals between the periods were short enough to trigger the operation of s 23AG(6A). This section operated to treat two separate periods of work as a continuous period when the interval between the periods was less than one-sixth of the previous period.

27    Further, Mr Wytkin at para 65 of his written submissions, made a submission in support of a proposition that Mr Shord was an employee in respect of his foreign service and had a “master servant” relationship with his employer; the submissions went on to refer to incidents of the relationship as follows:

The applicant’s employment conditions are not that of an Australian employee, because he is in foreign service. The applicant is an employee, he and his employer have a master servant relationship. The employer provides all equipment, tools and materials for work, provides all travel and accommodation requirements, the applicant is not responsible for rectifying defects at his cost, the employer instructs the applicant on how to work, when and where, the employer pays regular reimbursement for labour only. The conditions of employment are not comparable to Australian employment awards or the like. The employee does not have employer superannuation support, not covered by Workers Compensation, does not have Australian descriptive type leave entitlements like, overtime rates, location or other allowances, special leave, bereavement leave, usual sickness leave, etc. The applicant’s rate of pay are inclusive of any usual Australian employment expectation. The applicant does have annual leave, this is evidenced by his annual return to Australia / elsewhere. The applicant not being paid while on annual leave is part of his employment arrangements, it does not represent leave without pay nor absence without cause.

28    Ms Vernon also handed up to the Tribunal written submissions on behalf of the Commissioner which dealt with the questions of Mr Shord’s residency for tax purposes and whether the contentious separate work periods were to be treated as continuous for the purpose of s 23AG(1). The Commissioner disputed Mr Shord’s contention that the separate periods were to be treated as continuous by reason of the operation of s 23AG(6). The Commissioner’s submissions did not address Mr Shord’s argument as to the application of s 23AG(6A).

29    Significantly, consistent with the observations made in opening as to para 4.10 of the Commissioner’s statement of facts, issues and contentions, the Commissioner’s written submissions did not contend that Mr Shord did not qualify for the exemption under s 23AG of the ITAA 1936, on the basis that he had not satisfied the onus of proof in showing that he was an employee during the time of his foreign service. Nor did counsel for the Commissioner make any such contention in her closing oral submissions.

30    The Tribunal found that Mr Shord was ordinarily resident in Australia for the relevant period.

31    As to the operation of s 23AG(6), at [92]-[93] of its decision, the Tribunal observed:

92    The evidence does not support a finding that Mr Shord was ever “absent from work on recreation leave” for the purposes of s 23AG(6) of the ITAA 1936, other than leave without pay, between assignments during the Relevant Period. In particular, based on the evidence, Mr Shord:

•    had no entitlement to paid leave, but made his own decisions about the time he took off work between assignments, subject to the agreement of his employer at the time; and

•    was engaged on each assignment on an individual basis, with apparently individual requirements as to the required work and individual arrangements as to travel and pay…

93    Further, there is no evidence that Mr Shord was ever absent from work by reason of accident or illness for the purposes of s 23AG(6) of the ITAA 1936.

32    The Tribunal did not, however, address the argument made by Mr Shord that there were six occasions when the interval between the two periods of his work abroad was sufficiently brief to trigger the operation of the deeming provisions in s 23AG(6A).

33    Also, notwithstanding the statements made by counsel for the Commissioner at the commencement of the Tribunal hearing (see [20] above), and the absence of any contention to this effect in the Commissioner’s closing submissions, the Tribunal went on to observe at [94] of its reasons for decision:

Finally, Mr Shord’s description of the terms of his engagement by the relevant foreign companies indicates that, at all material times, he was not engaged in service as the holder of an office or in the capacity of an employee within the meaning of “foreign service” in s 23AG(7) of the ITAA 1936…

34    The Tribunal also found that Mr Shord had not produced evidence of having paid foreign income tax to support his claim for a tax offset under s 770-10(1) of the ITAA 1997.

35    Further, the Tribunal found that Mr Shord had not demonstrated sufficient grounds for the Tribunal to exercise the discretion to remit either the shortfall interest charge or the administrative penalties.

36    It followed that the Tribunal upheld the objection decision of the Commissioner.

37    In light of the issues in this appeal, it is necessary to refer to the findings of the Tribunal at [94] of its reasons which, as we have said, were made, notwithstanding the fact that counsel for the Commissioner had advised the Tribunal that the Commissioner no longer pursued the question of whether Mr Shord was an employee during his foreign service.

38    The case of Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 (Fletcher) is an illustration of a case where the Tribunal had upheld a decision by the Commissioner to disallow the objections to 14 assessments for income tax on a basis which was not relied upon by the Commissioner at the time of the disallowance of the objections in his original decision, or by the Commissioner at the hearing before the Tribunal.

39    On review, the Tribunal decided that the taxpayers’ objections should be disallowed because the tax benefit which the taxpayers had obtained was in relation to a scheme to which Pt IVA of the ITAA 1936 applied. The Tribunal, therefore, exercised a discretion under s 177F(1) of the ITAA 1936 to disallow a deduction on a basis which had not been argued by any of the parties.

40    On appeal on a question of law to the Full Court of this Court, the taxpayers argued that the Tribunal had exceeded its jurisdiction in determining the review on a basis which was not relied upon by the Commissioner either at objection stage or before the Tribunal. The Full Court rejected that contention.

41    At 453 of Fletcher, the Full Court observed:

Once it is understood that, in exercising his powers under s 186, the Commissioner would have been free to exercise a discretion under s 177F of the Income Tax Assessment Act, it follows that, in reviewing the Commissioner’s decision under s 186, the Tribunal is free to exercise that same discretion if, upon the material then before it, it seems proper to take that course.

42    However, the Full Court then went on to find that although the Tribunal had power to make the decision which it had made, the Tribunal had denied the taxpayers procedural fairness in making a decision on the basis not argued by any party.

The appeal on a question of law to the Federal Court

43    On 17 June 2015, Mr Shord commenced an application in the Federal Court as an appeal on a question of law under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) from the decision of the Tribunal.

44    The originating application, as originally framed, alleged the following errors of law:

(a)    The Tribunal erred in failing to treat the separate contentious periods of Mr Shord’s work abroad as continuous for the purpose of s 23AG(1). More specifically, it was alleged that the Tribunal failed to have regard to s 23AG(6A) and also had erred in its findings relating to “recreation leave” and “leave without pay” in s 23AG(6).

(b)    By reason of the errors in the application of s 23AG, the Tribunal erred with respect to the application of the law as to penalties and interest and also in relation to the remission of penalties and interest.

(c)    The Tribunal erred in law in its application of the “laws pertaining to individual tax residency” in s 6(1) of the ITAA 1936.

45    There was no reference to, or complaint about, the Tribunal’s finding at [94] of its reasons, and, more specifically, no complaint that there had been a denial of procedural fairness by the Tribunal in making the finding at [94] of its reasons.

46    On 1 August 2015, Mr Shord filed an amended notice of appeal which introduced a ground of appeal which impugned the Tribunal’s finding at [94] of its reasons. The amended grounds of appeal contended that the finding made at [94] of the Tribunal’s reasons was not a finding of fact but only an “indicia”. This, alleged Mr Shord, was evident from the Tribunal’s use of the word “indicates” in that paragraph. Thus, contended Mr Shord, the Tribunal’s observations at [94] should be disregarded by the Court or treated as an error of law. Also, among the allegations introduced by the new ground of appeal, was an allegation that the Tribunal’s “indicia” at [94] failed to consider documentary evidence tendered by Mr Shord at the Tribunal hearing in finding that Mr Shord was not engaged in foreign service in the capacity of an employee. Another allegation introduced at 1(d)(v) was that:

The “indicia” is unsupported by reasoning that would be sufficient to sustain a finding of fact and is unsupported by and contrary to written submissions made by either the Applicant or the Respondent which both treated the Applicant as an employee which amount to the “indicia” being an error of law in and of itself or in the alternative as being indicative of an error of law.

47    It is to be observed that, although the amended notice of appeal complained about the finding at [94] of the Tribunal’s reasons, no complaint was made that the finding at [94] occurred in circumstances where there was a denial of procedural fairness.

48    On 2 October 2015, the Commissioner filed an outline of submissions. Counsel for the Commissioner referred to the fact that she had informed the Tribunal at the outset of the Tribunal hearing that the respondent no longer pursued the issue in para 4.10 of the statement of facts, issues and contentions, namely, whether Mr Shord was engaged, during his foreign service, in the capacity of an employee. Relevantly, the submissions stated:

12.    Subject to affording the applicant procedural fairness the Tribunal may make a decision on the same basis that the original decision maker could make the decision. It was, accordingly, open to the Tribunal to determine that s 23AG did not apply because the applicant was not engaged in foreign service.

Fletcher v Federal Commissioner of Taxation (1988) 84 ALR 295 at 305 to 306 [19 FCR 442 at 452 to 453]

13.    The respondent raised the issue of whether the applicant had been engaged in the capacity of an employee in its statement of facts, issues and contentions (SFIC) at paragraph 4.10. At the outset of the hearing, however, Counsel for the respondent informed the Tribunal that the respondent did not pursue the issue in paragraph 4.10 of the SFIC, that is whether the applicant was engaged in the capacity of an employee (T2 at 35). The respondent’s written submissions in relation to s 23AG did not refer to that issue.

14.    That said, however, the applicant made submissions on his status as an employee at paragraph 65 of the applicant’s written submissions handed up to the Tribunal at the conclusion of the hearing on 9 April 2015 (T 49-50). The applicant also gave evidence, by way of his witness statement and orally, as to the terms of his service.

15.    Accordingly, the Tribunal decided the issue after the applicant had been given the opportunity to be heard.

49    On 13 November 2015, which was three days before the hearing of the appeal, Mr Shord filed a further amended notice of appeal. This further amended notice of appeal reformulated some of the existing complaints into four questions of law.

50    The first question of law was whether the Tribunal had erred in the application of s 23AG(6A) of ITAA 1936 in relation to the continuity of some of the periods of work engaged in by Mr Shord.

51    The second question of law impugned the Tribunal’s findings which rejected Mr Shord’s claim that on the proper application of s 23AG(6), the contentious separate periods of Mr Shord’s work overseas should have been treated as continuous so as to cause the monies earned during those separate periods to qualify for exemption from tax under s 23AG(1).

52    The third question of law impugned the Tribunal’s finding at [94] of its reasons for decision. The question was stated in the following terms:

Did the Tribunal find that the Applicant was not engaged in foreign service within the meaning of s 23 AG(7) of the ITAA 1936 because the applicant was not engaged in service as an employee, in circumstances where it was not open to the Tribunal to make that finding?

53    The fourth question of law impugned the Tribunal’s finding that Mr Shord was not entitled to a foreign income tax offset for the years ended 30 June 2006 to 30 June 2011, pursuant to s 770–10(1) of the ITAA 1997.

54    Each of the parties then filed further written submissions which addressed the further amended notice of appeal and the questions of law as formulated in that document.

55    At paras 18-31 of Mr Shord’s supplementary written submissions, counsel for Mr Shord set out his argument in support of the third question of law. In summary, counsel for Mr Shord contended that:

(a)    the Tribunal did not expose the test which it was applying in determining whether Mr Shord was an employee;

(b)    that the Tribunal did not give sufficient reasons for the determination that Mr Shord was an employee and erred in determining that the term employee excluded a casual employee;

(c)    the finding in para [94] of the Tribunal’s reasoning that Mr Shord was not an employee was inconsistent with the language used by the Tribunal in other parts of its reasons for decision where it referred to Mr Shord as having been engaged in “overseas employment”, or as having “worked overseas”;

(d)    the Tribunal was wrong to find at para [51] that there was no evidence of any employment contract; such a finding being inconsistent with four documents which were part of the bundle of documents tendered by Mr Shord.

56    In para 32 of the same submissions, Mr Shord referred to the fact that counsel for the Commissioner had stated at the opening of the hearing before the Tribunal that the Commissioner no longer pursued the question of whether or not Mr Shord was an employee during his foreign service. That paragraph read:

32.    Finally, it is noted, to the Respondent’s credit…the Respondent did not advance the conclusion at paragraph 94 that the Applicant was not an employee, wherein it was noted by Counsel for the Respondent in the Tribunal at page 6 of the Transcript, “It’s 4.10…which refers to the question of whether or not the applicant was engaged in the capacity of an employee…That’s no longer pursued by the respondent.”

(Original emphasis.)

57    It is to be observed that in neither the reformulated further amended notice of appeal, nor the supplementary submissions filed by Mr Shord, is there any criticism of the conduct of counsel for the Commissioner. Nor is there any allegation that the Tribunal’s conduct in making the finding, notwithstanding the opening statement by counsel for the Commissioner, gave rise to a jurisdictional error comprising a denial of procedural fairness in relation to the finding by the Tribunal at [94] of its reasons for decision.

58    In the Commissioner’s supplementary submissions, the Commissioner repeated the disclosure made in earlier submissions of the exchange between herself and the Tribunal member at the commencement of the Tribunal hearing, that the Commissioner no longer pursued the question of whether Mr Shord was engaged as an employee during his foreign service.

59    Further, in relation to the first question of law, the Commissioner’s supplementary submissions accepted that the Tribunal had failed to address Mr Shord’s argument as to the application of s 23AG(6A) of the ITAA 1936 to the facts of his case, and that the Tribunal erred in failing to do so. Accordingly, said the Commissioner, income totalling $12,537 in respect of the work carried out by Mr Shord in Thailand from 17 April 2006 to 13 May 2006 in the year ended 30 June 2006 should not have been included in Mr Shord’s taxable income for that financial year. The Commissioner also conceded that the amount of $43,696 in the financial year ended 30 June 2009 should not have been included in Mr Shord’s taxable income for the 2009 financial year.

The hearing before the primary judge

60    It follows from the foregoing that by the time the appeal came on for hearing it was obvious to each of the parties, and to the primary judge, that:

(a)    the Tribunal had made the finding at [94] of its reasons, notwithstanding counsel’s statement at the commencement of the Tribunal hearing, that the Commissioner no longer pursued the issue of whether Mr Shord had established that he was an employee for the purpose of s 23AG(7);

(b)    Mr Shord did not contend that this circumstance gave rise to a denial of procedural fairness and, more particularly, did not raise as a question of law nor as a ground of appeal, whether the finding of the Tribunal at [94] was vitiated by reason of the denial of procedural fairness to Mr Shord; and

(c)    Mr Shord made no criticism of the conduct of counsel for the Commissioner.

61    At the hearing before the primary judge, it was accepted that if question of law three (see [52] above) was answered adversely to Mr Shord, questions of law one and two of the further amended application fell away.

62    As it transpired, by reason of his Honour’s finding in relation to question of law three, the primary judge addressed only that question and question of law four in his reasons for judgment.

63    As to question of law three, the primary judge answered that question in a manner adverse to Mr Shord. In brief, the primary judge made the following findings in relation to the contentions made by Mr Shord.

64    First, the primary judge found that, contrary to Mr Shord’s contentions, the observations of the Tribunal at [94] of its reasons for decision amounted to findings and were not simply “indicia”.

65    Secondly, the primary judge found that there were a number of factors upon which the Tribunal had relied in concluding that Mr Shord had not relevantly been engaged in the capacity of an employee. The primary judge said that these factors included that Mr Shord:

(a)    was engaged on a job by job basis;

(b)    had no written employment contract;

(c)    was engaged only until the job was completed;

(d)    had no entitlement to superannuation, sick leave, holiday leave or long service leave; and

(e)    would after completion of a job wait until he was assigned another job.

66    The primary judge also referred to the fact that in Mr Shord’s written statement before the Tribunal, he had stated that he did not get the benefit of public holidays and had described the time in between jobs as “recreational leave”. However, said the primary judge, Mr Shord had not explained what he meant by this, and the inference was that he was not paid other than when working on a job. Further, the primary judge pointed out that Mr Shord had stated that his terms of engagement were oral, and that he had been unable to obtain confirmation of the terms from the company which engaged him.

67    Thirdly, the primary judge found that none of the documents which Mr Shord had pointed to as having been before the Tribunal constituted an employment agreement. The primary judge went on to state that, in any event, the documents relied upon by Mr Shord fell outside the relevant period, namely, 1 July 2005 to 30 June 2009, during which s 23AG operated.

68    Fourthly, the primary judge found that the fact that at other places in the Tribunal’s reasons, it had used the word “employee” in relation to Mr Shord’s position, did not undermine or affect the determination made by the Tribunal at [94] of its reasons that Mr Shord had failed to demonstrate that he was engaged as an employee.

69    The primary judge found that it was “rationally open for the Tribunal to find, in circumstances where the ordinary incidents of an employer/employee relationship were absent…that such a relationship did not exist.” In support of this conclusion, the primary judge referred to Fletcher at 451-452.

70    We infer from the fact that the primary judge referred to Fletcher at 451-452, that the primary judge was cognisant of the fact that the Tribunal had, of its own accord, made the findings at [94] of its reasons for decision, notwithstanding that counsel for the Commissioner had advised the Tribunal that the Commissioner no longer pursued that issue.

71    This is because, as mentioned, in Fletcher, the Tribunal had upheld the objection decision made by the Commissioner, on a ground which had not been relied upon by the Commissioner in making the original objection decision, and had not been argued by the Commissioner before the Tribunal. This circumstance is specifically referred to and considered by the Full Court at 451-452 of that case.

72    The primary judge also determined the fourth question of law. This related to whether the Tribunal had erred in determining that Mr Shord was not entitled to a foreign income tax offset under s 770-10(1) of the ITAA 1997.

73    Section 770-10(1) of the ITAA 1997 relevantly stated as follows:

You are entitled to a tax offset for an income year for foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

74    The question of law before the primary judge was framed as follows:

Did the Tribunal find that the applicant did not pay foreign taxes and as a consequence was not eligible for a foreign income tax credit where it was not open to the Tribunal to make that finding or the finding was not consistent with the requirement to assess the facts before the Tribunal?

75    The Tribunal’s finding which was impugned by Mr Shord by this question of law was at [96] of the Tribunal’s reasons for decision and is to the following effect:

Mr Shord has not produced evidence to support an entitlement to any foreign income tax offset, or the quantum of any such offset, during the years ended 30 June 2006 to 30 June 2011. Specifically there is no evidence that Mr Shord paid any foreign income tax on the foreign source income he derived whilst working overseas in the Relevant Period. Accordingly, Mr Shord has failed to positively establish what must be done to correct the Amended Assessments.

76    The primary judge rejected Mr Shord’s contentions that the finding made by the Tribunal was not open to the Tribunal.

77    The primary judge also distinguished the case of Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 at [230]-[234] (Haritos) which had been relied on by Mr Shord, finding at [32] that:

Unlike the facts in that case, which involved “inexact evidence”, here there was no evidence whatsoever upon which the Tribunal could make an estimate.

78    The primary judge held that the emails relied on by Mr Shord, being emails from Mr Craig Staggs of Technip, one of the foreign entities, and Ms Marella Diding of Global Industries, another such foreign entity, did not show that any tax that either of the two entities concerned may have paid on behalf of Mr Shord, was income tax.

79    The primary judge went on to observe at [35]-[36] of his reasons for judgment:

Second, even if it were otherwise, this evidence does not establish that income tax in a particular amount was paid by or on behalf of the appellant in any particular income year. Nor was any evidence tendered of any means or formula by which such amounts might be calculated by the Tribunal. The Tribunal had no obligation to make enquiries overseas to ascertain what, if any, income tax was paid by or on behalf of the appellant.

Accordingly, there was “no evidence” capable of establishing this necessary fact of which the appellant had the burden of proving: s 14ZZK(b) of the Taxation Administration Act 1953 (Cth).

80    The primary judge also rejected Mr Shord’s contention that the Commissioner had an obligation to obtain evidence of payment by Mr Shord, or on Mr Shord’s behalf, of income tax overseas, in circumstances where Mr Shord had claimed that he did not have the resources to do so, to assist him in satisfying the requirements of s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (the TAA).

the appeal

81    On 20 July 2016, Mr Shord filed a notice of appeal to commence this proceeding.

82    The grounds of appeal in that notice of appeal complained that the primary judge had erred in finding that the third question of law, and consequently, the first and second questions of law, should be resolved against Mr Shord. Likewise, it was contended that the primary judge erred in finding that the fourth question of law should be resolved against Mr Shord.

83    On 17 August 2016, Mr Shord filed an amended notice of appeal. The amendments added almost six pages of verbiage to the original notice of appeal.

Ground one

84    Ground one of the amended notice of appeal impugned the primary judge’s finding in respect of question of law three; and ground two impugned the primary judge’s findings in respect of question of law four. However, in neither the original notice of appeal nor the amended notice of appeal was there a ground of appeal pleaded that the primary judge had erred in failing to find that there had been a denial of procedural fairness to Mr Shord relating to the Tribunal’s finding at [94] of its reasons.

85    As Mr Shord had not, before the primary judge, raised denial of procedural fairness as a question of law, a ground of appeal or otherwise, it is not surprising that such complaint did not find its way into the grounds of appeal in either the notice of appeal to the Full Court, or the amended notice of appeal to the Full Court.

86    However, by an email sent at 5:18 pm on 23 January 2017, Mr Shord’s solicitors provided a proposed interlocutory application to the Commissioner’s solicitors. That proposed interlocutory application indicated that leave would be sought to file a further amended notice of appeal “in the form provided”. The proposed further amended notice of appeal sought to introduce, inter alia, a ground of appeal in the following terms:

1(c)    The Court ought to have found that the Tribunal’s finding that the Appellant was not an employee being made after the Respondent had stated that he did not pursue the finding was an actual or objective failure to provide procedural fairness to the Appellant and in that respect symbiotic of a failure to exercise jurisdiction and or was not open having regard to the operation of s 14ZZK.

Particulars

i.    The Respondent’s Counsel stated and the Senior Member replied at page 2 of the Tribunal transcript:

MS VERNON: And relying on the statement of facts, issues and contentions, although I should draw to your attention, Senior Member, that there is reference in the respondent’s statement of facts, issues and contentions the matter that the respondent no longer pursues. Just find the paragraph. It’s 4.10 – sorry, the pages aren’t numbered in this document but it’s the second-last page which refers to the question of whether or not the applicant was engaged in the capacity of an employee.

SENIOR MEMBER: So that’s no longer an issue?

MS VERNON: That’s no longer pursued by the respondent.

[Emphasis added.]

ii.    Notwithstanding that the Respondent had abandoned the argument that the Appellant was not an employee, the Tribunal so found at paragraph [94] of its reasons that the Appellant was not an employee.

iii.    The Tribunal did not reference in its decision that in finding that the Appellant was not an employee that the Tribunal was making a finding contrary to the contentions of all parties.

iv.    The Tribunal did not take into account the operation of s 14ZZK of the Taxation Administration Act 1953 and reconcile or weigh up the evidence that the Appellant had provided evidence that the Appellant was an employee (including oral evidence) but the Respondent had not sought to counter that evidence.

87    Further, on 24 January 2017, Mr Shord filed submissions which, notwithstanding that no leave had been given to amend further the amended notice of appeal, contended that there had been a denial of procedural fairness by the Tribunal in making the finding at [94] of its reasons for decision.

88    The Commissioner’s solicitors by a letter, dated 27 January 2017, objected to the proposed amendment to the amended notice of appeal and to Mr Shord’s submissions raising the procedural fairness contention on the grounds that the proposed new ground of appeal 1(c) had not been raised in the notice of appeal, the amended notice of appeal nor before the primary judge. The solicitors for the Commissioner also observed that the proposed interlocutory application seeking leave to amend further the amended notice of appeal, would have to be supported by an affidavit which deposed to:

(a)    the reason(s) for the delay in the further amendments to the Notice of Appeal; and

(b)    why the Appellant is raising grounds not previously raised in the Notice of Appeal and not previously raised before [the primary judge].

89    The Commissioner’s solicitors called for an urgent response from the solicitors for Mr Shord.

90    In response, Mr Shord’s solicitors sent a letter which sought to argue that the ground of procedural fairness had been raised as an allegation of jurisdictional error on the part of the Tribunal before the primary judge, and was also embraced by the existing amended notice of appeal. This letter is disingenuous in the extreme.

91    Nevertheless, presumably arising from the embarrassment of not being able to provide a satisfactory explanation as to why the ground of denial of procedural fairness had not been raised before the primary judge, and had not previously formed part of the notice of appeal and the amended notice of appeal, the solicitors and counsel for Mr Shord sought to recast the proposed amendment to the amended notice of appeal to raise the procedural fairness argument in oblique terms. On 1 February 2017, they filed an interlocutory application which sought, inter alia, the following relief:

2.    That leave be given by the Full Court to append the Amended Notice of Appeal (filed 17 August 2016) as follows:

Before the beginning of Ground 1(b)

Ground 1(ba) Further to Ground 1(a) [which is a complaint of jurisdictional error of the Court Below (“CB”) upholding Tribunal Reasons (“TR”) [94]], and contrary to the CB [13] and [18], the CB ought to have found the “finding” or “indicia” of the Tribunal that the Appellant was not an employee (at TR [94]) was also jurisdictional error and an error of law because the Tribunal failed to exercise jurisdiction in copying Respondent’s SFIC [4.10] as paragraph [94] (without attribution or explanation), where the Respondent had specifically repudiated Respondent’s SFIC [4.10] at hearing.

Before “Orders Sought” (after Ground 2(b))

Ground 2(c) Further to Ground 1(b) [which is specifically a complaint of jurisdictional error (including specifically at Ground 1(b), jurisdictional error that arises under s 75(v) of the Constitution) of CB upholding TR [96]] and contrary to CB [37], the CB ought to have found that the Commissioner of Taxation’s failure to use his best endeavours to assist the Tribunal as to the quantum of Foreign Income Tax Offsets particularised in Ground 1(b) (particular at (ix) – (xii)) was also jurisdictional error and an error of law.

(Original emphasis.)

92    The interlocutory application was supported by an affidavit of Mr Shord’s solicitor, Mr Timothy James Poli, dated 1 February 2017. Mr Poli’s affidavit annexed correspondence between his firm of solicitors and the Commissioner’s solicitors.

93    It is of some concern that the solicitor who swore the affidavit of 1 February 2017 sought to portray the proposed amendment as being “for the avoidance of doubt”, and also sought to raise the procedural fairness argument in an oblique and disingenuous way by seeking to recast the application for leave to amend as something referred to as “leave…to append”.

94    Also, on 1 February 2017, the Commissioner filed his submissions. These submissions included, under objection, a response to Mr Shord’s submissions that there had been a denial of procedural fairness in relation to the finding at [94] of the Tribunal’s reasons for decision. The submissions contended that there had been no relevant denial of procedural fairness because Mr Shord’s representative had, notwithstanding the opening remarks of counsel for the Commissioner, specifically adduced evidence and raised arguments in support of Mr Shord being an employee; and so Mr Shord’s representative had not, in reliance on the opening statement of the Commissioner’s counsel, altered the way he conducted Mr Shord’s case before the Tribunal.

95    At the commencement of the hearing of the appeal, counsel for Mr Shord made submissions in support of the interlocutory application, dated 1 February 2017, which the Full Court treated as an application to amend further the amended notice of appeal. Notwithstanding the oblique language of the proposed amendment in ground 1(ba), it was accepted that Mr Shord was seeking to raise the contention that there had been a denial of procedural fairness by the Tribunal in making the findings that it did at [94], given the statement by counsel for the Commissioner at the commencement of the Tribunal hearing.

96    Counsel for the Commissioner objected to the Full Court allowing Mr Shord’s amendment application on the grounds of delay; and on the grounds that, although it had been open to Mr Shord to raise a complaint of denial of procedural fairness before the primary judge, counsel for Mr Shord had not done so, and no explanation had been given why this ground had not been relied upon before the primary judge, nor in the notice of appeal nor the amended notice of appeal.

97    There was, of course, considerable substance in the contentions made by counsel for the Commissioner. However, the Full Court allowed the amendment of the amended notice of appeal to be made to include proposed ground 1(ba) as raising a complaint about procedural fairness. This was on the basis that notice of Mr Shord’s proposal to amend to include a ground alleging denial of procedural fairness had been given to the Commissioner and the Commissioner had addressed the question in his submissions of 1 February 2017.

98    After the Full Court allowed the amendment to the amended notice of appeal to include ground 1(ba) and for it to be construed as raising a complaint about procedural fairness, counsel for the Commissioner applied for a short adjournment to obtain instructions. When the hearing resumed, counsel informed the Court that the Commissioner accepted that the Tribunal’s finding at [94] that Mr Shord was not an employee within the meaning s 23 AG(7) was attended by jurisdictional error; and that, accordingly, the ground of appeal which impugned the primary judge’s finding in relation the third question of law should be allowed.

99    Accordingly, ground one of the grounds of appeal is allowed. This finding has further consequences for questions of law one and two which were before the primary judge. We will refer to these in due course.

100    In our view, no criticism can be made of the conduct of counsel for the Commissioner or the solicitors who acted for the Commissioner. To the contrary, in our view, counsel for the Commissioner acted with propriety in both advancing the interests of her client as a model litigant, and in discharging her duty to the Court. The same is the case in respect of the solicitors who acted for the Commissioner. We expressly disassociate ourselves from the observations of Logan J which may be construed as asserting a contrary position.

Ground two

101    This ground concerns the issue of the foreign income tax offsets claimed by Mr Shord.

102    There were three sub-grounds of ground two relied on by Mr Shord.

103    The first sub-ground of appeal contended that the primary judge had erred in upholding the Tribunal’s finding that there was “no evidence” that Mr Shord was entitled to any foreign income tax offsets.

104    Mr Shord argued that there was such evidence before the Tribunal. The evidence comprised statements of Mr Shord in his witness statement. There were also two emails, said Mr Shord. The first email was from Mr Craig Staggs of a foreign entity, Technip dated 1 August 2012; and the second email was dated around 1 August 2009 from Ms Marella Diding of Global Industries, another foreign entity.

105    The primary judge had regard to Mr Shord’s witness statement and found that the statements relied upon did not rise above the level of “mere assertion”. Further, the primary judge analysed the contents of each of the two emails and concluded that they did not demonstrate that income tax had been paid; and even if it were otherwise, the evidence did not establish that income tax in a particular amount was paid by, or on behalf of, Mr Shord in any particular income year.

106    The primary judge went on to say at [35]-[36]:

Nor was any evidence tendered of any means or formula by which such amounts might be calculated by the Tribunal. The Tribunal had no obligation to make inquiries overseas to ascertain what, if any, income tax was paid by or on behalf of the appellant.

Accordingly, there was “no evidence” capable of establishing this necessary fact of which the appellant had the burden of proving:  s 14ZZK(b) of the Taxation Administration Act 1953 (Cth).

107    In our view, the primary judge did not, for the reasons which he gave, err in the findings which he made. Accordingly, the first sub-ground of ground two is dismissed.

108    The second sub-ground of ground two was that the primary judge erred in failing to find that the Tribunal had used the burden of proof requirement under s 14ZZK(b) of the TAA to avoid making findings based upon the “inexact evidence” which was before the Tribunal.

109    Mr Shord contended that this was not a case where, as the Tribunal found, there was no evidence of Mr Shord having paid foreign income tax. Rather, said Mr Shord, this was a case of “inexact evidence” of the kind discussed in Haritos. That “inexact evidence”, said Mr Shord, comprised the statements in his witness statement and the two emails referred to at [104] above. Mr Shord contended that, in accordance with the observation in Haritos, the Tribunal should not have found against Mr Shord on the basis that Mr Shord had not discharged the burden imposed by s 14ZZK(b) of the TAA. Rather, said Mr Shord, the Tribunal should have directed the Commissioner either: to exercise his powers under the international tax treaty information exchange articles to obtain information as to the tax paid by Mr Shord in the foreign countries; or, to make an estimate of the income tax paid by, or on behalf of, Mr Shord in those foreign countries.

110    The primary judge found that the materials upon which Mr Shord sought to rely before the Tribunal were so deficient in probative value as to amount to no more than an assertion, and not to be capable of being characterised as “inexact evidence” in terms of Haritos. Further, as already mentioned, the primary judge said that there had been no evidence tendered which could form the basis on which the tax offset should be estimated, nor was the Commissioner under an obligation to make any inquiries overseas.

111    In our view, the primary judge did not, for the reasons he gave, err in the findings which he made. Accordingly, the second sub-ground of ground two is dismissed.

112    The third sub-ground of ground two (which was introduced by way of the amendment made at the hearing), was that the primary judge should have found that the Tribunal’s decision was affected by jurisdictional error by reason of the Commissioner’s contravention of s 33(1AA) of the AAT Act. That section provides:

In a proceeding before the Tribunal for a review of a decision, the person who made the decision must use his or her best endeavours to assist the Tribunal to make its decision in relation to the proceeding.

113    Mr Shord submitted that the effect of s 33(1AA) in his case was to oblige the Commissioner to obtain, or at the least to seek to obtain, evidence of the taxes paid by him or on his behalf, in other countries. He also submitted that s 33(1AA) obliged the Commissioner to have provided the Tribunal with estimates of the amount of tax which would have been paid on his income in the countries in which he had worked.

114    Mr Shord contended that in failing to obtain and to provide to the Tribunal the information which had been requested by Mr Shord’s accountant and to provide the Tribunal with estimates of the tax he may have paid in other countries, the Commissioner had contravened s 33(1AA).

115    There was evidence that Mr Shord’s accountant, Mr Wytkin, had made requests during the audit process (on 14 July 2012, 6 August 2012 and 15 February 2013) that the Commissioner use his powers of access to obtain information from the entities for whom Mr Shord had worked. (On the appeal, Mr Shord’s counsel characterised these communications as “cries for help”.) The letters and emails by which the requests were made were not adduced into evidence in the Tribunal. Nor were they in the materials provided to this Court.

116    The Commissioner’s audit decision also records that Mr Shord’s accountant had on 5 December 2012 informed the Commissioner that Mr Shord believed that if he (Mr Shord) raised tax related questions with those entities, it could jeopardise his prospects of obtaining further employment.

117    In the audit decision, the Commissioner stated that he declined to make the inquiries which Mr Shord requested because he did not have the administrative powers to compel foreign registered and domiciled companies to provide information to the Australian Taxation Office. The Commissioner’s response was appropriate. The articles relating to information exchange in the tax treaties referred to by Mr Shord in the annexure to his submissions bear this out. They show that the Commissioner’s power under the articles is confined to obtaining the information from foreign governments.

118    After the assessments had been issued, Mr Shord did not make any request or submission that the Commissioner should make enquiries of, or seek information from, a foreign government regarding the tax paid by him, or on his behalf, in other jurisdictions. No such request was made in the objection to the Commissioner’s assessments for the 2006, 2007, 2008, 2009, 2010 and 2011 financial years. Unsurprisingly therefore, the decision on the objection did not address the issue.

119    Mr Shord did not raise s 33(1AA) at all in the Tribunal. In particular, he did not submit that the Tribunal should require, or even request, the Commissioner to make enquiries of the kind for which he now contends. Nor did Mr Shord submit that the Tribunal should itself make those enquiries. On the hearing of the appeal before this Court, counsel for Mr Shord said expressly that his complaint concerned only the Commissioner, and not the Tribunal.

120    Before the primary judge, Mr Shord did advance a submission that the Commissioner should have sought to obtain evidence of the taxes paid by him or on his behalf in the countries in which he had worked. However, he did so without any reference to s 33(1AA). The primary judge rejected this submission, saying, at [37]:

The appellant submits that the respondent had some obligation to obtain evidence of payment by him, or on his behalf, of income tax overseas in circumstances where, he claims, he did not have the resources to do so, to assist him, in effect, in satisfying the requirements of s 14ZZK(b) of the Taxation Administration Act 1953 (Cth). The Commissioner has no such obligation.

121    As already noted, the judge had earlier said at [35]:

…The Tribunal had no obligation to make enquiries overseas to ascertain what, if any, income tax was paid by or on behalf of the appellant.

122    Mr Shord submitted that s 33(1AA) provided the obligation which the primary judge had considered not to exist.

123    Counsel for Mr Shord did not articulate the means by which the Commissioner’s non-compliance with s 33(1AA), if established, gave rise to jurisdictional error, but given that the appeal from the Tribunal to this Court lies on a question of law, that can be passed over.

124    In our opinion, s 33(1AA) does not have the effect for which Mr Shord contends. Properly understood, it is a provision directed to the manner by which decision-makers are to conduct themselves in proceedings in the Tribunal and not a provision imposing obligations with respect to the gathering of evidence for the proof or disproof of an applicant’s claims. A number of matters indicate that s 33(1AA) does not impose the obligations for which Mr Shord contends.

125    First, s 33 of the AAT Act is a provision directed to the manner in which the Tribunal is to conduct proceedings and to the Tribunal’s procedural powers. Subsection (1AA) is to be understood in that context.

126    Secondly, subs (1AA) should be read in conjunction with subs (1AB). That subsection provides:

A party to a proceeding before the Tribunal, and any person representing such a party, must use his or her best endeavours to assist the Tribunal to fulfil the objective in section 2A.

127    The objective stated in s 2A to which s 33(1AB) refers is that the Tribunal should provide a mechanism of review that:

(a)    is accessible; and

(b)    is fair, just, economical, informal and quick; and

(c)    is proportionate to the importance and complexity of the matter; and

(d)    promotes public trust and confidence in the decision-making of the Tribunal.

That objective has been described as “aspirational or exhortatory in nature, rather than as a source of directly enforceable rights and obligations”: Fard v Secretary, Department of Immigration and Border Protection [2016] FCA 417 at [80] (Griffiths J). The obligation stated in subs (1AA) appears to be similar in this respect.

128    This understanding is confirmed by the legislative history. Section 33(1AA) was inserted into the AAT Act by the Administrative Appeals Tribunal Amendment Act 2005 (Cth). In the corresponding Explanatory Memorandum, the Attorney-General said:

This new section imposes an ongoing obligation on the person who made the decision that is under review to use his or her best endeavours to assist the Tribunal to make its decision. This provision is consistent with model litigant obligations under the Legal Services Directions issued by the Attorney-General. It is intended to educate decision-makers about their obligations and encourage them to make every effort to assist the Tribunal in its work.

This provision is not intended to impose on the decision-maker any responsibilities or obligations which are the responsibilities and obligations of the applicant.

(Emphasis added)

129    The emphasised passage is pertinent in the present context because the effect of s 14ZZK(b) of the TAA is to impose both a legal and evidentiary onus on the applicant taxpayer to prove the assessment in question is excessive. Accordingly, it was for Mr Shord in the present case to garner and present the evidence, and s 33(1AA) did not displace or supplant that obligation.

130    Further, the AAT Act provides specifically in s 37 of the AAT Act for the provision of material to the Tribunal by a decision-maker. Section 37(1) provides:

Subject to this section, a person who has made a decision that is the subject of an application for review (other than second review) by the Tribunal must, within 28 days after receiving notice of the application (or within such further period as the Tribunal allows), lodge with the Tribunal a copy of:

(a)    a statement setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving the reasons for the decision; and

(b)    subject to any directions given under section 18B, every other document that is in the person’s possession or under the person’s control and is relevant to the review of the decision by the Tribunal.

131    It is noteworthy that the obligation imposed by s 37(1)(b) that a decision-maker provide documents to the Tribunal is limited to those documents in the decision-maker’s possession or under the decision-maker’s control. Section 37 does not impose an obligation on a decision-maker to obtain a document by the exercise of investigative powers or resources available to the decision-maker. Had that been the legislative intention, it to be expected that it would have been stated expressly.

132    These matters, considered together, indicate in our view that the effect of s 33 is to discourage decision-makers from adopting an overly adversarial attitude in proceedings in the Tribunal. Instead, decision-makers are positively required in the manner of their conduct of the proceedings to assist the Tribunal to come to a decision which is correct in law and on the evidentiary material. Section 33(1AA) does not impose a wider obligation on decision-makers to seek out themselves evidence which may bear on the decision, although it is to be expected that they would consider and facilitate any reasonable requests for assistance.

133    Mr Shord relied upon the case of Wei v Minister for Immigration and Border Protection (2015) 257 CLR 22 (Wei). In that case, the High Court held that a university was under a statutory imperative duty under the Education Services for Overseas Students Act 2000 (Cth) to upload correct information to a database in relation to confirmation of enrolment of a student holding a student visa. The university failed to comply with its statutory imperative duty. The student’s visa was cancelled on the basis of the failure of the university to upload the necessary information. The High Court found that the visa cancellation was invalid.

134    In our view, Wei is distinguishable because s 33(1AA) of the AAT Act does not impose upon the Commissioner any statutory imperative duty of the kind considered in that case.

135    Mr Shord also relied upon the observations of Siopis J in Binetter v Commissioner of Taxation (2016) 104 ATR 145 (Binetter). In that case, Siopis J found (in dissent) that the conduct of the Tribunal hearing had been procedurally unfair in circumstances in which the Commissioner, to the detriment of the taxpayer, had conducted a case before the Tribunal on a basis which was contrary to the tenor of a document in the Commissioner’s possession and which was helpful to the taxpayer, but which had not been disclosed to the taxpayer.

136    This is not a case where the Commissioner was in possession of any undisclosed information such as in Binetter. The complaint is that the Commissioner should have sought information from third parties. The observations of Siopis J in Binetter have no application to the circumstances of this case.

137    It follows that the third sub-ground of ground two fails.

138    It also follows that ground two of the appeal fails.

the remaining questions of law

139    The consequence of our allowing ground one of the grounds of appeal enlivens questions of law one and two which were before the primary judge and also affects the ground of appeal before the primary judge which related to the imposition of the penalty.

140    The primary judge did not address questions of law one and two because they did not arise by reason of the primary judge determining question of law three adversely to Mr Shord.

141    In this regard, as we have observed, in his written submissions before the primary judge, the Commissioner made concessions in relation to question of law one. However, no concessions were made in relation to question of law two. In these circumstances, we consider that the appropriate orders are that:

(1)    the appeal be allowed on the basis that the Tribunal denied the appellant procedural fairness in finding that he was not an employee;

(2)    the orders of the primary judge made on 29 June 2016 are set aside;

(3)    the matter is remitted to the primary judge for consideration of the appellant’s appeal insofar as it concerns the application of s 23AG(6) and s 23AG(6A) of the ITAA 1936 and whether, in the light of the determination of those questions, the order of the Tribunal of 21 May 2015 affirming the objection decision should also be set aside and the matter remitted to the Tribunal for further hearing.

142    The Court should hear the parties on the question of costs.

Associate:

Dated:    26 October 2017

REASONS FOR JUDGMENT

LOGAN J:

143    Mr Michael Shord once worked abroad (on offshore platforms, barges and other vessels) as a saturation diver, diving supervisor and diving superintendent. Between 1999 and August 2010, he worked overseas in one or the other of these capacities for various foreign companies. The Commissioner of Taxation (Commissioner) came to audit his taxation affairs. As a result, Mr Shord was requested to lodge income tax returns for the years ended 30 June 2006 to 30 June 2011 (the Relevant Period). The Commissioner thereafter made amended assessments for those income years. By these amended assessments, the Commissioner included in Mr Shord’s assessable income payments received by him for his work overseas during the Relevant Period. The result, in total, was to increase the amount of his income tax liability for the Relevant Period by $149,967.75. Additional liabilities imposed by the Commissioner were shortfall interest charges and administrative penalties amounting to almost $134,000.

144    Mr Shord’s objection against these amended assessments of income tax, the shortfall interest charges and the administrative penalties was disallowed by the Commissioner. He sought the review of that objection decision by the Administrative Appeals Tribunal. On 21 May 2015, the Tribunal (Senior Member CR Walsh) decided to affirm the Commissioner’s objection decision: Shord and Commissioner of Taxation (2015) 101 ATR 392. Mr Shord then instituted in this Court’s original jurisdiction a statutory appeal against the Tribunal’s decision on a question of law as provided for by s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). That appeal was dismissed on 29 June 2016: Shord v Commissioner of Taxation [2016] FCA 761; (2016) 103 ATR 576; (2016) 2016 ATC 20-577 (Gilmour J).

145    It is against that order of dismissal that Mr Shord has now appealed to this Court. As they have come to be amended and, by leave, further amended, the grounds of appeal are diffuse and prolix, each unnecessarily so. As it happens, it is not necessary to address each of them, having regard to a concession which the Commissioner came belatedly to make in the course of the hearing of the appeal.

146    To explain how that concession came about and, as a result, what remains for determination in this appeal it is necessary to delve into the history of this matter both before the Tribunal and in the original jurisdiction of this Court.

147    Broadly stated, the issues before the Tribunal were whether Mr Shord was a resident of Australia for taxation purposes during the Relevant Period and, if so, whether he was exempt from tax on foreign source income or, as the case may be, entitled to foreign tax offsets?

148    In accordance with the Tribunal’s General Practice Direction, Mr Shord and the Commissioner exchanged “Statements of Issues, Facts and Contentions” (SIFC). In the context of the review of an objection decision such statements are not, and cannot be, a substitute for the obligation, found in s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (TAA), for an applicant to prove the assessment concerned to be excessive by reference to a specified ground of objection.

149    The role of a SIFC is to highlight and to narrow the issues of fact and law in a review and to ensure procedural fairness. In this the SIFC complements the notice of objection. The SIFC of each party fulfil a similar role in a review proceeding in the Tribunal to the appeal statements in a taxation appeal in the Court’s original jurisdiction, for which provision is made by r 33.03 of the Federal Court Rules 2011 (Cth) and Practice Note Tax 1.

150    In light of the statutory obligation found in s 14ZZK of the TAA, it is important that, in relation to an applicant, the issues specified in that party’s SIFC are consistent with the grounds of objection, be they as originally stated or as permissibly amended. Even so, those grounds of objection may prove not to be a complete foundation for the issues in a review. That is because the Commissioner may permissibly contend that his assessment is not excessive on a basis that did not commend itself to him when making that assessment or even on a basis in law upon which he has hitherto eschewed reliance: Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 at 117 per Kitto J; Federal Commissioner of Taxation v Ryan (2000) 201 CLR 109 at 124, [22] per Gleeson CJ, Gummow and Hayne JJ. Requiring the Commissioner to furnish a SIFC is not subversive of this position. Instead, one end it serves is ensuring that no procedural unfairness to an applicant occurs if the Commissioner chooses to rely upon some other basis for defending the assessment: Pacific Exchange Corporation Pty Ltd v Federal Commissioner of Taxation (2009) 180 FCR 300.

151    Arising from the claim that if, which he denied, he was a resident of Australia, his income was exempt from tax, one of the issues identified by the Commissioner in his statement (at paragraph 4.10) was that, “at all material times, [Mr Shord] was not engaged in service as the holder of an office or in the capacity of an employee within the meaning of “foreign service” in subsection 23AG(7) of the ITAA 1936”.

152    In the years ended 30 June 2006 to 30 June 2009, s 23AG of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) provided, materially:

(1)    Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service are exempt from tax.

........

(2)    An amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the following;

.........

(c)    provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax:

(i)    income derived in the capacity of an employee;

(ii)    income from personal services;

(iii)    similar income;

(d)    the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c);

.........

(6)    For the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service:

(a)    absent on recreation leave, other than:

(i)    ......

(iii)    leave without pay or on reduced pay; or

(b)    absent from work because of accident or illness.

.........

(7)    In this section:    .........

foreign service means service in a foreign country as the holder of an office or in the capacity of an employee.

153    Having regard to the definition of “foreign service” in s 23AG(7) of the ITAA 1936, it was correct for the Commissioner to identify that one of the elements of that definition which needed to be satisfied was that Mr Shord’s service in a foreign country was in the capacity of an employee. The Commissioner’s SIFC put Mr Shord on notice that, as part of his obligation to prove the amended assessments for these years to be excessive, he would have to prove that his service abroad was in the capacity of an employee.

154    Section 33 of the AAT Act materially provides that the Tribunal is not bound by the rules of evidence. Thus, proof of the fact that Mr Shord’s service had been in the capacity of an employee need not have been achieved by the adducing of evidence in a form admissible in a court, although that mode of proof might, permissibly, have been adopted. What was necessary was that some material logically probative of the factual element be placed before the Tribunal: Sullivan v Civil Aviation Safety Authority (2014) 226 FCR 555 at [85] to [97] per Flick and Perry JJ. Further, in light of s 14ZZK(b) of the TAA, it was necessary for the Tribunal to be persuaded by Mr Shord that it should act on this material.

155    When the matter came on for hearing before the Tribunal and at a time after Mr Shord’s submissions had been prepared by his representative, an accountant, the following exchange occurred between Ms Vernon, counsel for the Commissioner, who also appeared for the Commissioner before Gilmour J and before us on the appeal (albeit disparately instructed – in the Tribunal and before Gilmour J directly by the Commissioner, (via “ATO Dispute Resolution”, whatever that may be and not, as Gilmour J records, the Australian Government Solicitor in the original jurisdiction) on appeal, by Minter Ellison):

MS VERNON:    And relying on the statement of facts, issues and contentions, although I should draw to your attention, Senior Member, that there is reference in the respondent’s statement of facts, issues and contentions the matter that the respondent no longer pursues, Just find the paragraph. It’s 4.10 … which refers to the question of whether or not the applicant was engaged in the capacity of an employee.

SENIOR MEMBER:    So that’s no longer an issue?

MS VERNON:     That’s no longer pursued by the respondent.

156    There was never any retraction before the Tribunal of the concession the Commissioner made by his counsel with respect to Mr Shord’s status as an employee. In the context of the administrative decision-making task consigned to the Tribunal and in respect of the factual element of employment in the s 23AG(7) ITAA 1936 definition of “foreign service”, the Commissioner’s deliberate concession was material upon which the Tribunal was, in light of s 33 of the AAT Act, entitled to act. It had the status of an admission. Mr Shord was, in the absence of any withdrawal of this concession permitted by the Tribunal, entitled to assume that, as to this factual element, he had discharged his onus of proof and to cast the presentation of his case before the Tribunal accordingly.

157    Notwithstanding this concession by the Commissioner, one issue for determination subsequently identified by the Senior Member in her reasons (at [27]) was, “was Mr Shord’s income derived from services in foreign countries (ie “foreign source income”), or any part thereof, exempt from income tax pursuant to s 23AG of the ITAA 1936, for the years ended 30 June 2006 to 30 June 2009?” As to this, the Tribunal found, at [94]:

Finally, Mr Shord ’s description of the terms of his engagement by the relevant foreign companies indicates that, at all material times, he was not engaged in service as the holder of an office or in the capacity of an employee within the meaning of “foreign service” in s 23AG(7) of the ITAA 1936

158    In the circumstances, particularly having regard to the concession by the Commissioner, the Tribunal’s finding that Mr Shord was not engaged in service in the capacity of an employee entailed, with all respect to the Senior Member, a patent jurisdictional error constituted by a denial of procedural fairness to him. The factual concession, never withdrawn, was logically probative of this particular factual element and should have been acted upon by the Tribunal.

159    Both as originally expressed and as it came further to be amended, the notice of appeal which engaged this Court’s original jurisdiction under s 44 of the AAT Act was also prolix and diffuse in its specification of questions of law. Nonetheless, one of the questions of law it raised (question 3) was whether the Tribunal was entitled, in relation to s 23AG(7) of the ITAA 1936, to find that Mr Shord was not an employee?

160    The learned primary judge treated [94] of the Tribunal’s reasons as including a finding of fact that Mr Shord was not an employee. His Honour concluded (at [18]) that it was open for the Tribunal to make this finding:

18    The question of whether or not the appellant was an employee was the subject of evidence and submissions. It cannot be said that the Tribunal’s finding of fact at [94] was unreasonable: Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 at [30] per French CJ. To the contrary, it was rationally open for the Tribunal to find, in circumstances where the ordinary incidents of an employer/employee relationship were absent, to conclude that such a relationship did not exist: Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 at 451-452.

161    Having examined the transcript of proceedings before the primary judge, it appears to me that his Honour’s apprehension of this particular question for determination on the appeal was the result of the way in which both Mr Fickling, counsel for Mr Shord (who had not appeared in the Tribunal) and Ms Vernon, counsel for the Commissioner, cast their submissions in the original jurisdiction. Those for Mr Shord were discursive and did not focus with particularity upon a denial of procedural fairness by the Tribunal. Perhaps reacting to that discursiveness, the Commissioner’s submissions, while conceding that there was a finding at [94] of the Tribunal’s reasons that Mr Shord was not an employee, sought to discount the relevance of that having regard to income from particular periods which were not in any event included in Mr Shord’s assessable income in the making of the amended assessments. Further, though the concession was mentioned, the Commissioner’s submissions nonetheless actively promoted the proposition that the Tribunal was entitled to conclude that Mr Shord was not an employee. That the ramifications of the concession did not loom in the reasons for judgment below appears to me, with respect, to be the result of a failure at the time to appreciate them both by those acting for Mr Shord and by those acting for the Commissioner. Against this background and that of a discursively expressed and argued notice of appeal it is, with respect, hardly surprising that the point was not raised by the learned primary judge. In short, the wood was lost for the trees.

162    It was not until, at the commencement of the appeal, Mr Shord sought leave further to amend his notice of appeal that the fact of an express concession by the Commissioner before the Tribunal and a resultant failure of procedural fairness by the Tribunal was raised with precision by him. Even so, the Commissioner initially opposed the amendment. It was only after a very pointed exchange between the bench and Ms Vernon and the standing down of the appeal so as to enable the Commissioner to reconsider his position that he came to concede that Mr Shord had been denied procedural fairness by the Tribunal in engaged in service as the holder of an office or in the capacity of an employee within the meaning of “foreign service” in subsection 23AG(7) of the ITAA 1936”.

163    In light of this concession, what remained for consideration on the appeal was whether the primary judge erred in concluding that the Tribunal was entitled conclude that Mr Shord had not proved an entitlement to tax offsets for foreign income tax paid in the years ended 30 June 2006 to 30 June 2011.

164    Before turning to this remaining issue it is necessary to add the following.

165    The Commissioner is the chief revenue officer of the Crown in right of the Commonwealth. To him falls the high and important responsibility of the general administration of Federal taxation legislation, in particular the responsibility of collecting and recovering tax according to law.

166    In relation to proceedings to which the Commissioner, a Second Commissioner or a Deputy Commissioner is a party, he and these officers, or an officer authorised in writing by the Commissioner, are each entitled to appear personally or, alternatively, by a duly admitted legal practitioner: s 15, TAA. The Commissioner is not, however, ultimately responsible for the Commonwealth’s legal business, even in revenue cases. His status is that of a party to litigation, suing not on his own behalf but as a representative of the Commonwealth. The ultimate, overall responsibility for the Commonwealth’s legal business vests in the Attorney-General. That responsibility is derived from longstanding, Westminster system convention, arising from the nature of his office as the Commonwealth’s First Law Officer and, expressly by statute, by virtue of the Attorney’s ability to issue Legal Services Directions either generally or by reference to a particular matter: s 55ZF, Judiciary Act 1903 (Cth). Given the representative capacity in which the Commissioner is a party to proceedings, he and those who appear for him are subject to the duties in litigation which fall upon the Crown, Ministers and departments, agencies and other officers of the Commonwealth. The Commissioner’s high office and important responsibilities mean that he has a special responsibility to lead by example in discharging these duties.

167    It is now more than a century ago that, in Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333, a case to which a subordinate of the Commonwealth’s chief revenue officer of an earlier era, the Comptroller General of Customs, was a party, Griffith CJ felt obliged to state, at 342:

I am sometimes inclined to think that in some parts - not all - of the Commonwealth, the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary, is either not known or thought out of date. I should be glad to think that I am mistaken.

The “standard of fair play to be observed by the Crown in dealing with subjects” to which Griffith CJ referred was not, in 1912, a new subject. Part of the constitutional history of the United Kingdom and, thus, derivatively, our own, was oppressive, unlawful behaviour by the Crown in the 17th century in the imposition, collection and recovery of taxes and a resultant and vicious civil war leading to regicide and not a republican ideal but military dictatorship. The later restoration of the monarchy was on terms that evolved into the constitutional separation of powers, legislative, judicial and executive and what we have come to know as the Westminster system of responsible government, each feature of which is to be found in the Australian Constitution. The standard of fair play expected of the Crown and its officers in litigation is a standard in keeping both with the avoidance of behaviours that, in an extreme form, led to the civil war and with the later constitutional settlement. Once this heritage is understood, the requirement for its observance is, or should be, as Griffith CJ stated, “elementary”.

168    The standard expected of the Crown is not one diminished by the passage of time since the Restoration, much less since 1912, as this Court and others have, in the circumstances of particular later cases, felt obliged to highlight. Then, as now, there is a vital public interest in the maintenance of confidence in administrative government. This point was well made by Finn J in Kelson v Forward (1995) 60 FCR 39 at 66:

A shared concern both of courts and of public administrators within their particular spheres is with securing "good administration". While the respective emphases in, and understandings of, this may differ on occasion, the concern itself is a manifestly desirable and proper one. In the law, securing good administration can properly be said to be an organising idea for a group of principles which, in exacting procedural fairness, are designed to maintain public confidence in the integrity of administrative government: see e.g. Attorney-General of Hong Kong v Ng Yuen Shiu [1983] 2 AC 629; Consolidated Press Holding Ltd v Commissioner of Taxation (1995) 57 FCR 348 at 357-358.

In Commonwealth administration the concern has had a somewhat different focus. The reforms of the last decade and more - see generally The Australian Public Service Reformed (December 1992, AGPS) - have seen an accentuated emphasis on service delivery, performance and results. This emphasis has its own, acknowledged risks. As was said in Accountability in the Commonwealth Public Sector (June 1993, AGPS, p 15):

“In moving the public servant's attention to focusing more on results, care has been taken to balance this against the traditional concerns for probity and due process. Due process, fair dealing and the clear requirement to work within the law continue to be mandatory, but are not sufficient in themselves as a focal point for public servants.”

For all these reasons, the importance of absolute integrity on the part of the Commissioner and those representing him in the collection and recovery of tax cannot be over-emphasised.

169    The “standard of fair play to be observed by the Crown in dealing with subjects” in litigious business, termed the duty to act as a model litigant, antedates and, if anything, is more onerous than the duty which all parties and their lawyers have in proceedings before this Court to assist in the achieving of the “overarching purpose” of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: s 37M and s 37N, Federal Court of Australia Act 1976 (Cth).

170    As I have observed, the Tribunal’s denial of procedural fairness to Mr Shord in relation to the employment issue is patent. After the Tribunal made its decision and published its reasons, that jurisdictional error ought, ideally, upon a study of those reasons, to have been manifest to the Commissioner and to those advising him. Only the Commissioner had been legally represented before the Tribunal and it was via his lawyer that he expressly made the factual concession in question. Had the Tribunal’s error been noticed, and it was not, there ought, given the concession, forthwith to have been a proactive acknowledgement of this error in dealings with the Tribunal and those acting for Mr Shord. That may or may not have obviated an appeal under s 44 of the AAT Act.

171    When a s 44 appeal did materialise, raising as a question of law whether the Tribunal was entitled, in relation to s 23AG(7) of the ITAA 1936, to find that Mr Shord was not an employee, another opportunity for the Commissioner to have conceded that, in the circumstances prevailing before the Tribunal, which materially included his factual concession, that the Tribunal’s decision entailed this jurisdictional error was lost, apparently because the ramification of the Commissioner’s concession was not appreciated. That not having occurred, when, finally, Mr Shord came to identify with precision the procedural fairness error in a proposed further amendment to the notice of appeal, the Commissioner should not just have not opposed the amendment but readily consented to it and actively promoted the upholding of that ground. That is how a model litigant ought to behave. It does not follow from that that the Commissioner was, in the particular circumstances, duty bound to concede the appeal. He was perfectly entitled to advance any reasonably arguable submission which was unaffected by the jurisdictional error he conceded.

172    An example of model litigant behaviour by the Commissioner in a s 44 appeal is offered by Palmer v Commissioner of Taxation (1999) 99 ATC 4514. In that case the Tribunal had, by oversight, failed to allow to Mr Palmer particular deductions which necessarily flowed from findings of fact which the Tribunal made. Mr Palmer challenged this failure by way of the statutory appeal to this Court’s original jurisdiction but failed to appear on the hearing of the appeal. The Commissioner did not seek the dismissal of the appeal for want of prosecution, based on that non-appearance. Instead, as Dowsett J, at [1], acknowledged, the Commissioner “appropriately and helpfully” drew the Court’s attention to the errors and promoted orders which ensured that there was a variation of the Tribunal’s decision which resulted in Mr Palmer’s being taxed according to law. An example of model litigant behaviour in the appellate jurisdiction is offered by SZLPO v Minister for Immigration and Citizenship (No 2) (2009) 177 FCR 29. The result, initially, in that case was a judgment in favour of the respondent Minister. After that judgment had been handed down, the Minister’s solicitor drew to the attention of the Court an omission by the Court to deal with one of the grounds of appeal. The proceedings were reopened and, upon consideration of this other ground of appeal, the Court decided that its earlier judgment should be set aside and that the appeal ought to be allowed.

173    In making these observations, I do not under-estimate the difficulties presented to the Commissioner and his representatives by the unfocussed way in which Mr Shord came to challenge the Tribunal’s decision and, for that matter, the judgment of the primary judge. If anything though, those difficulties made it all the more imperative that the Commissioner and those advising him proactively concede the patent jurisdictional error once it emerged with clarity. The fact that an express factual concession had been made before the Tribunal in relation to the fact of employment was not exclusively within the knowledge of the Commissioner and his representatives but it was within their knowledge. It is, to say the least, most regrettable that this patent jurisdictional error was not drawn to the Tribunal’s attention by the Commissioner forthwith after the decision was published or, that not having occurred, that it was not appreciated and then conceded in the original jurisdiction or, that also not having occurred, that the absence of error in the Tribunal’s conclusion with respect to the employment issue was maintained by the Commissioner until, in the very course of the hearing of the appeal, the exchange with the Commissioner’s counsel mentioned earlier occurred. Even more so is this conduct regrettable in light of this Court’s recent reminder to the Commissioner of his model litigant responsibilities in another appeal heard in Western Australia: LVR (WA) Pty Ltd v Administrative Appeals Tribunal (2012) 203 FCR 166.

174    It has been opined that, “Other than expressing their opinion, however, there are few tools available to the courts to hold government litigants accountable to the standards of conduct expected of model litigant.”: Z Chami, “The Obligation to act as a Model Litigant”, paper presented at the 2010 Australian Institute of Administrative Law National Administrative Law Forum, Sydney, 22 July 2010: (http://www.austlii.edu.au/au/journals/AIAdminLawF/ 2010/28.pdf – accessed 19 March 2017). That, with respect, is not so. Departures from model litigant behaviour can, in particular circumstances, constitute professional misconduct, a contempt of court or an attempt, contrary to s 43 of the Crimes Act 1914 (Cth), to pervert the course of justice. In the circumstances of the present case, given that the concession but not its ramification was mentioned to the primary judge by counsel for the Commissioner, it appears to me that the lack of a ready concession of the jurisdictional error was just the result of a lack of understanding, removed only by the direct exchange mentioned. Given that experience, and a patent absence of any bad faith, there the matter should rest, save perhaps in respect of costs.

175    I turn then to the remaining issue.

176    In respect of the years ended 30 June 2006 to 30 June 2011 there was a separate issue as to whether Mr Shord was entitled to tax offsets for foreign income tax paid pursuant to s 770-10(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

177    Also in respect of this issue, the Tribunal found that Mr Shord had failed to discharge the onus of proof which fell on him. Materially, the Tribunal stated (at [55] and [96]):

55.    Apart from Brunei, the laws of all countries in which Mr Shord worked during the Relevant Period provided for the imposition of personal income tax. In his Witness Statement (at [21]: see para 49 above) Mr Shord states that his income tax for his overseas work in the Relevant Period was paid directly or on his behalf by his overseas employer. However, there is no evidence of this. Further, there is no evidence that Mr Shord himself paid personal income tax in any of the foreign countries in which he worked during the Relevant Period.

…

96.    Mr Shord has not produced evidence to support an entitlement to any foreign income tax offset, or the quantum of any such offset, during the years ended 30 June 2006 to 30 June 2011. Specifically, there is no evidence that Mr Shord paid any foreign income tax on the foreign source income he derived whilst working overseas in the Relevant Period. Accordingly, Mr Shord has failed to positively establish what must be done to correct the Amended Assessments: Trautwein v FCT (1936) 56 CLR 63; [1936] ALR 425; FCT v Dalco (1990) 168 CLR 614; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088; 90 ALR 341.

178    Before the learned primary judge, Mr Shord submitted that these conclusions were not reasonably open. This submission was rejected by his Honour. His Honour found that the material placed before the Tribunal by Mr Shord did not rise higher than assertions which were not even specific as to the nature of any tax paid either directly or on his behalf by the entity which had engaged him:

31    … It is correct that the appellant gave evidence that his income tax was paid directly or on his behalf by his employer. The Tribunal noted this at [55]. However, what is correctly concluded was that he did not prove, beyond mere assertion that such tax had been paid, or how much income tax, if any, had been paid. This conclusion was reiterated at [96] by the Tribunal. It was incumbent on the appellant to establish this fact in order to positively establish that the amended assessments were erroneous. Indeed, the appellant’s objection to his amended assessments in July 2013, in which he claimed foreign tax credits, had been rejected for the very same reason. The objection decision of 18 December 2013 included the following:

You claimed you paid local taxes in source countries for your foreign source income. You made reference to an email from Craig Staggs of Technip stating Global Industries paid local taxes in source countries, including India and Thailand. However, you did not provide evidence to prove the amounts paid to each country and when the taxes were paid. Therefore we cannot allow the foreign tax credit or foreign income tax offset.

[See Mulherin v Commissioner of Taxation [2013] FCAFC 115].

32    The appellant’s reliance upon Haritos v Commissioner of Taxation [2015] FCAFC 92 at [230]-[234] does not assist. Unlike the facts in that case, which involved “inexact evidence”, here there was no evidence whatsoever upon which the Tribunal could make an estimate.

33    Neither the appellant’s general statement that “local employment taxes” have been paid either directly or on his behalf, nor the two emails dated 1 August 2009 and 2012, respectively, alter this conclusion.

34    First, they do not establish that the taxes in question were or included income tax. Mr Stagg’s email of 1 August 2012 asserts that Global Industries paid taxes in both India and Thailand for its offshore personnel. It is by no means clear that this was in respect of income tax. The explanation that the tax paid was calculated as a percentage based on the number of personnel, and the time they spent in the particular country, does not readily lead to the conclusion that it was income tax which was being paid.

35    Second, even if it were otherwise, this evidence does not establish that income tax in a particular amount was paid by or on behalf of the appellant in any particular income year. Nor was any evidence tendered of any means or formula by which such amounts might be calculated by the Tribunal. The Tribunal had no obligation to make enquiries overseas to ascertain what, if any, income tax was paid by or on behalf of the appellant.

179    On the appeal, Mr Shord seized upon his Honour’s observation (at [35]) that, “The Tribunal had no obligation to make enquiries overseas to ascertain what, if any, income tax was paid by or on behalf of the appellant.” He contended that not only that the Tribunal had such an obligation but also that the effect of s 33(1AA) of the AAT Act was that the Commissioner had a duty to assist the Tribunal to discharge that obligation. That subsection provides:

Decision-maker must assist Tribunal

(1AA)    In a proceeding before the Tribunal for a review of a decision, the person who made the decision must use his or her best endeavours to assist the Tribunal to make its decision in relation to the proceeding.

180    Materially, s 43(1) of the AAT Act provides, “For the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision …”. In the exercise of this power of review, the Tribunal is entitled, again by s 43(1) of the AAT Act, to affirm, to vary or to set aside the decision under review. This statutory provision for another officer of the executive government (the Tribunal as constituted by one or more members) to sit in place of an administrative decision-maker (the Commissioner) and to make a decision afresh follows a model the constitutional propriety of which was approved by the Judicial Committee in Shell Co. of Australia Ltd v Federal Commissioner of Taxation (1930) 44 CLR 530 (Shell v FCT). Like the Taxation Board of Review considered in Shell v FCT, the Tribunal is “in the nature of administrative machinery” and it “may act judicially, but still remain an administrative tribunal as distinguished from a Court, strictly so-called”: Shell v FCT (1930) 44 CLR 530 at 544-545. The “core function” of the Tribunal is that of conducting the review for which s 43 of the AAT Act provides: Minister for Immigration and Citizenship v SZIAI (2009) 83 ALJR 1123 at 1127; [2009] HCA 39 at [18] (SZIAI).

181    In general, a proceeding before the Tribunal is not adversarial. However, a taxation review proceeding differs from others in the Tribunal in that, by virtue of s 14ZZK(b) of the TAA, there is an onus of proof and that onus falls on the applicant taxpayer. As in a taxation appeal in this Court’s original jurisdiction, the taxpayer bears the onus of proving the assessment concerned to be excessive. The reference in this regard by the learned primary judge (citing with approval or reference by the Tribunal) to Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 was, with respect, apt.

182    Even though the Tribunal’s core function is one of review, there can be circumstances where it would be unreasonable for the Tribunal to decline a request by an applicant for an adjournment so as to make an inquiry so as to remedy a particular deficiency in adducing material to ground a necessary finding of fact: Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332. Further, as was observed of a similarly empowered administrative tribunal in SZIAI at [25]:

It may be that a failure to make an obvious inquiry about a critical fact, the existence of which is easily ascertained, could, in some circumstances, supply a sufficient link to the outcome to constitute a failure to review.

183    In the present case, any endeavour to remedy the deficiency in identifying with precision whether foreign income tax was paid on income derived abroad by Mr Shord and, if so, how much would have involved a wide ranging inquiry of the revenue authorities of multiple foreign jurisdictions. There was nothing before the Tribunal to indicate whether such an inquiry would be answered or, if so, when. Mr Shord, who, after all, was the person who claimed that foreign income tax had been paid on his earnings, had made no such inquiry. His own inquiries of those who had engaged him had yielded nothing more than the imprecision noted by the primary judge. There was nothing to indicate that any inquiry by the Tribunal via the Commissioner would have been any more fruitful.

184    The Commissioner may well have been able to initiate inquiries of foreign revenue authorities either informally or even perhaps formally, if there existed information sharing agreements between Australia and the foreign countries concerned, but he was not obliged to do this at either the assessing, objection decision or Tribunal review stages. This absence of obligation distinguishes the present case from Wei v Minister for Immigration and Border Protection (2015) 257 CLR 22, a case relied upon by Mr Shord. In Wei, an administrative tribunal made findings of fact which were based on a failure by Macquarie University to comply with its imperative duty under the Education Services for Overseas Students Act 2000 (Cth) to upload onto a particular database information in relation to the enrolment of a student. Acting on the deficient database, the tribunal affirmed a student visa cancellation decision. That decision was held to be invalid. The only imperative obligation which the Commissioner had was to assess on the basis of the returns and other information in his possession: s 166 of the ITAA 1936. Subsection 33(1AA) of the AAT Act was not the source of any obligation on the part of the Commissioner to initiate any inquiry of any foreign revenue authority, or anyone else abroad for that matter, so as to ascertain what, if any income tax had been paid by or on behalf of Mr Shord abroad. Nor, in the circumstances, was the Tribunal obliged to initiate such an inquiry, seeking the Commissioner’s assistance for that purpose.

185    The conclusion reached by the learned primary judge as to the s 770-10(1) ITAA 1997 foreign tax offsets issue in the case was correct. On this issue, the case was just an example of a failure by an applicant taxpayer to discharge the onus of proof that fell on him in a taxation review proceeding before the Tribunal.

186    The result then is that, given the conceded jurisdictional error on the part of the Tribunal, the s 23AG ITAA 1936 tax exemption issue will have to be reheard by the Tribunal. To this extent, the appeal must be allowed. Mr Shord has failed to demonstrate any error by the primary judge with respect to the s 770-10(1) ITAA 1997 foreign tax offsets issue. For these reasons, I agree with the orders proposed by Siopis and White JJ.

Associate:    

Dated:    26 October 2017