Denlay v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (QUD 14 and 15 of 2011)
Judgment date: 11 May 2011
Date published: 15 March 2013

Summary of decision:
Outlines the ATO's response to this case which concerns whether amended assessments can be set aside because the Commissioner had used information from a third party who had allegedly stolen it, giving rise to conscious maladministration in making assessments.

Overview of facts:
The husband and wife applicants made investments in an entity associated with the LGT Bank in Liechtenstein and derived income for the years 2002 to 2007. They concealed this income, enjoying the secrecy provided by Liechtenstein laws consistent with its being a tax haven. | An informant former employee of LGT Group obtained (allegedly stole) account / client information documents ("the LGT documents") and made them available to US and other jurisdictions including Australia. | Prior to provision of the documents to tax authorities, that person was convicted of various Liechtenstein Criminal Code offences, including one in relation to the documents but was not convicted of their theft. That person is subject to an international arrest warrant for theft of the documents under Liechtenstein law. | The Commissioner made assessments based on the information disclosed in the LGT documents. | Issues decided by the court | The issue of assessments under s.167 of Income Tax Assessment Acts 1936 (ITAA 36) was not attended by conscious maladministration, and the decision of the Federal Court judge was upheld. The conduct of the ATO officers receiving information in a place outside of Australia was to use the information in the making of assessments. Even if the information had been reasonably suspected of having been illegally obtained, its receipt was within the ambit of s.263 of ITAA 36 and its use was for a legitimate purpose under the taxation laws. Using the information was conscientious administration of the taxation laws. | Whether there was a breach of the Criminal Code | Section 400.9 of the Criminal Code (Cth) requires property to mean physical matter like money or tangible property, not intangible property such as information. The information the ATO officers received from the informant was intangible and was provided on a disk that belonged to the informant, a fact the trial judge had not attended to [45]. The disk being property of the informant was therefore not stolen. No offence under s.400.9 was made out [71-72]. There was no cogent evidence in support of the taxpayer's allegation that any ATO officer had acted improperly. The scope of s.263 ITAA 36 authorised ATO officers to collect information from overseas sources. | Offences under s.400.9 of the Criminal Code are read in conjunction with s.10.5 of the Criminal Code , which provides a complete defence for actions "justified or excused" by law. The making of an assessment is authorised by s.166 of ITAA 36, and gathering information to make an assessment is authorised by ss.263 and 264 of the ITAA 36. Section 263 "makes lawful that which would otherwise be unlawful": FCT v Australia and New Zealand Banking Group Ltd 79 ATC 4039. As the offence under s.400.9 was not made out, the application of s.10.5 does not arise. However the Full Court's obiter comments indicated the result would be use of the information and would attract the protection of 10.5 in answer to any alleged offence having been committed. | The issue of maladministration | The Full Federal Court affirmed the decision at first instance that the taxpayer has the evidential onus to establish conscious maladministration of the taxation laws by the Commissioner or his officers. That fact was not made out in the taxpayer's evidence. The evidence established the contra fact, that the Commissioner by his officers was acting in accordance with the purposes of the ITAA 36 and ITAA97, in using information to make assessments under s.166 of ITAA 36. | The test set out by the High Court in Futuris required the Commissioner to have made a deliberate and voluntary decision to issue an assessment outside the purposes of the taxation laws. This would require a taxpayer to have evidence of actual bad faith by the Commissioner of his officers [78]. The test did not permit application of a 'constructive' bad faith such as an unwitting involvement in any offence [76]. | The meaning of information for the purposes of interpretation of s.166 of ITAA 36, is not affected by any inadvertent breach of s.400.9. How the information is obtained by the Commissioner's officers is not relevant to the exercise of s.166 as to the use of information in the possession of the Commissioner. What is material is the competence and accuracy of the Commissioner's officers in making the assessment [79]. | The Commissioner's officers were acting within the purposes of s.263 of the ITAA 36 and 10.5 of the Criminal Code in obtaining the information from the informant and bringing it into Australia, for the purpose of administration of the taxation laws. The officers were found to be engaged in the conscientious performance of their duties. | Duty to make an assessment. | Section 166 of ITAA 36 imposes a duty on the Commissioner to make an assessment using information from income tax returns and/or other sources. This obligation is not limited in any way, and would require express statutory provision in order to be read narrowly [81]. The use of information suspected of being tainted with some illegality does not narrow the obligation to make assessments imposed by s.166. | The Full Court made obiter comments that officers of the Commissioner were subject to the law of the land and would suffer if they transgressed it. Those normal sanctions did not operate to limit the operation of s.166, which is concerned with ensuring information used for the purpose of making an assessment is accurate [82].

Issues decided:
The issue of assessments under s.167 of Income Tax Assessment Acts 1936 (ITAA 36) was not attended by conscious maladministration, and the decision of the Federal Court judge was upheld. The conduct of the ATO officers receiving information in a place outside of Australia was to use the information in the making of assessments. Even if the information had been reasonably suspected of having been illegally obtained, its receipt was within the ambit of s.263 of ITAA 36 and its use was for a legitimate purpose under the taxation laws. Using the information was conscientious administration of the taxation laws. | Whether there was a breach of the Criminal Code: Section 400.9 of the Criminal Code (Cth) requires property to mean physical matter like money or tangible property, not intangible property such as information. The information the ATO officers received from the informant was intangible and was provided on a disk that belonged to the informant, a fact the trial judge had not attended to [45]. The disk being property of the informant was therefore not stolen. No offence under s.400.9 was made out [71-72]. There was no cogent evidence in support of the taxpayer's allegation that any ATO officer had acted improperly. The scope of s.263 ITAA 36 authorised ATO officers to collect information from overseas sources. Offences under s.400.9 of the Criminal Code are read in conjunction with s.10.5 of the Criminal Code , which provides a complete defence for actions "justified or excused" by law. The making of an assessment is authorised by s.166 of ITAA 36, and gathering information to make an assessment is authorised by ss.263 and 264 of the ITAA 36. Section 263 "makes lawful that which would otherwise be unlawful": FCT v Australia and New Zealand Banking Group Ltd 79 ATC 4039. As the offence under s.400.9 was not made out, the application of s.10.5 does not arise. However the Full Court's obiter comments indicated the result would be use of the information and would attract the protection of 10.5 in answer to any alleged offence having been committed. | The issue of maladministration: The Full Federal Court affirmed the decision at first instance that the taxpayer has the evidential onus to establish conscious maladministration of the taxation laws by the Commissioner or his officers. That fact was not made out in the taxpayer's evidence. The evidence established the contra fact, that the Commissioner by his officers was acting in accordance with the purposes of the ITAA 36 and ITAA97, in using information to make assessments under s.166 of ITAA 36. The test set out by the High Court in Futuris required the Commissioner to have made a deliberate and voluntary decision to issue an assessment outside the purposes of the taxation laws. This would require a taxpayer to have evidence of actual bad faith by the Commissioner of his officers [78]. The test did not permit application of a 'constructive' bad faith such as an unwitting involvement in any offence [76]. The meaning of information for the purposes of interpretation of s.166 of ITAA 36, is not affected by any inadvertent breach of s.400.9. How the information is obtained by the Commissioner's officers is not relevant to the exercise of s.166 as to the use of information in the possession of the Commissioner. What is material is the competence and accuracy of the Commissioner's officers in making the assessment [79]. The Commissioner's officers were acting within the purposes of s.263 of the ITAA 36 and 10.5 of the Criminal Code in obtaining the information from the informant and bringing it into Australia, for the purpose of administration of the taxation laws. The officers were found to be engaged in the conscientious performance of their duties. | Duty to make an assessment.: Section 166 of ITAA 36 imposes a duty on the Commissioner to make an assessment using information from income tax returns and/or other sources. This obligation is not limited in any way, and would require express statutory provision in order to be read narrowly [81]. The use of information suspected of being tainted with some illegality does not narrow the obligation to make assessments imposed by s.166. The Full Court made obiter comments that officers of the Commissioner were subject to the law of the land and would suffer if they transgressed it. Those normal sanctions did not operate to limit the operation of s.166, which is concerned with ensuring information used for the purpose of making an assessment is accurate [82].

ATO view of decision:
The Full Court's decision confirms that the use of information, however obtained, will not vitiate an assessment for conscious maladministration. The Commissioner's officers have a positive statutory duty, imposed by s.166 of ITAA 36, to make assessments from information in their possession. In discharging their duty, officers must act competently and honestly. The Commissioner and his officers may continue to receive and use information from all sources for this purpose, including offshore sources. Such a purpose is conscientious administration of the taxation laws, and will not amount to conscious maladministration.

Administrative treatment:
n/a | Implications for ATO precedential documents (Public Rulings & Determinations etc) | n/a | Implications for Law Administration Practice Statements | n/a

Legislative references: Judiciary Act 1903 39B Criminal Code Act 1995 10.5 400.1 400.2 400.9 477.1 Crimes Act 1900 (NSW) 308c Income Tax Assessment Act 1936 166 173 175 177 263 264 Income Tax Assessment Act 1997 The Act Taxation Administration Act 1953 4A Part IVC Anti-Money Laundering and Counter-Terrorism Financing (Transitional Provisions and Consequential Amendments) Act 2006 The Act Liechtenstein Criminal Code Evidence Act 1995 60 69(2) 136 140(2) Public Service Act 1999 13
Case references: Kevin Denlay v Commissioner of Taxation [2010] FCA 1434 (2010) 81 ATR 644 Mirja Denlay v Commissioner of Taxation [2010] FCA 1435 (2010) 81 ATR 644 Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (2008) 69 ATR 41 2008 ATC 20-039 FCT v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 [1979] HCA 67 (1979) 9 ATR 483 79 ATC 4039 Jones v Dunkel (1959) 101 CLR 298 [1959] HCA 8 Boardman v Phipps [1967] 2 AC 46 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Grain Elevators Board (Victoria) v Dunmunkle Corporation (1946) 73 CLR 70
Subject references: Invalid assessments test for conscious maladministration bad faith good administration of taxation laws scope of 'information'