Case: Commissioner of Taxation (Cth) v Jackson (1990) 27 FCR 1
Outcome: cited
Honour rejected the view that in every case the Commissioner was obliged to make a determination under s 177F(3) at the same time as he made a s 177F(1) determination or, in any case, prior to issuing any assessment to give effect to the s 177F(1) determination. She rejected the submission that Hill J had held to the contrary in Commissioner of Taxation (Cth) v Jackson (1990) 27 FCR 1 at 16-18. That submission would furthermore, in her Honour's view, be at odds with the Full Court decision in Fletcher v Commissioner of Taxation (Cth) (1988) 19 FCR 442. In any event, Kenny J accepted the view of Emmett J in Metal Manufacturers Ltd v Commissioner of Taxation (Cth) (1999) 43 ATR 375 at [40] and in Asiamet (No 1) Resources, above, that the Commissioner may defer exercising his discretion until the outcome of a Part IVC decision is known. Kenny J concluded on this issue at [69]-[70]: "In this case, the Commissioner apparently considers that, depending upon the outcome of the Pt IVC proceeding and the objection process, it may well be appropriate for him to issue a further amended assessment, in consequence of the need to make a compensatory adjustment or otherwise to give effect to the decision of the Court. It does not follow from this, however, that the amended assessment is tentative or provisional in the Hoffnung sense. To adopt what Hill J said in McCleary at 322: In summary, it can be said that the conclusion that an assessment is tentative will ordinarily emerge from an examination of the assessment itself, as in Hoffnung . The mere indication that an assessment will be reviewed later does not require the conclusion that the assessment is tentative ... Nor will an assessment be regarded as tentative in the relevant sense, even if two assessments have been issued to different taxpayers concerning the same income with the consequence that one of them must necessarily be reduced to nil: Richard Walter . Provided the notice of assessment purports to create a definitive liability and at least there is no evidence to the contrary, the assessment will not be tentative . (Emphasis in original) In the present case, the evidence falls short of demonstrating that the amended assessment in question was tentative or provisional. It is not to be treated as tentative, simply because officers of the Commissioner contemplated that it might be the subject of a compensatory adjustment in the future, or may not entirely survive a proceeding under Pt IVC." Finally, her Honour acquitted the Commissioner of bad faith, no concession having been made that he assessed the Bank on facts known to be wrong. She went on to observe (at [73]): "But even on the assumption that the Commissioner knew that he might have proceeded in error and that ANZ might succeed in the Pt IVC proceeding in showing the amended assessment is excessive, I would not infer bad faith on the Commissioner's part. Even if the Commissioner's approach is erroneous, I accept that, for the reasons given by his counsel, it would be open to the Commissioner to take the view that his approach is necessary to protect the revenue and that any unfairness to ANZ can be remedied at the end of the objection, review and appeal processes." (Emphasis in original) As I earlier indicated, Futuris has submitted that ANZ Banking Group is distinguishable; s 177F(3) cannot be relied upon by the Commissioner in the present matter to correct the figures stated in the Second Amended Assessment; and that the Commissioner deliberately stated amounts in that assessment which he knew to be incorrect. Futuris accepts that in ANZ Banking Group , s 177F(3)(a) clearly authorised the making of a compensation adjustment for the reason that it was the implementation of the scheme in that case which led to the inclusion in the Bank's assessable income of the amount of $29 million pursuant to s 25(1). The Commissioner's contention, it is said, is that for s 177F(3) purposes the amount of $19,950,088 which was included in the First Amended Assessment would not have been included in the assessable income of Futuris if the Part IVA scheme had not been carried out. Of this, Futuris submits that: "53. The difficulty which the Commissioner's view encounters is that he contends that the Pt IVA 'scheme' comprised those events which increased the cost base of the Walshville shares by the amount of $82,950,088 by a transaction which attracted the operation of the anti-avoidance provisions of Division 19A. In essence, the Commissioner characterises the Pt IVA scheme as a scheme to obtain a cost base transfer in the amount of $82,950,088, thus increasing the cost base of the Walshville shares by that amount, and reducing the net capital gain by the same amount. 54. Consequently the effect of the two amended assessments may be summarised as follows: (a) by the First Amended Assessment the Commissioner contends that the 'scheme' had the consequence that Division 19A operated to increase the cost base of the Bristile shares by an amount of only $63M that is, $19,950,088 less than Futuris contends; and (b) by the Second Amended Assessment the Commissioner contends, in the alternative, that Pt IVA operated effectively to eliminate the entire cost base transfer of $82,950,088 contended for by Futuris. 55. Thus it can be seen that the Commissioner's contentions are truly alternative in respect of the amount of $19,950,088. With respect to that amount, the Commissioner relies on one or other of Division 19A or Pt IVA but not both. 56. Returning to address the potential application of s 177F(3)(a), the Commissioner was incorrect on the view that it would supply a basis for making a ' compensating adjustment '. Paragraph 177F(3)(a) could only apply if (a) the First Amended Assessment reflects the inclusion of a net capital gain in the assessable income of Futuris; and (b) that net capital gain would not have been included in the assessable income of Futuris if the Pt IVA scheme had not been carried out. 57. However, the Commissioner's contention is in fact to the opposite effect. The Commissioner contends that the amount of $19,950,088 would have been included in the assessable income of Futuris if the scheme had not been carried out. He has assessed under Pt IVA on the contention that, but for the scheme, the amount of $82,950,088 would have been included in the assessable income of Futuris." The Commissioner's response to this is that the present matter is relevantly indistinguishable from ANZ Banking Group . In that case, by virtue of the scheme, $29 million was included in the taxpayers' assessable income irrespective of Part IVA , in consequence of s 25(1) of the ITAA. Here, by virtue of the scheme, approximately $19 million was included in Futuris' assessable income, irrespective of Part IVA , in consequence of Division 19A. In ANZ Banking Group the tax benefit for s 177F(1) and s 177C(1)(a) purposes was the $65 million; here, it was $82 million. If the scheme in ANZ Banking Group had not been carried out, the $29 million would not have been included in the Bank's assessable income; here if the Walshville float scheme had not been carried out, $19 million as assessed would not have been included in Futuris' assessable income. There is simply no reason, it is said, to give s 177F(3) the construction contended for by Futuris. In the Commissioner's view, both ANZ Banking Group and the present matter have alternative bases for including the erroneously described double sums in the respective taxpayer's assessable income. However, the Commissioner goes on to say that, given the present uncertainty as to how the $19 million was calculated, it may be that the two bases may in fact be found in this case to be cumulative. The Part IVC proceedings in relation to the First Amended Assessment will clarify that situation. For my own part, I agree with the Commissioner's submission. The present matter is one which falls naturally within both the language and the evident purpose of s 177F(3). But even if I am wrong in this, I equally am satisfied that at best all that Futuris has shown is that in making a definitive assessment (i.e. the Second Amended Assessment) see below the Commissioner proceeded upon a mistaken view of the applicability of s 177F(3). That mistake did not invalidate the assessment or evidence bad faith on the Commissioner's part in the exercise of the power to assess. The effect of the mistake could, and should properly, be addressed in Part IVC proceedings. On the material before the Court I am not satisfied that the Commissioner deliberately engaged in what the applicant calls double counting. When the Part IVA determinations were made the Commissioner could then have made a s 177F(1) determination to include only part of the tax benefit in Futuris' assessable income (i.e. $82 million - $19 million). Rather, in view of the facts as he then understood them to be, he chose to include the totality of the benefit in the knowledge that there was some likelihood of the need later to make a compensating adjustment. This was a course he was entitled to take in the circumstances given that (a) the Division 19A proceedings in respect of the First Amended Assessment had not been determined; (b) there was uncertainty about how the $19 million was calculated in any event; and (c) his view that there was a need to protect the revenue by making the Second Amended Assessment as he did. The Commissioner was, in the circumstances, entitled to defer making a compensation adjustment: see ANZ Banking Group .