Federal Court of Australia

Ierna Beneficiary Pty Ltd v Commissioner of Taxation [2023] FCA 725

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed in full.

2.    The respondent’s objection decision as set out in the ‘Notice of Decision’ dated 28 June 2022 in respect of the amended income assessment issued for the 2016 income year be set aside.

3.    In lieu thereof, it be ordered that the applicant’s objection to the notice of amended income tax assessment be allowed.

4.    The respondent shall take such action, including amending any assessment or determination concerned as is necessary to give effect to the above orders.

5.    The determination of any and all issues as to costs be reserved to a date to be fixed, pending the determination of the appeals in proceedings QUD243/2022, QUD249/2022 and QUD250/2022.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed in full.

2.    The respondent’s objection decision as set out in the ‘Notice of Decision’ dated 28 June 2022 in respect of the amended income assessment issued for the 2016 income year be set aside.

3.    In lieu thereof, it be ordered that the applicant’s objection to the notice of the amended income tax assessment be allowed.

4.    The respondent shall take such action, including amending any assessment or determination concerned as is necessary to give effect to the above orders.

5.    The determination of any and all issues as to costs be reserved to a date to be fixed, pending the determination of the appeals in proceedings QUD243/2022, QUD249/2022 and QUD250/2022.

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

REASONS FOR JUDGMENT

LOGAN J:

1    On 8 June 2023, I indicated that, having regard to the revised joint submissions of the parties to these two taxation appeals, I was prepared to make orders as consensually promoted by them. By those orders, the taxation appeals were allowed, the related objection decisions set aside and the proceedings remitted to the Commissioner for consequential amendment of assessments. All issues as to costs were reserved, pending the determination of other taxation appeals with which the present two had originally been listed for hearing together. At the time, I stated that I would later publish reasons for the making of the orders. These are those reasons.

2    It is desirable to commence by reciting the terms of the revised joint submissions of the parties:

1.    On or around 8 February 2018, the Respondent commenced an audit of the City Beach group, focusing on the restructure of the CBT and the extinguishment of the complying Div 7A loans in the 2016 year.

2.    On 23 July 2021, a notice of amended assessment of income tax for the 2016 year was issued to Ierna Beneficiary Pty Ltd, by which a further $11,229,046 was included in the it’s assessable income for the 2016 year, resulting in taxable income for that year being increased to $12,792,879 and the income tax payable thereon to $3,625,642.70 (being $3,837,863.70 less PAYG instalments raised of $212,221). This amended assessment was based on the application of Div 7A to the extinguishment of the loans payable.

3.    On 23 July 2021, a notice of amended assessment of income tax for the 2016 year was issued to Dissh Pty Ltd, by which a further $11,355,671 was included in it’s assessable income for the 2016 year, resulting in the taxable income for that year being increased to $10,351,862 (after the deduction of all available carried forward tax losses in the 2016 year) and the income tax payable thereon to $3,105,558.60.3 This amended assessment was based on the application of Div 7A to the extinguishment of the loans payable.

4.    On 23 July 2021, a notice of amended assessment of income tax for the 2017 year was issued to Dissh Pty Ltd, by which the amount of carried forward tax losses deducted was reduced from $987,920 to $0, resulting in the applicant’s taxable income increasing to $987,920 and the income tax payable thereon increasing from $0 to $296,376.

5.    On or around 27 September 2021, Ierna Beneficiary Pty Ltd and Dissh Pty Ltd objected against their amended assessments, the only grounds being in relation to the operation of Div 7A.

6.    On 28 June 2022, the Commissioner disallowed the objections against the amended assessments for Ierna Beneficiary Pty Ltd and Dissh Pty Ltd.

7.    Ierna Beneficiary Pty Ltd and Dissh Pty Ltd filed the notices of appeal in this proceeding on 18 July 2022 and served the notice on the Commissioner on 19 July 2022.

8.    On 26 May 2023, the Respondent informed Ierna Beneficiary Pty Ltd and Dissh Pty Ltd that he was not pressing the arguments raised in respect of Div 7A at the hearing, the effect of which results in the Respondent conceding that the appeals in respect of Ierna Beneficiary Pty Ltd and Dissh Pty Ltd ought to be allowed. The Respondent’s concession involves an admission that the amended assessments referred to above were excessive.

9.    The effect of the Respondent’s concession in the application of Div 7A in respect of the extinguishment of the complying Div 7A loans results in Ierna Beneficiary Pty Ltd and Dissh Pty Ltd discharging the burden of proof under s14ZZO of the Taxation Administration Act 1953 (TAA 1953) in relation to the amended assessments subject of the objection decisions.

10.    First, in circumstances where the Respondent admits that the assessments are excessive, this provides a sufficient basis for each of Ierna Beneficiary Pty Ltd and Dissh Pty Ltd to discharge the required onus that the assessments are excessive. Accordingly, the onus having been met, it is a lawful exercise of judicial power to set aside the objection decisions under s 14ZZP(1) of the TAA1953.

11.    As was stated in Thomson Australian Holdings Pty Ltd v Trade Practices Commission [1981] HCA 48 148 CLR 150 at 164:

In deciding whether consent orders sought are in conformity with legal principle the Court is entitled to treat the defendants’ consent as involving an admission of all facts necessary or appropriate to the granting of the relief sought.

12.    Secondly, it is, with respect, in these circumstances, not necessary for the parties to identify a particular ground of objection in order for the Court to be satisfied that Ierna Beneficiary Pty Ltd and Dissh Pty Ltd have discharged their onus under s 14ZZO of the TAA 1953. Whilst the grounds of objection limit the grounds of appeal, “the question for the court hearing an appeal is not whether the grounds of objection have been made out but whether the taxpayer has satisfied the burden… of proving that the assessment is excessive.”

13.    The Court can, and should, exercise this power notwithstanding that the Respondent has not identified a specific ground of objection or particular reason for its admission because:

13.    The Court can, and should, exercise this power notwithstanding that the Respondent has not identified a specific ground of objection or particular reason for its admission because:

13.1.    “All that the Commissioner needs is material which allows him in good faith and as a matter of good public administration to make a particular admission”. There is absolutely no suggestion, nor any evidence that could found such a suggestion, that the Respondent’s admission in this case was made otherwise than in good faith and in good public administration.

13.2.    The joint position by the parties that the Respondent’s admission is such that each of Ierna Beneficiary Pty Ltd and Dissh Pty Ltd satisfy the onus required by s 14ZZO must be accepted as at least arguable. It is therefore appropriate for the Court to proceed on the basis of this joint position.

13.3.    Imposing a requirement on the Respondent to identify grounds in an objection decision which are conceded or to disclose its internal reasons for an admission (which may or may not be the subject of privileged advice) is:

a.    inconsistent with the onus being on the taxpayers under s 14ZZO of the TAA 1953 (and not the Respondent) to prove that the assessments are excessive;

b.    likely to impede the Respondent making appropriate concessions in future, which is wholly inconsistent with its duty to act as a model litigant and its obligations under s 37N of the Federal Court Act 1976 (Cth).

14.    Further, the exercise of the power on the basis of the joint submission and avoiding any further hearings or costs incurred in each of the two proceedings is consistent with the overarching purpose set out in section 37M of the Federal Court Act 1976 (Cth) to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible.

15.    The determination of these matters by the Court does not impact the determination of the remaining issues, namely s45B and Part IVA in respect of the remaining matters.

16.    Accordingly, the appeals QUD247/2022 and QUD 248/2022 should be allowed in full, with the objection decision set aside and the objection allowed in full.

17.    The parties seek to be heard on consequential cost orders.

[footnote references omitted]

3    When a person dissatisfied with an objection decision made by the Commissioner chooses the option offered by s 14ZZ of the Taxation Administration Act 1953 (Cth) (TAA) of instituting a statutory appeal against that decision in the original jurisdiction of this Court, that person thereby involves the judicial power of the Commonwealth. A right to invoke that power so as to obtain a judicial determination on issues of fact and law concerning an assessed liability to taxation is an essential feature of a valid law with respect to taxation: see Deputy Commissioner of Taxation v Brown (1958) 100 CLR 32, at 40 – 41 per Dixon CJ and Giris Pty Ltd v Deputy Commissioner of Taxation (1969) 119 CLR 365, at 378 – 379 per Kitto J. For the purposes of the power conferred on the Parliament by s 51(ii) of the Constitution to make laws with respect to taxation, provision of such a right distinguishes a law with respect to taxation from an arbitrary exaction.

4    Upon the hearing of a taxation appeal, s 14ZZP of the TAA empowers the Court, to “make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision”. But that power is only enlivened if the person who has instituted the taxation appeal discharges the burden of proof specified in s 14ZZO(b)(i) of the TAA by proving that the assessment concerned is excessive. A taxation appeal being a judicial proceeding, that burden must be satisfied by evidence admissible either under the Evidence Act 1995 (Cth) (Evidence Act) or some other provision governing the admission of evidence in such a proceeding.

5    In short then, the mere consent of the parties to a taxation appeal is an insufficient basis upon which to exercise the power conferred by s 14ZZP of the TAA. The Court must be satisfied by evidence that the assessment is excessive.

6    A need to satisfy the Court that occasion exists for the exercise of judicial power in a proceeding where the Court’s jurisdiction has been invoked is by no means confined to a taxation appeal. For example, the Court has jurisdiction under s 39B of the Judiciary Act 1903 (Cth) to hear a claim of an order akin to a constitutional writ issued under s 75(v) of the Constitution. However, the power to issue such writs entails the exercise of a judicial discretion. Occasion beyond a consent of the parties must be shown for the exercise of that discretion: see, for example, Igoe v Major General Michael Ryan AM in his capacity as a Reviewing Authority (No 2) (2020) 280 FCR 327. The Court’s practice in respect of the allowance of an appeal to the Court from a Federal tribunal, for example under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), also reflects recognition of a need for the Court to be satisfied that occasion beyond mere consent exists for the exercise of the power to allow such an appeal. To this end, Section 11 of the Court’s Administrative and Constitutional Law and Human Rights Practice Note (ACLHR-1) requires the filing of a joint statement which gives sufficient detail to enable the Court to be satisfied that a foundation in law for the allowing of such an appeal exists.

7    Nothing which was stated in the High Court’s joint judgment in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 (The Agreed Penalties Case) is inconsistent with these propositions. To the contrary, it is consistent with the qualification “appropriate” in the observation in the joint judgment, at [57], that, it is in keeping with “the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate” (emphasis added). What is “appropriate” is dependent in the first instance on the terms of the power to make the order sought by the parties.

8    In this context, the statement in Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150, at 164, that, “[i]n deciding whether consent orders sought are in conformity with legal principle the Court is entitled to treat the defendants’ consent as involving an admission of all facts necessary or appropriate to the granting of the relief sought” is an important one. The Commissioner’s admission in the joint submission was self-evidently made with authority and, moreover, upon legal advice. That being so, it was admissible: s 81 and s 87 of the Evidence Act.

9    The admission was sufficient proof that assessments concerned were, to the extent of the admission and as a matter of fact, excessive. All that the Commissioner needed to make the admission was sufficient material to allow him in good faith and as a matter of his general administration of the applicable taxation legislation, including the TAA, to make the admission: King v Commissioner of Taxation (2022) 177 ALD 275, at [12]. Unless there is occasion for the Court to apprehend that such an admission is not made with authority (q.v. s 87 of the Evidence Act), and one might expect this would be a rare case indeed, it is neither necessary nor appropriate for the Court to go behind the admission.

10    The ultimate issue in a taxation appeal is, as the parties correctly submitted, not whether a ground of objection is made out but rather whether the assessment concerned is excessive: Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd (1994) 181 CLR 466, at 479. Thus, it was confirmed in that case that it was open to the Commissioner, irrespective of the grounds of objection, to support the amount of the assessment on some other basis. It must, in my view follow, that it is open to the Commissioner to concede by admission that an assessment is excessive in a particular amount, irrespective of the grounds of objection.

11    For these reasons, I considered it appropriate to make the orders promoted by the parties on the basis of their joint submission.

Associate:    

Dated:    30 June 2023