Mount Pritchard v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 85 of 2011)
Judgment date: 17 October 2011
Date published: 5 September 2012

Summary of decision:
Outlines the ATO response to this case challenging the validity of assessments and seeking to require the Commissioner to assess in accordance with a private binding ruling that had been issued to the taxpayer.

Overview of facts:
In February 2004, the Commissioner issued a private binding ruling to the taxpayer stating that the taxpayer would be exempt from income tax for the years of income ended 30 June 2003 to 30 June 2010. | The Commissioner ruled that the taxpayer was exempt from income tax because the arrangement as defined in the private ruling was a club established for the promotion of sport. Hence, Item 9.1(c) of section 50-54 of the Income Tax Assessment Act 1997 (ITAA 97) applied. | Subsequently, the Commissioner issued assessments to the taxpayer for the years ended 30 June 2006 and 30 June 2007, on the basis that the arrangement as defined in the private ruling was not the same arrangement that was actually carried out by the taxpayer. Accordingly, the Commissioner was not bound by the private ruling. | The taxpayer objected to the assessment for the year ended 30 June 2006 on the ground that the Commissioner was bound by the ruling and thus he did not have the power to make an assessment for the 2006 income year. | The Commissioner decided to disallow the objection in full on 5 March 2010. On 23 April 2010, the taxpayer applied to the Administrative Appeals Tribunal under Part IVC of the Tax Administration Act 1953 (TAA 53) for a review of the Commissioner's objection decision. | In the meantime, the applicant also applied to the Federal Court for judicial review of the Commissioner's decision, on the ground of jurisdictional error. | Issues decided by the court | The Full Court held that no error has been shown in the process of assessment going to jurisdiction. | The Full Court also concluded that in the absence of jurisdictional error, failure by the Commissioner to comply with a provision of the tax legislation does not make an assessment invalid. | Further, where the taxpayer contends that the Commissioner is bound by a private ruling, the taxpayer can proceed to have heard its arguments in Part IVC proceedings, and if successful in arguing that the private ruling should be applied, will demonstrate that the 2006 assessment is excessive.

Issues decided:
The Full Court held that no error has been shown in the process of assessment going to jurisdiction. The Full Court also concluded that in the absence of jurisdictional error, failure by the Commissioner to comply with a provision of the tax legislation does not make an assessment invalid. Further, where the taxpayer contends that the Commissioner is bound by a private ruling, the taxpayer can proceed to have heard its arguments in Part IVC proceedings, and if successful in arguing that the private ruling should be applied, will demonstrate that the 2006 assessment is excessive.

ATO view of decision:
The decision supports the proposition that a review or an appeal under Part IVC is the proper avenue for a taxpayer seeking review of an income tax assessment on the basis that it is excessive.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None

Legislative references: Income Tax Assessment Act 1936 6(1) 170BB 175 177(1) Income Tax Assessment Act 1997 50-45 Taxation Administration Act 1953 PtIVC Sch1 357-60
Case references: Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23 183 CLR 168 29 ATR 644 95 ATC 4067 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27 147 CLR 360 11 ATR 914 81 ATC 4280 Federal Commissioner of Taxation v Administrative Appeals Tribunal [2011] FCAFC 37 2011 ATC 20-248 191 FCR 400 Federal Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 237 CLR 146 69 ATR 41 2008 ATC 20-039 Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124 168 FCR 566 2008 ATC 20-037 73 ATR 276 McAndrew v Federal Commissioner of Taxation [1956] HCA 62 98 CLR 263 McDonald v Commissioner of Business Franchises (1992) 175 CLR 472 Perpetual Executors and Trustees Association of Australia Limited v Federal Commissioner of Taxation (1948) 77 CLR 1 Plaintiff S 157/2002 v Commonwealth of Australia [2003] HCA 2 211 CLR 476 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 194 CLR 355 R v Metal Trades Employer's Association; Ex parte Amalgamated Engineering Union, Australian Section [1951] HCA 3 82 CLR 208 Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat and Livestock Corporation (No 20) (1980) 44 FLR 455 X v Australian Prudential Regulation Authority [2007] HCA 4 226 CLR 630
Subject references: Validity of assessments where made contrary to a private binding ruling Declaratory proceedings
Other references: Decision Impact Statement, Futuris Corporation Limited