Case: Commissioner of Taxation v Peabody [1994] HCA 43 ; (1994) 181 CLR 359
Outcome: discussed
The distinction between state of mind cases and Commissioner's determination cases was referred to by the High Court in Commissioner of Taxation v Peabody [1994] HCA 43 ; (1994) 181 CLR 359 (" Peabody "), a Part IVA case. In a joint judgment, all seven members of the High Court stated (at 382): "Under s. 177F(1), the Commissioner's discretion to cancel a tax benefit extends only to a tax benefit obtained in connexion with a scheme to which Pt IVA applies. The existence of the discretion is not made to depend upon the Commissioner's opinion or satisfaction that there is a tax benefit or that, if there is a tax benefit, it is obtained in connexion with a Pt IVA scheme. Those are posited as objective facts [citing McAndrew at 276-277 (Kitto J), and referring to Avon Downs at 360 (Dixon J)] . The erroneous identification by the Commissioner of a scheme as being one to which Pt IVA applies or a misconception on his part as to the connexion of a tax benefit with such a scheme will result in the wrongful exercise of the discretion conferred by s. 177F(1) only if in the event the tax benefit which the Commissioner purports to cancel is not a tax benefit within the meaning of Pt IVA. That is unlikely to be the case if the error goes to the mere detail of a scheme relied upon by the Commissioner. An error of a more fundamental kind, however, may have that result where, for example, it leads to the identification of the wrong taxpayer as the recipient of the tax benefit. But the question in every case must be whether a tax benefit which the Commissioner has purported to cancel is in fact a tax benefit obtained in connexion with a Pt IV A scheme and so susceptible to cancellation at the discretion of the Commissioner" (emphasis added). The "erroneous identification" and "misconception" to which their Honours referred might be compared to an erroneous identification by the Commissioner of the international agreement in question in the present case. The error may or may not vitiate the Commissioner's exercise of his discretion determining that subss 136AD(1) or (2) (as the case may be) is to apply in relation to the Taxpayers in relation to the supply of property. 143 Hill J also said (at 237) that Richard Walter was consistent with what the High Court said in Peabody at 382 (the passage set out at [119] above). I respectfully agree that that passage in Peabody does favour the view that the only basis on which a determination by the Commissioner under s 177F (and, it would follow, determinations by him under s 136AD) could be challenged, even in an appeal, is the non-fulfilment of the statutorily specified conditions precedent to the enlivening of the discretion (and, I suggest, the Hickman principle). 154 The position established by Peabody (see [119] above), Sleight (see [136] [145] above), and Syngenta (see [146] [150] above) seems to be that a distinction is to be drawn between cases in which the ITAA specifies a state of mind on which the assessment of the amount of taxable income (and tax) depends (cf Avon Downs , George , Giris , Duggan , Brian Hatch , Kolotex , WA Capital , Dalco ), and those in which it specifies, not a state of mind, but the making of a determination, as the event on which the amount of taxable income (and tax) depends (cf Jackson , Peabody , Richard Walter , Binetter, Sleight , Syngenta ). In the latter class of case, the legislature is taken to indicate that the interaction between s 177(1) of the ITAA and s 14ZZO(b) of the TAA produces the result that the Commissioner's state of mind, on the basis of which the determination was made, is part of the due making of the assessment, and cannot be put in issue by the taxpayer.