House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

MAIN FEATURES

The main features of the Bill are as follows:

Transfer of jurisdiction to Administrative Appeals Tribunal (Clauses 10, 20, 37, 48, 62, 80, 117, 126, 139, 194, 210, 214, 223 and 224)

The main purpose of this Bill is to effect the transfer of the jurisdiction to review decisions of the Commissioner of Taxation on objections against taxation assessments and other decisions of the Commissioner, presently exercised by the Taxation Boards of Review, to the Administrative Appeals Tribunal.

Existing provisions of the various taxation laws permit a person to request the Commissioner of Taxation to refer a decision made in response to an objection against an assessment of certain other decisions to a Taxation Board of Review for review. By this Bill those laws will be amended to substitute references to a Board of Review by references to the Administrative Appeals Tribunal, thus effecting a transfer of jurisdiction to conduct such reviews.

Unlike most other applications that are made direct to the Tribunal by the person aggrieved by a particular decision and seeking a review of it, applications to review taxation decisions will, in accordance with the recommendation of the Administrative Review Council in its report entitled "Review of Taxation Decisions by Boards of Review", be made by request to the Commissioner in a similar manner to the making of requests for reference to a Board of Review. Requests for reference to a Board of Review made prior to the date of transfer of jurisdiction to the Tribunal (1 July 1986), but not finalised at that date will, under transitional provisions in the Bill, be treated as requests for reference to the Tribunal.

Under existing taxation laws, an appeal lies to a Supreme Court of a State or Territory from a decision of a Board of Review that involves a question of law, thereby enabling a person to have the matter reheard by a court. Appeals from decisions of the Tribunal are, under the Administrative Appeals Tribunal Act 1975, to the Federal Court on a question of law. Appeals from decisions of the Tribunal in taxation reviews will be the same as those applicable to decisions of the Tribunal in its other jurisdictions.

Cases which are part-heard or heard but no decision given at the date of transfer of jurisdiction will, as a general rule, be finalised by the Tribunal constituted by the same persons who were members of the Board of Review hearing the particular case. In this regard, it is proposed that existing Board of Review members will, where they agree to do so, become senior non-presidential members of the Tribunal. There will be a right of appeal from any such decision of the Tribunal that involves a question of law to the Federal Court. This will preserve in these transitional cases the existing right of a person to have a fresh hearing of their case before a court.

In conferring taxation jurisdiction on the Administrative Appeals Tribunal it is proposed that the Administrative Appeals Tribunal Act 1975 will be modified in relation to its application to such jurisdiction. These modifications are spelt out later in these notes.

Reviews by Taxation Appeals Division (Clause 4)

The Administrative Appeals Tribunal consists of a General Division and several specialist Divisions and its jurisdiction is specified under the Administrative Appeals Tribunal Act 1975 and various other enactments. For the purpose of reviewing a decision, the Tribunal generally has all the powers, and may exercise all of the discretions, of the decision-maker. The Tribunal may affirm or vary a decision, set it aside and make a new decision, or remit it for reconsideration in accordance with the Tribunal's directions or recommendations.

Under the proposed amendments, a Taxation Appeals Division of the Tribunal will be created, the function of which will include the review of taxation decisions that, under the existing law, are reviewable by a Taxation Board of Review.

Taxation Boards of Review abolished (Clause 78)

As a consequence of the transfer of the jurisdiction of the Boards of Review to the Tribunal the Boards of Review will no longer be required. Accordingly, provisions of the income tax law establishing the Boards of Review will be repealed by this Bill. As already explained the present members of the Boards of Review will transfer to the Tribunal.

Review by Tribunal of decision remitting additional tax (Clauses 83 and 139)

Under the existing income tax law, a Taxation Board of Review only has power to review decisions of the Commissioner to remit additional tax imposed in respect of failure to furnish a return (section 222), false or misleading statements (section 223), participation in specific tax avoidance schemes (section 224), avoidance of tax by transfer pricing (section 225) or participation in tax avoidance schemes to which Part IVA applies (section 226) where, broadly, the additional tax after remission exceeds the greater of $20.00 or 20% per annum of the tax in question. The Tribunal under the income tax and sales tax laws will be subject to similar limits when reviewing decisions of the Commissioner relating to additional taxes.

Modifications of the operation of the Administrative Appeals Tribunal Act 1975 (Clause 196)

There are to be several modifications of the Administrative Appeals Tribunal Act 1975 for the purposes of its application to reviews of decisions on objections under the various taxation laws. These modifications are being made by provisions in the Taxation Administration Act 1953. The modifications relate to the following matters :

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the manner in which applications may be made to the Tribunal;

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parties to a taxation proceeding before the Tribunal;

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private hearings unless otherwise requested;

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statement of reasons by the Commissioner of Taxation for decision on objection and certain documents to be lodged with the Tribunal at the time of referral by the Commissioner of request for review;

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request for review of decision by the Tribunal not to stay the operation of the decision; and

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decision of the Tribunal that is subject to appeal to be stayed pending outcome of appeal.

The more important of these matters are discussed in greater detail below.

Parties to a proceeding before the Tribunal (Clause 196)

Under the Administrative Appeals Tribunal Act 1975, the parties to a proceeding before the Tribunal are the person applying for a review of a decision, the person who made the decision and any other aggrieved person made a party to the proceeding by the Tribunal. In addition, the Attorney-General may intervene in a proceeding before the Tribunal and thereby become a party to the proceeding.

In relation to taxation proceedings before the Tribunal, it is proposed to modify the operation of the Administrative Appeals Tribunal Act 1975 to ensure that a third party cannot be made a party to such a proceeding without the consent of the person applying for the review. This will, unless the person requesting the review otherwise consents, maintain the principle that the only parties to a taxation review are the Commissioner and the person who requested the review. It will also support the existing right of a person to have his or her taxation disputes dealt with in a private hearing. Although the Attorney-General may intervene in a taxation proceeding, it is expected that this would only occur where an important question of public interest is involved or the interpretation of the provisions of the Administrative Appeals Tribunal Act is in issue. This aspect of the case would then ordinarily be dealt with separately so as to ensure the continued confidentiality of the taxation affairs of the person applying for the review of the decision.

Private hearings (Clause 196)

At present, reviews conducted by a Taxation Board of Review take place in private unless the person requesting the review seeks a public hearing. Reviews conducted by the Tribunal on the other hand are generally held in public except in special circumstances. In order to preserve the privacy afforded under existing review procedures, taxation reviews by the Taxation Appeals Division of the Tribunal will be conducted in private unless the person requesting the review asks for a public hearing.

It is also proposed that, where the Tribunal hears a case in private, its reasons for its decision would not disclose the identity of the person concerned. This will enable the continued publication of such decisions to assist taxpayers and the Commission in the application of taxation laws.

Commissioner's reasons and documents to be lodged with the Tribunal (Clause 196)

The Administrative Appeals Tribunal Act requires a decision- maker to lodge with the Tribunal a statement of reasons for a decision together with all relevant documents. The statement and documents must be furnished within 28 days of the decision-maker being notified of an application for review of the decision. The statement is required to set out the findings on material questions of fact, referring to the evidence or other material on which those findings were based.

Where a taxpayer requests the Commissioner of Taxation to forward a decision on an objection to a Board of Review for review, the Commissioner furnishes a statement of reasons comprising only the Commissioner's ultimate conclusions in respect of the matter in dispute at the time the request is forwarded to the Board. It is also the Commissioner's practice to forward certain documents to the Board where a request for review has been referred.

The operation of the Administrative Appeals Tribunal Act is to be modified in relation to decisions on objections referred to the Tribunal before 1 July 1988. The statement and documents required in respect of such referrals will be the same as those presently provided to a Board of Review. In relation to decisions on objections referred to the Tribunal on or after 1 July 1988 the statement and documents to be furnished to the Tribunal will be those required under the Administrative Appeals Tribunal Act.

Decision upon review or appeal (Clauses 21, 37, 48, 62, 88 and 139)

Under its existing jurisdiction, the powers of the Tribunal in reviewing a decision are broadly to the same practical effect as those presently exercised by a Taxation Board of Review. In particular, the Tribunal will, like the Board of Review, have the power to affirm, vary or set aside the Commissioner's decision on the objection. The Commissioner will, unless an appeal is lodged against the Tribunal's decision, be required to amend the assessment concerned or take whatever other action may be necessary to give effect to the Tribunal's decision. This may include, for example, the refund of tax already paid together with interest under the Taxation (Interest on Overpayments) Act 1983. Consistent with this approach, and to give effect to the long- standing policy and practice that decisions of administrative review bodies and the courts are given effect to by the Commissioner only when they become final, the Bill will make it clear that a Supreme Court will review the Commissioner's decision on the objection and make its order in relation to that decision. The Commissioner will, as required, then give effect to a decision adverse to him by amending the assessment, determination, etc. and refunding any moneys due with interest.

Giving effect to a decision of the Tribunal or Court (Clauses 10, 25, 40, 48, 65, 89, 117, 126, 139, 194, 196 and 210)

As explained under the previous heading, the Bill will require the Commissioner of Taxation to take appropriate action (such as, for example, amending an assessment) to give effect to a decision of the Tribunal or court.

Under the Administrative Appeals Tribunal Act 1975 an appeal against a decision of the Tribunal does not prevent the operation of the decision unless a stay order is obtained from the Federal Court. The policy of the taxation law is that tax should remain payable where there is an outstanding appeal against a decision. Under proposals in the Bill, the Commissioner will not be required to give effect to a decision of the Tribunal until 60 days after the finalisation of any appeal from the decision. Similarly, where there is an appeal from a decision of a court, the Commissioner will not be required to give effect to the decision until 60 days after the finalisation of any appeals against that decision.

Lodgment of objections and appeals (Clauses 9, 19, 36, 48, 61, 79, 116, 125, 139, 193 and 209)

Under the provisions of the various taxation laws, a person dissatisfied with an assessment of decision generally has a fixed period to object against the assessment or decision. Where the objection is wholly or partly disallowed the person may within a further period from the date of being served with notice of the decision on the objection make a request for reference to a Taxation Board of Review or alternatively, under some taxation laws, appeal to a Supreme Court.

While a request for reference or an appeal must be received by the Commissioner within the period fixed, it is sufficient if an objection is posted within the specified time limit. As the period for lodging an objection will, under measures in the Bill, be capable of extension, the various objection provisions are being brought into line with the provisions relating to requests for reference or appeals and will provide that objections must be actually lodged within the time limit specified.

Additionally, where the period fixed for lodging an objection is less than 60 days - this is the case under sales tax, estate duty, gift duty and pay-roll tax - the period is to be enlarged by the Bill so that under all taxation laws it is a uniform 60 days.

Extensions of time for lodgment of objection, request for reference or appeal (Clauses 10, 20, 37, 48, 62, 80, 117, 126, 139, 194, 210, 213 and 218)

The Bill will enable a person to apply for an extension of time for lodgement of an objection, a request for reference to the Tribunal or an appeal to a specified Supreme Court where the objection, request or appeal is not lodged within the 60 day time limit.

The Commissioner is to be given a discretion to extend the time for lodgment of an objection where application in that regard is made. Refusal by the Commissioner to grant an extension of time will be subject to review by the Administrative Appeals Tribunal.

Extension of time applications in respect of requests for reference or appeals will be decided by the Tribunal or the particular Supreme Court concerned.

The proposal to allow the time limits for lodging objections, requests and appeals to be extended will bring the provisions under the various tax laws into line with the usual practice in other jurisdictions where the Tribunal or a court generally has a discretion to extend statutory time limits.

Grounds of objection (Clauses 10, 20, 37, 48, 62, 81, 117, 126, 139, 194 and 210)

Under the various taxation laws, a person who objects against an assessment or decision must state fully and in detail the grounds on which reliance is placed for the objection. The person is then limited to those grounds in any subsequent review of, or appeal against, the decision on the objection. It is proposed to give the Tribunal and a Supreme Court a discretion to allow a person to widen the grounds stated in an objection in proceedings to review the Commissioner's decision on it.

Reference to Tribunal (Clauses 10, 20, 37, 48, 62, 80, 117, 126, 139, 194 and 210)

Under the sales tax, estate duty, gift duty and wool tax laws the Commissioner of Taxation is required to refer requests for reference to a Board of Review within a specified time limit.

The income tax and other tax laws do not prescribe any such time limit. However, the income tax law provides that, where the Commissioner does not refer a request within 60 days, the person who made the request may give notice to the Commissioner to do so in which case the Commissioner must then refer the request within a further period of 60 days.

In order to achieve uniformity as far as practicable between all taxation laws administered by the Commissioner, the requirement under some taxation laws for a request to be referred within a specified time limit is to be replaced with a provision equivalent to that presently contained in the income tax law. This will enable a notice to be given to the Commissioner to require him to refer a request to the Administrative Appeals Tribunal or (where applicable) a Supreme Court within 60 days after receipt of the notice.

Objections against amended assessments (Clauses 9, 19, 36, 48, 61, 79 and 139)

The right of objection against an amended assessment is limited under the various taxation laws so that a taxpayer does not have a new and unlimited right to raise all matters that could have been raised in an objection against the original assessment. The intention of the law is that the grounds of objection against an amended assessment ought to be limited to matters connected with the particular item that has been amended. The Federal Court in Federal Commissioner of Taxation. v Offshore Oil N.L. held, however, that the proviso to section 185 of the Income Tax Assessment Act 1936 (which provides in the income tax law the limitation referred to) imposed a monetary limit and not a subject matter limit to the grounds of objection against an amended assessment.

Amendments proposed by the Bill are intended to overcome this decision and restore the law to its original intended effect. It will do this by omitting the proviso to section 185 and replace it with new provisions that will make it clear that an objection against an amended assessment is to be confined to, and to matters related to, the subject matter of the amended assessment. Accordingly, a taxpayer will not be able to re-open by objection against an amended assessment matters that are relevant only to the original assessment.

Amendments of similar import to those proposed in relation to the income tax law will also be made to the:

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Australian Capital Territory Taxation (Administration) Act

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Bank Account Debits Tax Administration Act

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Estate Duty Assessment Act

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Fringe Benefits Tax Assessment Act

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Gift Duty Assessment Act

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Sales Tax Assessment Acts

Abolition of $2.00 deposit (Clause 229)

Requests for reference to a Board of Review or an appeal to a Supreme Court under existing taxation laws must be accompanied by a $2.00 deposit. The amount of $2.00 was fixed in 1936 (or earlier) when it represented a substantial payment before a taxation assessment could be challenged. The deposit is refunded if the reference or appeal is to any extent decided in the taxpayer's favour. As the jurisdiction of the Boards of Review is to be transferred to the Administrative Appeals Tribunal, the $2.00 deposit is to be abolished so that, consistent with reviews under other jurisdictions of the Tribunal, there will be no fee or deposit payable in respect of taxation reviews. To ensure uniformity no deposit will be required in respect of appeals to a Supreme Court. Fees paid in respect of requests for reference and appeals that are not finalised at the date taxation jurisdiction is transferred to the Tribunal will be refunded.

Assessments incorporated in a single notice (Clauses 9, 19, 36, 48, 61, 79, 125, 139 and 209)

Various taxation laws provide for an assessment of additional tax payable by a taxpayer by way of penalty for breaches of the law. For example, section 227 of the Income Tax Assessment Act 1936 provides that an assessment is to be made of additional penalty tax payable under Part VII of that Act. A notice of an assessment of additional tax may, however, be incorporated in the notice of any other assessment made in relation to the taxpayer. In practice, notice of assessment of additional tax is incorporated in the notice of assessment of ordinary tax payable by the taxpayer. Although there is a single notice, there remains 2 separate assessments, meaning that technically a taxpayer has to object and appeal independently against each assessment to contest the total tax liability.

In order to simplify the objection process and to ensure that requests for reference or appeal in respect of both an ordinary assessment and an additional tax assessment are dealt with concurrently by the same Tribunal or court, assessments of ordinary tax and additional penalty tax incorporated in a single notice of assessment are to be deemed to be a single assessment for purposes of the objection provisions of the various taxation laws.

Applications for taxation relief (Clauses 44, 98, 119 and 129)

Under existing income tax, estate duty and pay-roll tax laws, a Relief Board consisting of the Commissioner of Taxation, the Secretary to the Department of Finance and the Comptroller-General of Customs (or substitutes appointed by the Minister) may grant a release from payment of tax or duty where, broadly, payment of the amount due would entail serious hardship. Where the amount involved is $10,000 or more, the Relief Board must obtain a report on the financial circumstances of the applicant for relief from a person designated by the Chairman of a Taxation Board of Review. In the case where income tax payable is less than $10,000, the Relief Board may seek such a report. The person designated by the Chairman may be either a member of the Board of Review or the Secretary to the Board.

The investigative and reporting functions will be transferred by this Bill to the Registrar or a Deputy Registrar of the Tribunal designated for the purpose by the President of the Tribunal.

Widening of sales tax objection rights (Clauses 134, 135, 138 and 139)

The sales tax law presently provides taxpayers with objection and appeal rights only against the sale value (i.e., the taxable value) of goods. If a taxpayer is in disagreement with the Commissioner of Taxation over the rate of tax payable in relation to goods, no right of objection is available. In these circumstances the taxpayer's only recourse to dispute the rate of tax is either to refuse to pay the tax and defend a recovery action or institute proceedings for declaratory relief.

The need to defend a recovery action may be interpreted as having overtones of delinquency attached to it - unjustly in cases of genuine dispute over the rate of sales tax applicable to goods. Situations also occur where the sale value and rate of tax are both in dispute. Such disputes require the sale value to be determined by a Taxation Board of Review, while the question of the rate of tax must be dealt with by a court, even though both questions may arise in respect of the one transaction and therefore out of the same factual situation.

The Bill will provide an extensive widening of the objection and appeal provisions of the sales tax law that will enable a taxpayer to object not only against the sale value of goods, but also the amount of tax payable on the goods. An objection against the amount of tax payable effectively gives a taxpayer a right of objection against the classification of goods under the Sales Tax (Exemptions and Classifications) Act 1935 and therefore against the rate of tax.

The amendments envisage that, where a dispute arises over the liability of a taxpayer to sales tax, the Commissioner is to assess the sale value of goods on which tax should be paid and calculate the amount of tax payable. The Commissioner will be required to serve notice of the assessment on the taxpayer concerned who will then have a right of objection against either or both of the sale value and the amount of tax payable.

Part VIII of Sales Tax Assessment Act (No. 1) 1930, and that Part as it applies to the other Assessment Acts, imposes statutory additional penalty tax where sales tax is sought to be avoided by the refusal or failure to lodge a return or furnish information required under the Act. The making of a false or misleading statement or the participation in certain tax avoidance schemes also gives rise to additional tax. The existing law does not provide any right of objection against an assessment of an amount of additional tax payable by a taxpayer. The Bill will provide a right of objection against assessments of additional tax, thereby bringing the sales tax laws into line with the corresponding income tax provisions.

Under both the income tax and sales tax laws the Commissioner has power to remit statutory additional tax imposed. Consistent with the present income tax provisions, the Bill will limit the Tribunal's power to review the Commissioner's decision to remit additional tax to cases where, broadly, the additional tax after remission exceeds the greater of $20.00 or an amount calculated at the rate of 20% per annum of the tax in question.

The existing provisions of the sales tax law provide for refunds of tax, or for payments of an amount equal to an amount of tax paid by a person in a wide variety of circumstances, so as to ensure there is no dual payment of sales tax on goods. Where the Commissioner refuses an application for such a refund or payment, the present sales tax law does not provide any right of objection against the Commissioner's decision. In line with the extended objection rights mentioned earlier, this Bill will provide a right of objection and appeal where an application for a refund or payment to avoid double tax is refused or satisfied in part only.

The sales tax law presently provides for a taxpayer who is dissatisfied with the Commissioner's decision on an objection to request the Commissioner to refer the decision to a Taxation Board of Review for review. As mentioned earlier, the Bill provides for the transfer of the jurisdiction of the Boards of Review to the Administrative Appeals Tribunal. This Bill will also give, at the option of the taxpayer, a right of appeal from the decision on an objection to a specified Supreme Court. This option will, in future, be available in relation to all decisions on objections against either sale value, the rate of sales tax or refund decisions.

Where the Commissioner makes a decision (a reviewable decision) to refuse to register a person, to revoke a person's registration, to seek an amount of security for the payment of tax from a person or to withdraw a registered person's entitlement to quote the certificate of registration, the person affected by the decision has a right of objection against the decision. A person dissatisfied with the outcome of such an objection may, under the existing sales tax law, make an application direct to the Tribunal for review of the original decision. No right of appeal presently exists to a Supreme Court.

In order to maintain uniformity of treatment of objections under the sales tax law, the Bill provides for such objections and reviews to be incorporated with the general objection and appeal provisions. The effect of this will be to allow a person dissatisfied with the decision on an objection against a reviewable decision to have the objection decision reviewed by either the Tribunal or a specified Supreme Court.

Sales tax evidentiary provisions (Clauses 145 and 188)

As mentioned earlier, taxpayers who, in a dispute with the Commissioner of Taxation over any matter concerned with the amount of tax payable, refuse to pay the tax may contest the Commissioner's decision by defending a recovery action before a court. Where the taxation law provides clearly defined avenues of review or appeal, it is appropriate (to avoid duplication of appeal rights) that those avenues be the only ones available through which to contest a decision of the Commissioner.

As a result of the provision by the Bill of wider objection and appeal provisions against sales tax decisions, new evidentiary provisions are to be included in the sales tax law. These will, consistent with the income tax law, prevent matters concerned with the correctness of an assessment or a refund decision being raised in recovery proceedings by making the mere production of a notice or a copy of a notice of assessment or refund decision conclusive evidence of both the making and, except in the review or appeal process, the correctness of the assessment or decision.

Other evidentiary provisions in the sales tax law concerning notices in a Gazette and copies of documents will also be brought into line with similar provisions in the other taxation laws.

Repeal of redundant acts (Clause 230)

This Bill will, rather than extensively amend no longer operative Acts, repeal the Export Incentive Grants Act 1971, the States Receipts Duties (Administration) Act 1970 and associated Acts.

A more detailed explanation of the provisions of the Bill is contained in the following notes.

Because the amendments of the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953 by Parts X and XXVII of the Bill (by clauses 69 to 98 and 190 to 198, respectively) are the most significant changes to the taxation laws being made by this Bill, explanations of those changes appear immediately after the notes on Part I (Preliminary).