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MedAid Pty Ltd and Commissioner of Taxation [2018] AATA 170

In the recent decision of MedAid and Commissioner of Taxation, the Administrative Appeals Tribunal examines a joinder application brought by an individual purporting to be a creditor and member of a taxpayer, being deregistered company.

MedAid Pty Ltd (‘MedAid’), the taxpayer, commenced two separate proceedings seeking review of objection decisions made by the Commissioner of Taxation (‘Commissioner’). MedAid was subsequently deregistered on 2 August 2015.
 

Accordingly, the Commissioner requested that the proceedings be dismissed, as the taxpayer ceased to exist. Deputy President McCabe was satisfied with the Commissioner’s request, but agreed to consider whether Mr Arnold, a purported representative of MedAid should be joined to the proceedings, on the basis his interests were affected by the decision under review within the meaning of s 30 the Administrative Appeals Tribunal Act 1975 (‘AAT Act’).
 

By operation of section 14ZZD of the Taxation Administration Act 1953, section 30(1A) AAT Act is modified to be read as:
 

If an application has been made by a person to the Tribunal for the review of a reviewable decision or an extension of time refusal decision:


(a) any other person whose interest are affected by the decision may apply, in writing, to the Tribunal to be made a party to the proceeding; and
(b) the Tribunal may, in its discretion, by order, if it is satisfied that the person making the application consents to the order, make that person a party to the proceeding.

 

The Commissioner contended that Mr Arnold’s application for joinder would fail because:


(1) his interests are not affected by the decision in the sense intended by the legislation;
(2) the applicant cannot obtain the consent from MedAid required by s30(1A)(b) AAT Act; and
(3) the Tribunal should not exercise the discretion in Mr Arnold’s favour.


Are the interest of a creditor and a member sufficient to be joined?
 

Mr Arnold sought to claim an economic interest, arising from his position as both a creditor and member of MedAid.
 

The Commissioner doubted whether the debts were real and submitted that the invoices provided by Mr Arnold were self-serving evidence that the Tribunal should disregard. McCabe DP found that even if the debts were accepted as real, the Tribunal was not satisfied the economic interest of a creditor was sufficiently distinguishable from the interests of other individuals for the purposes of section 30(1A)(a) AAT Act.
 

Further, McCabe DP found that the interest flowing from membership in a company in the present circumstances would rise to the level where an order could be made under section 30(1A).
 

Who consents to the joinder? Can a deregistered company consent?

McCabe DP found that reference to a ‘person’ in section 30(1A)(b) refers to the taxpayer and as the taxpayer no longer exists, as it is ‘legally dead’, it cannot give consent to the joinder.
 

Accordingly, the Tribunal dismissed the application made by Mr Arnold to be joined as a party to review proceedings.

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 27 February 18

WLQC and Commissioner of Taxation [2018] AATA 14

 In WLQC and Commissioner of Taxation Deputy President McCabe examines an application for review brought by a series of Applicants in relation to a number of assessments raised by the Commissioner for a nil amount follow the Commissioner’s refusal to recognise the Applicants as a consolidated group.
 

The Applicants sought to apply for review by the Administrative Appeals Tribunal (‘AAT’) of a series of objection decision made to uphold assessments of nil for the 2004, 2005 and subsequent financial years as the Commissioner refused to treat the Applicants as a consolidated group.
 

Deputy President McCabe examined whether the nil assessments issued in 2004, 2005 and subsequent years provided the Applicants with a right of review pursuant to Part IVC of the Taxation Administration Act 1953.

2004 nil assessments:

With respect to the nil assessments in the 2004 financial year, section 175A of the Income Tax Assessment Act 1936 (‘ITAA36’) at the relevant time provided that:


“A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953”

 

Further, section 6 of the ITAA36 at the relevant time defined assessment as:


(a) the ascertainment of:
      i. the amount of taxable income

 

The Commissioner contended that the language of these provisions make it tolerably clear that references to specific amounts of taxable income and a determination of the amount the taxpayer was liable to pay were essential features of an assessment at that relevant time.
 

In support of this position the Commissioner relied upon Batagol v Commissioner of Taxation [1963] HCA 51, which concluded an assessment within the means of the ITAA36 must ascertain an actual amount of tax being due and payable.
 

Conversely, the Applicants relied upon the Full Federal Court’s finding in Commissioner of Taxation v Ryan (1998) 82 FCR 345 that a nil assessment can be made under the ITAA36. However, the decision was overturned by the High Court on appeal on another point.
 

Ultimately, Deputy President McCabe found he was inclined to accept he was bound by the authorities, thus accepted that the nil assessments issued for the 2004 financial year were not valid, and that there is no right of review with respect to those decisions under Part IVC.

 

2005 and subsequent nil assessments:

 

Deputy President McCabe considered the assessments issued with respect to the 2005 and subsequent financial years separately, as the Tax Laws Amendment (Improvements to Self-Assessment) Act (No. 2) 2005 amended sections 6 and 175A of the ITAA36. Following the amendments sub-section 175A(2) was included, which reads:

 

(2) A taxpayer cannot object under sub-section 175A(1) against an assessment ascertaining that
     (a) the taxpayer has no taxable income; or
     (b) the taxpayer has an amount of taxable income and no tax is payable

Unless the taxpayer is seeking an increase in the taxpayer’s liability

 

The Applicants were unable to confirm whether any particular Applicant with a nil assessment was seeking an increase in liability as it would require further analysis of other companies in the corporate group.
 

On this basis, Deputy President McCabe found that section 175A(2) of the ITAA36 could not be satisfied by the Applicants’ merely foreshadowing the possibility of an increase.


Jurisdiction:


With respect to jurisdiction the Applicants argued that the Tribunal should not focus on whether the assessments were invalid, it should concern itself instead with whether the assessments were excessive.
 

In rejecting this argument the Deputy President McCabe found that:
 

“if there is no assessment – and I am constrained to accept there is no assessment in the 2004 year of income where the taxpayers have received a nil assessment – or if the legislation specifically limits the right of review as it has done in s175A(2), the Tribunal has no jurisdiction to review what has been decided”.

 

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 29 January 18

NZBG and Commissioner of Taxation (Taxation) [2017] AATA 2784

 The applicant, who currently lives in New Zealand, sought a review of the Commissioner’s refusal to a request for the release of a tax debt. The applicant tendered some written materials and made submissions by telephone at the hearing. The issues in review were whether the tax debt of $92,671.44 and general interest charge of $338,184.38 ought be released, in whole or in part, under s 340-10 of Schedule 1 to the Tax Administration Act 1953 (Cth).

 

The tribunal found that the applicant discharged his onus of proof. The tribunal was not satisfied that the applicant disclosed all of his assets and liabilities, asserting he had no assets other than monies in the bank, for which he failed to put current evidence. The tribunal was neither satisfied that the applicant had no other income besides his New Zealand pension. Statements by New Zealand residents that the applicant filed in relation to the Commissioner’s assertions of other possible assets and income sources were unable to be tested because those persons did not attend the hearing. For those reasons, the tribunal affirmed the Commissioner’s decision.
 

Posted in: Tax & ATO News Australia at 25 January 18

Tyl and Commissioner of Taxation (Taxation) [2017] AATA 2850

The Administrative Appeals Tribunal affirmed the Commissioner’s objection decision in relation to the taxpayer, Mr Damien Tyl. Mr Tyl was working as a truck driver in the 2012 and 2013 financial years when he claimed deduction for travel expenses, work-related expenses and car expenses. He was audited for those expenses resulting in the disallowance of the car expenses and reduction of all other deductions to nil. Mr Tyl objected to the results of the audit. In the objection decision, the Commissioner partly allowed deductions for all of the expenses. The administrative penalty was also reduced but not entirely remitted. Mr Tyl sought a review.
 

The Tribunal emphasised that the onus of proof in establishing his allowable deductions and that he has satisfied any substantiation requirements, as well as establishing that the administrative penalty should not have been made, was on Mr Tyl. Further, Mr Tyl is required to substantiate the whole claim if any expenditure exceeds the reasonable daily allowance allowed by the Commissioner which was $87 per day in the 2012 financial year and $89.60 per day in the 2013 financial year.
 

As noted by the Tribunal member throughout the review, Mr Tyl and his tax agent, Mr Fumberger, failed to provide good, if any, evidence in relation to several material assertions. They failed to present payslips, receipts, adequate bank statements or good evidence of travel allowance. A letter from Mr Tyl’s employer indicated that $50 per overnight trip was recorded on each weekly payslip. This evidence was inconsistent with Mr Tyl’s claim of actual travel expenditure and with his assertion as to the number of nights he spent away for both years, and showed that he exceeded the reasonable daily allowance in both years. He was thus required to substantiate the whole claim for each year with written evidence, which he failed to do.
 

The Tribunal thus affirmed the objection decision and found that the Commissioner was justified in issuing the administrative penalty because Mr Tyl and Mr Fumberger showed a lack of reasonable care.
 

Posted in: Tax & ATO News Australia at 24 January 18

VPRX and Commissioner of Taxation (Taxation) [2017] AATA 2156

The Applicant sold a website to a US buyer and received payment in instalments throughout the 2010 financial year, and further payments in the 2012 financial year. As the Applicant did not lodge a tax return for either year, the Commissioner issued default assessments with a 75% shortfall penalty based on amounts documented by AUSTRAC. The tax payable and penalties were reduced after the Applicant objected to the decision, and one payment was treated as capital.

The Applicant submitted that all of the documentation relating to the sale had been lost except for some emails. For the 2010 financial year payments, he contended that it was difficult to secure a fixed price during the GFC so the amounts received were ‘revenue payments’, consideration from the buyer based on their calculated profit, and were not income. He claims he was entitled to deductions for expenses in earning his ordinary income. With regard to the 2012 financial year payments, he contended that the penalty was unjust in circumstances where he was unable to locate the sale agreement. Indeed, the applicant was inefficient in producing evidence and failed to do so on several occasions.

The tribunal accepted the emails as evidence of a sale agreement but in the absence of its details, particularly the basis on which payments were calculated, treated the payments as income rather than capital. Regarding the penalty, the tribunal found that the Applicant’s inability to produce documents was no justification for concession and that, although he was not grossly careless, there was no justification for reducing the penalty in the circumstances. The tribunal reiterated that the onus is on the Applicant to establish that the assessments are excessive, and concluded that the Applicant was unable to discharge this burden. There were no submissions on the matter of capital gains tax.


 

Posted in: Tax & ATO News Australia at 28 November 17

Ham and Tax Practitioners Board (Taxation) [2017] AATA 1642

An appeal has been lodged by the applicant tax agent against the decision of Ham and Tax Practitioners Board, whereby the AAT affirmed the decision of the Tax Practitioners Board (TPB) to reject Mr Ham’s application for renewal of registration, on the basis he is not a ‘fit and proper person’ within the meaning of the Tax Agent Services Act 2009 (TAS Act). 

The TPB’s refusal to renew Mr Ham’s registration arose following the decision of Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC and the subsequent appeal. In summary, Philippides J found Mr Ham, as the sole director of Canhire Pty Ltd, knowingly breached his fiduciary duties and acted dishonestly in paying away proceeds of a sale, which lawfully belonged to beneficiaries of a trust.

Accordingly, on the basis of Mr Ham’s conduct following the Supreme Court decision, the TPD rejected Mr Ham’s application to renewal on the grounds he was not a ‘fit and proper person’.

Subsequently, Mr Ham sought to have the TPD’s decision reviewed by the AAT.

In determining whether Mr Ham satisfied the definition of a ‘fit and proper person’ for the purposes of the TAS Act, the Tribunal held that it was entitled to rely on the findings of the Philippides J in the Supreme Court judgement as evidence for its own findings.

The Tribunal in concluding it was entitled to rely on the findings of the Supreme Court referred to s33(1)(c) of the Administrative Appeals Tribunal Act 1975 (AAT Act), which provides ‘the Tribunal may inform itself on any matter in such a manner as it thinks it appropriate’.

Accordingly, in conjunction with the Tribunal’s objectives in section 2A of the AAT Act, and present case it concluded that:

  • the most expeditors and efficient means by which the Tribunal can inform itself is by reference to the Supreme Court findings;
  • it would be too costly and time consuming to effectively conduct a re-hearing; and
  • the potential unfairness to Mr Ham was reduced as he was represented in both proceedings and had the opportunity to lead further evidence.


With regard to the question of whether Mr Ham is a fit and proper person, the Tribunal considered Mr Ham’s conduct ‘inconsistent, not only with the qualities of strong moral principle, uprightness and honestly, but also with the atmosphere of mutual trust, that underpins a tax agent’s relationship with his or her clients, the ATO and the Tax Practitioners Board’.

The Tribunal further recognised that Mr Ham failed to take steps to redress his actions, despite having ample opportunity to do so.

Mr Ham sought to argue that he is a ‘fit and proper person’ as he has expressed insight and contrition. However, the Tribunal was not persuaded for the following reasons:

  • Mr Ham’s contrition was late, his letter to the Tax Practitioners Board contained no expression of contrition or remorse;
  • It was inconsistent for Mr Ham to state he “unreservedly” accepts the Supreme Court’s decision, yet he continues to maintain his own version of event;
  • It was inconsistent for Mr Ham to realise the unethical nature of his conduct yet contest it at future disciplinary proceedings; and
  • Mr Ham’s proposed systems to prevent future misconduct demonstrated an oversimplified of the conduct found by the Supreme Court

At the hearing, Mr Ham indicated he would be prepared to abide by two conditions should his registration be renewed:

  • furnish a written report to the TPB at the end of each month for 12 months identifying any transactions he or his associated entities entered into; and
  • undertaking a Professional Development Business Ethics Training Course.

The Tribunal in response to the restrictions proposed by Mr Ham, found that ‘the imposition of conditions is not intended to be an alternative avenue for an applicant who fails to satisfy the standard of fitness and proprietary’.

Posted in: Tax & ATO News Australia at 16 November 17

Shord v Commissioner of Taxation

 The case is reasonably unremarkable for any legal or factual analysis, but it does provide a good insight into the attitude of the ATO towards acting as a uncompromising litigant, which makes the most of every possible procedural point, as opposed to a model litigant as they are required.

Justice Logan from Qld made some fantastic comments (with respect);

 

The standard of fair play expected of the Crown and its officers in litigation is a standard in keeping both with the avoidance of behaviours that, in an extreme form, led to the civil war and with the later constitutional settlement. Once this heritage is understood, the requirement for its observance is, or should be, as Griffith CJ stated, “elementary”.

 

I note that Robert Gottleibsen also discussed this case and raised these comments in yesterday’s Australian.

 

Shord v Commissioner of Taxation [2017] FCAFC 167


Between 2006 and 2011, Mr Shord worked on various overseas assignments as a supervisor for foreign companies in the oil and gas industry. He did not lodge tax returns for that period, believing he was a non-resident. The Commissioner believed otherwise and issued amended assessments including all Mr Shord’s foreign income. The Commissioner disallowed Mr Shord’s objection.

The Tribunal found in favour of the Commissioner. The Tribunal found Mr Shord was a resident and, in particular, that his income was not exempt pursuant to s 23AG of the ITAA36. This provision exempts income of residents engaged in foreign services for a continuous period of not less than 91 days.

At the onset of the hearing, counsel for the Commissioner withdrew a contention that Mr Shord’s circumstances failed to meet the legislation’s definition of ‘foreign services’. The Tribunal nonetheless found that Mr Shord did not meet this definition. Fletcher v FCT is authority that a taxpayer is denied procedural fairness when a Tribunal makes a decision on the basis not argued by any party.

Procedural fairness was not raised on appeal to the Federal Court. Instead, the first two questions of law related to the proper application of s 23AG. These hinged on the third question which was whether the Tribunal had jurisdiction to decide whether Mr Shord was engaged in ‘foreign services’. The fourth question was whether Mr Shord was entitled to offsets for foreign taxes paid. The primary judge found against Mr Shord on the third and fourth question and did not therefore consider the first two.

On appeal to the Full Federal Court, procedural fairness was finally raised by Mr Shord as the first ground in an amended notice of appeal. The Commissioner initially objected to the amendment but eventually conceded the ground to Mr Shord. The Full Court thus remitted the matter to the Federal Court to decide the two questions about s 23AG. Unlike the majority, Justice Logan reprimanded the Commissioner, as a representative of the Commonwealth, for its failure to act as a model litigant and raise the crucial issue earlier.

The second ground related to Mr Shord’s entitlement to tax offsets. The Full Court found that Mr Shord did not produce any evidence as to what, when and how much foreign tax he paid, and that neither the Tribunal nor the Commissioner had an obligation to help him adduce evidence to the contrary.
 

Posted in: Tax & ATO News Australia at 01 November 17

A great result for Crown Insurance Services Limited

On Friday 2 November 2012, the Full Federal Court delivered a judgment in favour of our client, Crown Insurance Services Limited and found for our client in a 2:1 decision.

 

In a rather technical decision, the Full Federal Court found that the ATO’s appeal was incompetent – that is, that the ATO should not have attempted to appeal the factual findings of the Administrative Appeals Tribunal which found, as a matter of fact, that the source of our client’s income was not in Australia.
 
Lander and Foster JJ dismissed the Commissioner's appeal, deciding the appeal was incompetent as the Commissioner did not raise a question of law for s44(1) purposes.  Their Honours analysed the authorities on this issue in great detail but did not address the substantive question once they concluded the appeal should be dismissed for want of jurisdiction.
 
Jessup J decided there was a question of law, as the facts found by the Tribunal must necessarily lead to the conclusion that Crown Insurance indirectly derived its income from Australian sources.  His Honour placed great weight on the adverb "indirectly" to distinguish this case from the authorities
 
This is a great result for this client who has been fighting with the ATO for over ten years.
 

Posted in: Tax & ATO News Australia at 05 November 12

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Author: David Hughes

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