FEDERAL COURT OF AUSTRALIA

Thomas v Commissioner of Taxation [2015] FCA 1339

THE COURT ORDERS THAT:

1.    The applicant’s application for leave to re-open the proceeding is refused.

2.    The applicant pay the costs of and incidental to the application for leave to re-open.

3.    The applicant’s appeal is allowed in part but only as indicated in Orders 5 and 6 below.

4.    The applicant’s appeal is otherwise dismissed.

5.    The objection decisions in respect of the income years ending 30 June 2006, 2007, 2008 and 2009 are varied to the extent that the premiums incurred by Thomas Nominees Pty Ltd as trustee for the Thomas Investment Trust as part of its options trading business are allowable as deductions in working out the net income of the Trust estate under s 95 of the Income Tax Assessment Act 1936 (the “1936 Act”).

6.    The objection decision in respect of the income year ending 30 June 2009 is varied to the extent that the applicant’s assessable income under s 97 of the 1936 Act includes a 99.6% share of the net income of the trust estate under s 95 of the 1936 Act (as re-calculated in accordance with Order 5).

7.    In accordance with r 36.03 of the Federal Court Rules 2011, an appellant must file any notice of appeal on or before 29 January 2016.

8.    Each party bear their own costs of and incidental to the proceeding.

9.    Pursuant to the provisions of the Federal Court of Australia Act 1976 (Cth) and rr 1.32 and 1.36 of the Federal Court Rules 2011, these orders are made from Chambers.

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

THE COURT ORDERS THAT:

1.    The applicant’s application for leave to re-open the proceeding is refused.

2.    The applicant pay the costs of and incidental to the application for leave to re-open.

3.    The applicant’s appeal is allowed in part but only as indicated in Order 5 below.

4.    The applicant’s appeal is otherwise dismissed.

5.    The objection decision in respect of the income year ending 30 June 2008 is varied to the extent that the premium incurred by Thomas Nominees Pty Ltd as trustee for the Thomas Investment Trust as part of its options trading business are allowable as deductions in working out the net income of the trust estate under s 95 of the Income Tax Assessment Act 1936.

6.    In accordance with r 36.03 of the Federal Court Rules 2011, an appellant must file any notice of appeal on or before 29 January 2016.

7.    Each party bear their own costs of and incidental to the proceeding.

8.    Pursuant to the provisions of the Federal Court of Australia Act 1976 (Cth) and rr 1.32 and 1.36 of the Federal Court Rules 2011, these orders are made from Chambers.

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

REASONS FOR JUDGMENT

Background

1    These proceedings concern an application made by Martin Thomas for leave to re-open proceeding QUD 274/2012 and an application by Martin Andrew Pty Ltd (“MAPL”) for leave to re-open proceeding QUD 276/2012 and adduce further evidence in each proceeding in relation to the tax years ending 30 June 2006, 2007 and 2008 so far as Martin Thomas is concerned and the tax year ending 30 June 2008 so far as MAPL is concerned.

2    In proceeding QUD 274/2012, Martin Thomas brought appeal proceedings challenging objection decisions of the Commissioner of Taxation (the “Commissioner”) disallowing objections to assessments of income tax (and penalties – QUD 284/2012) for the financial years ending 30 June 2006, 2007, 2008 and 2009. The Court heard and determined the appeal proceedings by publication of reasons for judgment on 31 August 2015: Thomas v Commissioner of Taxation [2015] FCA 968 (“Thomas v CoT”).

3    These reasons are to be read together with the published reasons in Thomas v CoT.

4    In proceeding QUD 274/2012, Martin Thomas framed and litigated a large number of grounds of appeal in support of his attempt to demonstrate that the assessments of the Commissioner in each financial year were excessive or otherwise incorrect. He failed to make good his contentions as to the objection decisions concerning his objections to the income tax assessments in each tax year and failed to discharge the onus cast upon him by s 14ZZO of the Taxation Administration Act 1953 (Cth) (the “TAA”) for the reasons set out in the judgment. That conclusion, following from the reasoning, is set out at [521] of the judgment.

5    Martin Thomas and MAPL were, in the relevant tax years, beneficiaries of the Thomas Investment Trust of which Thomas Nominees Pty Ltd was the trustee.

6    In proceeding QUD 276/2012, MAPL brought appeal proceedings challenging an objection decision of the Commissioner disallowing objections to the assessment of income tax for the financial year ending 30 June 2008 (and penalties – QUD 285/2012). The Court heard and determined the appeal proceeding by publication of reasons for judgment in Thomas v CoT.

7    MAPL failed to make good its contentions as to the objection decision concerning its objection to the income tax assessment for that financial year and thus failed to discharge the onus cast upon it by s 14ZZO of the TAA.

8    Apart from these appeals (and other appeals addressed in the principal proceeding), the judgment in Thomas v CoT was also concerned with an appeal by the trustee from an objection decision of the Commissioner disallowing objections to an assessment in the financial year ending 30 June 2009: QUD 325/2013.

9    On publication of the judgment on 31 August 2015 addressing all of the various appeals (among other appeals not presently mentioned), the parties were directed to submit proposed final orders for the consideration of the Court in disposition of each appeal. There are also related matters before the Administrative Appeals Tribunal (the “Tribunal”) which were also to be the subject of proposed final orders. Draft orders were submitted by the parties and final orders were made in all appeals other than QUD 274/2012 and QUD 276/2012: that is, final orders were made on 9 October 2015 in QUD 275/2012, QUD 283/2012, QUD 284/2012, QUD 285/2012 and QUD 325/2013. It is not necessary, for the purposes of these proceedings, to identify the content of those appeals and the ultimate orders made.

10    As to QUD 274/2012 and QUD 276/2012, directions were made concerning the proposed application by Martin Thomas and MAPL for leave to re-open each proceeding and adduce further evidence. The material sought to be adduced into evidence should leave be given to re-open each proceeding is an affidavit of Martin Thomas sworn 22 October 2015 and an extensive affidavit of Elizabeth Robyn Abbott, the accountant acting for Martin Thomas, MAPL and the trustee, in the relevant tax years, sworn 22 October 2015. All such evidence, should leave be given, would be admitted in QUD 274/2012 and treated as evidence in QUD 276/2012. In the various appeal proceedings, QUD 274/2012 has been the vehicle for the reception of evidence treated as evidence in all other matters.

11    The applicants say that they wish to adduce evidence for the 2006 to 2008 tax years of the same nature of that adduced for the 2009 year of income and specifically the applicants seek to adduce evidence of the interim distributions of gross income made to them by the trustee of the trust. They say that if the evidence is admitted, it supports findings that the applicants were presently entitled to the trust income in the 2006 to 2008 tax years in similar proportions to their entitlements for the 2009 year.

12    In the submissions of the applicants, a number of propositions are advanced as to findings and conclusions in the published judgment in Thomas v CoT. With the exception of the matters specifically mentioned in these reasons, it is, however, unnecessary and in any event undesirable to say anything further in these reasons about the judgment in the principal proceeding which necessarily speaks for itself.

13    As to the applications to re-open each appeal proceeding, I refuse leave for the following reasons (although I expand upon these matters further throughout these reasons).

14    First, it seems to me plain that Martin Thomas and MAPL, put simply, want to have another go at the litigation and re-agitate and re-litigate afresh the appeal proceedings. In doing so, they seek to put on evidence that could have been assembled, adduced and addressed at the trial of the appeal proceedings.

15    Second, the applicants actually wish to now also propound an entirely different contention to that previously contended throughout the proceedings and which formed the basis of their case.

16    Third, the application for leave to re-open does not fall within the principles informing the exercise of the discretion to either grant or withhold leave to re-open each proceeding and adduce further evidence.

17    Fourth, the contended basis for granting leave to re-open each proceeding is unmeritorious.

18    It is now necessary to say something further about these issues.

The principles

19    Plainly enough, the Federal Court of Australia, as a superior court of record and a court of law and equity, has power to re-open each proceeding before final orders are entered: s 5(2), Federal Court of Australia Act 1976 (Cth); rr 1.32 and 39.04 of the Federal Court Rules 2011. As to varying or setting aside a judgment or order after entry, see r 39.05 of the Federal Court Rules.

20    In Autodesk Inc and Anor v Dyason and Ors (No 2) (1993) 176 CLR 300, Mason CJ made these observations (citations omitted) at pp 301 and 302:

The exercise of the jurisdiction to reopen a judgment and to grant a rehearing is not confined to circumstances in which the applicant can show that, by accident and without fault on the applicant’s part, he or she has not been heard. It is true that the jurisdiction is to be exercised with great caution having regard to the importance of the public interest in the finality of litigation.

[This observation of Mason CJ was adopted as correct by French CJ, Gummow and Hayne JJ in Aktas v Westpac Banking Corporation [No 2] (2010) 241 CLR 570 at 573 [6]].

It is equally true, as this Court said in Wentworth v Woollahra Municipal Council that “[g]enerally speaking, it will not be exercised unless the applicant can show that by accident without fault on his part he has not been heard”.

But these statements do not exclude the exercise of jurisdiction to reopen a judgment which has apparently miscarried for other reasons, at least when the orders pronounced have not been perfected by the taking out of formal orders.

[Having cited examples as to the above proposition, the Chief Justice went on.] These examples indicate that the public interest in the finality of litigation will not preclude the exceptional step of reviewing or rehearing an issue when a court has good reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law.

                                [emphasis added]

21    At p 303, the Chief Justice also said this:

However, it must be emphasized that the jurisdiction is not to be exercised for the purpose of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put. What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to re-argue their case.

                                [emphasis added]

22    See also the observations of Keane CJ, Besanko and Perram JJ in Davis v Insolvency and Trustee Service Australia and Ors (No 2) (2011) 190 FCR 437 at [4] and [6]. Finally, in terms of the authorities in this Court, see also the observations of Dowsett, McKerracher and Foster JJ in Wenkart v Pantzer (No 3) [2013] FCAFC 162 at [17] to [22].

23    As already mentioned, Martin Thomas seeks leave to re-open QUD 274/2012 and adduce evidence said to be relevant to the issues going to the Commissioner’s objection decision to disallow objections to assessments of income tax for the years ending 30 June 2006, 2007 and 2008 and MAPL seeks leave to re-open QUD 276/2012 and adduce evidence said to be relevant to the issues going to the Commissioner’s objection decision to disallow objections to an assessment of income tax for the year ending 30 June 2008.

24    The point of re-opening each proceeding is to enable the applicants to lead further evidence in each appeal. That evidence is said to demonstrate that interim distributions of gross income were made by the trustee of the trust to the beneficiaries in the tax years 2006, 2007 and 2008. The applicants seek to show that they were, by reason of these distributions, presently entitled to trust income in particular proportions: see para 3 of the applicants’ submissions. However, the case they now seek to make is entirely inconsistent with the case they ran at trial and inconsistent with the Further Amended Appeal Statement filed on 23 August 2013 and the corrected submissions filed on 25 September 2014. I accept the submissions of the Commissioner that propounding the position the applicants would now seek to contend for in each appeal proceeding is inconsistent with the findings in the reasons for judgment at [488], [529] and [530].

25    The evidence the applicants now want to adduce through the vehicle of re-opening each appeal is evidence which was available to them at the time of the trial. There is nothing new about the evidence. The evidence of Ms Abbott was known to and available to the applicants throughout the entire period of the preparation of the appeals and the conduct of the appeals.

26    In evaluating the evidence and formulating the reasons for judgment, the Court had regard to the evidence put on by the parties. There is no basis at all for the suggestion that the Court has proceeded on what Chief Justice Mason described as a misapprehension as to the facts or the law. To the extent that the applicants might seek to assert error of law, that is a matter for the appeal process. However, there is no proper basis upon which it can be said that the Court proceeded on a misapprehension as to the facts or the law.

27    More fundamentally, the applicants contend that the findings made by the Court give rise to a lacuna in the sense that the findings are said to leave a gap as to the proportionate share of the applicants of the trust income for the financial years ending 2006, 2007 and 2008. I am not satisfied that there is any such lacuna at all. For those tax years, the applicants ran a case framed in a particular way based upon the evidence they called going to those financial years. Having evaluated all of the written material and the oral evidence of the witnesses forensically put on by the applicants in support of their contentions, the Court found that Martin Thomas was simply unable to make good his case and demonstrate that the Commissioner’s assessments were excessive or otherwise incorrect.

28    The application to re-open each appeal and adduce the evidence the applicants seek to adduce falls squarely within the observations of the Chief Justice referred to at [20] of these reasons.

29    The applicants also say, not so much as a lacuna going to the evidence but a lacuna going to the discharge of the Commissioner’s statutory obligations, that in the absence of re-opening each appeal and enabling the applicants to adduce the evidence in question, the Commissioner “will not be able to perform his duty to reassess the applicants’ true tax liability in accordance with the law until each beneficiary’s share in the trust income is identified” according to the re-formulation the applicants now seek to adopt; applicants’ submissions.

30    I do not accept that that is so. There is no reason to believe that the Commissioner will not proceed to discharge the statutory duty imposed by s 14ZZQ of the TAA or that the Commissioner is incapable of comprehending the scope of that duty or discharging that duty unless leave is given to re-open the proceedings and the further evidence adduced. Section 14ZZQ of the TAA provides that when the order of the Federal Court in relation to the decision becomes final, the Commissioner must, within 60 days, take such action, including amending any assessment or determination concerned, as is necessary to give effect to the decision. As to the concession reflected at [48] to [50] of the principal judgment, see [37] and [38] below.

31    The question at the heart of this application has really arisen in the following way.

32    In proceeding QUD 325/2013, the trustee brought appeal proceedings challenging an objection decision of the Commissioner disallowing objections to an assessment of income tax for the financial year ending 30 June 2009. As to that tax year, the Commissioner contended, having made the options concession described at [48] to [50] of the reasons for judgment (see [37] below) that the expenses of the trust exceeded its income with the result that it had made a net loss for the 2009 tax year and that no beneficiary was presently entitled to a share of the trust income in that tax year notwithstanding that the net income of the trust for the purposes of s 95 of the Income Tax Assessment Act 1936  (the “1936 Act”) for the 2009 tax year was $173,743, as agreed. The Commissioner also contended that there was no distributable income of the trust (on the Commissioner’s construction of the trust deed). The problem as to the 2009 income year was, in the Commissioner’s view, not that there was net distributable income of the trust and no beneficiary entitled to it, but rather there was no distributable income.

33    The applicants had contended that even though the trust is a discretionary trust, the trustee operated on the footing that a relevant beneficiary had a beneficial interest in the gross income as it was derived with the result that income could be applied by the trustee for the benefit of a beneficiary during the course of the income year with the trustee foregoing a lien over the gross income as security for its right of indemnity for costs and expenses. These competing contentions raised questions about present entitlement to a share of the income of the trust estate for the purposes of s 97(1)(a)(i); the relevance of the observations of Gummow J in Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 at 553 and the observations of Lathan CJ and Williams J in Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199 at 215; s 101 of the 1936 Act and its relationship with the notion of present entitlement in the context of the exercise of a discretionary power by a trustee; and notions of distributable income.

34    In other words, the applicants knew at least from the final formulation of their amended appeal statement and the formulation of their submissions on the appeals that questions of the basis upon which a beneficiary might be said to be presently entitled to trust income in the tax year 2009 and also the basis upon which a beneficiary might be said to be presently entitled to trust income and the proportionate shares in the income years 2006, 2007 and 2008 was at the core of the questions in issue. Thus, the applicants knew throughout, relevantly, both analytically and forensically that these questions were live issues in each of the tax years in question. They chose to put on evidence, adduced by the trustee through the guiding minds of Martin Thomas and Ms Abbott in relation to the 2009 year, and chose not to adduce any evidence in the 2006, 2007 and 2008 tax years of the kind they put on for the 2009 year. Now, they want to re-configure the appeals by obtaining leave to re-open them and put on evidence that they wished they had put on at the time.

35    There would never be any end to litigation if parties could take such a course: see the observations of Mason CJ at [20] of these reasons.

36    Section 14ZZP of the TAA provides that where a Court hears an appeal against an objection decision under s 14ZZ, the Court may make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision. Orders ought now be made for the final disposition of the appeals having regard to the judgment. For all the reasons mentioned, I am not satisfied that it would be unjust to refuse the applications. In the principal judgment, the Court determined that Martin Thomas had been unable to demonstrate that the amended assessments issued to him were excessive or otherwise incorrect for the purposes of s 14ZZO of the TAA.

37    However, the Court made these observations at [48] to [50] of the judgment:

48    In mid-2012, however, after the making of the April 2012 objection decisions, the Commissioner issued further Notices of Amended Assessment to the beneficiaries concerning their primary tax liabilities in respect of the relevant tax years. On 2 November 2012, consequent upon a review of the Applicants’ Appeal Statement filed on 20 September 2012, the Commissioner advised the applicants that he now accepted one of the grounds relied upon in each of the relevant objections to the effect that all premiums paid by the trustee as part of its ETO options trading business were deductible under s 8-1 of the 1997 Act.

49    This change of position is described as the “options concession”.

50    It seems that this concession led to an agreement between the parties that the net income of the trust estate pursuant to s 95 of the 1936 Act in each of the relevant tax years was that set out in the table at [27] of these reasons.

38    Having regard to that concession, it is appropriate in terms of s 14ZZP to make the orders in each of QUD 274/2012 and QUD 276/2012 at Orders 5 and 6 and Order 5 respectively of the orders made today. The appeals are otherwise to be dismissed.

39    A question has arisen as to the orders to be made in each of the three Tribunal proceedings: 2012/2445; 2012/2450; and 2012/2453. I will say something about those matters in these reasons simply as a matter of convenience as the judgment in Thomas v CoT is decisive of the issues in the Tribunal matters and these reasons (taken together with the reasons in Thomas v CoT) are to be treated by the Tribunal as the reasons for the final decision of the Tribunal in disposition of each of the three matters.

40    Put simply: in matter 2012/2445, Martin Thomas appeals to the Tribunal for review of the Commissioner’s decision to refuse to remit penalties imposed in respect of the tax years ending 30 June 2006, 2007, 2008 and 2009; in matter 2012/2450, the trustee appeals to the Tribunal for review of the Commissioner’s decision to refuse to remit penalties imposed in respect of the tax years ending 30 June 2006, 2007 and 2008; and in matter 2012/2453, MAPL appeals to the Tribunal for review of the Commissioner’s decision to refuse to remit penalties imposed in respect of the tax year ending 30 June 2008.

41    By the time of the commencement of the Tribunal proceedings (and the related Federal Court proceedings heard first in time though subject to the protocol that all evidence tended in QUD 274/2012 was to be treated as evidence in all Tribunal proceedings and thus the Federal Court and Tribunal matters were heard together subject to separation in convening sittings of the Court and sittings of the Tribunal), the Commissioner’s position concerning applications 2012/2450 (by the trustee) and 2012/2453 (by MAPL) was that those applications were no longer opposed. The application by Martin Thomas (2012/2445) continued to be opposed by the Commissioner.

42    In the Federal Court proceedings, the Court determined that the appeal from the Commissioner’s objection decision on penalty by Martin Thomas for the tax years ending 30 June 2006, 2007, 2008 and 2009 be upheld and the penalty assessment be set aside. The Court also decided that no further penalties be imposed: Thomas v CoT at [586]. The Commissioner had already adopted by the commencement of the hearing the position that the appeals by MAPL for the tax year ending 30 June 2008 (QUD 285/2012) and the trustee for the tax years ending 30 June 2006, 2007 and 2008 (QUD 283/2012) from objection decisions concerning penalty assessments were no longer opposed.

43    Because the imposition of a penalty on Martin Thomas for the tax years ending 30 June 2006, 2007, 2008 and 2009 was set aside, the question of undertaking an examination by way of appeal before the Tribunal of the Commissioner’s decision to refuse to remit the penalty imposed by the Commissioner on Martin Thomas, fell away. The other two appeals from the Commissioner’s refusal to remit penalties were not opposed in any event. The result is that the parties agree that the three Tribunal matters are to be dismissed. However, the parties do not agree about the terms of the dismissal of each Tribunal matter nor the statutory foundation upon which each matter might be dismissed. The applicants press the notion that the Tribunal’s decision to dismiss each matter ought to also note that each proceeding has been brought to an end “favourably to the applicant”. The applicant says that this will apparently have the effect of invoking the Tribunal’s practice of re-funding the application fee to each applicant.

44    As to the statutory foundation for dismissing each application, the applicants say that as the Federal Court has set aside the penalty assessment, there is no penalty to be remitted for the purposes of matter 2012/2445 and thus no engagement of the exercise of the discretion to remit the penalty for the purposes of s 298/20 of Sch 1 to the TAA. They say that it follows that s 42A(4) of the Administrative Appeals Tribunal Act 1975 (Cth) (the “AAT Act”) is engaged. That section provides that if the Tribunal is satisfied that the decision the subject of the application is “not reviewable by the Tribunal”, the Tribunal may dismiss the application without proceeding to review the decision.

45    Each Tribunal application is concerned with the Commissioner’s refusal to remit a penalty. Each decision was properly reviewable before the Tribunal at the time of the filing of the application. Although I have some doubt about the scope of s 42A(4) of the AAT Act, I am satisfied that if the primary decision to impose a penalty (which penalty would be the subject of a remittal review proceeding) has been set aside by the Federal Court and there is no longer a penalty that is to be the subject of a Tribunal decision to remit or not remit, the remittal discretion is no longer reviewable and thus the power under s 42A(4) is properly engaged.

46    The Commissioner contends that the proper statutory foundation for dismissing each matter is s 42B of the AAT Act. That section provides, relevantly, that the Tribunal may dismiss an application for review of a decision, at any stage of the proceeding, if the Tribunal is satisfied that the application: is frivolous, vexatious, misconceived or lacking in substance; or, has no reasonable prospect of success; or, is otherwise an abuse of the process of the Tribunal.

47    It seems to me that s 42B is a provision designed to protect the integrity of proceedings in the sense of conferring a power upon the Tribunal to dismiss applications which have no inherent integrity about them, to use a general word, in the sense that the proceedings can be seen to be frivolous or vexatious or otherwise misconceived, lack substance, have no reasonable prospects of success or fall within the description of an abuse of process. I am not satisfied that that statutory framework is properly engaged in the circumstances of matter 2012/2445 or the other two Tribunal proceedings.

48    I am satisfied that each proceeding ought to be dismissed in reliance upon s 42A(4) of the AAT Act.

49    I am not satisfied that the exercise of the statutory dismissal power under s 42A(4) of the AAT Act ought to carry with it the form of endorsement sought by the applicants. I am satisfied that it is appropriate to reflect in these reasons that since the primary penalty decision of the Commissioner has been set aside by the Federal Court of Australia with no further penalties to be imposed, the challenge to the Commissioner’s refusal to remit the penalty (as it was imposed) the subject of each Tribunal application falls away with an outcome favourable to the applicant in the form of a dismissal of each application in the circumstances that emerged.

Associate:

Dated:    26 November 2015