Commissioner of Taxation v Auctus Resources Pty Ltd
Document type: Decision Impact Statement
Venue: Full Federal Court of Australia (WAD 205 of 2020)
Judgment date: 19 March 2021
Date published: 12 October 2021

Summary of decision:
This Decision impact statement outlines the ATO's response to this case, which considers whether the payment of a tax offset refund to the taxpayer was an 'administrative overpayment' under subsection 8AAZN(3) of the Taxation Administration Act 1953 (TAA). In particular, it considers whether the tax offset refund is an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled.

Overview of facts:
The taxpayer registered certain research and development (R&D) activities with Innovation and Science Australia (the Board) under section 27A of the Industry Research and Development Act 1986 (IR&D Act). Registration of R&D activities is one of several requirements which must be satisfied before a taxpayer can be entitled to an R&D tax offset refund. | In respect of the 2012-13 income year, the taxpayer 'self assessed' [1] and claimed an R&D tax offset refund in its tax return. The Commissioner paid the taxpayer a refundable tax offset amount, using automated processes. | Subsequently, the Board issued a 'Certificate of Finding' under section 27J of the IR&D Act, informing the taxpayer that none of the activities that comprised the purported R&D project for the 2012-13 income year constituted R&D activities. The legislative consequence of this finding was that the taxpayer was deemed never to have been registered for their R&D activities and therefore never eligible or entitled to the R&D tax offset refund for the 2012-13 income year. | The Commissioner issued a notice under section 8AAZN of the TAA to the taxpayer, requiring the taxpayer to repay the amount of the R&D tax offset refund paid for the 2012-13 income year. The Commissioner also provided reasons for issuing a notice under that provision. | The taxpayer sought relief against the Commissioner, pursuant to section 39B of the Judiciary Act 1903. In Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096, Steward J concluded that the Commissioner was not authorised to apply section 8AAZN of the TAA to recover the R&D tax offset refund. An appeal by the Commissioner to the Full Federal Court (McKerracher, Davies and Thawley JJ) was allowed. A subsequent application to the High Court by the taxpayer for special leave to appeal the Full Federal Court's decision was refused. | Issues decided by the Court | As part of these proceedings, the parties agreed that, in respect of the 2012-13 income year, an assessment under section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) did not include a tax offset refund. Thus, the Commissioner did not have the power in the 2012-13 income year to assess under section 166 of the ITAA 1936 or to issue an amended assessment to reverse a tax offset refund paid to a taxpayer not entitled to the refund. | The Full Federal Court was asked to determine the applicability of section 8AAZN of the TAA to the tax offset refund. In particular, the case turned on the meaning of 'administrative overpayment' as defined in subsection 8AAZN(3) of the TAA. | Per Thawley J (with McKerracher J agreeing), there is no question that subsection 8AAZN(3) of the TAA, read literally, and according to its ordinary meaning, is apt to cover the mistaken payment. [2] Nothing in the text construed in its context 'clearly' [3] requires the words of the definition to be read down. The tax offset refund was 'paid … by mistake' within the meaning of subsection 8AAZN(3) of the TAA at the time of payment. [4] The Commissioner did not have to actively make any assumption at the time of the refund for there to be a mistake. Furthermore, it did not matter that the refund was made by automated processes, nor did it matter that the processes did not involve a person actively turning their mind to whether or not payment of the refund should be made. [5] Section 8AAZN of the TAA applies to 'all mistaken payments to which a taxpayer is not entitled'. [6] | It should be noted that these circumstances can no longer arise. Refundable R&D tax offsets now form part of the assessment and the Commissioner could issue an amended assessment to recover the payment of any overpaid tax offset refunds. [7] Section 8AAZN of the TAA would not apply in such a situation. [8] | Davies J also agreed that the mistaken payment was an 'administrative overpayment' within the meaning of subsection 8AAZN(3) of the TAA and that it was open to the Commissioner to use the procedure provided for by section 8AAZN of the TAA to recover the mistaken payment from the taxpayer. [9] | The High Court refused the taxpayer's special leave application on the basis that section 8AAZN of the TAA did not permit recovery of a tax offset refund since the 2013-14 income year and therefore did not raise a matter of general importance. [10]

Issues decided:
As part of these proceedings, the parties agreed that, in respect of the 2012-13 income year, an assessment under section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) did not include a tax offset refund. Thus, the Commissioner did not have the power in the 2012-13 income year to assess under section 166 of the ITAA 1936 or to issue an amended assessment to reverse a tax offset refund paid to a taxpayer not entitled to the refund. The Full Federal Court was asked to determine the applicability of section 8AAZN of the TAA to the tax offset refund. In particular, the case turned on the meaning of 'administrative overpayment' as defined in subsection 8AAZN(3) of the TAA. Per Thawley J (with McKerracher J agreeing), there is no question that subsection 8AAZN(3) of the TAA, read literally, and according to its ordinary meaning, is apt to cover the mistaken payment. [2] Nothing in the text construed in its context 'clearly' [3] requires the words of the definition to be read down. The tax offset refund was 'paid … by mistake' within the meaning of subsection 8AAZN(3) of the TAA at the time of payment. [4] The Commissioner did not have to actively make any assumption at the time of the refund for there to be a mistake. Furthermore, it did not matter that the refund was made by automated processes, nor did it matter that the processes did not involve a person actively turning their mind to whether or not payment of the refund should be made. [5] Section 8AAZN of the TAA applies to 'all mistaken payments to which a taxpayer is not entitled'. [6] It should be noted that these circumstances can no longer arise. Refundable R&D tax offsets now form part of the assessment and the Commissioner could issue an amended assessment to recover the payment of any overpaid tax offset refunds. [7] Section 8AAZN of the TAA would not apply in such a situation. [8] Davies J also agreed that the mistaken payment was an 'administrative overpayment' within the meaning of subsection 8AAZN(3) of the TAA and that it was open to the Commissioner to use the procedure provided for by section 8AAZN of the TAA to recover the mistaken payment from the taxpayer. [9] The High Court refused the taxpayer's special leave application on the basis that section 8AAZN of the TAA did not permit recovery of a tax offset refund since the 2013-14 income year and therefore did not raise a matter of general importance. [10]

ATO view of decision:
The Commissioner considers that the current application of section 8AAZN of the TAA is consistent with the reasoning of the Full Federal Court. Consequently, there is no impact on how the Commissioner administers the provision. | The Full Federal Court's interpretation of section 8AAZN confirms the Commissioner's view that section 8AAZN applies to 'all payments to which a taxpayer is not entitled'. This includes payment made to the wrong person.

Administrative treatment:
Not applicable.

Legislative references: Income Tax Assessment Act 1936 166 172A Taxation Administration Act 1953 8AAZN 8AAZN(3) Industry Research and Development Act 1986 27A 27J Judiciary Act 1903 39B
Case references: Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096 170 ALD 594 Auctus Resources Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia [2021] HCASL 155