Case: Brown v Federal Commissioner of Taxation (1999) 42 ATR 118
Outcome: cited
Those principles were related to applications for extensions of time to commence judicial review proceedings under the ADJR Act. That kind of discretion differs in purpose and character from the discretion presently under review. As Hill J observed in Brown v Federal Commissioner of Taxation (1999) 42 ATR 118, Wilcox J did not say that he was laying down principles of universal application or even covering all applications to commence proceedings for judicial review outside the time prescribed by the ADJR Act. Brown 42 ATR 118 was a case in which a taxpayer had sought from the Commissioner an extension of time for filing an objection against an income tax assessment. An objection to an assessment was quite different from an application for judicial review which would proceed on quite limited grounds. Hill J discussed the nature of the objection process (at 127): It is the first step in a process whereby the assessment may be reconsidered by the Commissioner in the light of the objection and if disallowed may be the subject of merits review by an independent tribunal, the Administrative Appeals Tribunal, or by the court, (although before the court matters involving the exercise of discretion are the subject of judicial rather than merits, review). If the disallowance of the objection is reviewed by the tribunal and a decision adverse to the taxpayer is arrived at there is the possibility of an application to this court by way of an appeal on a question of law. 115 Hill J said that it had been in the past a "reproach to the law" that a taxpayer could be refused independent review of a meritorious objection even in circumstances where the failure to object may not have been his or her fault. While the explanation for delay in lodging an objection would be an important factor, the decision-maker was required to take into account all the circumstances of the particular case against the background that parliament had enacted a procedure to permit extensions of time being granted. Extensions should be granted where the justice of the case required. They should not be reserved for exceptional cases. 116 The emphasis on general considerations of injustice and the need for a balancing process continued in his Honour's judgment at 132, where he said: What is required is the balancing of the delay; the explanation for it; the circumstances which gave rise to it and such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to a taxpayer who has by reason of the failure to object in time lost the right to a review of the assessment. In this balancing process the Commissioner or the Tribunal on a review will be guided by what the justice of the case requires. The balancing process should be approached on the basis that while Parliament has stipulated a time in which objections are required to be lodged it has entrusted to the Commissioner a power to extend that time in appropriate circumstances. The decision maker should not lose sight of the fact that s 14ZW is an ameliorating provision designed to avoid injustice. 117 The Full Court in Zizza v Federal Commissioner of Taxation (1999) 42 ATR 371 said it would be an error to regard the summary in Hunter Valley Developments Pty Ltd 3 FCR 344 as complete or to treat each of the six principles it contained as necessarily applicable to any particular application for extension of time especially an application under different legislation. The Court agreed with the observations to that effect made by Hill J in Brown 42 ATR 118 (at 376). 125 In any case in which a discretion to extend time is involved the decision-maker must be satisfied that there is a proper basis for it. But there is no basis in the statute for suggesting that the Commissioner should regard the extension of time for an agreement to transfer losses as exceptional. The time limit is a procedural protection of the administrative process. There is no windfall to a taxpayer who is given an extension. The taxpayer is given no more than what would have been its due had the agreement been made within time. The approach undertaken by Hill J in Brown 42 ATR 118 to extensions of time for the lodgment of objections applies also, if not with greater force, to the discretion to extend time to make agreements to transfer losses. This proposition was not reflected explicitly in Taxation Ruling TR 98/12. Indeed the reliance placed in the ruling upon Hunter Valley Developments Pty Ltd 3 FCR 344 was somewhat at odds with that approach. That is not to say that the policy is therefore unlawful. It did not treat the Hunter Valley Developments Pty Ltd 3 FCR 344 principles as exhaustive or determinative. The focus therefore must not be so much upon the content of the policy but the way in which it was applied and the discretion exercised in this case. 126 By [35] of the application, DRI and Development Finance alleged that the respondents had a duty, in exercising the power under s 170-50(2)(d) of the ITAA 1997 "to act fairly and in accordance with reasonable public standards". The respondents admitted in their defence a duty to act fairly and reasonably. They submitted in argument that they did so act. 127 DRI and Development Finance did not allege any breach of a free standing statutory duty to act fairly and in accordance with reasonable public standards. The source and content of that duty was not described. No statement of such a duty is to be found in the relevant part of the statute. There was no allegation in the grounds of a breach by the respondents of procedural fairness. The unfairness which was alleged went to the substance of the decision and, together with questions of reasonableness, (not "reasonable public standards") was raised in the following ways in the grounds of review: 1. In support of the allegation of a failure to take into account relevant considerations which included: 36(a)(xxiii) the justice of the case and the unfairness to the applicants, their parent company and its shareholders if the losses of BHPBDRI are not able to be used to be offset against taxable income of BHPDF. 36(a)(xxvii) that the time within which loss transfer agreements were to be made was regulatory and could cause grave injustice if the discretion to extend time was not applied fairly. 2. In support of the allegation that the Commissioner's power was exercised for a purpose other than that for which it was conferred it was said in the particulars to [36(c)]: In the circumstances of this case, the decision is so unreasonable and unfair that such a purpose should be inferred. 3. In the allegation in [36(e)] that the first respondent's exercise of the power resulted in unfairness amounting to an abuse of power. This allegation was also relied upon as a particular of the claim that the first respondent's exercise of the power was so unreasonable that no reasonable person could have so exercised it. 128 Having regard to the way in which the application is framed, the alleged duty to act fairly and in accordance with reasonable public standards does not support any identifiable ground of review. No direct breach of such a duty is alleged. It is questionable whether any such "duty" is to be implied into the discretion. The discretion involves the exercise of a statutory power. Its limits are defined, inter alia, by the purposes for which it can be exercised, factors which may be relevant or irrelevant to its exercise and the way in which such a decision should be made including requirements of procedural fairness. There is probably a duty to decide whether to exercise the discretion which may be enforced by mandamus if the Commissioner or his delegate simply failed to respond to a request for an extension of time. Given the way in which the balance of the application was framed, the existence of the duty alleged in [35] and whether it was breached does not fall for decision. 129 The way in which the applicants' submissions were structured did not bear a precise correlation with the grounds in their application. The written submissions began with a survey of the facts: [1] to [12]. This was followed by an outline of the legislation: [13] to [17]. The point was there made that the origin of the requirement to enter into an agreement to transfer losses was procedural only. The change made to s 80G in 1992 did not convert the procedural requirement into something more substantive. The change from giving a notice to making an agreement reflected the introduction of the self-assessment regime and no more. Then it was said that the 1936 and 1997 Acts drew a distinction between procedural steps which the Commissioner or a taxpayer must undertake and the rules which affect substantive liability to tax. The rules in s 170-50 which affect substantive liability to tax include statutory conditions for a valid transfer which were said to achieve the result of broadly aligning "the treatment of company groups with divisional companies".