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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.


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

The Simple Solution to Solve the Budget

I have had an epiphany.

I can solve the budget shortfall for the Federal Government by showing the Treasurer how to raise unlimited revenue. My plan is simple. The legislation is already in place and the Courts and the AAT have shown us that it is possible.

We are going to tax dead people.

I am not talking about an estate tax, or death duty. That would be politically unpopular.

No, what I am proposing is that the ATO issue default assessments under s167 of the ITAA 36 to every single person who has died in Australia since 1936. How can the Government do this, you wonder? That’s the beautiful part of my plan – all the ATO has to do is to make a determination under s170 that every deceased tax payer avoided tax due to fraud or evasion. Then the ATO can go as far back as it likes and raise new assessments.

The Courts have said time and again in cases like Rigoli and Futuris that the ATO does not even need to try very hard to come up with a figure. They just need to have a bit of an educated guess and then it’s up to the taxpayer to prove that this figure is wrong.

So each deceased taxpayer can get a tax assessment for, say, $10m. Section 177 means that’s proof they owe the tax. And the proof of tax evasion? Well, the ATO doesn’t need to prove that either. That’s up to the taxpayer too. If a figleaf of justification was required (and it’s not, according to the Courts) the ATO will say what it always does in such cases – any taxpayer who owed such a large amount of money must have known they had more tax to pay. Ergo they deliberately understated their taxable income, ergo tax evasion.

Cheating non-taxpaying bastards. We’d lock them up if they weren’t already dead. On the otherhand, fortunately for the Government, being dead makes it hard for the taxpayer to prove their case. If there is a material witness to a question of fact, Jones v Dunkel says you have to produce them to give that evidence or risk an adverse factual finding. And no-one is more material to a question of tax evasion by a taxpayer than the taxpayer him or herself.

The plan is foolproof. Naturally it’s extremely unlikely any money will be collected from estates that have already been distributed and finalised, but quite alot of people will probably cough up a couple of million each to save the cost and expense of having to fight a losing battle against the ATO, with their unlimited litigation budgets.

This was right in front of our eyes the whole time. The Courts and the AAT have already sanctioned it, as recently as last week. Check out this if you don’t believe me.

Well, that’s that problem solved. I’m off to the middle east next to solve that little pickle by introducing effective Workplace Health and Safety Laws.

Posted in: Tax & ATO News Australia at 09 July 15

ATO has a broad power to access documents and obtain information

The ATO has a broad power under s264 (1)(a) of the Income Tax Assessment Act 1936(Cth) to request any person to furnish the ATO with information that the ATO may require.


In December 2010, the ATO issued ANZ Bank with two s264 notices requesting that ANZ provide details of more than 1,300 Vanuatu accounts held by Australia from its digital database called “Global Digital Warehouse”.
On 9 March 2012, the Federal Court of Australia handed down a decision in favour of the ATO that the two notices were valid. The Federal Court rejected ANZ’s submission that production of the information to the ATO would be oppressive, breach confidentiality and violate secrecy provisions enacted in Vanuatu.
ANZ then instituted an appeal in the Full Federal Court of Australia. On 12 September 2012, the Full Federal Court of Australia dismissed ANZ’s appeal and held that s264 authorises the ATO to issue a notice to ANZ requiring it to furnish information that is stored in Australia. The Full Court agreed with the Federal Court that the production of the information would not be oppressive, would not breach confidentiality nor breach the non-statutory obligations of confidence under the law of Vanatu.
While the appeal was dismissed, ANZ had a small victory in that the Full Court held that one of the notices was invalid due to uncertainty. However, due to the broad powers given to the ATO under s264, it is anticipated that the ATO will simply reissue the notice to obtain the information anyway.
This case demonstrates that s264 confers very broad investigative powers on the ATO. As such, this could implicate many other Australian businesses.
A notice under s264 should not be treated lightly. If you receive a notice, you are legally obliged to respond to the notice otherwise you may face serious consequences.  I would recommend anyone who receives such a notice to seek professional taxation advice immediately.

Posted in: Tax & ATO News Australia at 04 March 13

New transfer pricing rules broaden the ATO’S power

Transfer pricing rules address arrangements under which profits are shifted out of Australia. On 8 September 2012, the first tranche of the new transfer pricing rules received Royal Assent. The new transfer pricing rules (Division 815) replace the former transfer pricing rules found in Division 13 of the ITAA 36.


There was a lot of uncertainty surrounding the interpretation of the former transfer pricing rules. By enacting the amendments, the Australian government has agreed with the ATO’S interpretation of the operation of Australia's transfer pricing rules, rather than the interpretation of the Full Federal Court in Federal Commissioner of Taxation v SNF. In SNF, the Court held that the correct way under Division 13 to consider a transfer pricing adjustment on a transaction between two related entities was to examine the arm’s length price for the actual transaction based on the available evidence. The ATO disputed the availability of the comparable transaction method relied on by SNF. Instead the ATO priced the transaction by applying the transactional net margin method discussed in the OECD guidelines. The Court also held that the OECD guidelines could not be used as an aid in interpreting and applying Division 13.
The new transfer pricing rules applies to dealings which are subject to an Associated Enterprises or Business Profits Article of a relevant Double Tax Agreement. That is, the new transfer pricing rules only applies where there is a relevant tax treaty. The new transfer pricing rules allows the ATO to make a determination to increase the taxable income or reduce the capital losses of an Australian taxpayer or a non-resident with a permanent establishment in Australia where the taxpayer receives a transfer pricing benefit.  A “transfer pricing benefit” will arise where the taxpayer’s actual profits are less than that which would have been accrued if the parties had been dealing on an arm’s length basis. The new rules are required to be interpreted to best achieve consistency with the OECD guidelines.
There are many concerns surrounding the new transfer pricing rules. One of the biggest being that the new transfer pricing rules broadens the ATO’s power to make a transfer pricing adjustment and further creates a power for the ATO to choose alternative pricing mechanisms. This in turn creates uncertainty for the taxpayer. Another major concern is the retrospective application of the new transfer pricing rules as the rules are to be applied retrospectively from 1 July 2004.

Posted in: Tax & ATO News Australia at 10 December 12


Tax & ATO News Australia

Author: David Hughes

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