FEDERAL COURT OF AUSTRALIA

TAXATION - Application for review of Private Ruling - Whether in conducting review Administrative Appeals Tribunal is limited to facts identified in the Private Ruling

Judiciary Act 1903 (Cth) s 39B

Administrative Decisions (Judicial Review) Act 1977 (Cth) s 5

Administrative Appeals Act 1975 (Cth) s 25

Federal Court of Australia Act 1976 (Cth) s 20

Taxation Administration Act 1953 (Cth) ss 14ZAAA, 14ZAF, 14ZAJ, 14ZAM, 14ZAN, 14ZAQ, 14ZAS, 14ZAU, 14ZAX, 14ZAZA, 14ZVA, 14ZY, 14ZZ, 14ZZK

Income Tax Assessment Act 1936 (Cth) ss 160L, 170BB(3), 170BG

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 - applied

CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 - distinguished

United Energy Limited v Commissioner of Taxation, Full Federal Court, 27 August 1997, unreported - considered

First Provincial Building Society v Federal Commissioner of Taxation  (1995) 95 ATC 4,145 - considered

Comptroller General of Customs v Akai Pty Limited (1994) 50 FCR 511 - applied

Payne v Commissioner of Taxation (1994) 94 ATC 4,191 - considered

COMMISSIONER OF TAXATION v BRIAN JOHN MCMAHON, DEPUTY PRESIDENT, THE ADMINISTRATIVE APPEALS TRIBUNAL and MARK NATHAN WEEDON-NEWSTEAD

NG 282  of   1997

JUDGES:       LOCKHART, BEAUMONT AND EMMETT JJ

PLACE:          SYDNEY

DATE:            23 october 1997

THE COURT ORDERS THAT:

1.         The Tribunal’s decision that it had power when conducting its review to consider           facts other than those identified by the Commissioner in his ruling be set aside;

2.         The matter be remitted to the Tribunal for the purpose of enabling it to determine the review on the basis that the Tribunal does not have power to consider facts other than those identified by the Commissioner in the private ruling dated 19 April 1995 as constituting the relevant arrangement.

3.         There be no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

LOCKHART J

This case raises an important question about the construction and operation of the Private Ruling System under Part IVAA of the Taxation Administration Act 1953 (“the Administration Act”) and related legislation.  The question arises in circumstances where the Administrative Appeals Tribunal (“the Tribunal”) or this Court is reviewing a decision of the Commissioner of Taxation disallowing a taxpayer’s objection to a private ruling of the Commissioner, where that ruling concerns the way in which, in the Commissioner’s opinion, a tax law applies in relation to “an arrangement” (a defined expression to which reference shall be made later).  The question is whether, in conducting such a review, the Tribunal or the Court is confined to facts constituting the “arrangement” as identified by the Commissioner in his ruling or whether they may consider other facts placed before the Tribunal or the Court by the taxpayer or the Commissioner. 

In the present case the Commissioner disallowed the second respondent’s (“the taxpayer’s”) objection to the Commissioner’s private ruling, and the taxpayer sought a review of the Commissioner’s decision before the Tribunal.

The Tribunal found that it had power when conducting its review to consider facts other than those identified by the Commissioner in his ruling.

The Tribunal heard two preliminary questions, namely, whether it had jurisdiction to hear and determine the application for review and whether the evidence to be tendered on the hearing was limited to matters considered by the Commissioner.  The Tribunal “directed” that both questions be answered in the affirmative.

The Commissioner now seeks from this Court an order of review of those decisions of the Tribunal pursuant to s 39B of the Judiciary Act 1903 or s 5 of the Administrative Decisions (Judicial Review) Act 1977 (“the ADJR Act”) (so far as the ADJR Act is concerned the relevant section is s 5(1)(f)) on the basis that the decision of the Tribunal involved an error of law.

Before considering the correctness of the Tribunal’s decisions, I shall deal briefly with the question whether this Court has jurisdiction to hear the review.  The matter is within the original jurisdiction of the Court by virtue of s 77(i) of the Constitution, s 19(1) of the Federal Court of Australia Act 1976, s 39B(1) of the Judiciary Act and s 5 of the ADJR Act.  Plainly the Court has jurisdiction pursuant to s 39B of the Judiciary Act.  It also has jurisdiction in relation to its power to review under the ADJR Act for the reason that the Tribunal’s decisions were decisions of an administrative character within the meaning of s 3 of the ADJR Act in that they were made under s 25 of the Administrative Appeals Tribunal Act 1975 and s 14ZZ(a)(i) of the Administration Act.  The Tribunal’s decision resolved important preliminary questions of substance.  The decisions are final or operative and determinative in a practical sense of the Tribunal’s power in conducting the review notwithstanding that they were made before the ultimate decision to be made by the Tribunal on the correctness or otherwise of the Commissioner’s objection decision: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 per Mason CJ at 335-338.  Cf Federal Commissioner of Taxation v Beddoe (1996) 68 FCR 446.

The matter was heard by a Full Court of this Court pursuant to a direction given by the Chief Justice under s 20(1A) of the Federal Court of Australia Act 1976 (Cth).

The Commissioner and the taxpayer were both represented before the Tribunal: the Commissioner was represented by senior and junior counsel and the taxpayer by his solicitor.  Before this Full Court the Commissioner was again represented by senior and junior counsel.  The first respondent, being a Deputy President of the Tribunal, filed a submitting appearance and the second respondent, the taxpayer, did not appear and was not represented.  The solicitor who previously represented the taxpayer before the Tribunal sought leave to appear before us as amicus curiae and we granted him leave to make submissions in that capacity.

I turn to the central question in the case, namely, whether the Tribunal correctly decided that it was not limited to the facts identified by the Commissioner in his ruling as constituting the relevant arrangements.

This involves an analysis of the relevant provisions of the Administration Act and the Income Tax Assessment Act 1936 (“the Assessment Act”).  The statutory provisions relating to the Private Objection System were examined by a Full Court of this Court in CTC Resources NL v Federal Commissioner of Taxation (1994) 48 FCR 397 per Jenkinson J at 398-400, Gummow J at 400-402, 413-415 and Hill J at 423-426.  See also United Energy Limited v The Commissioner of Taxation (Lockhart, Sundberg and Merkel JJ, 27 August 1997, unreported); First Provincial Building Society v Federal Commissioner of Taxation 95 ATC 4,145 per Hill J at 4,146 with whose reasons for judgment Black CJ agreed.  But these cases concerned different questions than those which arise here, so it is helpful if this Court undertakes its own analysis of the relevant statutory provisions.

The Legislative Framework

The heading of Part IVAA describes it as relating to Private Rulings.  A person may apply to the Commissioner for a ruling on the way in which, in the Commissioner’s opinion, a tax law or tax laws would apply to the person in respect of a year of income in relation to “an arrangement”: s 14ZAF.  An “arrangement” for the purposes of Part IVAA is defined as including:

“(a)     scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; or

(b)       part of an arrangement” (s 14ZAAA and s 14ZAA(2)).

An arrangement may be an arrangement that has been carried out or an arrangement that is being carried out or a proposed arrangement: s 14ZAI.

An application for a private ruling must be made in a form approved by the Commissioner and give such information, and be accompanied by such documents, relating to the ruling as the Commissioner requires (s 14ZAJ).

An applicant for a private ruling may, by written notice to the Commissioner, withdraw the application at any time before the ruling is made (s 14ZAK).

If the Commissioner considers that a private ruling cannot be made without further information and, if that information were given, there would be no reason for the Commissioner not to comply with the application for the ruling, the Commissioner must request the applicant to give that information to the Commissioner (s 14ZAM).

The Commissioner is not required to comply with an application for private ruling if any one of certain circumstances specified in s 14ZAN(a) to (j) exists, including the following:

·      there is already a private ruling (par (a)),

·      the matter sought to be ruled on has been decided for the purposes of a Commissioner assessment (par (b)),

·      the application is frivolous or vexatious (par (g)),

·      the arrangement to which the application relates has neither been, nor is being, carried out and is not seriously contemplated by the rulee (par (h)),

·      in the opinion of the Commissioner the applicant has not given sufficient information, in spite of a request under s 14ZAM, to enable the ruling to be made (par (i)),

·      in the Commissioner’s opinion it would be unreasonable to comply, or continue to attempt to comply, having regard to the extent of the Commissioner’s resources that would be required to comply or any other matter that the Commissioner considers relevant (par (j)).

The word “rulee” is defined by s 14ZAA, in relation to a private ruling, as meaning the person the application to whom of a tax law is the subject of the ruling.

If the Commissioner considers that the correctness of a private ruling would depend on which assumptions were made about future events or other matters, the Commissioner may decline to make the ruling or make such of the assumptions as the Commissioner considers to be most appropriate (s 14ZAQ). 

Subject to s 14ZAQ, the Commissioner must comply with an application unless required not to do so because of s 14ZAN (s 14ZAL(1)).  The Commissioner may comply with an application even though not required to do so, not being an application to which s 14ZAN(f) applies, that is an application made later than four years after the last day allowed to the rulee for lodging a return in relation to the rulee’s income for the year of income to which the application relates (s 14ZAL(2)).

The Commissioner makes a private ruling by preparing a written notice of it and serving the notice on the applicant (s 14ZAR(1)).

A notice of a private ruling must set out the matter ruled on and, in doing so, identify the person, tax law, year of income and arrangement to which the ruling relates (s 14ZAS(1)).  If the correctness of a private ruling depends on an assumption, the assumption is, for the purposes of s 14ZAS(1), an aspect of the arrangement to which the ruling relates (s 14ZAS(2)).  An arrangement may be identified in a private ruling by reference to matters set out in a document identified in a ruling and which, or a copy of which, is available to the rulee (s 14ZAS(3)).

The Commissioner may withdraw a private ruling, either wholly or to an extent, with the consent of the rulee (s 14ZAU(1)) or, even without the consent of the rulee, if certain conditions are satisfied (s 14ZAU(2)).

A private ruling that is wholly withdrawn is taken never to have been made and never to have been included in the notice of it (s 14ZAX(1)) and, if a private ruling is withdrawn to an extent, the ruling is taken never to have been made to that extent and to that extent never to have been included in the notice of the ruling (s 14ZAX(2)).

A rulee who is dissatisfied with a private ruling may object against it in the manner set out in Part IVC and such a ruling is a taxation decision for the purposes of that Part (s 14ZAZA(1)).  The fact that there has been an application for a private ruling or an objection against the ruling does not in the meantime affect the Commissioner’s power to amend an assessment (s 14ZAZC(d)).

If there has been a taxation objection against a private ruling, the right of objection against an assessment of the matter ruled is limited to a right to object on grounds that neither were, nor could have been, grounds for the taxation objection against the ruling (s 14ZVA).

If the taxation objection has been lodged with the Commissioner for a stipulated period the Commissioner must decide whether to allow it, wholly or in part, or to disallow it (s 14ZY(1)).

If the person is dissatisfied with the Commissioner’s objection decision, the person may apply to the Tribunal for review of the decision or appeal to this Court against the decision, in the circumstances mentioned in s 14ZZ.  If the taxpayer does not appeal against the private ruling or if there is an unsuccessful appeal, the ruling is given the force of law (s 170BB of the Assessment Act).  Section 170BB(3) provides that subject to ss 170BC, 170BG and 170BH, if:

“(a)     there is a private ruling on the way in which an income tax law applies to a person in respect of a year of income in relation to an arrangement (ruled way); and

(b)       that law applies to that person in respect of that year in relation to that arrangement in a different way; and

(c)        the amount of final tax under an assessment in relation to that person would (apart from this section and section 170BC) exceed what it would have been if that law applied in the ruled way;

the assessment and amount of final tax must be what they would be if that law applied in the ruled way.”

To the extent to which a ruling is altered on appeal, a similar result follows once the order of the Court has become final (s 170BH).

Conclusions

Part IVAA was inserted into the Administration Act by s 4 of the Taxation Laws Amendment (Self Assessment) Act 1992 which commenced on 30 June 1992.  These provisions were part of a scheme which inserted also public rulings (Part IVAAA) (s 4) and provisions relating to fringe benefits tax (s 36).

The private ruling provisions were introduced to assist taxpayers who are uncertain about the tax effect of an arrangement that is proposed, commenced or completed and who wish to obtain a ruling from the Commissioner on this question before the assessment process is complete.  It enables taxpayers to order their affairs with a degree of certainty about their tax implications before they embark or whilst they are embarking, upon courses of conduct, the tax implications of which may not be known for a considerable time.  Private rulings may be sought upon facts which may turn out to be not the true facts at all.  In that sense they may be sought upon hypothetical facts.  The Commissioner is, however, empowered to decline to deal with an application for a private ruling if any of the circumstances specified in s 14ZAN(a) to (j) of the Administration Act exist, thus ensuring that he is not dealing with purely academic exercises that may have no practical significance and deterring any person who seeks to abuse the system and waste public resources. 

The private ruling system rests on the premise that the taxpayer will not abuse the system and will genuinely seek to obtain rulings in relation to anticipated facts or facts which are in fact known, albeit that no relevant assessments have issued so that the taxpayer’s affairs may be ordered accordingly.  The important point to note, however, is that the Administration Act talks of the private ruling made about the “arrangement”, which means the set of facts that constitute the arrangement.  The taxpayer specifies what the relevant facts are that constitute the arrangement.  The Commissioner may request the applicant to give further information to the Commissioner in order to enable him to make a private ruling.  But once the private ruling is made the Commissioner is bound by it, so is the taxpayer, in the sense that, leaving aside the question of appeal or review, the Commissioner when he issues an assessment must do so on the basis that the “arrangement” as identified by the Commissioner in his ruling binds both the taxpayer and the Commissioner.  It is important to note, however, that when the actual facts as ascertained by the Commissioner form the basis of an assessment by the Commissioner, it is those facts that will govern the assessment, not the facts as identified in the form of an arrangement by the Commissioner in his private ruling, unless the two correspond.

The private ruling regime is quite different from the process of assessment to tax under the Assessment Act.  A private ruling is founded on the way in which, in the Commissioner’s opinion, a tax law applies to the applicant in respect of a year of income.  The arrangement is but a complex of assumed or identified facts.  It may also involve assumptions which, if made by the Commissioner, must be stated in his identification of the relevant arrangement.  Indeed, in the present case it was expressly stated in the private ruling that no assumptions were made by the Commissioner.

When making a private ruling the Commissioner does not make findings of fact.  He simply identifies facts and then states his opinion about the way in which the relevant tax laws apply to the applicant in relation to those identified facts.

The assessment process continues notwithstanding the application for and making of private rulings, subject to the constraint that, if a private ruling has been made, the facts as identified by the Commissioner which constitute the relevant arrangements will govern the assessment that issues in due course.  If the facts turn out to be different from those identified by the Commissioner, then the ordinary assessment process applies and in that sense the private ruling becomes academic.

If a taxpayer seeks a review of the private ruling before the Tribunal, the subject matter of that review is the arrangement as identified by the Commissioner in his private ruling.  That arrangement is constant throughout the process of the private ruling and any review or appellate process that ensues.  The Tribunal may form its opinion as to how the tax law operated or would operate on the facts that constitute the arrangement; and it may disagree with Commissioner and alter the objection decision.  But the review is not a review in the usual sense that applies to the processes of administrative review when it is dealing with actual facts.  These are hypothetical facts.  They may turn out to be the real facts; but the whole notion of a private ruling is that the facts are not necessarily the facts that will underlie the making of any ultimate assessment.  If the factual matrix as explained to the Commissioner in aid of a request for a private ruling are suspicious, the Commissioner has ample powers to decline to make a private ruling.  Once the ruling is made, it is made with respect to the facts that are identified for the purposes of the private ruling itself.

In my opinion on a process of review the Tribunal cannot redefine the arrangement.  The Tribunal is limited to the facts that constitute the arrangement as identified by the Commissioner in his own ruling.  I agree with the submission of counsel for the Commissioner  that the arrangement is a “constant” and a ruling is about how a tax law applies to that arrangement.  The question for the Tribunal is whether the Commissioner’s opinion as to the application of the law concerning the arrangement is correct.  In considering the correctness or otherwise of the objection decision the Tribunal must be limited to the facts as identified by the Commissioner in his ruling as constituting the arrangement.

In making his decision about the private ruling the Commissioner is bound by the facts said by him to constitute the arrangement as identified in the ruling.  Nor can the Tribunal travel beyond those facts as identified in the ruling.  What the Tribunal does is to “go over again” the objection decision to consider what it thinks should be the proper answer to the question about the way in which the relevant tax law operated on the identified facts constituting the arrangement: Comptroller General of Customs v Akai Pty Limited (1994) 50 FCR 511 at 521 and the cases there cited.

The Tribunal approached this matter on the basis that it was but another example of the many circumstances in which application for a judicial review may be made before the Tribunal when it is cast in the role of reviewing the case on its merits.  This is not such a case.  It is a very special case, the substratum of which is determined by the nature of a private ruling which has the characteristics to which I have referred.

In my opinion, the Tribunal correctly decided that it had jurisdiction to hear and determine the application for review before it; but it erred in deciding that the evidence to be tendered on the hearing before it was not limited to matters considered by the Commissioner.  I propose that the Tribunal re-determine the matter in accordance with the Court’s reasons for judgment.

The second respondent played no role in the proceedings before this Court.  The first respondent filed a submitting appearance.  The Commissioner and the Tribunal are both represented by the Australian Government Solicitor.  In all the circumstances, in my opinion, the proper order for costs is that there be no order for costs.

I would make the following orders:

1.         That the Tribunal’s decision that it had power when conducting its review to consider facts other than those identified by the Commissioner in his ruling be set aside;

2.         That the matter be remitted to the Tribunal for the purpose of enabling it to determine the review on the basis that the Tribunal does not have power to consider facts other than those identified by the Commissioner in his private ruling as constituting the relevant arrangement.

3.         That there be no order for costs.

Associate:

Dated:              23 October 1997

REASONS FOR JUDGMENT

BEAUMONT J.

INTRODUCTION

This matter raises important questions concerning the operation of the “private rulings” provisions of Part IVAA of the Taxation Administration Act 1953 (“the Administration Act”).

Mark N Weedon-Newstead, the second respondent (“the taxpayer”), applied to the applicant, the Commissioner of Taxation, under s 14ZAF of the Administration Act for a private ruling as to his liability to capital gains tax in respect of the acquisition and disposal of a home unit (“the property”).  In essence, the taxpayer sought a ruling whether he was liable to capital gains tax under s 160L(2) of the Income Tax Assessment Act 1936 (“the Assessment Act”), or whether that provision did not apply because the property was acquired prior to 20 September 1985.

By s 160L(2) of the Assessment Act it is provided:

“(2)     Subject to this section... Part [IIIA, which deals with capital gains and losses] also applies in respect of every disposal on or after 20 September 1985 of a taxable Australian asset that:

(a)       immediately before the disposal took place, was owned by:

(i)         a person (not being a person in the capacity of a trustee) who was not a resident of Australia;  or

(ii)        a person in the capacity of a trustee of a trust estate that was not a resident trust estate or of a unit trust that was not a resident unit trust;  and

(b)        was acquired by that person on or after 20 September 1985.”

By s 14ZAF of the Administration Act it is provided:

“14ZAF.         A person may apply to the Commissioner for a ruling on the way in which, in the Commissioner’s opinion, a tax law or tax laws would apply to the person in respect of a year of income in relation to an arrangement.”

By s 14ZAAA “arrangement” is to be interpreted, unless the contrary intention appears, so as to include:

“(a)     scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking;  or

(b)       part of an arrangement;”

An arrangement may be one that has been, or is being, carried out, or a proposed arrangement (s 14ZAI).

A year of income to which an application for a private ruling applies may be a past, current or future year (s 14ZAH).

An application for a private ruling must:  (a) be made in a form approved by the Commissioner; and (b) give such information, and be accompanied by such documents, relating to the ruling as are required by the Commissioner (s 14ZAJ).

The present application was accompanied by a document headed “Full description of the facts” in which the taxpayer provided information as to dealings in the property, and in interests in the property, by him and by members of his family between August 1984 and August 1994.

Subject to s 14ZAQ, the Commissioner must comply with an application for a ruling unless not required to do so because of s 14ZAN (s 14ZAL(1)).

By s 14ZAM it is provided:

“14ZAM.        If the Commissioner considers that:

(a)       a private ruling cannot be made without further information;  and

(b)       if that information were given, there would be no reason for the Commissioner not to comply with the application for the ruling;

the Commissioner must request the applicant to give that information to the Commissioner.”

By s 14ZAN it is provided that the Commissioner is not required to comply with an application if, inter alia:

“(h)     the arrangement to which the application relates has neither been, nor is being, carried out and is not seriously contemplated by the rulee;  or

(i)        in the opinion of the Commissioner, the applicant has not given sufficient information, in spite of a request under section 14ZAM, to enable the ruling to be made;”

In the present case, pursuant to the Commissioner’s request, the taxpayer provided further information, on several occasions, before the ruling was made.

By s 14ZAQ it is provided:

“14ZAQ.        If the Commissioner considers that the correctness of a private ruling would depend on which assumptions were made about a future event or other matter, the Commissioner may:

(a)       decline to make the ruling;  or

(b)       make such of the assumptions as the Commissioner considers to be most appropriate.”

The Commissioner makes a private ruling by preparing a written notice of it, and serving the notice on the applicant (s 14ZAR(1);  s 14ZAT).

By s 14ZAS it is provided:

“14ZAS.   (1)  A notice of a private ruling must set out the matter ruled on and, in doing so, identify the person, tax law, year of income and arrangement to which the ruling relates.

            (2)        If the correctness of a private ruling depends on an assumption, the assumption is, for the purposes of subsection (1), an aspect of the arrangement to which the ruling relates.

            (3)        An arrangement may be identified in a private ruling by reference to matters set out in a document identified in the ruling and which, or a copy of which, is available to the rulee.”

By letter to the taxpayer dated 19 April 1995, the Commissioner enclosed a notice of private ruling.  The notice contained the following statement:

“WHAT THIS RULING IS ABOUT:

This ruling answers the question ‘Did Marc Nathan Weedon-Newstead acquire a beneficial interest in the property Unit 7, 16 Avenue Road, Mosman, New South Wales in 1984 so that no capital gains tax liability arises on the disposal of the property in 1994?’”

THE RULING

The ruling was stated as follows:

“RULING:

Marc Nathan Weedon-Newstead did not acquire a beneficial interest in the property being Unit 7, 16 Avenue Road, Mosman, New South Wales in 1984.

Marc Nathan Weedon-Newstead alone acquired the beneficial interest in the home unit property Unit 7, 16 Avenue Road, Mosman, New South Wales from Kenneth McIvor Weedon on 25 June 1987 for its market value at that date in terms of subsubparagraph 160ZH(9)(c)(i)(A) and subparagraph 160ZH(9)(c)(ii) of the Act.

The home unit was the sole or principal residence of Marc Nathan Weedon-Newstead during the period 9 May 1993 to the date of disposal of the property only.  Marc Nathan Weedon-Newstead’s occupancy after 25 June 1987 for the periods of 27 days from 20 December 1987 to 15 January 1988, 16 days from 25 July 1988 to 9 August 1988, 21 days from 23 December 1989 to 13 January 1990, and 62 days from 20 October 1990 to 20 December 1990 did not establish the dwelling as his sole or principal residence.  Accordingly in terms of subsection 160ZZQQ(16) of the Act there is only a partial exemption of the capital gain realised on disposal.”

Below this appears the following:

“EXPLANATION:  (This does not form part of the Notice of Private Ruling):

The 1984 agreement was subject to two conditions.  One was that monthly payments of $400.00 be made by Marc Nathan Weedon-Newstead and Maria Therese Laudenbach and the other was that none of the parties Eileen Newstead, Marc Nathan Weedon-Newstead or Maria Therese Laudenbach withdraw from the agreement.

When Maria Therese Laudenbach commenced divorce proceedings against Marc Nathan Weedon-Newstead she withdrew from the 1984 agreement and that put an end to that agreement.

A new agreement between Marc Nathan Weedon-Newstead and Kenneth McIvor Weedon on 25 June 1987 replaced the 1984 agreement.  As a consequence of that agreement Marc Nathan Weedon-Newstead alone acquired the property Unit 7, 16 Avenue Road, Mosman, New South Wales.”

Under the heading “The Subject of the Ruling” there is a statement, in some detail, of a history of the dealings between the taxpayer and several members of his family in respect of the property.

The effect of a private ruling on tax is dealt with by s 170BB(3) of the Assessment Act as follows:

“(3)     Subject to sections 170BC, 170BG and 170BH, if:

(a)       there is a private ruling on the way in which an income tax law applies to a person in respect of a year of income in relation to an arrangement (“ruled way”);  and

(b)       that law applies to that person in respect of that year in relation to that arrangement in a different way;  and

(C)       the amount of final tax under an assessment in relation to that person would (apart from this section and section 170BC) exceed what it would have been if that law applied in the ruled way;

the assessment and amount of final tax must be what they would be if that law applied in the ruled way.”

THE TAXPAYER’S OBJECTION TO THE RULING

By s 14ZAZA of the Administration Act it is provided:

“14ZAZA.  (1)        Subject to subsection (2), a rulee who is dissatisfied with a private ruling may object against it in the manner set out in Part IVC and such a ruling is a taxation decision for the purposes of that Part.

                   (2)        A rulee may not object against a private ruling if:

(a)        an assessment has been made in relation to the rulee in respect of the year of income, and in relation to the arrangement, to which the ruling relates;  or

(b)        the ruling relates to withholding tax that has become due and payable.”

Part IVC deals generally with taxation objections, reviews and appeals.

By s 14ZZ of the Administration Act it is provided:

“14ZZ.            If the person is dissatisfied with the Commissioner’s objection decision, the person may:

            (a)        if the decision is both a reviewable objection decision and an appealable objection decision - either:

(i)         apply to the AAT for review of the decision;  or

(ii)        appeal to the Federal Court against the decision;  or

(b)        if the decision is a reviewable objection decision (other than an appealable objection decision) - apply to the AAT for review of the decision;  or

(c)        if the decision is an appealable objection decision (other than a reviewable objection decision) - appeal to the Federal Court against the decision.”

By s 170BG of the Assessment Act it is provided:

“170BG.         (1)        In this section:

“arrangement”, “income tax law” and “private ruling” have the same meanings as in Part IVAA of the Taxation Administration Act 1953;

“objection decision” and “taxation objection” have the same meanings as in Part IVC of the Taxation Administration Act 1953.

            (2)        If:

(a)        on the review of an objection decision about a taxation objection against a private ruling, the Tribunal decides that an income tax law would apply to a person in a particular way in respect of a year of income in relation to an arrangement;  and

(b)        that decision becomes final;

then, for the purposes of this Act, that law applies to that person in that way in respect of that year in relation to that arrangement.

            (3)        Subsection (2) applies in spite of any order or decision of a court or any other decision of the Tribunal, about any application of that law.

            (4)        For the purposes of subsection (2), if there is no appeal against the Tribunal’s decision when the period for lodging an appeal ends, the decision becomes final at the end of the period.”

On 11 July 1995, the taxpayer objected against the ruling.  The objection was disallowed by the Commissioner on 29 February 1996.  The taxpayer then applied to the Administrative Appeals Tribunal (“the Tribunal”) for review of the Commissioner’s decision to disallow the objection.

Section 43 of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) (as amended),  by s 14ZZJ of the Administration Act, confers upon the Tribunal all the powers and discretions of the Commissioner on an administrative review.  Reference should be made to s 43(2E) of the AAT Act (inserted by s 14ZZJ of the Administration Act), which provides that the Tribunal’s reasons for its decision “including findings on material questions of fact and references to the evidence or other material on which those findings were based”.

Mention should also be made here of two other provisions of the Administration Act.

By s 14ZZK, it is provided that unless the Tribunal orders otherwise, the applicant for review is limited to the grounds stated in the objection;  and (b) the applicant has the burden of proving that the taxation decision concerned should not have been made or should have been made differently.

By s 14ZVA, it is provided that if there has been a taxation objection against a private ruling, then the right of objection against an assessment relating to the matter ruled is limited to a right to object on grounds that neither were, nor could have been, grounds for the taxation objection against the ruling.

THE TRIBUNAL’S DIRECTION

Prior to the hearing of the substantive application by the Tribunal, the Commissioner sought interlocutory directions as to (a) the Tribunal’s jurisdiction (a question no longer pursued);  and (b) the way in which the proceedings were to be conducted;  specifically whether, as the Commissioner contended, the Tribunal’s review function was “to consider the information placed before the Commissioner [so] that the Tribunal was limited to those facts which were before the Commissioner in deciding the correctness or otherwise of the ruling”.

The learned Deputy President of the Tribunal said:

“27.     The scheme of the Act therefore anticipates that a person will provide information and that the Commissioner will make a ruling based on that information, identifying the specific matters required by the statute.  Only if the information provided is insufficient must the Commissioner require the applicant to provide further information.  Accordingly the Commissioner does not engage in any independent evidence gathering activity either from sources other than the applicant, or based upon information that comes to hand other than via the applicant.  That at least is the position according to the statute.  In the present circumstances it would seem (subject to any final findings of fact) that the Commissioner (no doubt in an endeavour to be helpful) undertook his own enquiries by, for example, arranging for title searches and copies of relevant public documents to be obtained.”

After referring to the Tribunal’s “general power of review”, as explained in Fletcher v Commissioner of Taxation (1988) 19 FCR 442, the Deputy President went on to say:

“30.     A right of objection against a ruling decision is conferred ‘in the manner set out in Part IVC and such a ruling is a taxation decision for the purposes of that Part’ (s14ZAZA(1)).  By s 14ZZ, a person dissatisfied with the Commissioner’s objection decision may, if the decision is both ‘a reviewable objection decision’ and an ‘appealable decision’, either apply to this Tribunal for a review of the decision or appeal to the Federal Court against the decision.  To my mind the choice is given for important reasons.  The distinction between administrative and judicial review is now well understood.  It would be pointless to give to an administrative reviewer the same power as a judicial reviewer even if the former could substitute its own decision.  The statute recognises this distinction.

31.       Had it been intended that the power of review be reduced to a level below the general power of review normally exercised by this Tribunal, then an opportunity to spell that out was available when Part IVAA was introduced.  There was already in place a framework of review powers in the Administration Act which had been transferred from the Income Tax Assessment Act only some four months earlier.  Section 14ZZJ had put in place modifications to s 43 of the AAT Act in many respects.  Had it been intended to reduce the general power of review of reviewable decisions relating to private rulings, then a further amendment to s 14ZZJ could easily have secured Parliament’s purpose.

32.       I do no see that the use of the words ‘should not have been made’ or ‘should have been made differently’ in any way import a different function from the traditional administrative approach to resolving the whole issue.  To restrict the Tribunal to a role of reassessing material before the original decision-maker, is so contrary to the ordinary concepts of administrative review, that I would have expected clear and more positive language to effect this object.”

The Tribunal, concluding that the Commissioner’s ruling is susceptible of a complete review, having regard to all relevant evidence which the applicant will seek to tender on the hearing, said:

“Should [the Commissioner’s] ruling have been made, or should it have been made differently, will be the questions to be determined upon the ultimate hearing of this application, in accordance with all relevant evidence to be furnished.”

The Tribunal then gave the following direction:

“2.       The evidence to be tendered on the hearing is not limited to evidence of matters considered by the decision-maker.”

THE COMMISSIONER’S PRESENT APPLICATION FOR JUDICIAL REVIEW OF THE TRIBUNAL’S DIRECTION

The Commissioner seeks relief from the Court, in the exercise of its original jurisdiction, primarily under s 39B of the Judiciary Act 1903, that original jurisdiction being now exercised by a Full Court, pursuant to a direction given by the Chief Justice under s 20(1A) of the Federal Court of Australia Act 1976.  The following relief is sought:

1.         An order that the decision, being direction (2) of the Tribunal, be set aside.

2.         A declaration that, for the purposes of reviewing the decision of the Commissioner in disallowing the objection to the ruling, the Tribunal must treat as the relevant facts only those facts and assumptions (if any) constituting the arrangement as identified in the ruling in accordance with the provisions of the Administration Act.

3.         A writ of prohibition to the Tribunal prohibiting the Tribunal from further proceeding with the application brought before it by the taxpayer otherwise than in accordance with the reasons of the Court.

4.         Such other orders as the Court thinks fit.

The Commissioner’s contention, in essence, is that the Tribunal’s statutory powers in the present kind of matter do not extend so as to authorise the Tribunal to “redefine” the arrangement the subject of the ruling;  and that the Tribunal is now asserting that it possesses this power, and is thus acting in excess of its jurisdiction.  As has been seen, declaratory relief and prohibition are sought accordingly.

CONCLUSIONS ON THE APPLICATION

It is convenient to consider the application in the following stages:  (1) what power or jurisdiction does the Tribunal relevantly possess?;  (2) has the Tribunal decided that it will act in excess of its jurisdiction or power or otherwise failed to exercise the function required of it by the relevant legislation?;  and (3) if so, what relief should be granted by this Court?

(1)        What power or jurisdiction does the Tribunal relevantly possess?

This is, in my opinion, solely a question of the proper statutory construction of the relevant provisions of the Administration Act, in particular of Part IVAA of that Act, dealing with private rulings, read against the background and in the context of the material provisions of the Assessment Act.

The logical starting point for the consideration of this question is s 14ZAF which, it will be recalled, confers upon a person a right to apply to the Commissioner “for a ruling on the way in which, in the Commissioner’s opinion, a tax law or tax laws would apply to the person in respect of a year of income in relation to an arrangement”.

It is, I think, plain from the language of s 14ZAF, and from its evident purpose, that the statutory character of the private ruling is that of an advisory opinion on a particular question, that is, the way in which the tax legislation would apply to the person in respect of a year of income in relation to an “arrangement”.

It is equally plain from the language of s 14ZAZA(1), and from its evident purpose, that the subject of any objection to the ruling is the same question, that is, the way in which the tax legislation would apply to the person in respect of the year of income in relation to the arrangement.

It must follow, in my opinion, that the subject of any review of that taxation decision and of any review or appeal relating to the ruling will be that question, and no other or different question.  In that sense, ‘the stream can rise no higher than its source’ and that source is the construct constituted by the “arrangement”, as nominated and identified by the applicant for the ruling.  The Tribunal’s jurisdiction is thus limited to a review of the Commissioner’s opinion on that question, so that the Tribunal has no power to address any other question.  In particular, neither the Commissioner nor the Tribunal on review, has jurisdiction or power to “redefine” the “arrangement” the subject of the Commissioner’s ruling.

As has been seen, the “arrangement” will consist of an identified “scheme” etc.  There is a conceptual element involved here, consisting of the proper attribution to be given to the relevant primary facts said to amount to an “arrangement”.  This process of characterisation calls for findings or conclusions to be made by way of “secondary” facts in the definition of the subject arrangement.  Any attempt to redefine the arrangement would likewise involve a conceptual aspect, that is, something more than findings of primary facts.  It is by travelling beyond the primary facts into the realm of the secondary facts that the process of defining the “arrangement” occurs;  that is, by way of a conclusion from the primary facts.

There is, upon analysis, nothing in the authorities dealing with the operation of Part IVAA in other respects that contradicts the view that the Tribunal, in particular, has no power to redefine the arrangement.

In the main authority, CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397, two rulings were the subject of appeals to this Court.  Each ruling raised important questions.

In respect of the first ruling, it was held that CTC was not a “person dissatisfied” within s 14ZZ of the Administration Act, and thus had no standing to appeal.  This was because the period to which the ruling related had passed without implementation of the proposal, so that it was no longer possible for the correctness or otherwise of the ruling to have any legal consequences for CTC.  But there is no challenge to the taxpayer’s standing in the present case.

In relation to the second ruling, the Full Court ordered that the objection decision be set aside and that the objection be remitted to the Commissioner for determination according to law.

Gummow J said (at 413) that the Commissioner:

 “was asked to rule upon an arrangement in respect of which he had been given insufficient information to indicate whether the arrangement designedly or inadvertently lacked significant integers.  In those circumstances, two questions arise.  First, what should have been the course pursued by the Commissioner?  Secondly, what is the role of the Court in dealing with the ‘appeal’ against the objection decision in which the Commissioner affirmed the course he had taken?”

In addressing the first question, Gummow J said (at 415):

“An ‘assumption’ in s 14ZAQ would not ordinarily be a fact or matter which, if given the Commissioner by the applicant, would assist the Commissioner to comply with the application for a private ruling.  In such a case, if s 14ZAM applies, the Commissioner must request the supply of the information.  This, as I have indicated, is consistent with the general scheme of the legislation favouring compliance.  But what if the ‘assumption’ concerns ‘a future event or other matter’ which could not be the subject of provision of information by the applicant, but upon which the Commissioner considers the correctness of the private ruling would depend?

In such a case the applicant should not be entitled to complain if the Commissioner either declines to make the ruling or proceeds to make assumptions as permitted by s 14ZAQ(b).  In the Explanatory Memoranda (p 36) the example is given of an arrangement involving a trust where it is not known whether the beneficiaries will be Australian residents;  it is said that the Commissioner may make an assumption, for example, that they will be Australian residents for the purpose of giving a ruling, even though that is something which could not presently be known to be the case.

However, in my view, the interrelation between the provisions I have discussed is such that the Commissioner should not make assumptions as to information which the applicant might be given the opportunity to provide under s 14ZAM.  The present is such a case.  It is not one for the making of assumptions under s 14ZAQ.  However... this is what was done in the present case.”

Although, as has been seen, by s 14ZAS(2) an assumption may be an aspect of an arrangement, nothing appears to turn upon the making of assumptions in the present matter.

Gummow J went on to say (at 416):

“The Commissioner was not required to comply with an application for a private ruling if the arrangement was not seriously contemplated by the rulee (s 14ZAN(h)).

Further, should the Commissioner have considered that the private ruling could not be made without further information?  In particular, should he have considered the need for information as to the integers of the arrangement, including whether the financial institution and CTC put the arrangement forward on the basis that the financial institution took the risk of parting outright with its moneys without the protection of some overriding contractual or trust arrangement to protect the funds whilst at the disposition of CTC before the distribution?

In my view, as matters stood before the Commissioner, he should not have made the ruling without first having considered two matters.  The first was whether the arrangement was not ‘seriously contemplated’ by CTC and the second whether the private ruling could not be made without further information.  Absence of ‘serious contemplation’ would have triggered the operation of s 14ZAN(h).  A consideration that a ruling could not be made without further information would, if par (b) of the section also applied, have obliged the Commissioner to request the information (s 14ZAM).  Depending upon the outcome of the request, the Commissioner might be relieved of his requirement to comply, by reason of s 14ZAN(i).  In either case, it would then have been for the Commissioner to decide whether to comply with the application, even though not required to do so (s 14ZL(2)).

The objection decision miscarried because the ruling relevantly was upheld without attention to these matters, and, in addition, assumptions were wrongly made.  What happened, at least upon the objection decision, was not consideration of a request for information (s 14ZAM) but the making of assumptions within the meaning of s 14ZAQ...  The taking of this course was an error by the Commissioner in the application of Pt IVAA.”

Gummow J then said (at 416-7):

“[I]n my view, the Court may and should set aside the objection decision and in place thereof direct that the objection be returned to the Commissioner for determination according to law.  This will include consideration by the Commissioner of the questions (i) whether he is not required to comply with the application by reason of s 14ZAN(h) , and (ii) further, or alternatively, whether he considers that pars (a) and (b) of s 14ZAM apply.  In my view, all these provisions have an operation upon the process of decision-making upon an objection.”

There is no suggestion in the present case of confusion in the exercise of the Commissioner’s powers to request further information on the one hand, and to make assumptions on the other.

Jenkinson J expressed (at 400) his general agreement with Gummow J.

Hill J said, in respect of the first ruling (at 432-3):

“In my opinion a person will only be ‘dissatisfied’ in the relevant sense if that person is a person to whom the ‘ruling’ is still capable of having legal effect.  In the case of a ruling relating to a proposed arrangement, that means that the arrangement must be one which, if entered into, will fall within the ruling.  If the ruling relates to a year of income which has passed before the appeal is instituted (or perhaps before the appeal has been heard) so that the ruling can not affect the taxation liability of a putative appellant, that person, no matter how discontented, will not be a ‘person dissatisfied’.

It may be that s 14ZAQ is beyond power in purporting to permit the Commissioner to make assumptions of future facts or ‘other matters’ which then must be taken into account by the Court in an appeal.  If there be facts relevant to the making of the ruling, these will, in the first instance, be supplied by the taxpayer, and if deficient the Commissioner may require additional facts to be supplied to supplement those already given: s 14ZAM.  The Court is not empowered in exercising its jurisdiction to find facts and if the facts were inadequate would be obliged to refer the matter back to the Commissioner to exercise the power given to him under s 14ZAM.  As presently advised I doubt the ability of the Court to draw inferences from the given facts, but if the Court had that power there is a big difference between the drawing of inferences and the making of assumptions.  The Court is given the statutory task of deciding whether the objection decision ought to have been made differently:  s 14ZZO, or in other words, whether the ruling is wrong.  In so doing the Court must rely upon the facts stated in the ruling in coming to its conclusion.  But to empower the Commissioner to make assumptions (it must be presumed that the only assumptions contemplated are assumptions of fact the Commissioner could hardly make assumptions of law which would render the ruling useless) and then to require the Court to rule upon assumed facts would, in my view, involve the Court in being forced to decide a question of law on facts not put forward by the taxpayer as relevant to the proposed arrangement.  Facts assumed by the Commissioner, albeit that the assumption made is that which the Commissioner under s 14ZAQ considers the most appropriate, may bear no real relationship to the actual facts upon which the ruling is sought.  However, that question does not arise for decision here.  Neither ruling proceeds upon any real assumption.”  (Emphasis added).

In agreeing with the orders proposed by Gummow J in respect of the second ruling, Hill J said (at 435):

“A question immediately arises whether the subscription moneys ever became part of the funds of the company or whether the moneys were at all times held by the company for the financial institution.  If the latter, then there could, for reasons other than those taken into account by the Commissioner in giving the ruling, be no dividend.   This question depends upon knowing the precise terms of the proposed arrangement between the financial institution and the applicant, the intentions of the parties and the terms of issue of the shares and relevant provisions of the articles of association.  None of these matters are known to us.  To attempt to decide the issue without this information would be unprofitable, for the consequence of the Court’s decision is intended by the Act to decide the taxation outcome between the parties in the 1994 year of income (if the arrangement in fact be entered into).  This intention could only be carried out if all the facts of the actual arrangement entered into accord with those of the proposed arrangement ruled upon.

In these circumstances the Court can do no more than refer the matter back to the Commissioner to exercise his powers under s 14ZAM of the Act to obtain further facts concerning the proposed arrangement which will bear upon the issue whether the subscription moneys, and particularly the share premium proposed to be paid by the financial institution to the applicant, are ever proposed to become the property of the applicant available to it for its own purposes.  Without that information the ruling should not have been made.  Since ultimately the ruling must set out the ‘matter ruled on’, it seems to me that the ruling, as it presently stands, would need to be set aside and the outcome of the Commissioner’s factual enquiry stated in a new ruling.”  (Emphasis added).

There is, in my opinion, nothing in the reasoning in CTC that decides that, on review, the Tribunal can “redefine” the arrangement the subject of the ruling.  What was decided in CTC, in respect of the second ruling, was that the material provided to the Commissioner was insufficient for a ruling to be made (see s 14ZAN(i));  further, that the Commissioner had failed to consider whether the “arrangement” was “seriously contemplated” (see s 14ZAN(h)).  The ratio of CTC appears to be that the Commissioner addressed the wrong legal questions in those areas.  They are not the present questions which are concerned with the power, if any, of the Tribunal to “redefine” the arrangement, presumably in terms of both the primary and the secondary facts.  That is, can the Tribunal take account of primary material not before the Commissioner;  and can it, at the conceptual level, reframe the scheme etc. nominated in the application for the ruling?

In Payne v Commissioner of Taxation (1994) 94 ATC 4191, Hill J said that, as in CTC, the Court would remit the ruling back to the Commissioner “to make further inquiries and make a ruling in accordance with law” (at 4198).

Hill J said (at 4198):

“... when the matter comes before the Court, the Court itself cannot inquire into potential facts.  The power so to do is conferred upon the Commissioner and not upon the Court.”

Again, I do not understand his Honour to hold that the Commissioner, the Tribunal, or the Court, has the power to redefine the arrangement upon which the ruling was originally sought.  Rather, Hill J held that here also the Commissioner had failed to address in legally correct terms the question whether the power available under s 14ZAM applied.

In United Energy Limited v Commissioner of Taxation (1997) 97 ATC 4796 in an appeal by a taxpayer from an adverse ruling, Lockhart J said:

“In a proceeding of this kind the Court is confined to the facts stated in the Commissioner’s ruling.”

His Honour cited Hill J in CTC and Payne.

Lockhart J noted that the parties in that case had proceeded on this basis;  and that, in any event, the facts were not in dispute.

Sundberg and Merkel JJ also noted that the appeal was to be determined by reference to the facts stated in the ruling and the information contained in the documents listed in the ruling.

Again, there is nothing in United Energy that contradicts the view that as a matter of statutory interpretation, none of the Commissioner, the Tribunal or the Court has the power to redefine the arrangement.  In other words, at least so far as the Tribunal and the Court are concerned, they must take the arrangement as it was stated or defined by the applicant for the purposes of the ruling.  The Tribunal and the Court cannot review or consider a different arrangement.  They must take the arrangement as it comes to them.

(2)        Has the Tribunal decided that it will act in excess of its jurisdiction or power or otherwise failed to exercise the function required of it by the relevant legislation?

It is usual, and convenient, in the present kind of context, to speak in terms of (1) the jurisdiction or function of a body or functionary on the one hand;  and (2) the powers to be used by that body, procedurally, in the exercise of its jurisdiction or function.  In these terms then, as to (1), the relevant jurisdiction or function of the Tribunal, may be seen, speaking generally, as vested by the provisions of s 25 of the AAT Act.  Section 25 provides, in a substantive sense, that the Tribunal may review certain decisions upon the footing stated in the provisions of s 43, as explained in e.g. Fletcher, above.  As to (2), the procedural powers, that is the adjectival aspect, may be seen in the provisions of s 33 of the AAT Act.  For instance, by s 33(1) it is provided:

“33.     (1)        In a proceeding before the Tribunal:

(a)        the procedure of the Tribunal is, subject to this Act and the regulations and to any other enactment, within the discretion of the Tribunal;

(b)        the proceeding shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of this Act and of every other relevant enactment and a proper consideration of the matters before the Tribunal permit;  and

(c)        the Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate.”

Applying the distinction, that is, between jurisdictional or substantive aspects on the one hand, and procedural or adjectival powers on the other, to the present context, it appears that the arrangement nominated or identified by the applicant for the purposes of the ruling is a central element of the Commissioner’s jurisdiction to rule, and, consequentially, of the Tribunal’s jurisdiction to review that ruling upon an objection being made.  The scheme etc. so identified is (subject to the possible application of s 14ZAM, or s 14ZAN, and neither is now relevant here) a jurisdictional fact so far as the exercise of the respective functions of the Commissioner and the Tribunal is concerned.  In substantive terms, neither the Commissioner nor the Tribunal could substitute a different concept or scheme etc.

The exercise by the Tribunal of its procedural powers, including its power to inform itself about relevant primary material in an adjectival sense, is a different question.  Usually this is not jurisdictional in character, at least in the absence of a challenge on the basis of a denial of natural justice or a constructive failure to exercise jurisdiction.  It is not enough, for mandamus to be granted, to show that the Tribunal misunderstood its task;  it must be shown that the Tribunal failed to perform the task, which the relevant legislation required, so that there was a constructive failure to exercise jurisdiction (see Re Coldham;  Ex parte:  Brideson (1988) 166 CLR 338 at 350).  It may be, but it is not necessarily the case, that by admitting and acting upon inadmissible or irrelevant evidence, a decision-maker has shown that the wrong question is addressed, or that the decision was arrived at by reference to extraneous considerations (see Ward v Williams (1955) 92 CLR 496 at 514;  Enid Campbell, ‘Principles of Evidence and Administrative Tribunals’, in “Well and Truly Tried” (1982) at 76).

What has the Tribunal now decided?  As has been seen, it has “directed” that “the evidence to be tendered on the hearing is not limited to evidence of matters considered by the [Commissioner]”.

It appears that there is, in the present circumstances, some ambiguity here.  It is not clear whether the direction is speaking of primary or secondary facts, or both.  In particular, it is not clear, on the face of the direction, whether it meant that the Tribunal was entitled to redefine the arrangement by considering a scheme etc. different from that identified in the application for a ruling.

Given this ambiguity, it is permissible to resort to the relevant extrinsic material to resolve the ambiguity, that material being, of course, the reasons for decision (see Repatriation Commissioner v Nation (1995) 57 FCR 25 at 33-4).  It is true that no specific mention is made in the Tribunal’s reasons of any suggestion that the Tribunal could redefine the arrangement.  But when those reasons are read as a whole, and in particular the passages cited earlier, it does seem that the Tribunal did not regard itself as confined to any of the facts, whether primary or secondary, that were before the Commissioner.  It must logically follow that the Tribunal treated itself as having jurisdiction to conclude that the secondary facts, i.e. the scheme etc., were different from the arrangement before the Commissioner.  To this extent, with all respect, the Tribunal was not performing the task entrusted to it by the relevant legislation.

(3)        Relief

It follows, in my opinion, that the following relief ought to be granted:

·      Order 1, as asked, setting aside direction (2), ought to be made.

·      I would decline to make declaration (2), as asked.  I would order mandamus so that further declaratory relief should be unnecessary (cf. Minister v Ozmanian (1996) 141 ALR 322 at 351).  In any event, the declaration sought does not clearly distinguish, as it ought, in this context, between primary and secondary facts.

·      I would also decline to order prohibition (see Order (3), as asked).  Instead, I propose that mandamus issue, directing that the Tribunal re-determine the matter in accordance with these reasons (cf. Aronson and Dyer, “Judicial Review of Administrative Action” (1996) at 796-7).

·      No order for costs should be made in the special circumstances here, in particular, the fact that the taxpayer did not appear before us, although his solicitor acted as amicus.

Since writing the foregoing, I have had the benefit of reading the reasons of Lockhart J.  Since his Honour and I are in substantial agreement, I shall concur in the orders he now proposes.

Associate:

Dated:              23 October 1997

REASONS FOR JUDGMENT

EMMETT J:  The applicant (‘the Commissioner”) seeks an order either under section 39B of the Judiciary Act 1903 or under section 5 of the  Administrative Decisions (Judicial Review) Act 1977.  The Commissioner contends that the first respondent, a Deputy President of the Administrative Appeals Tribunal (“the Tribunal”), erred in giving directions in connection with an application for review of a decision of the Commissioner disallowing an objection against a notice of private ruling.

On 15 December 1994, the second respondent (“the Taxpayer”) made an application under section 14ZAF of the Taxation Administration Act 1953 (“the Administration Act”) for a ruling as to whether there was a liability to capital gains tax under the provisions of the Income Tax Assessment Act 1936 (“the Assessment Act”). The ruling related to the disposition by the Taxpayer of an interest in certain real property. The disposition was effected in 1994 and the question was whether the Taxpayer had acquired a beneficial interest in the property in 1984.

On 19 April 1995, the Commissioner issued a notice of his ruling to the effect that the Taxpayer did not acquire a beneficial interest in the property in 1984 but that he acquired the beneficial interest in the property on 25 June 1987.  On 11 July 1995, the Taxpayer objected against that ruling and notice of disallowance of the objection was sent to the Taxpayer by the Commissioner on 29 February 1996.  The Taxpayer then applied to the Tribunal for review under section 14ZZ of the Administration Act of the Commissioner’s decision disallowing the objection.

Objections to the jurisdiction of the Tribunal were raised by the Commissioner. Those objections were not pressed before this Court. However, a question was also raised by the Commissioner as to the extent to which the Tribunal could, on the hearing of the review of the Commissioner’s decision on the objection, take into account material which had not been before the Commissioner when giving the ruling and in dealing with the objection.  On 19 March 1997 the Tribunal, directed that the evidence to be tendered on the hearing before the Tribunal was not limited to evidence of matters considered by the Commissioner in disallowing the objection.

The application before this Court is in respect of that direction.  The Commissioner seeks the following orders:

(1)        an order that that decision of the Tribunal be set aside;

(2)        a declaration that, for the purposes of reviewing the decision of the Commissioner in disallowing the objection to the ruling, the Tribunal must treat as the relevant facts only those facts and assumptions (if any) constituting the arrangement as identified in the ruling in accordance with the provisions of the Administration Act;

(3)        a writ of prohibition to the Tribunal prohibiting the Tribunal from further proceeding with the application brought before it by the Taxpayer otherwise than in accordance with the reasons of the Court;

(4)        such other orders as the Court thinks fit.

The Tribunal filed an appearance submitting to such order as the Court saw fit to make save as to any order for costs.  The Taxpayer, although joined as a respondent to the application, did not appear.  However, when the matter was called on for hearing, the solicitor who appeared for the Taxpayer before the Tribunal sought leave to make submissions to the Court as amicus curiae.  In the absence of any other contravener, leave was granted to the solicitor to make submissions.

THE STATUTORY SCHEME OF PRIVATE RULINGS

Section 14ZAF of the Administration Act provides that a person may apply to the Commissioner for a ruling on the way in which, in the Commissioner’s opinion, a tax law or tax laws would apply to the person in respect of a year of income in relation to an arrangement.  By the operation of sections 14ZAA(2) and 14ZAAA of the Administration Act, the expression “arrangement” includes:

(a)       scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; or

(b)       part of an arrangement;

Under the same provisions, the term “tax law” includes the Assessment Act.

However, under section 14ZAN of the Administration Act, the Commissioner is not required to comply with an application for a private ruling in certain circumstances.  The circumstances include the following:

(a)        there is already a private ruling on the matter sought to be ruled on;

(b)        the matter sought to be ruled on is the subject of an objection against an assessment;

(c)        the application is frivolous or vexatious;

(d)        the arrangement to which the application relates has neither been nor is being, carried out and is not seriously contemplated;

(e)        in the opinion of the Commissioner the applicant has not given sufficient information to enable the ruling to be made.

Section 14ZAR(1) of the Administration Act provides that the Commissioner makes a private ruling by preparing a written notice of it and serving the notice on the applicant.  Under section 14ZAS(1) a notice of a private ruling must set out the matter ruled on and, in doing so, must identify the person, tax law, year of income and arrangement to which the ruling relates.

A person who is the subject of a ruling is referred to in the Administration Act as the “rulee”. Under section 14ZAZA(1) a rulee who is dissatisfied with a private ruling may object against it and such a ruling is a “taxation decision” for the purposes of the Part IVC. Part IVC deals with Taxation Objections, Reviews and Appeals. Under section 14ZY(1), where an objection has been lodged within the time specified, the Commissioner must decide whether to allow it, wholly or in part, or to disallow it. Such a decision is an “objection decision”. Under section 14ZZ, if the person is dissatisfied with the Commissioner’s objection decision, the person may apply to the Tribunal for review of the decision. Under section 14ZZK, on an application for review of a reviewable objection decision, the applicant has the burden of proving that the decision concerned “should not have been made or should have been made differently”.

THE EFFECT OF A RULING

Under section 170BB(3) of the Assessment Act, if:

(a)        there is a private ruling on the way in which an income tax law applies to a person in respect of a year of income in relation to an arrangement (defined as “ruled way”); and

(b)        that law applies to that person in respect of that year in relation to that arrangement in a different way; and

(c)        the amount of final tax under an assessment in relation to that person would exceed what it would have been if that law applied in that ruled way;

the assessment and amount of final tax must be what they would be if that law applied in the ruled way.

Under section 170BG(2) of the Assessment Act if, on the review of an objection decision about an objection against a private ruling, the Tribunal decides that an income tax law would apply to a person in a particular way in respect of a year of income in relation to an arrangement and that decision becomes final, then, for the purposes of the Assessment Act, that law applies to that person in that way in respect of that year in relation to that arrangement.

Thus, where a Taxpayer has the benefit of a private ruling, the Taxpayer may not be assessed to tax in an amount in excess of the tax applicable in accordance with the ruling.  On the other hand, under section 14ZVA of the Administration Act, if there has been a taxation objection against a private ruling, then the right of objection against an assessment relating to the matter ruled is limited to a right to object on grounds that neither were, nor could have been, grounds for the taxation objection against the ruling.  That is to say, it is not open to a Taxpayer who has objected against a private ruling to ventilate in connection with an objection against an assessment the same question which was ventilated in connection with the objection against the ruling.

RESOLUTION OF THE QUESTION

The key to the resolution of the question raised by this application is in the terms of section 14ZAF of the Administration Act itself.  A ruling is a notice by the Commissioner to the Taxpayer as to the way in which, in the Commissioner’s opinion, a tax law would apply in relation to an arrangement. The object of the provisions is to enable that Taxpayer to obtain a binding determination of the way in which a tax law would apply to an arrangement. It is not limited to the way in which a tax law would apply to actual facts or circumstances but might relate, for example, to the way in which a tax law would apply to facts and circumstances which have not yet occurred. The procedure, thus, is not designed to determine disputed questions of fact or even to make any binding determination of fact at all.

The effect of section 170BB(3) of the Assessment Act in relation to any particular assessment will depend upon whether the actual facts and circumstances which give rise to that assessment are those which constitute the arrangement identified in the ruling.  A ruling on facts and circumstances which are not the facts and circumstances which give rise to the assessment will be of no relevance either in relation to section 170BB(3) of the Assessment Act or section 14ZVA of the Administration Act.

Clearly, there would be little utility for a Taxpayer in obtaining a ruling as to the way in which the tax law would apply to an arrangement which had not taken place and would not take place in the future. It would be of utility to a Taxpayer to obtain a ruling only if the Taxpayer were diligent to ensure that the arrangement which was the subject of the application reflected either actual facts and circumstances or facts and circumstances which would be likely to occur in the future.

Once it is accepted that the scheme of the private ruling provisions is to enable a Taxpayer to obtain a binding ruling on a question of law, it follows that, on the hearing of an application to the Tribunal for review of an objection decision, the only function which the Tribunal is to perform is to review the opinion of the Commissioner, as stated in the ruling, as to the way in which the relevant tax law applies to the arrangement which is the subject of the ruling. There is simply no cause for the Tribunal to investigate whether the facts and circumstances which are the subject of the ruling accord with the true facts or not.  Indeed, that would be an impossibility where the ruling was sought in relation to an arrangement consolidated by facts and circumstances which had not yet occurred.

A Taxpayer, when faced with an assessment, may conclude that the facts and circumstances which give rise to the assessment are materially different from the arrangement which was the subject of a ruling.  In such a case, there would be nothing to preclude the Taxpayer from objecting to that assessment.  Upon disallowance of the objection, the Taxpayer will have the same rights as always, either to seek review by the Tribunal or to appeal to the Court.

On the hearing of such a review or appeal, the Taxpayer and the Commissioner will each be entitled to adduce evidence with a view to a finding being made as to the facts and circumstances relevant to the assessment.  The assessment will then be based on those facts and circumstances.  If the ruling was based on facts and circumstances relevantly identical to those as so found, the ruling will be binding.  On the other hand, if the facts and circumstances as so found are materially different from those which are the subject of the ruling, the ruling will be irrelevant.

It follows that the Tribunal cannot, on the hearing of an application for review of a decision on an objection against a private ruling, redefine the arrangement.  The Tribunal is limited to making a decision upon the basis of the arrangement, including assumptions, identified by the Commissioner in the ruling. The only question for the Tribunal is whether the Commissioner’s view as to the application of the law to the arrangement so identified was correct: that is to say, should the decision on the objection by the Taxpayer to the ruling not have been made or should it have been made differently. The only material which need be before the Tribunal would be the ruling and particulars of the person, the tax law, the year of income and the arrangement identified in the ruling pursuant to section 14ZAS(1).  In the present case, that is the notice sent to the Taxpayer’s agent under cover of the Commissioner’s letter of 19 April 1995.  Accordingly, the only question for the Tribunal is whether, on the basis of the material identified in that Notice of Private Ruling and of no other material, the taxation decision constituted by that Notice should not have been made or should have been made differently.

OPERATION OF SECTIONS 14ZAM AND 14ZAQ

A subsidiary question arose concerning the manner in which sections 14ZAM and 14ZAQ of the Administration Act operate on the hearing of an application for review of an objection decision in relation to a ruling.  It is not clear whether that question will in fact arise in the present case and, accordingly, it is not strictly necessary for the question to be determined on the hearing of this application.  However, since some discussion of the matter occurred in the course of the hearing, it is appropriate to make some observations on the question.

Under section 14ZAM, if the Commissioner considers that a private ruling cannot be made without further information and, if that information were given, there would be no reason for the Commissioner not to give a ruling, the Commissioner must request the applicant to give the information.  In addition, under section 14ZAQ, if the Commissioner considers that the correctness of a private ruling would depend upon which assumptions were made about a future event or other matter, the Commissioner may make such of the assumptions as the Commissioner considers to be most appropriate.  Under section 14ZAS(2) if the correctness of a private ruling depends on an assumption, the assumption is, for the purposes of section 14 ZAS(1), an aspect of the arrangement to which the ruling relates.

Counsel referred to the decision of this Court in CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397.  That matter came before the Court on the hearing of an appeal against the disallowance of an objection to a private ruling. The Full Court held that the materials provided to the Commissioner in the application for a ruling were insufficient for resolution of the question of what ruling should be given.  Gummow J also considered that the materials were insufficient to decide whether the proposal was one “seriously contemplated” such that a ruling should be given at all.

Both Gummow and Hill JJ concluded that the Court should set aside the objection decision. Both considered that the Commissioner did not have before him sufficient information to enable him to make a ruling.  Jenkinson J generally agreed with Gummow J.  The order of the Court was that the objection be remitted for determination according to law. In the course of giving reasons for that decision, both Gummow and Hill JJ said that the Commissioner should give consideration to the applicability of section 14ZAM and Gummow J said the Commissioner should also give consideration to the application of section 14ZAN. 

However, those observations should not be taken to indicate that, on considering an objection against a private ruling or on the hearing of an application for a review of an objection decision, it is permissible to exercise the power under section 14ZAM or section 14ZAQ. If, on considering an objection against a ruling, the Commissioner considers that the powers conferred by sections 14ZAM and 14ZAQ should have been exercised, the appropriate course would be for the ruling to be withdrawn and for a new ruling to be made following the exercise of those powers and on the basis of the information and material thus obtained.  Any additional information and material would of course be identified in the ruling as the arrangement to which the ruling relates. The Taxpayer would then be entitled to object against that ruling under section 14ZAZA(1). 

A similar regime would apply where it appears to the Tribunal or to the Court that a ruling was erroneous because of a failure to consider the exercise of the powers conferred by sections 14ZAM and 14ZAQ.  The appropriate course, in such a case, would be to set aside the decision and remit the matter to the Commissioner to consider the exercise of the powers conferred by those sections.

CONCLUSION

In the present case, the Tribunal erred and the Commissioner is entitled to relief. The decision under review should be set aside.  Although the Commissioner also sought Prohibition, the only appropriate additional order would be an order in the nature of Mandamus, directing the Tribunal to redetermine the matter in accordance with the Court’s conclusions.  Since neither of the respondents opposed the making of any orders, it is appropriate that there be no order as to the costs of the proceedings.

I have read the reasons of Lockhart J and would concur in the orders which he proposes.

Associate:

Dated:              23 October 1997