Case: Fowler and Commissioner of Taxation; Re [2006] AATA 808 ; (2006) 64 ATR 1113
Outcome: affirmed
Mr Fowler applied to the Tribunal for review of the objection decisions, which were affirmed by the Tribunal on 21 September 2006: Re Fowler and Commissioner of Taxation [2006] AATA 808 ; (2006) 64 ATR 1113. 7 Mr Fowler applied in this Court for an extension of time in which to appeal against the Tribunal's decision. On 3 April 2007 that application was granted and Mr Fowler filed his notice of appeal on 12 April 2007. 8 In general terms, Mr Fowler submits that the various provisions in Pt 2 - 42 of the Income Tax Assessment Act 1997 (Cth) (the Act), under which the Commissioner treated the assessable income of Mr Fowler as including the amounts paid to the Company, are not independent provisions but are subject to constraints that are to be found by implication in Pt 1 - 3 of the Act. In particular, Mr Fowler submits that the use of the concept of derivation of income in Pt 1 - 3 signifies that it is only income of which a person becomes the beneficial owner that is assessable income, and that in the present case it was the Company, not Mr Fowler, that derived and became the beneficial owner of the amounts paid by the labour hire firms to the Company (the amounts in question). 9 The Commissioner, on the other hand, submits that the Act's special provisions dealing with alienation of personal services income had the effect of making the amounts in question part of Mr Fowler's "statutory income", and therefore part of his "assessable income", even though, according to ordinary concepts, they were income derived by the Company. 10 In the following discussion, references to Parts and to sections are references to the Act, as it existed at the relevant time. 32 Mr Fowler submits, firstly, that the Tribunal erred in its unqualified acceptance of para 32 of the Commissioner's submission that there is no doctrine of law which would suggest that the taxation of income depends on ownership: see Re Fowler and Commissioner of Taxation [2006] AATA 808 ; (2006) 64 ATR 1113 at [32] . Mr Fowler elaborates on this submission by referring to the following cases in support of the proposition that income that is derived by a taxpayer beneficially is included in the taxpayer's assessable income: Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 424; MacFarlane v Commissioner of Taxation (1986) 13 FCR 356 at 367; Windshuttle v Commissioner of Taxation [1993] FCA 553 ; (1993) 46 FCR 235 ; 93 ATC 4992 at 5000; Zobory v Commissioner of Taxation [1995] FCA 1226 ; (1995) 64 FCR 86 at 89; Reiter v Commissioner of Taxation [2001] FCA 1068 ; (2001) 113 FCR 492 at [24] ; Service v Commissioner of Taxation [2000] FCA 188 ; (2000) 97 FCR 265 at [73] ; Case 1/2006 [2005] AATA 1251 ; 2006 ATC 101 ; ABB Australia Pty Ltd v Federal Commissioner of Taxation (2007) 162 FCR 189 at [64]. In the present case, it was the Company, not Mr Fowler, that derived and became the beneficial owner of the amounts in question. 33 Secondly, Mr Fowler submits that s 84-5(1) is to be construed as referring to income that is beneficially derived by the individual. Similarly, he submits that the opening words of s 86-15(1), "Your assessable income", refer to income derived by the individual beneficially. 34 Mr Fowler contends that the drafting of ss 84-5 and 86-15 "has fundamentally miscarried" because the drafter, like the Tribunal, has overlooked the import of the authorities, which insist that assessable income be income derived by a taxpayer beneficially that is to say, be income of which the taxpayer becomes the beneficial owner. Mr Fowler submits that "the defect in the drafting of sections 84-5 and 86-15 is so fundamental that it is not open to a Court to cure by, as it were creative construction" .