Case: Commissioner of Taxation v Asiamet (No 1) Resources Pty Ltd [2004] FCAFC 73 ; (2004) 137 FCR 146
Outcome: cited
In Ross Palmer Holdings v Federal Commissioner of Taxation (2003) 52 ATR 805, which was concerned with the exercise of the discretion under s 80G(6A) of the ITAA 1936, Spender J identified the purpose of the loss transfer provisions (at 816-817): ... to permit and facilitate the transfer of losses within a group of companies so that there is no difference in the tax treatment of a group of companies, each carrying on separate enterprises, as against a single company that carries on the same enterprises in separate divisions. The purpose of the provisions was also considered by the Full Court in Commissioner of Taxation v Asiamet (No 1) Resources Pty Ltd [2004] FCAFC 73 ; (2004) 137 FCR 146 in the judgment of Allsop J (Ryan and Finkelstein JJ agreeing). In rejecting, as overstated, the proposition that their statutory purpose was to allow for the transfer of losses within a group so as to equate the tax treatment of a group to that of a company with divisions, his Honour said (at [141]): That, with respect, overstates the purpose of s 80G. Section 80G is intended to be beneficial to the taxpayer: Harts Australia Ltd v Commissioner of Taxation (Cth) [2001] FCA 761 ; (2001) 109 FCR 405 at [18] . There is not, however, a complete equation with the single company. Conditions apply to the transfer of losses, one of which is that the agreement must be made before the date of lodgment of the return of income or the income company, or later as the Commissioner allows. The legislative history of s 80G, and in particular the content of the Asprey Committee Report and the Campbell Committee Report , reveals that a choice was made by Parliament not to adopt the group assessment procedure which might be seen as a complete equation of subsidiaries with divisions. His Honour accepted the statement of the policy of the section as set out in the Commissioner's Taxation Ruling, TR 98/12 saying (at [142]): There is, undoubtedly, a beneficial policy underlying s 80G as described at [87] of the ruling: broadly to align the treatment of company groups with divisional companies. That is not to deny, however, that a broad, otherwise expressly unconfined discretion, is reposed in the Commissioner in s 80G(6A)(b). Naturally, the discretion is to be confined by reference to the subject matter, scope and purposes of the provisions and the ITAA as a whole. 123 The legal character of Taxation Rulings as administrative policies was assumed in Asiamet [2004] FCAFC 73 ; 137 FCR 146 when Allsop J rejected the view that it was not open to the Commissioner to adopt a policy in terms of Taxation Ruling TR 98/12. He pointed out that the terms of the Ruling displayed a recognition of the need to make each decision on its merits, a recognition of the purpose and policy of s 80G and a recognition of the important object of the ITAA found in PT IVA. Relevantly for present purposes, he observed (at [143]): The real issue is whether the Commissioner can promulgate and apply a policy for guidance which identifies as a factor which generally weighs heavily against the exercise of the discretion the fact that the adjustment flows from the application of Pt IVA, though still recognising the need to make each decision on the merits of the particular case. To posit such a policy does not negate the evident beneficial purpose of s 80G, it merely sets up an available countervailing factor of weight, drawn from another important part of the ITAA. To do so does not subvert s 80G, nor does it preclude the decision-maker from taking into account any factor required by the legislation, nor does it require the decision-maker to take into account any factor required by the legislation not to be taken into account, nor does it preclude the decision-maker dealing with any decision on the merits. 124 His Honour also rejected the contention that to disallow an extension substantially on the basis of the application of Pt IVA was to give an impermissibly extended operation to Pt IVA and to increase the penalty beyond that contemplated by the ITAA. He said (at [145]): I cannot agree. There is no additional or collateral penalty. If the discretion is not exercised and fresh losses are not transferred, there will, or may be, a penalty applicable by the operation of s 226 upon the amount of tax calculated as assessable or that tax less the "claimed tax" within the meaning of s 226(1). If the discretion is exercised so as to create the same position in the Income Companies as had previously subsisted before the application of Pt IVA, no penalty under s 266 arises. It is not a matter of collaterally increasing a penalty by refusing to extend time, but of removing the consequences by way of penalty for participation in a Pt IVA Scheme by extending time. Those observations of course went to the lawfulness of the policy and not to its proper application. 133 In [28] the submission considered what it called "errors of the decision-maker by reference first to the six general principles referred to by Wilcox J in Hunter Valley ". In [29] to [30] it dealt with the subject of delay and in [31] to [39] the imposition of GIC and the alleged culpable behaviour of Development Finance. Paragraphs 40 to 46 dealt with the Asiamet [2004] FCAFC 73 ; 137 FCR 146 decision. Paragraph 47 asserted under the heading "No limitation" that the Commissioner erred in stating that there was nothing in the subject matter, scope and purpose of s 80G which would imply any limitation upon his ability to consider the conduct of a company group giving rise to an adjustment as being a relevant factor to the exercise of the discretion. The final heading "Additional or collateral penalty" complained that the Commissioner erred in treating the refusal of the discretion as reflecting a need to penalise to a greater extent taxpayers involved in serious non-compliance activities. 143 The core of the argument actually presented by DRI and Development Finance in relation to Mr Duffus' consideration of the "culpable" behaviour of Development Finance focussed on his approach to the way in which evidence of tax avoidance should be weighted in the exercise of the discretion to extend time to transfer losses. The key paragraph in his letter of 14 February 2006 was in the following terms: Examples are given in Paragraph 93 [of TR 98/12] of factors which weigh heavily against a favourable exercise of the discretion. The examples listed are where an adjustment is made as a result of fraud or evasion or a scheme to which Part IVA applies. It is suggested in the ruling that these matters should be weighted heavily in considering whether to exercise the discretion. The heavy weighting reflects the need to penalise to a greater extent any taxpayers who are involved in these serious non-compliance activities. It is the proposition that the discretion should be exercised so as to penalise taxpayers who are said to have engaged in such conduct that creates difficulty in this case. Such an approach is not sanctioned by the decision of the Full Court in Asiamet [2004] FCAFC 73 ; 137 FCR 146. In that case Allsop J accepted that it was permissible to disallow an extension of time on the basis of the application of Pt IVA and that to do so was not to increase any penalty on the taxpayer beyond that contemplated by the ITAA. The fact that a penalty would be applicable, absent the transfer of losses, does not mean that a refusal to extend time involved collaterally increasing a penalty. That is a very different matter from applying a "heavy weighting" to culpable conduct in order to "penalise to a greater extent any taxpayers who are involved in these serious non-compliance activities". That does involve, in my opinion, a consideration which is irrelevant to the statutory purposes. It is not to be found in Taxation Ruling TR 98/12. It appears to be based upon a misreading of that Ruling. 144 It is necessary, of course, in reviewing reasons for administrative decisions not to scrutinise them with an eye keenly attuned to error nor to engage in close semantic analysis. It is not for the Court through judicial review to impose the requirements which would "judicialise" the process of administrative decision-making. The passage cited, however, is unequivocal in its import and in the error which it reflects. It is difficult to assess the impact which it may have had on the weight given by the decision-maker to the alleged culpable conduct and the extent to which he had put to one side other aspects of the history to which reference was made earlier. In my opinion reviewable error is disclosed under this head. 145 In support of this ground it was said that the decision was so unreasonable and unfair that such a purpose should be inferred. I am not prepared to make such a finding. However, to the extent that consideration of a need to penalise "to a greater extent" taxpayers involved in serious non-compliance activities is an irrelevant consideration it also reflects a purpose other than a purpose for which the power was conferred.