Federal Court of Australia

Skycorp Investments Pty Ltd v Commissioner of Taxation [2026] FCA 1285

ORDERS

THE COURT ORDERS THAT:

1.    The applicant have leave to amend its application and the draft notice of appeal in terms of the proposed amended application and draft notice of appeal filed on 30 March 2026.

2.    The application to dispense with compliance with r 35.13 of the Federal Court Rules 2011 (Cth) and the application for leave to appeal be dismissed.

3.    The applicant pay the respondent’s costs of the application, including any reserved costs, to be taxed in any event.

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

REASONS FOR JUDGMENT

FEUTRILL J:

Introduction

1    The applicant (taxpayer) applies for leave to appeal from an order refusing (dismissing) an application to strike out the replacement appeal statement of the respondent (Commissioner) and from a subsequent order that the taxpayer pay the Commissioner’s costs of that application: Skycorp Investments Pty Ltd v Commissioner of Taxation [2025] FCA 1184 (strike-out reasons or J1); Skycorp Investments Pty Ltd v Commissioner of Taxation (No 2) [2025] FCA 1316 (cost reasons or J2).

2    The taxpayer is the owner of a building located in the Sorrento Quay precinct of the Hillarys Boat Harbour in Western Australia (Skycorp building). It acquired the building in July 1997 after it was constructed. The taxpayer was liable to pay income tax on its taxable income in each financial year ending 30 June from 1998 to 2014. The taxpayer’s income tax was its assessable income minus deductions: s 4-15 of the Income Tax Assessment Act 1997 (Cth). Its deductions could be of a general or specific nature: s 8-1, s 8-5 of the ITAA 1997. The taxpayer was dissatisfied with notices of assessment the Commissioner issued under s 166 of the Income Tax Assessment Act 1936 (Cth) for each relevant year. It objected to those assessments under Pt IVC of the Taxation Administration Act 1953 (Cth) on grounds that included that it was entitled to a specific deduction in each of the relevant years for amounts for capital works associated with construction of the Skycorp building under Div 43 of the ITAA 1997.

3    Division 43 of the ITAA 1997 contained relatively complicated provisions relating to the circumstances in which a taxpayer can be entitled to a specific deduction for construction expenditure incurred in respect of the construction of capital works. In substance, if certain preconditions were met, the owner or lessee of a building was entitled to deduct a proportion of the construction expenditure incurred before completion of the building. Relevantly, the ‘pool of construction expenditure’ (as defined) could be amortised at a certain rate of deduction and a deduction allowed in each year until the pool of construction expenditure was exhausted. In certain circumstances, where a lessee was entitled to a Div 43 deduction, after the relevant area of the building reverted to the owner, the owner was then entitled to a Div 43 deduction for construction expenditure the lessee had incurred. In the taxpayer’s taxation objection it claimed it was entitled to a specific deduction in each relevant year with respect to the construction expenditure incurred by the previous owner on construction of the Skycorp building (Construction Expenditure Area A) and a construction expenditure a previous lessee incurred on the fit-out of one floor of the building (Construction Expenditure Area B).

4    In the objection decision, the Commissioner accepted that the taxpayer was entitled to a specific deduction under Div 43 in each relevant year except 2014. Based on available historical information about the original works contract for construction of the Skycorp building, the Commissioner estimated the construction expenditure incurred by the previous owner on Construction Expenditure Area A and made certain adjustments (exclusions and inclusions) to estimate the applicable pool of construction expenditure. The Commissioner accepted that the ‘pool of construction expenditure’ for the purposes of Div 43 was $2,695,886 and calculated the amount of the Div 43 deduction in each year based on that figure. The Commissioner was of the view that there was insufficient information to make any estimate of the construction expenditure incurred by the previous lessee on Construction Expenditure Area B. The Commissioner also disallowed another ground of objection the taxpayer had advanced based on Div 40 of the ITAA 1997. Subsequently, the Commissioner issued amended notices of assessment for each of the relevant years except 2014 based on the objection decision under s 170(1) item 6(b) of the ITAA 1936. Although the objection was allowed in part and amended notices of assessment were issued, the taxpayer was dissatisfied with the objection decision and appealed to this Court. The notice of appeal put in issue the partial allowance of the Div 43 deduction and did not put in issue the disallowance of the Div 40 deduction.

5    In accordance with the applicable provisions of Div 33.1 of the Federal Court Rules 2011 (Cth) and usual practice of the Court the issues in the tax appeal were initially identified by the taxpayer filing a notice of appeal, the Commissioner filing an appeal statement and, thereafter, the taxpayer filing a responsive appeal statement: J1 [6]-[25]. The taxpayer was later granted leave to file and serve a substituted appeal statement and, due to the manner in which it was granted that leave, an order was made for the Commissioner to file and serve an amended appeal statement in response to the taxpayer’s amended statement. These orders had the effect of reversing the usual procedure in a tax appeal: J1 [26]-[33].

6    The taxpayer filed a replacement appeal statement. In that document the taxpayer asserts that the construction expenditure for Construction Expenditure Area A was $841,023 greater than the amount for which the Commissioner allowed and the total pool of construction expenditure for Construction Expenditure Area A was not less than $3,536,909. The additional amount claimed is evidently based on 53 discrete variation certificates issued under the original works contract that were not included in the Commissioner’s estimate of the construction expenditure the original owner incurred in respect of construction of the Skycorp building. The taxpayer also contends that certain other items the Commissioner excluded in his estimate of the pool of construction expenditure should not have been excluded and should be included in the pool of construction expenditure from which the annual Div 43 deduction is to be calculated. The taxpayer also asserts that there was construction expenditure in the amount of $1.1 million under a separate construction contract for the fit-out of Construction Expenditure Area B that should have been included as a separate capital work for which it is entitled to a separate pool of construction expenditure and annual deductions under Div 43.

7    In accordance with the orders of the primary judge, the Commissioner filed and served a replacement appeal statement. In that document the Commissioner does not dispute many of the facts upon which the taxpayer relies. As to Construction Expenditure Area A, the Commissioner does not dispute the existence of the original works contract or the original contract sum of that contract, and does not dispute the existence of a final payment certificate issued for a final adjusted contract sum under that contract. As to Construction Expenditure Area B and reversion of the previous lessee’s pool of construction expenditure to the taxpayer, the Commissioner disputes all the taxpayer’s asserted facts. Otherwise, the Commissioner contends that the taxpayer cannot discharge its burden of proving, on the balance of probabilities, its entitlement to quantifiable deductions pursuant to Div 43 of the ITAA 1997 ‘necessary to establish what [the taxpayer] says is the true amount of its taxable income for the Relevant Years’ (emphasis added). In substance, the Commissioner contends that the taxpayer will not be able to prove each of the elements under Div 43 necessary for a pool of construction expenditure in respect of Construction Expenditure Area A and Construction Expenditure Area B as itemised by the taxpayer.

8    The taxpayer applied for an order to strike-out the Commissioner’s replacement appeal statement and have it removed from the Court file. Although the taxpayer advanced a number of submissions in support of the application, in substance, it contended the document was an abuse of process because the Commissioner was not permitted to put in issue all the construction expenditure for Construction Expenditure Area A and the Commissioner’s replacement appeal statement departed from his earlier appeal statement which had only put in issue the additional construction expenditure claimed for that area. The primary judge rejected all the taxpayer’s reasons for contending that the document was an abuse of process and its characterisation of the Commissioner’s replacement appeal statement as involving a change of position.

9    A central component of the taxpayer’s contentions before the primary judge, repeated on this application, was a contention that, on the proper construction of s 14ZZ and s 14ZZO of the TAA 1953, the issues in the tax appeal are confined to a determination of the asserted additional items of construction expenditure for Construction Expenditure Area A to be included in the pool of construction expenditure for that area and the pool of construction expenditure for Construction Expenditure Area B. As a consequence, the taxpayer’s onus of proof in the tax appeal is limited to disproving the basis of the Commissioner’s exclusion of those items from his estimate of the pool of construction expenditure in the objection decision and the Commissioner is not permitted to put in issue the basis of his inclusion of items of construction expenditure of $2,695,886 in the pool of construction expenditure. The taxpayer submits that its contentions and statutory interpretation is primarily to be drawn from the from joint reasons of Brennan, Deane, Dawson and Toohey JJ in Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd [1994] HCA 58; 181 CLR 466.

10    The taxpayer’s (amended) draft notice of appeal proposes to raise ten grounds of appeal. The substance of four proposed grounds is an assertion that the primary judge misconstrued s 14ZZ and s 14ZZO of the TAA 1953 and applied an incorrect construction of those provisions in his Honour’s reasons for dismissing the strike-out application, in effect, by accepting that the taxpayer’s onus of proof in the tax appeal is to prove de novo the correct amount of its liability for income tax in each relevant year. The substance to two grounds is an assertion that the primary judge failed to apply the taxpayer’s ‘correct’ construction of s 14ZZ and s 14ZZO and, thereby, failed to conclude that the Commissioner’s replacement appeal statement was an abuse of process. The substance of another proposed ground is an assertion that the primary judge otherwise failed to require the Commissioner to properly particularise his case such that the taxpayer may know the case to be met in the tax appeal. The substance of the remaining three proposed grounds is an assertion that the primary judge failed to accord the taxpayer procedural fairness, in effect, for not addressing its contentions based on ANZ Savings Bank and accepting aspects of the Commissioner’s submissions or position regarding the burden of proof in the tax appeal without providing the taxpayer a reasonable opportunity to make submissions on those matters.

11    The taxpayer’s contentions and submissions on the application were unusually detailed, long and complicated for an application of this nature. The taxpayer’s approach to the application bore closer resemblance to an argument on the appeal, if leave were granted, than an argument on an application for leave where applicant’s task is to expose sufficient doubt to warrant reconsideration at an impressionistic level and substantial injustice if leave were refused. Due to the complexity of the taxpayer’s contentions and arguments, it has not been possible to deal with the application only at an impressionistic level as it has been necessary first to understand and unpack the taxpayer’s contentions and arguments in order to consider if there be sufficient merit in them to warrant reconsideration of the primary judge’s orders by an appellate court. Nonetheless, distilled to their essence, the taxpayer’s application raises the following issues for determination on the application.

(1)    Is there sufficient merit in the application for leave such that an order should be made dispensing with the time limited for making the application?

(2)    Is it reasonably arguable that the primary judge reached the conclusions the taxpayer contends were erroneous in his Honour’s reasons for making the strike-out dismissal orders?

(3)    Is it reasonably arguable that the primary judge was wrong to conclude, in effect, that the Commissioner’s case in the tax appeal is not untenable?

(4)    Is it reasonably arguable that the primary judge was wrong to conclude, in effect, that the taxpayer has proper notice of the Commissioner’s case in the tax appeal?

(5)    Is it reasonably arguable that the primary judge failed to accord the taxpayer procedural fairness?

(6)    Would refusal of leave result in substantial injustice in that:

(a)    the taxpayer is precluded from advancing its case in the tax appeal;

(b)    the taxpayer does not know the Commissioner’s case in the tax appeal it must meet; or

(c)    determination of the scope of the issues and burden of proof in the tax appeal by an appellate court may prevent the taxpayer from incurring unnecessary cost and expense in prosecuting the tax appeal?

Should the Court dispense with the time limit from making the application?

12    The application for leave to appeal from the orders of the primary judge was filed on 11 November 2025. Subsequently, the taxpayer applied for an order that the application be amended in terms of a proposed amended application for leave and proposed amended draft notice of appeal filed on 30 March 2026. The Commissioner neither consents to nor opposes the proposed amendments. In the absence of any evident prejudice to the Commissioner, the taxpayer will be granted leave to amend its application in terms of those documents. As amended, the taxpayer applies for leave to appeal in terms of a draft notice of appeal comprised of ten proposed grounds of appeal to which reference has already been made.

13    In the amended application the taxpayer also applies for an order under r 1.34 dispensing with compliance with r 35.13 of the Rules (the application must be filed within 14 days after the date on which the order was made) with respect to the application for leave to appeal from the strike-out dismissal orders. The taxpayer submits, in substance, that the cost orders and strike-out dismissal orders and the reasons for those orders should be treated as a consolidated set of orders and reasons and, therefore, time for the purposes of r 35.13 should be taken to commence running for both sets of orders from the day the cost orders were made. That submission is not accepted.

14    The primary judge made an order refusing (dismissing) the taxpayer’s strike-out application and reserving costs on 26 September 2025 and written reasons for those orders were published on the same day. The question of the reserved costs was contested. The parties filed separate and further written submissions on the question of costs. The primary judge made a separate order requiring the taxpayer to pay the Commissioner’s costs on 28 October 2025 and published separate written reasons for those orders on that day. The proposed grounds of appeal in the draft notice of appeal do not cavil with the primary judge’s reasons for making the cost orders. All the proposed grounds are directed at the primary judge’s reasons for making the dismissal orders.

15    The taxpayer’s application for an order dispensing with compliance with r 35.13 is unusual. Ordinarily, a party that has not filed an application for leave to appeal within the time stipulated will apply for an extension of time and an order fixing the date for the purposes of r 35.13(b) of the Rules as the day on which the application was filed. Here, it was common ground that the principles applicable to the grant of an extension of time apply equally to the application to dispense with compliance with the time stipulation. These principles are well-established.

16    Applications for an extension of time are not granted unless it is proper to do so because the legislative time limits are not to be ignored. In general, the factors the Court will take into account in determining whether to grant an extension of time include whether there is an acceptable explanation for the delay, the length of the delay, the merits of the appeal, and any prejudice to the respondent (but, absence of prejudice is not sufficient of itself to grant an extension): Hunter Valley Developments Pty Ltd v Minister for Home Affairs and Environment [1984] FCA 186; 3 FCR 344 at 348-349 (Wilcox J); Parker v The Queen [2002] FCAFC 133 at [6] (Spender, O’Loughlin and Dowsett JJ). See, also, SZTRY v Minister for Immigration and Border Protection [2015] FCAFC 86 at [6] (Flick, Griffiths and Perry JJ). Ignorance of the time limit is not regarded as a satisfactory explanation for delay. However, a less persuasive explanation may be sufficient where the required extension is for a comparatively short period of time: SZJRV v Minister for Immigration and Citizenship [2008] FCA 298 at [6] (Flick J). The overarching consideration for the Court is whether it is in the interests of the administration of justice to grant the extension of time in the circumstances of the case. Thus, where the delay is short and no injustice will be occasioned to the respondent, the interests of justice would ordinarily require the extension of time to be granted provided there is sufficient merit in the grounds of the appeal to justify the hearing of the application for leave to appeal: WAAD v Minister for Immigration & Multicultural Affairs [2002] FCAFC 399 at [7] (Lee, Nicholson and Finkelstein JJ); Hasan v Minister for Immigration & Multicultural & Indigenous Affairs [2004] FCA 788 at [13]-[14] (Bennett J).

17    Consideration of the applicant’s prospects of success does not require the Court to conduct a summary hearing of the appeal (or, here, the application for leave): Ward v Repatriation Commission [2004] FCA 1163 at [8] (Lee J). In making an assessment the Court is not required to go into too great a detail, but is to ‘assess the merits in a fairly rough and ready way’ and, in general, based on the statement of the applicant’s case rather than opposing arguments or any detailed examination of the proofs of the argument: Jackamarra (an Infant) v Krakouer [1998] HCA 27; 195 CLR 516 at [9]-[10] (Brennan CJ and McHugh J).

18    Although the period of delay is relatively short and there is no evident prejudice to the Commissioner resulting from the delay, there is no real explanation for the delay. Otherwise, the principal issue upon which the taxpayer’s application to dispense with compliance with r 35.13 turns is whether the taxpayer will suffer any significant prejudice if that order were not made. That issue collapses to the merits of the proposed application for leave to appeal. Therefore, if there is insufficient merit in the application for leave to appeal, a dispensing or extending order should be refused.

19    As to the merits of the application for leave, in general, the discretion to grant leave to appeal is exercised having regard to two interrelated factors. First, whether, in all the circumstances, the decision is attended with sufficient doubt to warrant it being reconsidered by the appellate court. Second, whether substantial injustice would result if leave were refused, supposing the decision to be wrong: Décor Corp Pty Ltd v Dart Industries Inc [1991] FCA 844; 33 FCR 397 at 398-399 (Sheppard, Burchett and Heerey JJ).

20    When evaluating the prospects of success, the Court considers the grounds of the proposed appeal at a ‘reasonably impressionistic level’ and assesses whether the proposed appeal is ‘sufficiently arguable’ or has ‘reasonable prospects of success’: Olson v Keefe [2019] FCA 339 at [9] (Lee J); MZABP v Minister for Immigration and Border Protection [2015] FCA 1391; 242 FCR 585 at [62]-[63] (Mortimer J). Further, in the exercise of the power to grant leave the Court must have regard to the statutory charge in s 37M(3) of the Federal Court of Australia Act 1976 (Cth) that the power must be exercised or carried out in the way that best promotes the overarching purpose of the civil practice and procedure provisions described in s 37M(1) and s 37M(2) of that Act: Nationwide News Pty Ltd v Rush [2018] FCAFC 70 at [2] (Lee J, Allsop CJ and Rares J agreeing).

21    The level of scrutiny that the Court exercising appellate jurisdiction will apply in deciding whether to intervene is calibrated to the character of the interlocutory order in question. It is well-established that appellate courts should exercise particular caution in reviewing decisions pertaining to matters of practice and procedure. There is a material difference between the exercise of a power on a point of practice or procedure and the exercise of a power that affects or determines substantive rights. A party that seeks leave to appeal in relation to the exercise of a discretion on a matter of practice and procedure faces a ‘formidable task’ and has a ‘heavy burden’ to obtain leave because, irrespective of the extent to which the correctness of the order may be doubted, it will be very difficult to demonstrate sufficient injustice to warrant the grant of leave: e.g., Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2017] FCAFC 98; 252 FCR 1 at [41]-[42] (Jagot, Yates and Murphy JJ). Thus, where the interlocutory orders pertain to matters of practice and procedure, with no questions of general principle are at stake, the Court should exercise ‘particular caution’ before exercising the power to grant leave to appeal: Hogan v Australian Crime Commission [2010] HCA 21; 240 CLR 651 at [34] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ). The orders of the primary judge in this case pertain to matters of practice and procedure and there is no real question of general principle at stake. Therefore, the question of the merits of the application for leave to appeal should take into account that particular caution would be exercised before granting leave in this case.

Is it reasonably arguable the primary judge reached the asserted erroneous conclusions?

22    Grounds 1 to 4 of the proposed notice of appeal are directed to asserted errors of the primary judge relating to the proper construction of s 14ZZ and s 14ZZO(b) of the TAA 1953. Proposed ground 1 asserts the primary judge misidentified the Court’s jurisdiction under s 14ZZ. Proposed ground 2 asserts the primary judge erred in identifying the Court’s original jurisdiction under s 14ZZ as extending to determining de novo the correctness of that part of the objection decision with which the taxpayer is not dissatisfied. Relatedly, proposed ground 3 asserts that the primary judge erred in construing s 14ZZO(b) as conditioning the Court’s original jurisdiction under s 14ZZ by putting in issue de novo all the particulars of an income tax assessment made under s 166 of the ITAA 1936, including those particulars with which the taxpayer is not dissatisfied. Also relatedly, proposed ground 4 asserts, in substance, that, in relying on Bosanac v Commissioner of Taxation [2019] FCAFC 116; 267 FCR 169 at [47] (Greenwood, Burley and Colvin JJ) and Zappia v Commissioner of Taxation [2017] FCAFC 185 at [3] (Pagone J, Robertson and Bromwich JJ agreeing) for statements of principle regarding the taxpayer’s onus of proof, the primary judge applied s 14ZZO(b) to the taxpayer’s appeal as if the taxation and appeal concerned the objection to a default assessment made under s 167 of the ITAA 1936 (where all the particulars of assessment of the objecting person’s income tax are necessarily in controversy). Thereby, the taxpayer asserts the primary judge misapplied the applicable onus of proof because the taxpayer’s objection is limited to the particulars of an assessment under s 166 with which it is dissatisfied.

23    For the purposes of an application for leave to appeal, it may be accepted that it is reasonably arguable that the scope of a taxation appeal under s 14ZZ and the taxpayer’s onus of proof under s 14ZZO(b) is confined in the manner the taxpayer contends. However, to conclude that the primary judge was arguably in error for not reaching the conclusion that the issues in the appeal and onus of proof are limited in that way, it is first necessary for the taxpayer to demonstrate that the primary judge reached the conclusions the taxpayer contends were erroneous.

The strike-out reasons

24    Before the primary judge the taxpayer contended that the Commissioner’s position in his replacement appeal statement required the taxpayer to prove that the Div 43 deductions which the Commissioner had allowed in the objection decision were correct and the Commissioner is not permitted in a tax appeal to challenge the basis of his own assessment. The taxpayer also contended that the Commissioner had changed his case and he should not be permitted to depart from the approach he had earlier taken in his original appeal statement. Otherwise, the taxpayer advanced five reasons as to why the Commissioner’s replacement appeal statement was an abuse of process. The primary judge rejected the taxpayer’s contention and concluded that its application was misconceived and must be refused: J1 [64]-[81].

25    The primary judge gave four principal reasons for rejecting the taxpayer’s contentions and submissions to the effect that the Commissioner’s replacement appeal statement involved a change of position and (or) had the effect of putting in issue the Commissioner’s basis for his assessments.

(1)    After earlier describing the issues raised in the parties’ original and replacement appeal statements, the primary judge concluded that from the outset of the appeal, there had been an issue between the parties as to the total amount of the pool of expenditure that ought to be used in undertaking calculations for the purposes of Div 43. The taxpayer had maintained that more expenditure should be included in the pool and it disputed the sufficiency of the overall amount allowed by the Commissioner in the objection decision. The Commissioner had consistently maintained that the taxpayer must prove the extent of the overall expenditure on the Skycorp building. The Commissioner had also maintained that, to the extent that the taxpayer relied upon evidence of expenditure, the taxpayer must also prove amounts that should be deducted from that expenditure to establish the pool of expenditure for the purposes of Div 43. Further, that the taxpayer had the onus of demonstrating that the overall amount allowed for the pool of expenditure is insufficient. Therefore, his Honour did not accept that the Commissioner’s replacement appeal statement involved a change of the Commissioner’s case from his original appeal statement of a kind that, as a matter of case management, would be unfair to allow: J1 [69].

(2)    His Honour was of the view that the Commissioner had not put in issue the correctness of the basis upon which the (amended) assessments were made. The Commissioner sought no relief in the appeal, advanced no affirmative case and made no invitation to the Court to undertake the process of assessment. His Honour concluded that no issue arose in the tax appeal as to whether the (amended) assessments were insufficient: J1 [70].

(3)    The taxpayer had changed the forensic pathway by which it had sought to prove that the assessments were excessive. The taxpayer had advanced many different formulations of its case in the course of the appeal. The state of the evidence on the appeal was no longer the same as at the time of the objection decision. The Commissioner was entitled to advance contentions as to whether the taxpayer had discharged its onus of proof under s 14ZZO(b) on the taxpayer’s case as ultimately advanced: J1 [71].

(4)    The Commissioner’s replacement appeal statement addressed and was responsive to the taxpayer’s newly formulated case. The issues in the appeal were properly joined and that was the purpose of requiring the Commissioner to file a responsive appeal statement after the taxpayer had been given leave to amend its appeal statement: J1 [72].

26    As to the taxpayer’s contentions and submissions to the effect that the scope of the issues in the tax appeal were confined to the particulars of the Commissioner’s basis of assessment in the objection decision with which the taxpayer is dissatisfied, the primary judge observed that the ‘precise nature of the appeal provided for is a matter that is in contention between the parties’: J1 [3]. While the primary judge expressed the view that the taxpayer’s approach to identification of the issues in the appeal was unorthodox, his Honour accurately identified and summarised the taxpayer’s case: J1 [35]-[49]. The primary judge also accurately identified and summarised the Commissioner’s case: J1 [50]-[58].

27    Before dealing with the substance of the taxpayer’s asserted reasons for striking-out the Commissioner’s replacement appeal statement, the primary judge correctly captured the essence of the taxpayer’s arguments as:

66    In short, by various contentions, including views as to the proper construction of s 14ZZO of the TAA (or its constitutionality) as well as submissions as to the procedure to be followed on the appeal in the present case, [the taxpayer] maintains that the Commissioner cannot require [the taxpayer] to advance a case on appeal that demonstrates the appropriateness of the extent of Division 43 deductions that the Commissioner allowed on the objection (and which are reflected in the amended assessments issued to give effect to the objection decision).

67     Relatedly, [the taxpayer] says that a taxpayer who brings an appeal against an objection can confine that appeal to an aspect of the objection decision with which the taxpayer is dissatisfied.

28    However, the primary judge made no attempt to resolve the parties’ competing contentions about the nature of the appeal on the strike-out application because his Honour was of the view that the resolution of that question was a matter for the final hearing. Relevantly, his Honour said:

73    … [the taxpayer’s] claims as to the proper construction of s 14ZZO and the constitutionality of the amendment to that provision are matters for the final hearing. The fact that [the taxpayer] seeks to advance those claims does not make the Commissioner's denial of them a form of abuse of process requiring the removal of the responsive appeal statement (and the filing of a substitute statement that does not include them). The Commissioner's position is not so obviously incorrect or contrary to the scheme of the TAA that it might be said to amount to some form of abuse of process. The proper occasion for [the taxpayer] to advance its contentions as to such matters is at the final hearing or by some separate procedure appropriately formulated to determine a separate issue or to allow some form of summary determination. As to those alternative procedures, there is nothing before me at present to indicate that it would be appropriate to formulate some form of separate question or to entertain an application for summary determination.

29    Otherwise, as already mentioned, the primary judge observed that the taxpayer’s approach to identification of the issues in the appeal is ‘unorthodox’:

37    … because it focusses on disproving the 'assessment basis' adopted by the Commissioner in the objection. The question on an appeal against an objection decision in a case like the present is not whether the reasoning in the objection decision was wrong, but rather whether the decision on the objection as to the amount of the assessment has been proven to be excessive by evidence led by the taxpayer in the appeal: Bosanac v Federal Commissioner of Taxation [2019] FCAFC 116; (2019) 267 FCR 169 at [35], [47]-[48]; and Singapore Telecom Australia Investments Pty Ltd v Federal Commissioner of Taxation [2024] FCAFC 29; (2024) 302 FCR 192 at [73]. (Emphasis added.)

30    There is nothing arguably incorrect in the primary judge’s observation. The taxpayer’s approach is unorthodox because it focusses on disproving the assessment basis adopted by the Commissioner in the objection decision and, in effect, the assessment basis adopted by the Commissioner for the amended assessments issued following the partial allowance of the taxpayer’s objections to the original assessments. In an orthodox tax appeal, the grounds for the original taxation objection to the original assessment flow through to the taxation appeal and identify the Commissioner’s basis for assessment that is in controversy in the appeal: Bosanac at [12]-[21]. Further, the primary judge’s observation does not express a concluded view on the taxpayer’s approach. Also, as it is the objection decision that is the subject of the appeal, to the extent that the objection decision identifies the basis of assessment, the primary judge expresses no view that the taxpayer is precluded from framing the issues it raises in the tax appeal by reference to those parts of the objection decision with which it is dissatisfied.

31    Later, when explaining his Honour’s reasons for rejecting the taxpayer’s assertion that the Commissioner’s replacement appeal statement involved a departure from and expansion of the issues in the appeal arising from the Commissioner’s original appeal statement, the primary judge said:

69    … The Commissioner has consistently maintained that [the taxpayer] must prove the extent of the overall expenditure on the Building. To the extent that [the taxpayer] has relied on evidence of project expenditure, the Commissioner has also maintained that [the taxpayer] must prove the extent of amounts appropriately deducted from project expenditure in order to establish the pool of expenditure for the purposes of Division 43. [The taxpayer] has the onus of demonstrating that the overall amount allowed for the pool of expenditure is insufficient. In order to discharge that onus, for reasons that have been given, it must prove the extent of all the expenditure. It follows that I do not accept the submission for [the taxpayer] that the terms of the Commissioner's responsive appeal statement involve some change in his case of a kind that it would be unfair, as a matter of case management, to allow.

32    Ultimately, the primary judge concluded:

80    In the present case, the contentions being advanced by the Commissioner do not involve any attempt by the Commissioner to rely upon some subsequent event or circumstance that is said to have effected a change in the character of that which is the subject of the assessments in issue on the appeal. The Commissioner's case in the present appeal does not point to any subsequent event or circumstance as the basis for the Division 43 deductions not being allowable. The Commissioner's case is simply that [the taxpayer] does not have sufficient evidence of the facts and circumstances at the relevant time to establish a pool of expenditure and hence cannot prove that the assessment is excessive.

33    In these passages the primary judge is describing the Commissioner’s case by reference to the orthodox approach to a tax appeal. The ‘assessment’ to which reference is made is the original assessment that was the subject of the original taxation objection. It is not a reference to the amended assessment made following the objection decision to partially allow the objection.

34    In the context of the primary judge observing that the precise nature of the appeal under s 14ZZ was contentious, identifying the parties’ respective contentions on that topic and the onus of proof under s 14ZZO(b), and expressly stating that resolution of these were matters for the final hearing, none of his Honour’s comments regarding the parties’ respective contentions can arguably be understood to be an expression of any final or concluded view on these matters. The primary judge’s observations were by way of explanation for, amongst other things, the nature of the Commissioner’s contentions in the appeal and for the primary judge’s view that the Commissioner’s position is not so obviously incorrect or contrary to the scheme of the TAA 1953 that it might be said to amount to some form of abuse of process: J1 [73].

The cost reasons

35    Notwithstanding the contrary indication of the plain words of the primary judge, the taxpayer contends, by reference to the cost reasons, that his Honour actually reached final conclusions about the nature of the tax appeal and the taxpayer’s onus of proof which it contends were erroneous. That submission is not accepted for the reasons that follow.

36    Although the proposed notice of appeal is expressed to be an appeal from both the strike-out dismissal orders and cost orders, it is not clear whether any of the proposed grounds of appeal are directed to an asserted error that resulted in the primary judge’s discretion to order the taxpayer to pay the Commissioner costs miscarrying in some way. No clarity on that matter was provided through the taxpayer’s written or oral submissions. Therefore, to the extent that the proposed notice of appeal is expressed to appeal from the cost orders, it must be understood to be a reversal of the cost orders on the basis that, if the appeal from the dismissal orders were successful, the cost orders must fall away.

37    The taxpayer’s written and oral submissions also do not address the manner in which it is contended that reasons given for the cost orders could possibly inform or contradict the reasons given for the dismissal orders. No authority was cited in support of a proposition that reasons for one judgment can be used to interpret the reasons given for another judgment or that any further explanation of reasons can be used to interpret the reasons given at the time an order is made. In any event, the cost reasons relevantly explain the reasons the primary judge rejected an application the taxpayer had made for a special costs order to the effect that the Commissioner pay the taxpayer’s costs of the strike-out application on an indemnity basis.

38    After reserving costs in the orders made on the strike-out application, the primary judge dealt with the question of costs after receiving written submissions from the parties and without an oral hearing: J2 [4]. In support of its application for a special costs order, the taxpayer made a number of submissions relating to the issues raised in the tax appeal. It submitted that at the end of various exchanges of correspondence between the parties’ legal representatives the Commissioner had finally made it clear that he would proceed on the basis that the Div 43 deductions were all in issue. The taxpayer submitted that, as a consequence, it made the strike-out application. The taxpayer submitted that, during the oral hearing of the strike-out application, the Commissioner reversed his position by his counsel making a concession to the effect that the construction expenditure for Construction Expenditure Area A was not in issue and the primary judge had recorded that concession in the strike-out reasons. The primary judge understood the taxpayer’s submissions to mean that it contended that the Commissioner had admitted the amount of the deductions for Construction Expenditure Area A for the purposes of the tax appeal: J2 [42]-[46].

39    The primary judge rejected the taxpayer’s submission to the effect that the Commissioner had made any concession or admission or that the primary judge had recorded any such concession or admission in the strike-out reasons. Therefore, in context, the relevant parts of the cost reasons are to be understood as an explanation of the primary judge’s reasons for rejecting the taxpayer’s submission to the effect that the Commissioner had made the asserted concession. Accordingly, in context, the relevant parts of the cost reasons focus on an explanation of the Commissioner’s case in the tax appeal and the reasons why the Commissioner had not made the asserted concession and no such concession was recorded in the strike-out reasons. In so doing, the primary judge expressed no final or concluded view on the merits of the taxpayer’s case in the tax appeal.

40    The primary judge described the taxpayer’s submissions as entirely misconceived because they failed to engage with the distinction between the matters the taxpayer must prove to succeed in a tax appeal, on the one hand, and the steps the Commissioner must take if he were to amend an assessment to assess the taxpayer for more tax in the relevant years, on the other: J2 [47]. The primary judge observed that the only concession the Commissioner had made was that he was not seeking, by the tax appeal, to assess the taxpayer for more tax. However, the Commissioner had not admitted or conceded that the tax appeal was to be conducted on the basis that there was a demonstrated basis for the deductions that had been allowed in the objection decision. The Commissioner’s position was that the taxpayer must prove the full extent of any deductions under Div 43: J2 [48]-[49].

41    By reference to Bosanac at [47] and Zappia at [3] the primary judge described the Commissioner’s position as ‘entirely consistent with the nature of the statutory appeal’. His Honour then said at J2 [51]:

Therefore, unless the parties agree that particular aspects that determine the extent of the taxpayer's liability are not in issue then all those aspects must be established in the appeal. Further, unless it is expressly agreed that facts found in an objection decision are to be accepted for the purposes of the appeal, the taxpayer must prove those facts. In the present case, the parties are agreed that the only matter in issue as to the extent of the taxation liability of Skycorp concerns the extent of the deductions under Division 43 to which it is entitled in each of the relevant years. Otherwise, there is no agreement. Skycorp must prove the full extent of any available deductions under Division 43.

42    The primary judge said that ‘these matters were made clear’ in the strike-out reasons in the passages to which reference is made paragraphs [31] and [32] of these reasons (J1 [69] and J1 [80]): J2 [53]-[56]. Relevantly, those parts of the strike-out reasons were directed to an explanation of the Commissioner’s case in the tax appeal.

43    The primary judge then addressed a submission that the taxpayer had made to the effect that his Honour had recorded a concession of the Commissioner in his reasons for dismissing the strike-out application where he said (at J1 [76]): ‘As has been explained, the Commissioner does not advance any case to the effect that some part of the objection decision incorrectly allowed deductions under Division 43. Therefore, there is no case of the kind asserted by [the taxpayer] that is advanced by the Commissioner and consequently, no case to be particularised’. The primary judge rejected that submission because the passage upon which the taxpayer relied was taken out of context, in particular, the context in which the primary judge had earlier recorded (at J1 [70]) that the Commissioner sought no relief, advanced no affirmative case and made no invitation for the Court to undertake the process of assessment. That is, the relevant point addressed was that the Commissioner did not have a case to particularise: J2 [57]-[59]. Further, his Honour said:

59    The sentence at [76] is to be read in context, as well as with due regard to the particulars that Skycorp was seeking. Its submission was that if the Commissioner was requiring Skycorp to prove in the appeal that the deductions allowed by the objection decision had been properly allowed then the Commissioner should have to particularise what it was that Skycorp had to prove. The answer given to the submission was that the Commissioner did not have a case to particularise. That is, the Commissioner does not advance his own case in the appeal to the effect that the objection decision is wrong in some way. Nothing in [the statement in J1 [76]] could be taken to indicate, contrary to what had been said at the outset, that in order to succeed in the appeal, [the taxpayer] had to prove the full extent of the allowable Division 43 deductions that it alleged.

60    Again, there is a distinction between what Skycorp must establish in order to succeed in the appeal and what the Commissioner must do in order to change the assessment that was based on the objection decision. The point made at [76] was that the Commissioner does not advance a case in the appeal that anything in the objection decision was incorrect. The fact that the Commissioner does not advance such a case does not relieve Skycorp of its burden of proof in the appeal. In the absence of some admission from the Commissioner (which the Commissioner has been at pains to point out he does not make), Skycorp must prove in this Court the basis for the whole of the Division 43 deductions.

61    My reasoning did not contemplate some concession having been made on the part of the Commissioner to the effect that the deductions that had been allowed in the objection decision need not be proved in the appeal. Having regard to what was clearly stated at [69] of the Reasons and the context for what was said at [76], I regard the submission to the contrary to be one that lacked any reasonable foundation.

The primary judge also regarded the taxpayer’s submission as disingenuous: J2 [62].

44    On this application too, the taxpayer’s submissions and reliance on certain passages from each of the strike-out reasons and cost reasons take various statements or observations of the primary judge out of context. As already mentioned, it is clear from his Honour’s reasons for dismissing the strike-out application the primary judge considered it premature to determine the question of the nature of the appeal and the taxpayer’s burden of proof. All of the primary judge’s observations about the nature of the appeal and the taxpayer’s burden were made in the context of describing the parties’ respective cases on those topics. It is also evident from his Honour’s reasons for the cost orders that all the observations about the burden of proof were made in the context of explaining the reasons why the Commissioner had not made a concession to the effect that the taxpayer was not required to prove the full amount of the claimed Div 43 deductions.

45    Further, and in any event, the primary judge’s observation to the effect that the Commissioner’s position is consistent with the nature of the statutory appeal has not been shown to be attended by any real doubt.

Primary judge’s observations about the nature of the tax appeal

46    The taxpayer contends that the primary judge’s references to Bosanac and Zappia are indicative of error and his Honour’s acceptance that the nature of a tax appeal under s 14ZZ involves a de novo determination of the appellant’s taxable income. The taxpayer submits that Bosanac and Zappia were cases that involved taxation objections from default assessments under s 167 and, in those circumstances, it is well-established that the question on appeal is not whether the reasoning in the objection decision was wrong. Further, in Bosanac at [57] the Full Court drew a distinction between the burden of proof on an assessment under s 166 where it is possible to limit the issues to whether particular items are assessable income or deductions and a default assessment under s 167 where, by its nature, the burden of proof requires the appellant to demonstrate by evidence all assessable income and deductions.

47    It is not accepted that the primary judge’s observations in the strike-out reasons about Bosanac and Singapore Telecom Australia Investments Pty Ltd v Federal Commissioner of Taxation [2024] FCAFC 29; 302 FCR 192 or his Honour’s observations in the cost reasons about Bosanac and Zappia are indicative of any arguable error of principle. In Bosanac the Full Court set out and explained the statutory scheme of assessments, objection and appeal in general terms and described the nature of a tax appeal before turning to deal with the specific issues the subject of the tax appeal in that case. The passages to which the primary judge referred or quoted were all taken from the general description of the statutory scheme which is of equal application to any assessment, objection or appeal: Bosanac at [35], [47]-[48]. Similarly, although the tax appeal in Zappia concerned a default assessment, the statement of principle of Pagone J to which the primary judge made reference is a general description of the burden of proof that is of general application to any tax appeal: Zappia at [3]. The statements of general principle in Bosanac at [47]-[48] were cited with approval in Singapore Telecom Australia Investments at [73]. These include the acceptance in Bosanac at [48] of the observation of Greenwood J in Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) [2011] FCA 1090; 196 FCR 457 at [32] that ‘an appeal under s 14ZZ(c) bears some of the characteristics of an appeal by way of a hearing de novo in that the taxpayer has an extensive, though not unqualified, right to put additional evidence before the Court’. Singapore Telecom Australia Investments was a tax appeal involving assessments under s 166. In that case, taxation objections were made to amended assessments in which the Commissioner had excluded certain deductions from the assessments.

48    None of the statements of general principle the primary judge cited from Bosanac, Singapore Telecom Australia Investments and Zappia contradicts or is inconsistent with the taxpayer’s contentions described in paragraphs [62] to [67] of these reasons. That is, none of the primary judge’s references to statements of general principle is inconsistent with the proposition that, in a given tax appeal from an assessment under s 166, the issues and burden of proof in the tax appeal may be limited by the grounds of objection and the basis of the assessment that is the subject of challenge in the objection and appeal process. The scope of the issues raised in the tax appeal merely determine the matters upon which the appellant has the burden of proof to which the general principles apply.

49    Otherwise, in context, the primary judge’s observations about the burden of proof reflect his Honour’s understanding of the Commissioner’s case on the burden of proof in the tax appeal. In the tax appeal, the Commissioner’s position is that the taxpayer must prove the full extent of any available deduction under Div 43 because, on the Commissioner’s case and construction of the applicable legislation, the ground of the taxation objection that is in issue in the tax appeal is the full amount of any deduction for capital work in each relevant year. On the Commissioner’s case, it is the whole of the Div 43 ground that is the subject of the taxation objection, the objection decision and the tax appeal not merely that part of the ground disallowed in the objection decision with which the taxpayer is dissatisfied. Therefore, in context, the primary judge’s observations about the burden of proof are no more than explanations of his Honour’s reasons for rejecting the taxpayer’s submissions to the effect that the Commissioner had made a concession about the scope of the issues upon which the taxpayer has the burden of proof or that the primary judge’s reasons for dismissing the strike-out application are to be read as recording that the Commissioner had made such a concession.

Conclusion

50    There is insufficient merit in proposed grounds 1 to 4 to warrant reconsideration of the primary judge’s dismissal orders.

Is it reasonably arguable that the Commissioner’s tax appeal case is untenable?

51    The core of the taxpayer’s complaints is in proposed grounds 5 and 9 as follows:

5.    The Court erred in not deciding that:

(a)    A decision as to the correctness of the deductions allowed by the Respondent in relation to Construction Expenditure Area A (referred to in Ground 1(a)) does not quell any existing controversy between the parties, is in excess of Federal judicial power, and is contrary to the decision in CoT v ANZ Savings (1994) 181 CLR 466 at 479 (ANZ Savings) as to limits of the Court’s jurisdiction in an appeal against a partly allowed objection decision under s14ZZ TAA, having regard to s 14ZZO TAA, in relation to an assessment of constituent statutory ingredients of taxable income made under s 166 ITAA36.

(b)    s 14ZZO TAA requires a taxpayer to displace the Respondent’s prima facie correct assessment and disprove the bases of the assessment adopted by the Respondent with which the taxpayer is dissatisfied within s 14ZZ TAA by adducing evidence to establish the deductions disallowed, here the additional amount for Construction Area A and the availability under Division 43 ITAA36 for Construction Area B (referred to in Ground 1 b. and c.)

(c)    the Respondent could not, in purported reliance on s 14ZZO TAA, by his Responsive Appeal Statement (RRAS) put in issue before the Court his own allowance of the deductions in relation to Construction Expenditure Area A (referred to in Ground 1(a)), so as to displace the Applicant’s appeal and negate the discharge of its onus of establishing the deductions claimed but disallowed (referred to in Ground 1 (b) and (c)).

…

9.    The Court ought to have found that the “Applicant’s case” was as set out in its Notice of Appeal under s14ZZ TAA, was confined to bringing before the Court its dissatisfaction with those “additional” deductions not allowed by the Respondent, that s 14ZZO(b) ITAA36 only required the Appellant to adduce sufficient evidence to prove that those additional disallowed deductions were allowable, that the Respondent unconstitutionally controverted his own Objection Decision by the RRAS and so ought to have allowed the Application.

52    For the reasons already given, it is clear that the primary judge did not finally decide any of the matters to which reference is made in proposed grounds 5 and 9 because his Honour considered it premature to do so: J1 [73]. It is implicit that the taxpayer contends that the deferral of a decision on the matters identified in proposed grounds 5 and 9 was also an error in the context of an application to strike-out the Commissioner’s replacement appeal statement, but none of the proposed grounds except, perhaps proposed ground 6, is addressed to any asserted error that the primary judge made in identification or application of the principles applicable to striking-out a document filed in the Court as an abuse of process or for some other reason. This evident deficiency in the proposed grounds of appeal was also not addressed in the taxpayer’s written or oral submissions.

53    Relevantly and in context, to have succeeded in striking-out the Commissioner’s replacement appeal statement it would have been necessary for the taxpayer to demonstrate that the Commissioner’s case, as articulated in his replacement appeal statement, was one or more of scandalous, vexatious or oppressive: r 6.01 of the Rules. The application may also be regarded as one made to the implied jurisdiction of the Court to prevent an abuse of its process. However, the Court will only exercise power to summarily dismiss a party’s claim or defence in a proceeding on the grounds of abuse of process, vexation or oppression in a very clear case. Generally, the claim or defence must be ‘so obviously untenable it cannot possibly succeed’. But, once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the Court to dismiss the claim or defence as an abuse of process: e.g., Dey v Victorian Railways Commissioners [1949] HCA 1; 78 CLR 62 at 91-92 (Dixon J). The Court may also exercise power under s 31A of the Federal Court Act to summarily dismiss a claim or defence where, although not necessarily untenable, the Court is satisfied that the party has no reasonable prospect of prosecuting or defending the proceeding.

54    As already mentioned, in substance, one of the reasons the primary judge gave for refusing to strike-out the Commissioner’s replacement appeal was that it was premature to decide the matters of the Court’s jurisdiction and taxpayer’s onus of proof in the taxation appeal and the Commissioner’s position is not so obviously incorrect or contrary to the scheme of the TAA 1953 that it might be said to amount to some form of abuse of process: J1 [73]. That is the conclusion which the taxpayer must challenge in any appeal.

55    Ultimately, counsel for the taxpayer accepted during the oral hearing on the application that it is necessary for the taxpayer to demonstrate, in effect, that it is reasonably arguable that the Commissioner’s case in the taxation appeal and construction of s 14ZZ and s 14ZZO(b) of the TAA 1953 is untenable. For the reasons that follow, there is no real doubt that the primary judge’s conclusion, in effect, that there are real questions of construction of the TAA 1953 to be determined in the taxation appeal was correct. Therefore, proposed grounds 5 and 9 are hopeless.

Tax assessments, objections and appeals

56    The Commissioner must make an assessment from returns, and from any other information in the Commissioner’s possession, of the amount of taxable income of any person: s 166 ITAA 1936. The Commissioner is required to serve notice of the assessment on the person: s 174(1). A person who is dissatisfied with an assessment may object in the manner set out in Pt IVC of the TAA 1953: s 175A(1).

57    A person making a taxation objection must state in it, fully and in detail, the grounds upon which the person relies: s 14ZU(c) of the TAA 1953. The Commissioner must decide whether to allow it, wholly or in part, or disallow it in an objection decision: s 14ZY(1). If a person is dissatisfied with the objection decision, the person may appeal to the Federal Court against the decision: s 14ZZ(1)(a)(ii). Section 14ZZO of the TAA 1953 provides:

14ZZO    Grounds of objection and burden of proof

In proceedings on an appeal under section 14ZZ to a court against an objection decision:

(a)    the appellant is, unless the court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)    the appellant has the burden of proving:

(i)    if the taxation decision concerned is an assessment—that the assessment is excessive or otherwise incorrect and what the assessment should have been; or

(ii)    in any other case—that the taxation decision should not have been made or should have been made differently.

The words in italics were added to s 14ZZO by an amendment made to that provision in 2013: Tax and Superannuation Laws Amendment (2013 Measures No 1) Act 2013 (Cth). Otherwise, except in proceedings under Pt IVC of the TAA 1953 on a review or appeal relating to the assessment, the notice of assessment is conclusive evidence that the amounts and particulars of the assessment are correct: s 177(1) of the ITAA 1936 (until 30 June 2015), s 350-10(1) (item 2) of Sch 1 of the TAA 1953 (from 1 July 2012).

58    It follows that, in a tax appeal under s 14ZZ the appellant is, unless the court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates: s 14ZZO(a). It may be accepted that the inclusion of an amount in a person’s assessable income or the exclusion of an amount claimed as a deduction are separate ‘particulars’ for the purposes of the taxation legislation: ANZ Savings Bank at 476. A ground of objection may raise dissatisfaction with a particular of that nature in a taxation objection. In a tax appeal the appellant may then, in turn, be limited to that particular (ground).

59    It also follows that, in a tax appeal under s 14ZZ the appellant has the burden of proving that the assessment is excessive or otherwise incorrect: s 14ZZO(b)(i). By operation of ss 166, 174, 175A of the ITAA 1936 and ss 14ZU, 14ZY, 14ZZ and 14ZZO of the TAA 1953, except where the tax appeal involves an objection decision from an objection to a default assessment under s 167 of the ITAA 1936, to discharge the burden of proof under s 14ZZO(b)(i) an appellant is not required to prove every item of assessable income and every deduction in order to demonstrate that the assessment was excessive or incorrect: Bosanac at [57]. The appellant discharges the burden of proof under s 14ZZO(b)(i) by ‘disproving, on ordinary civil standards of proof, the basis of assessment adopted by the Commissioner’: Macmine Pty Ltd v Commissioner of Taxation; Commissioner of Taxation v Macmine (1979) 24 ALR 217 at 235 (Stephen J). Otherwise, the production of a notice of assessment is conclusive evidence of the due making of the assessment and, except in proceedings under Pt IVC of the TAA 1953 on an appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.

60    Where the objection decision allows the taxation objection in part, while the appellant will only be dissatisfied with that part of the decision that was disallowed, an appeal against an objection decision under s 14ZZ is an appeal against the whole objection decision not merely those parts with which the appellant is dissatisfied. Thus, while in a tax appeal the appellant will only seek to challenge that part of the objection decision with which it is dissatisfied, the Court is seized of the objection decision in its entirety in the tax appeal: ANZ Savings Bank at 474-476.

61    Section 14ZZO(b) of the TAA 1953 casts upon the appellant the burden of proving that an assessment is excessive and in an appeal against an objection decision under s 14ZZ(1) there is nothing in the ITAA 1936 or TAA 1953 which confines the Commissioner to the matters referred to in the notice of objection. As was observed in Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at 620, 631 (Toohey J, Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreeing), the term ‘excessive’ in s 14ZZO(b)(i) of the TAA 1953 relates to the ‘amount’ of the assessment which is mentioned in s 177(1) of the ITAA 1936 or s 350-10(1) of Sch 1 of the TAA 1953. The question for the Court hearing a tax appeal is not whether the grounds of objection have been made out but whether the relevant taxpayer has satisfied the burden cast by s 14ZZO(b). Although Dalco was concerned with default assessments made pursuant to s 167, the point applies equally to an assessment made pursuant to s 166. Each section is concerned with the taxable income of the appellant. The Commissioner may, subject to proper notice, support the amount of the assessment on a ground not taken into account at the time the assessment was made. ‘Since the Court is concerned to determine whether the amounts assessed as taxable income are excessive, the Commissioner must be able to raise for the Court’s determination the deductions properly to be allowed in the light of the Court’s decision as to assessable income’: ANZ Savings Bank at 479.

The taxpayer’s contentions

62    By reference to the applicable provisions of Pt IVC of the ITAA 1936 and Pt IVC of the TAA 1953, the taxpayer contends that it is entitled by its notice of appeal to this Court to only put in issue the particulars of the objection decision and basis of the Commissioner’s assessment with which it is dissatisfied and the issues in the tax appeal are thereby confined to those particulars. The taxpayer submits the following integers of its contention are ‘clear’ from ANZ Savings Bank.

(1)    The scope of a taxation appeal under s 14ZZ of the TAA 1953 (characterised by the taxpayer as the jurisdiction of the Court) is to determine only the correctness of the particulars of the Commissioner’s notice of assessment issued under s 166 and s 174 of the ITAA 1936 with which the taxpayer is dissatisfied. That is, the jurisdiction of the Court under s 14ZZ is only to quell the issues put into controversy by the taxpayer’s notice of appeal.

(2)    Subject to proper notice, it is only open to the Commissioner, to put into controversy particulars with which the taxpayer is not dissatisfied if the correctness of those particulars would be undermined by a determination in favour of the taxpayer on the particulars the taxpayer has put in issue.

(3)    The onus of the taxpayer under s 14ZZO(b) is limited by the issues properly put into controversy by the taxpayer and Commissioner in the taxation appeal under s 14ZZ and that onus is confined to disproving the particulars with which the taxpayer is dissatisfied.

63    Following from the last proposition the taxpayer contends that, to the extent that s 14ZZO(b) of the TAA 1953 is construed to enlarge the jurisdiction of the Court to allow the Commissioner to require the taxpayer in the first instance to prove a particular not in controversy, it was constitutionally invalid. Notices were given under s 78B of the Judiciary Act 1903 (Cth). However, that contention was not pursued because it was evidently resolved in Federal Commissioner of Taxation v Addy [2020] FCAFC 135; 280 FCR 46 at [184]-[192] (Derrington J, Steward J agreeing at [253]) and it is not controversial that, on its proper construction, s 14ZZO(b) does not create a de novo appeal in which the Court exercises a power akin to that of the Administrative Review Tribunal and does not confer any power on the Court to assess a person’s income tax.

64    The taxpayer contends that it was dissatisfied with the Commissioner’s objection decision, within the meaning of s 14ZZ of the TAA 1953, in two principal ways relating to the amounts the Commissioner allowed for deductions under Div 43 of the ITAA 1997. First, the taxpayer is dissatisfied with the quantification of the construction expenditure for Construction Expenditure Area A. The taxpayer contends that there are 53 discrete variation certificates that increase the quantum of the contract works to $3,703,385. Second, the taxpayer is dissatisfied with no allowance of construction expenditure for Construction Expenditure Area B. The taxpayer contends that these are the particulars or bases of assessment that are put in controversy by its notice of appeal.

65    In substance, the taxpayer contends that its case in the tax appeal is analogous to the tax appellant’s case in ANZ Savings Bank where the issues raised in that tax appeal centred on the basis of the Commissioner’s assessment in his objection decision. Here, the taxpayer contends that the Commissioner’s basis for assessment of the Div 43 deduction in the objection decision excluded the additional items claimed for Construction Expenditure Area A and the claim for Construction Expenditure Area B. Therefore, although the whole objection decision is before the Court in the tax appeal, the Commissioner’s case in the tax appeal is confined to defending his basis for excluding the relevant construction expenditure from the pool of construction expenditure used to calculate the Div 43 deductions.

66    In ANZ Savings Bank the tax appellant claimed to deduct from its assessable income a share of what it alleged was a partnership loss resulting from interest expenses incurred in borrowing money. The Commissioner disallowed wholly the deduction claimed in respect of the partnership and the tax appellant’s share of the partnership loss. The tax appellant objected to the assessment. On the objection the Commissioner included an additional amount in the tax appellant’s assessable income and wholly allowed the interest expenses as deductions against that income. The result of the objection decision was to allow a deduction for the partnership loss, but in a lower amount than that tax appellant had claimed. On appeal to the Federal Court the tax appellant contended that by the objection decision the Commissioner wrongly included the relevant amount in the appellant’s assessable income. The Commissioner contended that if the Court accepted the tax appellant’s argument, the Commissioner would again raise the deductibility of the interest expense to defend the assessment. The tax appellant was unsuccessful at first instance. On appeal the Full Court of the Federal Court concluded that the Commissioner wrongly included the relevant amount in the tax appellant’s income, but it did not have jurisdiction in the tax appeal to deal with the question of whether the interest expenses were deductible. On appeal, the High Court concluded that the Federal Court had jurisdiction to deal with the deductibility of interest expenses because it was seized of the whole objection decision not only that part with which the tax appellant was dissatisfied.

67    In substance, the taxpayer contends that its approach in the taxation appeal is consistent with the legislative scheme and the principles to be derived from ANZ Savings Bank and other authorities because the scope of its ground of objection, as amended in the tax appeal, is relevantly limited to the exclusion of certain items from the pool of construction expenditure for Construction Expenditure Area A and, consequently, the Commissioner’s ability to support his assessment is limited to defending the exclusion of those items. The taxpayer contends that the Commissioner cannot defend his basis of assessment (in the objection decision) by challenging or requiring the taxpayer to prove (or re-prove) the items included in the pool of construction expenditure upon which the objection decision was based. In other words, the taxpayer draws an analogy between the tax appellant’s challenge to the inclusion of assessable income in the objection decision as defining the issues in the tax appeal in ANZ Savings Bank and the exclusion of construction expenditure in the objection decision as defining the issues in the tax appeal in this case.

Is there a triable issue?

68    In substance, the Commissioner characterises the issue in the tax appeal as the full amount of the Div 43 deduction in each relevant year. The full amount is derived from the applicable pool of construction expenditure. The Commissioner contends that if the taxpayer wants to demonstrate the amount of the deduction in each relevant year was deficient, it must prove the full amount of the applicable pool of construction expenditure in order to demonstrate that the original assessment was excessive. The amended assessment and the basis for that assessment is not in issue in the tax appeal.

69    There is nothing in the provisions of the ITAA 1936 and TAA 1953, the reasons in ANZ Savings Bank or any other authority to which the taxpayer made reference that arguably compels the conclusion that the issues in the tax appeal and taxpayer’s onus of proof with respect to the relevant basis of assessment under challenge (the taxpayer’s ability to deduct the amounts claimed under Div 43) is limited in the manner the taxpayer contends. In short, it is not reasonably arguable that the Commissioner’s position that the original assessments and deductions of the full amounts claimed under Div 43 in respect of the original assessment are in issue in the tax appeal is untenable.

70    Broadly, in ANZ Savings Bank the original basis of the Commissioner’s assessment with which the tax appellant was dissatisfied was the exclusion of the claimed partnership loss and that was the basis of assessment that was the subject of the objection decision and the tax appeal in that case. The onus on the tax appellant was to demonstrate that the original assessment was excessive by reference to exclusion of the claimed partnership loss. The Commissioner was entitled to defend his original assessment and contest the deductibility of the interest expenses if the tax appellant was correct with respect to the particular issue (inclusion of assessable income) the tax appellant had raised in that tax appeal arising out of the objection decision. Otherwise, the Commissioner was not purporting to defend the original assessment on the basis that the relevant income was not assessable income and the interest expense was not deductible against that income.

71    In the taxpayer’s tax appeal it is reasonably arguable that the relevant basis of the original assessment with which the taxpayer was dissatisfied was the exclusion of Div 43 deductions in each relevant year. It is reasonably arguable that the issue the taxpayer has raised in the tax appeal (and the particular with which it is dissatisfied) is the total amount of the deduction the Commissioner allowed in each relevant year in the objection decision. It is reasonably arguable that to discharge its burden of proof under s 14ZZO(b) of the TAA 1953, relevantly, the taxpayer must prove the full amount of the ‘pool of construction expenditure’ for Construction Expenditure Area A as that is the figure that would be used to calculate the full or total amount of any relevant Div 43 deduction in each relevant year.

72    It is true that the Commissioner has made amended assessments and the relevant basis for those amended assessments is the objection decision by which the Commissioner concluded that the taxpayer is entitled to deductions for amounts of capital works under Div 43. However, the tax appeal does not involve a taxation objection against the amended assessments and an objection decision pertaining to the amended assessments. It is reasonably arguable that the Commissioner is not purporting to defend the original assessment on the basis that the taxpayer is not entitled to the Div 43 deductions that were allowed in the objection decision. Therefore, there is nothing arguably untenable about the Commissioner’s position, in effect, that the taxpayer’s onus of proof is not limited to proving that the amended assessments were excessive but extends to proving that the original assessments were excessive.

Conclusion

73    It follows that, it is not reasonably arguable that the primary judge was in error for not making the findings as set out in proposed grounds 5 and (or) 9 on the basis that the Commissioner’s contentions or assertions in his replacement appeal statement are untenable, fail to disclose a reasonably arguable defence, or have no reasonable prospects of success.

Is it reasonably arguable that the Commissioner has not given proper notice of his case?

74    Proposed ground 6 asserts that the primary judge erred in not deciding that the Commissioner’s replacement appeal statement was defective based on the taxpayer’s construction of s 14ZZ and s 14ZZO(b) of the TAA 1953 and failed to meet the requirements of a Commissioner’s appeal statement, as set out in Federal Commissioner of Taxation v Resource Capital Fund IV LP [2019] FCAFC 51; 266 FCR 1 at [90]-[92] (Besanko, Middleton, Steward and Thawley JJ), to state the facts supporting the Commissioner’s assessment. Although this proposed ground evidently depends upon proposed ground 5, it may have an independent operation in the sense that, if the Commissioner’s replacement appeal statement is not struck-out, the taxpayer contends that the Commissioner should nonetheless be ordered to provide particulars, in effect, of the basis of his (amended) assessments in the event that the taxpayer’s construction of s 14ZZ and s 14ZZO(b) is accepted.

75    It can be accepted that it is well-established that in a tax appeal the appeal statements take the place of pleadings so that, after the exchange of these documents, the parties to a tax appeal know the case each has to meet. A statement that leaves an appellant uncertain as to how the Commissioner’s case is put against it is embarrassing and oppressive. A statement that does not disclose the facts on which the Commissioner has based his assessment and the manner in which he has arrived at it, suffers from these twin vices: Resource Capital Fund IV at [90]-[91] citing Rio Tinto Ltd v Federal Commissioner of Taxation [2004] FCA 335; 55 ATR 321 at [31], [58] (Sundberg J).

76    The primary judge rejected the taxpayer’s contention that the Commissioner’s replacement statement failed to properly inform the taxpayer of the Commissioner’s case in the appeal. His Honour was of the view that the taxpayer’s reliance upon Rio Tinto Ltd in support of its contentions was misplaced because the Commissioner had set out in detail the facts and matters upon which he relies to support the contentions he advances in answer to the taxpayer’s replacement appeal statement: J1 [74]-[75]. The primary judge also recorded:

76    [The taxpayer] also advanced a submission to the effect that if, despite its contentions to the contrary, the Commissioner's responsive appeal statement is not required to be removed, then the Commissioner 'should be ordered to provide particulars of its allowed Division 43 deductions that, ex hypothesi, [the taxpayer] will be required to prove were correctly allowed' (original emphasis). This alternative, advanced it would seem by way of rhetorical flourish, should not be accepted. As has been explained, the Commissioner does not advance any case to the effect that some part of the objection decision incorrectly allowed deductions under Division 43. Therefore, there is no case of the kind asserted by [the taxpayer] that is advanced by the Commissioner and consequently, no case to be particularised.

77    The taxpayer complains that its submission that the Commissioner should be ordered to provide particulars was no ‘rhetorical flourish’ because its interlocutory application in the tax appeal included a proposed order requiring the Commissioner to file an appeal statement that complied with the requirements set out in Resource Capital Fund IV at [90]. The taxpayer submits that the Commissioner’s replacement appeal statement does not meet the requirements of r 33.03(a)(iv)(A) of the Rules because it fails to properly or adequately outline the Commissioner’s contentions and the facts and issues in the appeal as the Commissioner perceives them as a consequence of the objection decision and the amended assessments.

78    The taxpayer submits that the effect of the Commissioner’s replacement appeal statement is to put in issue the basis for the amended assessments the Commissioner made following the objection decision. Relying on Rio Tinto Ltd at [27], [58], the taxpayer submits that the Commissioner is expected to act as a model litigant, so that it may be anticipated that the Commissioner’s response to the taxpayer’s appeal statement will not seek to put in issue facts which the Commissioner ought not to place seriously in question. Further, relying on Federal Commissioner of Taxation v West Australian Trustee Executor & Agency Co Ltd [1929] HCA 20; 43 CLR 20 at 23 (Knox CJ, Rich and Dixon JJ agreeing), the taxpayer submits that the Commissioner cannot put in issue his own assessment process. The taxpayer contends that it is legally vexatious for the Commissioner to contend that his own administrative act of allowing the Div 43 deductions cannot be proved by the taxpayer due to a ‘dearth of evidence’ when the Commissioner is in possession of documents from which the Commissioner was satisfied that the taxpayer was entitled to deduct the amounts set out in the objection decision and, following that decision, the Commissioner made amended assessments.

79    West Australian Trustee Executor & Agency is not authority for the proposition the taxpayer contends. In that case the Board of Review made a decision in favour of the relevant taxpayer upon objection to an assessment. Under the then-applicable taxation legislation the Commissioner had made an election to amend an assessment in accordance with the Board of Review decision or appeal the decision to a court. The Commissioner amended the assessment and subsequently initiated an appeal. The appeal was incompetent because after amending the assessment the Commissioner had no right of appeal. Justice Dixon also observed that, after amending the assessment, the Commissioner could not appeal from his own act. The tax appeal before the primary judge was initiated by the taxpayer. It is not reasonably arguable that the primary judge was in error to conclude that in the tax appeal the Commissioner is not seeking to advance an affirmative case. That is, the Commissioner has not put in issue the correctness of the original assessments or the amended assessments. Therefore, it is not reasonably arguable that the primary judge was in error for concluding that the taxpayer’s reliance on Rio Tinto Ltd was misplaced or that the Commissioner advanced a positive case in the tax appeal of which he could be ordered to provide particulars.

80    Further, to the extent that the effect of the Commissioner’s case in the taxation appeal is to deny and put in issue the taxpayer’s construction of s 14ZZ and s 14ZZO(b), it remains open to the taxpayer to request the Commissioner to provide particulars of the Commissioner’s basis of his amended assessment for the purpose of narrowing the issues in dispute in the event that the Court accepts the taxpayer’s construction of the relevant provisions of the TAA 1953 and ITAA 1936. However, the extent to which the taxpayer can compel the Commissioner to give such particulars is a matter of case management for the primary judge.

81    For the foregoing reasons, proposed ground 6 is also hopeless.

Is it reasonably arguable there was a failure to accord the taxpayer procedural fairness?

82    Proposed ground 7 asserts that the primary judge failed to exercise jurisdiction or provide procedural fairness by not recording the taxpayer’s written and oral submissions and (or) setting out his Honour’s reasons for dismissing the taxpayer’s contentions relating to the Court’s jurisdiction under s 14ZZ drawn from ANZ Savings Bank. There is no merit in that proposed ground. For the reasons already given, the primary judge identified and summarised the taxpayer’s contentions and arguments including those relating to jurisdiction. The primary judge considered it premature to decide that question and that it was a matter for the final hearing: J1 [73].

83    Proposed ground 8 asserts that the primary judge failed to provide the taxpayer procedural fairness by relying, without notice, on certain general assertions the Commissioner made about the taxpayer’s case suffering from a ‘dearth of evidence’, adopting certain parts of the Commissioner’s replacement appeal statement, and concluding that the Commissioner’s case is simply that the taxpayer does not have sufficient evidence of the facts and circumstances at the relevant time to establish a pool of expenditure, as factors in dismissing the strike-out application. Relatedly, proposed ground 10 asserts that the primary judge erred in not giving the taxpayer notice of his Honour’s proposed reliance on the Commissioner’s ‘dearth of evidence’ assertion and, thereby, denied the taxpayer the opportunity to contradict that assertion. Again, there is no merit in those proposed grounds.

84    In the cost reasons the primary judge explained the Commissioner’s position in his responsive appeal statement and cited parts of that document including a contention of the Commissioner to the effect that where ‘there is a dearth of evidence the parties and the Court cannot know what they do not know. This undeniable fact creates unsurmountable issues for the [taxpayer] as the party which at all times bears the onus of proof’: J2 [18]-[22]. The primary judge also set out the Commissioner’s position in his original appeal statement on the issue of onus of proof: J2 [23]-[24]. There is no reference to a ‘dearth of evidence’ in the strike-out reasons. For the reasons already given, the taxpayer’s attempt to rely on the cost reasons to interpret the strike-out reasons is not accepted. In any event, the observations of the primary judge about the Commissioner’s case in the cost reasons were made in the context of addressing and rejecting the taxpayer’s contention that the Commissioner had made a concession or admission to which reference has been made earlier in these reasons. Accordingly, the observations are irrelevant to the dismissal orders.

85    Otherwise, there is no foundation in the primary judge’s reasons for the taxpayer’s assertion in proposed grounds 8 and 10 that his Honour relied on the Commissioner’s assertion about a ‘dearth of evidence’ or in proposed ground 8 that his Honour adopted parts of the Commissioner’s replacement appeal statement as factors in dismissing the strike-out application. The primary judge merely set out and summarised the Commissioner’s case for the purpose of considering the taxpayer’s contentions and submissions to the effect that it involved an abuse of process: J1 [50]-[58]. There was no reliance on the Commissioner’s replacement appeal statement other than to reach the ultimate conclusion that the Commissioner’s case in the tax appeal is that ‘the [taxpayer] does not have sufficient evidence of the facts and circumstances at the relevant time to establish a pool of expenditure and hence cannot prove that the assessment is excessive’: J1 [80]. That is an accurate summary of the Commissioner’s case and does not express any view about the extent to which the Commissioner’s case should be or was accepted by the primary judge for any purpose other than to explain the reason why the Commissioner was not putting in issue the amended assessment in the tax appeal.

86    On an application to strike-out a document on the grounds of abuse of process and on grounds that included a contention that the Commissioner had changed his case in the tax appeal and that the Commissioner had put in issue the basis of his assessment, the contents of the Commissioner’s replacement statement was obviously the subject matter of the parties’ submissions. The primary judge was entitled to read the Commissioner’s replacement appeal statement and reach his own view about the effect and meaning of that document. It was not necessary or appropriate for his Honour to give the parties a running commentary of his interpretation of that document or his Honour’s understanding of the Commissioner’s case expressed in it. There is no requirement of procedural fairness to give a party notice and an opportunity to comment on any or every element of a decision-maker’s reasoning process and integer of reasons for rejecting a party’s submission: F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 369 (Lord Diplock); SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs [2006] HCA 63; 228 CLR 152 at [48] (Gleeson CJ, Kirby, Hayne, Callinan and Heydon JJ).

Would refusal of leave result in substantial injustice?

87    For the reasons already given, it is not reasonably arguable that the primary judge has decided in any interlocutory or final way that the taxpayer is not able to advance its case in the taxation appeal to the effect that the issues in the appeal are limited to the parts of the objection decision with which it is dissatisfied. If the taxpayer’s construction of s 14ZZ and s 14ZZO(b), in the context of a partially allowed taxation objection to an assessment made under s 166 of the ITAA 1936 and an amended assessment under s 170(1) item 6(b) of the ITAA 1936, is correct and the issues and taxpayer’s onus of proof in the taxation appeal are limited as it contends, it remains open to obtain final relief in the tax appeal on that basis. Therefore, even if the Commissioner’s construction of the applicable provisions is wrong and the primary judge’s acceptance that his construction is reasonably arguable is wrong, it is difficult to fathom how there could be any substantial injustice to the taxpayer resulting from the primary judge’s interlocutory orders on these matters of practice and procedure. Likewise, as it remains open to the taxpayer to request particulars of the Commissioner’s negative case, no injustice arises from the primary judge’s refusal to order the Commissioner to provide particulars of the Commissioner’s non-existent positive case in the tax appeal.

88    Nonetheless, the taxpayer submits that there are potentially significant savings in terms of the resources of the parties and the Court and costs if leave to appeal were granted and the substantive issues of the Court’s jurisdiction and taxpayer’s burden of proof in the tax appeal were determined in the taxpayer’s favour on appeal. That is, the grant of leave to appeal is consistent with the overarching purpose of the civil practice and procedure provisions described in s 37M of the Federal Court Act. That submission is not accepted.

89    As the primary judge observed, there are case management mechanisms available for the taxpayer to advance its contentions on jurisdiction and burden of proof as separate issues or for summary determination: J1 [73]. It has been open to the taxpayer to avail itself of those mechanisms from the inception of the tax appeal and, subject to appropriateness and case management considerations, it remains open to the taxpayer to do so. An appeal is not the appropriate vehicle for separate or summary determination of the taxpayer’s contentions.

Disposition

90    For the foregoing reasons, the absence of any substantial injustice if leave were refused and (or) lack of merit in any of the proposed grounds of appeal means that an application for leave to appeal has no realistic prospects of success. Accordingly, the application to dispense with the time stipulation or to extend the time for applying for leave to appeal should be refused. In any event, even if such an order should be made, the application for leave to appeal should be dismissed for essentially the same reasons.

91    The taxpayer’s application should be dismissed and it should be ordered to pay the Commissioner’s costs of the application.

Associate:

Dated:    2 September 2026