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CASE 4/2000

Members:
J Block SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2000] AATA 114

Decision date: 17 February 2000

J Block (Senior Member) (a) The objection decision under review in this matter is the refusal by the Respondent to grant an extension of time to the Applicant in respect of its objections against assessments referable to the years ending 31 December 1985 to 31 December 1990 (both years inclusive) and which are collectively referred to as the ``relevant years'' and each as a ``relevant year''. It may be noted that the Applicant accounts on the basis that its substituted accounting year ends on 31 December, in lieu of the year which ends on the next succeeding 30 June. There are references in the T Documents to both concepts (ie to each substituted accounting year and to the year ending on the next succeeding June). As a matter of consistency, I propose to use the former concept throughout these Reasons. Accordingly, the term ``1995 relevant year'' means the year ending 31 December 1995 (and which applies in lieu of the year ending on 30 June 1996); all other relevant years will be dealt with similarly.

(b) The reference number in respect of this matter is NT1999/162. However, the Applicant's Statement of Facts, Issues and Contentions dated 15 October 1999 contains a reference to NT1999/162-167. It was common cause between the parties that there are six relevant years so that the reference in the Applicant's Statement of Facts, Issues and Contentions may be correct; however, the reference in the T Documents is NT1999/162. If only for the sake of completeness I note that the hearing related to an application for an extension of time in respect of objections for all six of the relevant years.

2. The Applicant was represented by Mr Adam Gibbs of KPMG Legal, Solicitors, while the Respondent was represented by Mr S. Gageler of Counsel instructed by the Australian Government Solicitor.

3. The Tribunal had before it the T Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975; the T Documents consist of two volumes; the first volume contains documents T1 to T8 and the second volume contains documents T9 and T10. The second volume relates specifically to a private ruling (``the Ruling'') granted to the Applicant in respect of the years ending 31 December 1996 to 31 December 2000 (both years inclusive). The Tribunal had before it, in addition, the following exhibits:

  • • Exhibit A1 is an affidavit by V, a partner in a large accounting firm, and who advised the Applicant;
  • • Exhibit A2 is an affidavit by P, chief executive officer of the Applicant, as and from January 1995;
  • • Exhibit A3 is a letter by the Respondent to the Applicant dated 26 November 1999 allowing the Applicant's objection for the year ending 31 December 1992;
  • • Exhibit A4 is an amended assessment issued on 3 December 1999 in respect of the year referred to in Exhibit A3, and showing a resulting credit in favour of the Applicant.

4. The affidavits by V and P were admitted as exhibits after Mr Gageler indicated that he did not require either of V or P for cross- examination. In the case of V, his affidavit was admitted subject to the reservation that clauses 7, 8 and 22 constitute V's views as to the law, and are not to be treated as evidence. No oral

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evidence was given and the matter was argued on the papers.

5. Although the T Documents and exhibits are lengthy and comprehensive, it is in fact unnecessary to refer to them in any detail; this matter was heard confidentially and so that, and in any event, all references must be edited with this in mind. The facts fall within a narrow compass and can be summarised as follows:

(a) The Applicant was incorporated as a company limited by guarantee in 1960. The Applicant had previously been an unincorporated union of players of a wellknown and popular competitive sport (``the sport''). The Applicant has seven directors who are elected on an annual basis.

(b) P became the chief executive officer of the Applicant in January 1995. He had previously been the chief executive officer of another sporting club (the ``other club'') and in that capacity he had initiated an exemption of the other club under section 23(g)(iii) of the Income Tax Assessment Act 1936 (``the Act''). That section reads as follows:

``23 Subject to section 22A, the following income shall be exempt from income tax:

  • ...
  • (g) the income of a society, association or club that:
    • (i) [not relevant]; or
    • (ii) [not relevant]; or
    • (iii) is established for the encouragement or promotion of a game or sport; or
    • (iv) [not relevant]; or
    • (v) [not relevant];

    and is a society, association or club not carried on for the purposes of profit or gain to its individual members which:

    • (vi) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or
    • (vii) [not relevant]; or
    • (viii) [not relevant].''

(c) Clause 7 of P's affidavit (Exhibit A2) reads as follows:

``The preparation for and the making of the application for an exemption for the other club took more than 12 months. During the preparation there were numerous communications with the Australian Taxation Office (`ATO') in Canberra. I also attended two conferences with representatives of the ATO in Canberra on this matter. In all, more than 18 months passed between the commencement of preparation of the application until the application was finally granted.''

(d) In 1995 and at a meeting of the Finance Committee of the Applicant, P raised the question of an exemption. Clause 8 of Exhibit A2 reads as follows:

``In 1995 during a Finance Committee meeting I raised the issue of whether the Club had ever applied for or considered making an application for an exemption from income tax on the basis of its status as a sporting club. It is my understanding from my perusal of the Club's records and from discussions with members of the Board of Directors of the Club that the Club had not previously considered the possibility of obtaining such a tax exemption.''

(e) In 1995 the issue was raised with H, a partner in the Applicant's auditors. P was referred to V on the basis that V had particular experience and expertise in this area.

(f) Clause 11 of Exhibit A2 then records that in May 1996 a discussion took place between P and V; (V's affidavit, Exhibit A1, states in clause 9 that P requested a meeting in early 1996). V advised P that he thought the Applicant would be entitled to an exemption; however, he advised P that the Australian Taxation Office was reluctant to grant exemptions to a club which derived significant poker machine income and that the Applicant would have only a 50/50 prospect of success.

(g) Clause 13 of P's affidavit then goes on to specify that he worked with the auditors over the next six months to obtain the necessary information and to frame an application. Clause 13 of Exhibit A2 reads as follows:

``Over the next 6 months I assisted [the Auditors] in obtaining and collating the information required to make an application for exemption, and in preparing the application for exemption. This process involved compiling information relating to the Club's rules and objects, the activities of intra-club groups, the operation and activities of the Club, promotional records and literature regarding the Club's involvement in sport, the number of members and visitors, the Club's contribution to sport in the local community,

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the club's general involvement in the local community, staff employment details and sponsorship arrangements. This information covered the period from the Club's incorporation to the date of the Private Ruling request.''

(h) On 28 November 1996 a request for private ruling was lodged in respect of the years ending December 1996 to December 2000 (both inclusive). That application elicited a request from the Respondent for further information. Document T9 contains the request for private ruling (pages 41-74) and also contains the further information provided by the Applicant (pages 12-27). A favourable ruling was received on 19 December 1997; it too is included in T9 (pages 1-5).

(i) I interrupt this summary of the facts in order to note that Mr Gibbs advised me (and his statement to this effect was not disputed) that it is conventional as a matter of administrative practice to apply for a private ruling in respect of a block of 5 years and commencing with the year in which the application is made. It is for this reason that the Ruling was sought in respect of the years ending December 1996 to December 2000 (both years inclusive).

It is in these circumstances that it appears to me to have been logical enough to first seek the Ruling, and to defer any further applications and objections in respect of earlier years until its receipt.

(j) Clause 17 of Exhibit A2 reads as follows:

``As the Club's activities and objects in the period 1985 to 1995 were essentially the same as for the years for which the Private Ruling had been granted, and because the ATO had considered the Club's activities since its incorporation in 1960, I instructed [ the Auditors] to prepare objections to the Club's income tax assessments for the years ending 31 December 1985 to 31 December 1996 and, where necessary, to prepare an application for an extension of time to lodge those objections.''

(k) In March 1998 the Applicant lodged objections against each of its assessments for each of the relevant years and also the year ending 31 December 1992. No objection was lodged in respect of the year ending 31 December 1991 because it was a loss year. At the same time an application was made for an extension of time within which to lodge objections for each of the relevant years, and also the year ending December 1992. (An extension was not necessary in respect of the later years.) Exhibits A3 and A4 evidence the fact that the Respondent allowed the Applicant's objection for the year ending December 1992, and so that the only years for which an extension is sought by the Applicant are the relevant years.

(l) An objection was lodged in respect of the year ending December 1996 because the Ruling was sought after the return for that year had been lodged. Under the self-assessment regime, the return is deemed to be the assessment. The Ruling was, in its terms, applicable to the years ending December 1996 to December 2000 (both years inclusive). There was however an existing objection for the year ending December 1996 and also for the years ending December 1993 to December 1995; all of those objections were allowed in full.

6. (a) V's affidavit confirms the evidence of P and indeed there was no factual dispute as between the parties.

(b) As was noted above, document T9 contains the ruling request. It is indicative of the fact that it required the collection and collation of a large body of information. Pages 6-10 of document T9 are a case report by the Respondent which indicates that a large quantity of information was considered. Similarly, the additional information (T9 at pages 12-27) is lengthy and voluminous.

(c) Put succinctly, the Applicant's application for the Ruling involved a large amount of effort and careful consideration of all relevant aspects. On the basis of the Applicant's allegation that its activities in preceding years were substantially similar, and having regard also to its allegation that it expanded over the years, it is quite clear (as Mr Gageler very fairly and properly conceded) that the Applicant's objections in respect of the relevant years must have merit, and perhaps (although it is neither necessary nor desirable that I make any finding in this regard) even considerable merit. Each year must be considered separately and so that to succeed in respect of any relevant year, the Applicant would be obliged to establish that it was entitled to an exemption for that year; the onus would, of course, fall on the Applicant.

7. As to the law in respect of section 23(g)(iii) of the Act, I was referred to the decisions in
Cronulla-Sutherland Leagues Club Limited v FC of T 89 ATC 4936 (Hill J),

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Cronulla-Sutherland Leagues Club Ltd v FC of T 90 ATC 4215; (1990) 23 FCR 82 (Full Federal Court) and
St Marys Rugby League Club Limited v FC of T 97 ATC 4528 (Hill J). Although clause 7 of V's affidavit indicates that the law was not settled until the decision in St Marys, it would appear that it was in fact settled by the decision in Cronulla-Sutherland. See in this respect the following comments of Hill J in St Marys (at 4529-4530):

``The law governing the interpretation of the exemption was authoritatively settled in the judgment of a Full Court of this Court in Cronulla-Sutherland Leagues Club Ltd v FC of T 90 ATC 4215; (1990) 23 FCR 82 where it was held that the exemption was available in the circumstances where the applicant had as its main object or purpose in the years of income the object referred to in the subsection, namely, as the section presently stands, the encouragement or promotion of a game or sport.

The parties agree that in the subsequent decision in
Terranora Lakes Country Club Ltd v FC of T 93 ATC 4078 I correctly stated the law when I quoted Lockhart J in Cronulla-Sutherland at ATC 4225; FCR 95 where his Honour said:

`... It may have other objects or purposes which are merely incidental or ancillary thereto or which are secondary and even unrelated to the main object or purpose without disqualifying the body from the exemption. But if it has two co-ordinate objects, one of which is outside the exemption, the exception cannot apply because it would be impossible to say that one object is the main or predominant object.'

The question is thus one which goes to the character and nature of the applicant. That question of characterisation is to be determined having regard to the objects, purposes and activities of the taxpayer.

As the present case illustrates, however, the fact that the law may be said to be settled does not remove the difficulties of the Commissioner or a club in applying the law to the facts of a particular case. The reason is simple enough. Many, if not all, sporting clubs commence in a small way and in circumstances where there can be no doubt as to the characterisation of the club as a sporting club. A consequence of the exemption of the income of that club from tax is often that the club grows and prospers. Particularly, it engages in activities which are designed to raise money to be used to further the sporting activities. Activities so undertaken may include poker machines, liquor sales, bingo games and the like. There may, as I said in my judgment at first instance in Cronulla-Sutherland Leagues Club Ltd v FC of T 89 ATC 4936 at 4955, come a time when these other activities take on a life of their own. From being merely concomitant or incidental to the activities of sport, they become an end in themselves. That was the case in Cronulla-Sutherland. It had not happened to the Terranora Lakes Country Club. As each of those cases demonstrate and the present facts reinforce, the line to be drawn will be a difficult one. To determine on what side of that line the Club falls in the years of income in dispute, the years 1992 to 1995 inclusive, it is necessary to have regard, as Lockhart J observed in Cronulla-Sutherland at ATC 4225; FCR 95-96, to the constitution, activities, history and control of the body seeking the exemption.''

8. Mr Gibbs furnished me, during the course of his submissions, with relevant information as to the self-assessment system which now obtains in tax matters. It commenced in 1986 and was subsequently amended and extended. In 1989, the legislation was amended so that when a relevant entity furnishes a return, that return is deemed to be an assessment and is deemed to have been duly made. The private binding ruling system was introduced in 1992. I do not think it is necessary for me to go into detail as regards the progress of the relevant legislation.

9. (a) In dealing with the law I propose to commence with a lengthy quotation from the judgment (in my view authoritative) of Hill J in
Brown v FC of T 99 ATC 4516. (It overturned my decision refusing an extension of time in Case 7/98,
98 ATC 139.) Clauses 41 to 59 of that decision read as follows (at 4524-4527):

``41. In the comments which follow I propose to examine the matters raised by Wilcox J and their relevance to taxation objections generally and to the present case in particular. In doing so I would repeat that I should not be taken to be suggesting that in the present case the Tribunal erred in law in

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approaching the matter by reference to Hunter Valley Developments for this was the approach which the parties suggested to the Tribunal. And it must be said that at least some of the factors enunciated as guide lines in Hunter Valley may have relevance, notwithstanding the differing context in which they were formulated. Nor should I be seen to be criticising the comments which the Tribunal made in considering the Hunter Valley guidelines, other than the approach it took to the merits of Mr Brown's case. The Tribunal's comments, however, do serve to demonstrate that a number of the Hunter Valley Developments `guidelines' will often have no relevance to an inquiry such as the present for they are framed by reference to a quite different context. Too slavish an adherence to them should, in my view, be avoided.

42. The first matter raised by Wilcox J in Hunter Valley Developments was what his Honour referred to as the prima facie position, that Parliament has laid down time limits to be observed so that, absent a satisfactory explanation for the failure to comply with those time limits, an extension of time should not be allowed. Those time limits provide a legislative indication that there is to be some finality in the decision making process.

43. Within this first proposition lies implicitly the necessity for the applicant for an extension of time to provide an explanation for the failure to lodge an application in time, and, at least in the ordinary case, an acceptable explanation for that failure. This is explicitly the second matter which his Honour saw as relevant. Indeed the first three matters to which Wilcox J adverts are connected with each other.

44. It is true in the context of income tax, just as it is in the context of judicial review of administrative decisions, that the fact that the statute prescribes a time limit and that the applicant seeks an indulgence in extending that time limit, brings about the result that there will be a need to consider the circumstances which led to the time limit not being complied with.

45. It may be, as I suggested in Kim Hyun Tai, that the need to give an acceptable explanation in seeking an extension of time for the making of an application under the Administrative Decisions (Judicial Review) Act, requires reconsideration in the light of the decision of the full court of this Court in Comcare v A'Hearn (1993) 119 ALR 85.

46. In the context of an application to extend the time for lodging an objection it is clear enough that the circumstances which resulted in the objection not being lodged in time require consideration. Indeed the taxpayer's explanation for the delay, while not the sole factor, must clearly be an important factor. If there were no explanation it would be unusual for an extension of time to be granted. In some cases the explanation for the delay may be so compelling that it will almost require an extension of time to be granted. For example, where the assessment did not reach the taxpayer at all within the 60 days from being put into the post it would be rare for an extension of time not to be granted. Even where there is no particular explanation given for the delay, other than the belief that an objection would be futile, but subsequent to the expiration of time Court interpretations changed so that the possibility of the objection being successful arose, an extension of time would likely be granted.

47. While, therefore, the explanation for delay in lodging the objection will be an important factor, it is necessary to bear in mind that the decision maker should take into account all the circumstances of the particular case against the background that Parliament has enacted a procedure to permit extensions of time being granted. An extension should be granted where the justice of the case requires, cf
Wedesweiller v Cole (1983) 47 ALR 528 at 531 per Sheppard J, cited with approval in the present context by Sweeney J in
Fardon v FC of T 92 ATC 4339 at 4348. Neither the Commissioner nor the Tribunal on review should approach the question of determining whether an extension of time should be granted on the basis that it will only be in an exceptional case that an extension is granted.

48. The second factor raised by Wilcox J, as already noted, overlaps with the first. It involves, as well, the question whether an applicant for an extension of time has so

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rested on his rights as to lead the decision maker to believe that the matter has finally been concluded. His Honour refers in this context to the possibility that the passing of time may make it difficult for the decision maker to recall all the circumstances surrounding the making of the decision. That is no doubt important where what is being challenged is the making of an administrative decision. It has much less relevance where the substance of the challenge which a taxpayer wishes to make is the excessiveness of an assessment of the taxpayer's taxable income, a question which requires an investigation of the taxpayer's assessable income and the allowable deductions to be put against that assessable income. It is not as if the Commissioner has made a decision based on facts known to him at the time of decision where those facts may fade from the Commissioner's recollection if subsequently required to be recalled in the light of a court challenge to the making of that decision. Almost always the facts surrounding a particular transaction said to give rise to assessable income or to generate allowable deductions will be peculiarly within the knowledge of the taxpayer rather than the Commissioner. True it is that other witnesses may with the effluxion of time be unavailable to give evidence or become forgetful. But where the onus of proof is on the taxpayer to show that an assessment is excessive, delay in instituting the objection and appeal procedure may well more often prejudice the taxpayer than the Commissioner. In weighing up whether the delay may operate to the prejudice of the Commissioner because evidence available to him and which may support the assessment may become unavailable (and this would be a matter upon which evidence should ordinarily be advanced by the Commissioner) it will be necessary to consider the time which has elapsed between the event which is said to give rise to the assessable income and the making of the assessment itself.

49. In summary it is clear that in considering an extension of time the Commissioner (or Tribunal) must take into account the circumstances surrounding the failure to object in time and any explanation for delay which is given. The length of delay will likewise be relevant. But these are factors to be weighed against other matters, particularly the fact that to deny a taxpayer the right to have the assessment reconsidered by the Commissioner, or ultimately by the Tribunal or the Court, may be conducive to injustice.

50. In the present case the Tribunal determined that there was an explanation for the delay, although rightly observed that the decision not to object at the time was a conscious one. It pointed out that the prime motivation of Mr Brown was the possibility or even probability of bankruptcy. The Tribunal's reasons do not suggest that for this reason alone the extension of time should be refused.

51. The third matter discussed by Wilcox J is prejudice to the Respondent. As we have already seen this overlaps with the second matter discussed above. As I have already noted it may be a much more critical matter in applications for judicial review than in proceedings for extending the time in which a taxpayer may object. Except where the effluxion of time may affect adversely the ability of the Commissioner to defend an assessment, it is hard to see what prejudice there could be to the Commissioner in a case such as the present, or indeed in like cases, other than administrative inconvenience. The Commissioner is entitled to collect tax due under an assessment whether or not there is an objection. He is obliged to collect tax in accordance with a correct assessment, that is to say, to collect the correct amount of tax, no more and no less. If an assessment is excessive it would be improper for the Commissioner to seek to collect tax payable under it. In saying this I should not be understood as suggesting in the light of ss 175 and 177 of the Income Tax Act that a Court should go into the merits of an assessment outside the objection and appeal process.

52. It is true that if the taxpayer is not allowed to object the Commissioner in the result will not be required to repay tax which has perhaps been incorrectly assessed. But that is not prejudice to the Commissioner.

53. In matters of judicial review on the other hand there is more often the possibility that reopening a decision may cause prejudice

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because of a lapse of time. The context of public law will more readily give rise to prejudice than private tax disputes. In Fardon v FC of T at 4348 Sweeney J referred to what was said by Bray CJ in
Lovatt v Le Gall (1975) 10 SASR 479 at 485 as apposite. With respect I am of the view that it should be repeated:

`... ``If the defendant has suffered no prejudice, as when... he cannot show that he has lost anything by reason of the delay, it may well be that the court will not find it difficult to come to the conclusion that it is fair and equitable in the circumstances to grant extension''.'

54. The Tribunal properly regarded prejudice to the Commissioner as being irrelevant in the present case.

55. The fourth matter, related to the third, is stated by Wilcox J to be that the mere absence of prejudice will not be enough to justify an extension. That may be generally accepted, particularly in the context of judicial review. But the defining difference between judicial review and the ordinary taxation objection is that the former will often involve matters of public policy and interest. That is not ordinarily the case with income tax assessments. It would be more desirable if, under this head, the Commissioner or the Tribunal took into account against the absence of prejudice to the Commissioner, the considerable prejudice to a taxpayer who is otherwise denied a right of independent review of an assessment which he or she claims to be excessive.

56. The fifth matter is, as has already been noted, the merits. Given that the income tax legislation proceeds on the basis that there will first be an objection lodged and thereafter a consideration of that objection by the Commissioner, there is much to be said for the view that the merits of the objection are of less concern when an application for an extension of time to object is under consideration than would be the case where judicial review of an administrative decision is sought. For it is only after the objection is lodged within the time which is extended that the Commissioner is placed under a duty to consider the objection and allow or disallow it or allow it in part. I do not wish to be taken as saying that the merits of the objection are totally irrelevant. For present purposes I am prepared to accept the view of von Doussa J in Windshuttle that an applicant should show that he or she has an arguable case. No doubt if the objection on the face of it is one which is frivolous or bound to fail as a matter of law it would be a futility to permit an extension of time to enable it to be considered. But this points to quite a low threshold. What is involved is whether the objection on its face discloses a case which is arguable, not whether having regard to other matters, including evidence which may not even be known to the taxpayer at the time of making the application, the case is one that the taxpayer will or will probably lose.

57. The sixth matter raised by Wilcox J concerns considerations of fairness as between the applicants and other persons in like position. That is clearly a relevant matter when a public law issue is involved. It will seldom have any significance in the context of income tax assessments. In the present case the Tribunal appears to have considered that it should take into account persons who decided not to object to assessments. But there can here be no question of fairness arising so far as other taxpayers are concerned. They are entitled to lodge objections and if out of time to seek an extension of time in which to lodge their objections, just as Mr Brown is. If the tax is collected at the time it becomes due Mr Brown gains no advantage over other taxpayers. If it has not been collected, that is not a matter which is within Mr Brown's control.

58. In summary when a taxpayer seeks an extension of time in which to lodge an objection the following matters will require consideration:

  • 1. The taxpayer's explanation of the delay in lodging an objection against the assessment within the time stipulated by Parliament.
  • 2. The circumstances attendant upon that delay.
  • 3. Whether the objection is one which, on its face, is frivolous or which in law must fail, or, to the extent that this is indeed a different test, is one in which the taxpayer has no arguable case. This

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    matter will be considered by reference to the objection itself and such other material as the taxpayer puts before the Commissioner. It will seldom, if ever, require the decision maker to consider matters such as credit or endeavour to reconcile the evidence which the taxpayer choses to rely upon with other factual material in the possession of the Commissioner. No doubt the stronger the case the more likely that the discretion would be exercised in favour of a taxpayer even where the explanation for delay was thought not to be strong. Whether the converse is also the case need not here be considered.
  • 4. Such other matters as the circumstances of the particular case make relevant, including, if prejudice to the Commissioner be asserted, such prejudice as is shown to arise.

59. 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.''

(b) The decision extracted in subclause (a) was appealed to the Full Federal Court (
FC of T v Brown 99 ATC 4852) which affirmed the decision of Hill J. I do not think it necessary to refer at length to the Full Federal Court judgment, although Mr Gibbs did refer me in particular to clause 28, the first sentence of which reads as follows (at 4860):

``We wish to make it clear, however, that the AAT is not precluded from taking into account the apparent strength or weakness of taxpayer's case, when determining whether an extension of time should be granted, if the overall circumstances are such that the apparent strength or weakness of that case is properly to be regarded as a material consideration.''

(c) As I noted in
Assimakopoulos v FC of T 98 ATC 2037 there have been numerous cases which were referable to extension of time applications, some under the Act and some under other statutes. It does seem to me though that the summation of the law by Hill J in Brown is so clear, and indeed and with respect, so admirable a statement of the issues to be considered that I could decide this matter in the light of that summary alone. However, each of the parties cited a number of case authorities, and so much so that I consider that I should make reference to at least some of them. Before leaving the decision in Brown, I note in particular the judgment as to the extent to which certain relevant factors overlap; I note also that in a matter such as this, questions of prejudice to the Respondent or fairness in relation to other taxpayers are not likely to be of much relevance. I also think it pertinent to note in particular the second last sentence of point 3 of clause 58 of the decision of Hill J in Brown (at 4527). Merit is, of course, a relevant factor; see in this context
Zizza v FC of T 99 ATC 4166 (Katz J) which considered the question of the weight to be attributed to various factors. That decision affirmed my decision in Case 8/98,
98 ATC 155 refusing an extension of time. I had found that there was some merit in respect of some of the taxpayer's contentions, but that such merit was outweighed by the other relevant factors. Katz J held that ``... there is no support in the cases for the Tribunal's being required to give greater weight to the `merits' consideration...'' (at 4173). But that said, I do not consider that Zizza is inconsistent with the conclusion of Hill J in Brown that the stronger the case, the more likely it is that an extension will be granted. This is a case where the merits appear far stronger than they were in Zizza.

(d) I do not think it is necessary for me to refer further to the ``non-exhaustive guiding principles'' enunciated by Wilcox J in
Hunter Valley Developments Pty Limited v Minister for Home Affairs and Environment (1984) 58 ALR 305. They were succinctly paraphrased by Senior Member Fayle in Case 18/94,
94 ATC 204 (and repeated in clause 6 of Hill J in Brown) as follows (at 4517-4518 of Brown):

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``6. The Tribunal referred, as well, with approval to a paraphrase of these principles by Senior Member Fayle in Case 18/94,
94 ATC 204 at 206, where they are listed as follows:

  • `(i) prima facie, proceedings commenced outside the prescribed period will not be entertained. An extension of time will be granted, however, if it is proper to do so;
  • (ii) it is relevant whether the applicant rested on his rights or took action to make the decision-maker aware that the decision was being contested;
  • (iii) any prejudice to the respondent that would be caused by granting the extension of time is relevant;
  • (iv) any wider prejudice to the general public in terms of disruption to established practices is relevant;
  • (v) the merits of the substantial application are relevant; and
  • (vi) fairness of granting the extension of time as between the applicant and other persons in a like position is relevant...'''

(e) It must, of course, be noted (as indeed Hill J noted in Brown) that Hunter Valley was referable in its terms to the Administrative Decisions (Judicial Review) Act 1977 and not to the Act.

10. Mr Gibbs referred me to a number of authorities; a few references to or extracts from some of them should in my view suffice.

(a) In Hunter Valley, Wilcox J said:

  • (1) At pages 311 and 312:
    • ``In considering the authorities it is, I believe, important to bear in mind the point made by Sheppard J in Wedesweiller (at p 531) relating to the diversity of decisions as to which review may be sought under the Act: `... there will be some cases which may be decided upon considerations which affect only the immediate parties. It will be appropriate to consider whether the delay which has taken place has been satisfactorily explained, the prejudice which may be caused to an applicant by the refusal of an application, the prejudice which may be suffered by the Government or a particular department if the application is granted and, generally, what the justice of the case requires. In other cases wider considerations will be involved.' He went on to mention the reference to public interest made by Fitzgerald J in Lucic at p 416.
    • It is in relation to the former category of cases, ie those `which affect only the immediate parties' that the approach adopted by Bray CJ in
      Lovett v LeGall (1975) 10 SASR 479 at 485, in respect of private litigation but adopted in this context in both Doyle at p 287 and Duff at p 485, is apposite namely: `if the defendant has suffered no prejudice, as when he was well within the limitation period of the plaintiff's claim, or where the excess period of time is small, or where he cannot show that he has lost anything by reason of the delay, it may well be that the court will not find it difficult to come to the conclusion that it is fair and equitable in the circumstances to grant extension'.''
  • (2) At page 314:
    • ``In this case, and in contrast to most of the cases which have arisen in the court and which predominantly involve employment or industrial decisions, there is here no suggestion that any other person is affected, for good or ill, by the decision which has been made. The only consequence of the decisions to refuse the final certificate is to deny the applicants the taxation benefits which they would otherwise have obtained. The only implications of the case are, therefore, the extent of their taxation liabilities. Although the relevant decision is a ministerial decision made under a statutory authority, this is a case very similar to inter-parties private litigation, involving no other persons. The principle enunciated by Bray CJ is particularly applicable.''

These extracts accord with the judgment in Brown, namely that a dispute as to tax is more aptly characterised as private litigation.

(b) Mr Gibbs referred me in particular to clause 57 (at 4527) of the decision of Hill J in Brown and which is included in the lengthy quotation set out earlier in these Reasons. That clause indicates that questions of fairness in relation to other taxpayers will seldom be significant in respect of tax assessments.

(c)
Commr of State Revenue (Vic) v Royal Insurance Aust Ltd 94 ATC 4960; (1994) 182 CLR 51

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is a case in which an insurance company overpaid sales tax. The Commissioner was vested with a discretion as to whether a refund should be given. See in particular the following passage (per Mason CJ at ATC 4963-4964; CLR 64):

``In approaching that question, the first and foremost consideration is that the Act is a taxing Act and that in terms it confers no authority upon the Commissioner to levy, demand or retain any moneys otherwise than in payment of duties and charges imposed by or pursuant to the Act. In that context, there is no persuasive reason why the grant of a positive discretionary power to make a refund, once an overpayment of duty has been found by the Commissioner to have taken place, should be treated as a source of authority in the Commissioner to retain the overpayment in the absence of circumstances disentitling the payer from recovery. Nothing short of very clear words is sufficient to achieve such a remarkable result. The Court should be extremely reluctant to adopt any construction of s 111 which would enable the Commissioner by an exercise of discretionary power to defeat a taxpayer's entitlement to recover an overpayment of duty. No reason emerges for thinking that the purpose of the provisions was other than to confer legal authority upon the Commissioner to refund an overpayment found by her to have taken place.''

(d) Mr Gibbs referred me also to my decision in
Assimakopoulos v FC of T 98 ATC 2037 where I referred to a decision of Gray J (Presidential Member) in Case X52,
90 ATC 406 in the following terms (at 2044 of Assimakopoulos):

``This case concerned the discretion to amend the taxpayer's grounds of objection. In allowing the amendment, Gray J... held that:

`Obviously, delay is not an automatic bar, or there would be no point in the existence of a statutory discretion to allow the doing of an act outside the statutory time limit.'

The AAT also held that a `grave injustice' would be done to the applicant if his case is correct and the time not extended.''

(e) In the same case I referred to
Lighthouse Philatelics Pty Limited v FC of T 91 ATC 4942; (1991) 32 FCR 148 as follows (at 2044 of Assimakopoulos):

``In this case the Full Federal Court noted that the Commissioner's task in administering the Act is `to ensure that the correct amount of tax is paid, ``not a penny more, not a penny less''' and that the discretion (in this case to allow an amendment to the grounds of objection) is not to be exercised unjustly to prevent the correct application of the substantive provisions of the law to a taxpayer's circumstances.''

(Emphasis added by the Tribunal)

(f)
Comcare v A'Hearn (1993) 119 ALR 85; 45 FCR 441 indicates that an acceptable reason for delay is not a precondition for the bringing of such an extension application. (See also in this respect the comments of Hill J in Brown at 4525).

11. In a comparatively lengthy submission Mr Gibbs referred me to other decided cases to which I need not refer specifically. I note in brief that there are passages in
Brisbane South Regional Health Authority v Taylor (1996) Aust Torts Reports ¶81-402; (1996) 70 ALJR 866 and in
DFC of T v Mostyn 87 ATC 5056 which might be thought to be in the Applicant's favour. Nor do I think it necessary to refer specifically to Mr Gibbs' submissions as to a number of sections in the Act which deal with limitation periods and the extent to which they can be extended or disregarded.

12. (a) Mr Gibbs accepted that there has indeed been a lengthy delay. Mr Gageler referred me in this respect to the table contained in document T8, which reads as follows: 

+-------+-----------+---------------------------------------+
| "Year | Objection | Period late                           |
|       |    Date   |                                       |
|-------|-----------|---------------------------------------|
|  86   |  16/3/98  | 11 years, 1 month, 14 days            |
|-------|-----------|---------------------------------------|
|  87   |  16/3/98  | At least 8 Years, 6 months, 19 days   |
|-------|-----------|---------------------------------------|
|  88   |  16/3/98  | At least 8 Years, 6 months, 19 days   |
|-------|-----------|---------------------------------------|
|  89   |  16/3/98  | 7 years, 11 months, 17 days           |
|-------|-----------|---------------------------------------|
|  90   |  16/3/98  | 6 years, 11 months, 23 days           |
|-------|-----------|---------------------------------------|
|  91   |  16/3/98  | 5 years, 10 months, 13 days           |
|-------|-----------|---------------------------------------|
|  93   |  16/3/98  | 4 months, 20 days"                    |
+-------+-----------+---------------------------------------+

(b) My own view is that although the periods referable to the relevant years involved are

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lengthy, it is perhaps permissible to regard them as less than those set out in the table. The application for a Ruling was made in 1996, some two years earlier than the objections in respect of the relevant years were lodged. It was by no means unreasonable, as I have indicated, to await the Ruling before dealing with the assessments for prior years.

(c) There has nevertheless been a substantial delay. Moreover, the explanation is quite simply that until P became its chief executive officer, the Applicant was not aware that an exemption application was a realistic possibility. This is not a case of an Applicant resting on its rights or failing to make the Respondent aware of its intention to contest its rights. It is rather and quite simply a case of an Applicant who did not know that it had any rights. As indicated previously, the law in this area is by no means simple; nevertheless it would seem that the Applicant became aware for the first time in 1995, that it might have certain rights.

(d) Mr Gibbs accepted that the delay factor is against the Applicant. But as he correctly contended, it is only one factor to be weighed in the balance and in relation to all other relevant factors.

13. (a) Mr Gageler based his submissions in reply upon four aspects and being:

  • (1) The length of the delay;
  • (2) The quality of the delay;
  • (3) The lack of an explanation; and
  • (4) The public interest in finality.

(b) Mr Gageler referred me in particular to the decision of the High Court in Brisbane South Regional Health Authority (supra) and where McHugh J said (at Aust Torts Reports 63,635-63,636; ALJR 872):

``In enacting limitation periods, legislatures have regard to all these rationales. A limitation period should not be seen therefore as an arbitrary cut off point unrelated to the demands of justice or the general welfare of society. It represents the legislature's judgment that the welfare of society is best served by causes of action being litigated within the limitation period, notwithstanding that the enactment of that period may often result in a good cause of action being defeated. Against this background, I do not see any warrant for treating provisions that provide for an extension of time for commencing an action as having a standing equal to or greater than those provisions that enact limitation periods. A limitation provision is the general rule; an extension provision is the exception to it. The extension provision is a legislative recognition that general conceptions of what justice requires in particular categories of cases may sometimes be overridden by the facts of an individual case. The purpose of a provision such as s 31 is `to eliminate the injustice a prospective plaintiff might suffer by reason of the imposition of a rigid time limit within which an action was to be commenced.' But whether injustice has occurred must be evaluated by reference to the rationales of the limitation period that has barred the action. The discretion to extend should therefore be seen as requiring the applicant to show that his or her case is a justifiable exception to the rule that the welfare of the State is best served by the limitation period in question. Accordingly, when an applicant seeks an extension of time to commence an action after a limitation period has expired, he or she has the positive burden of demonstrating that the justice of the case requires that extension.

The scheme of the Act is that s 11 forbids the bringing of an action for damages for negligence after the expiration of three years from the date on which the cause of action arose unless leave is given under s 31. It follows that an applicant for extension must show that justice will be best served by excepting the particular proceedings from the general prohibition which s 11 imposes. In this context, justice includes all the relevant circumstances relating to the application including the various rationales for the enactment of the limitation period involved. That the applicant had a good cause of action and was unaware of a `materiel fact of a decisive character relating to the right of action' does not alter the burden on the applicant to show that the justice of the case favours the grant of an extension of time. Those facts enliven the exercise of the discretion, but they do not compel its exercise in favour of the applicant. Without them, the applicant has no right to call for the discretion to be exercised in his or her favour. Proof of them does not give the applicant a presumptive right to the exercise of the discretion, as

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Davies JA and Ambrose J held. As Wells J has pointed out, `to qualify is not to succeed'. The object of the discretion, to use the words of Dixon CJ in a similar context, `is to leave scope for the judicial or other officer who is investigating the facts and considering the general purpose of the enactment to give effect to his view of the justice of the case'. In determining what the justice of the case requires, the judge is entitled to look at every relevant fact and circumstance that does not travel beyond the scope and purpose of the enactment authorising an extension of the limitation period.''

[Footnotes omitted]

(c) Mr Gageler drew my attention to the fact that the relevant objection period under the Act was previously 60 days, rather than the present period of 4 years, and that in respect of an application for an extension, details were required and which included information as to the surrounding circumstances.

(d) Mr Gageler referred me also to the judgment of Hill J in Brown (clause 44) and pursuant to which it is necessary to consider the circumstances which led to the time limit not being complied with. He pointed out that the delay in this matter is lengthy and contended that it is not necessary to link delay to prejudice.

(e) And as to the quality of the delay, it is clear that the Applicant did nothing until P became its chief executive officer although the law had been settled some years earlier. And indeed P consulted with V in early 1996 leading to a further (short) delay until May 1996, and being the month referred to in clause 5(f) of these Reasons.

(f) Mr Gageler emphasised, as the Respondent had emphasised at length (and with no little skill) in document T8, the need for finality in tax matters. He cited the decision of Senior Member Fayle in
Boral Resources (WA) Limited v DFC of T 98 ATC 2158 and in particular clauses 45, 46 and 47 reading as follows (at 2168-2169):

``45. That in the public interest there needs to be finality in taxation matters is, it seems, axiomatic; cf
Lucic v Nolan (1982) 45 ALR 411 at 416; Case 36/94,
94 ATC 327 at 331; Pulitano and Telstra Corporation Limited, referred to in Case 26/95,
95 ATC 269 at 272; and
Assimakopoulos v FC of T 98 ATC 2037 at 2048 which also cites Case 33/93,
93 ATC 371. In this respect it was observed by the Tribunal in Case 37/96 (supra), a case where the issues were almost identical to the present case:

`If the application to extend time is granted on the ground of common law principles of unjust enrichment, despite the limitations imposed by statute, it would create massive disruption in the administration of the scheme regarding overpayments. A proper administration of the statutory provisions however, will not unsettle others or cause disruption to established practices.'

(p. 400)

46. In Assimakopoulos v FC of T, Senior Member Block, in agreeing with Senior Member Hallows in Case 33/93, said that taxpayers should not generally be able, years after the event, to seek to reopen old assessments simply because of an arguably different interpretation of the law.

47. All these considerations point to a rather obvious conclusion - that the respondent is generally, that is, except where fraud or evasion is manifest, estopped from reopening past assessments of fringe benefits tax made more than six years previously, whereas an employer may preserve his, her or its rights only by objecting within 60 days of the deemed assessment. But an employer can request an amendment to reduce a previous assessed liability for FBT if that request is made within three years of the deemed assessment in question. So where a court rules differently to accepted practice and exposes assessed FBT taxpayers to liabilities not previously anticipated, the respondent is able to reopen only those incorrect assessments made within six years. Where, however, the 60 day objection period has expired an employer may none the less lodge an objection with a request that it be accepted as within time - the situation now under consideration. The statute does not place a limit on the time when that may be done and one can readily bring to mind situations where to accept a late objection within time would be reasonable and just (see Taxation Ruling IT 2455).''

(g) Mr Gageler also cited
Mt Gibson Manager Pty Ltd v DFC of T 98 ATC 4012 where French J said (at 4017):

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``Finally the Tribunal had regard to considerations of fairness and the position of other persons similarly placed. It held that the fact that an extension of time was granted or not granted would depend on the factual circumstances of the particular case. Thus the only consequence of a decision to refuse an extension of time would be to deny the company taxation benefits it would otherwise have obtained. It would not be conclusive against other applicants who might rely on different factual circumstances. Considerations of fairness to others would not be raised by the decision. On that basis the Tribunal found that considerations of fairness to others would not support the granting of an extension of time.

Subsequent discussion by the Tribunal was brief. It quoted a statement of one of its senior members in another case which was referred to in Case 26/95,
95 ATC 269 [at 272]:

`Limitation periods in statutes are not to be ignored, and the policy behind this is clear; it works to the advantage of all parties concerned in litigation that matters are brought speedily to their conclusion, and limitation periods ensure that applicants commence actions promptly. But the discretion to extend time limits envisages that other matters may be relevant in fixing the period in which an applicant ought to be able to begin proceedings, and the strict enforcement of statutory time frames may be an anathema to the process of merit and judicial review which leads ultimately to what is just and equitable between the parties.'

Having quoted that passage the Tribunal concluded at par 44:

`This is a commercial case involving an applicant who had the benefit of professional advice and assistance in the preparation and lodgment of the income tax returns in the years in question. The Tribunal considers that, on all the evidence before it and in light of the principles in Hunter Valley, it is not appropriate to grant the extension of time sought by the applicant.'

For the preceding reasons the Tribunal affirmed the decision of the respondent.''

(h) Mr Gageler also referred me to other decided cases and in respect of which I do not think that a specific reference is necessary.

14. The decision of the High Court in
FC of T v Ryan 2000 ATC 4079; [2000] HCA 4 (3 February 2000) was handed down earlier this month. It is relevant, in some respects, to some of the issues before me. Clauses 18 to 22 of that decision read as follows (per Gleeson CJ, Gummow and Hayne JJ) [at ATC 4083-4084]:

``18. Although put in various ways, the taxpayer's contention was that it was `unjust' or incongruous or `absurd' if a taxpayer assessed to $1 tax could not be reassessed after the expiration of three years from the date on which the tax was due and payable, but a taxpayer who had been told by the Commissioner that nothing was owed, `remained at risk' without any limit of time.

19. There are several features of this contention that should be noted. First, it assumes that the Act adopts as a general policy or overall intention that `certainty and finality' be reached after a time. But the question for decision is what are the circumstances in which an amended assessment may lawfully be issued? That question is not answered by asserting the existence of any `policy' or `general intention' unless that policy or intention is to be found reflected in the provisions of the Act. Appeals to general notions of `fairness' or `justice' do no more than attempt to mask the absence of any foundation in the legislation for the conclusion which is asserted.

20. Further, since Batagol was decided, there have been committees of inquiry into taxation law which considered (among many other things) whether there should be a change in the law established in that case. Given that the recommendations of those committees about this matter were not implemented, it may be very much doubted that the Act, in the form in which it stood at the times relevant to this case, can be said to reflect some general policy in favour of certainty and finality.

21. In addition, any search for some unifying policy in the Act favouring certainty and finality must seek to accommodate the decision of this Court in DFC of T v Moorebank Pty Ltd. There the

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Court held that the provisions of the Act dealing with collection and recovery of taxation constitute a scheme that covers the field, contains no limitation provision, and does not leave room for the importation of State limitation provisions.

22. Secondly, it is important to recall the `risk' to which it is said that a taxpayer is exposed if s 170(3) is not construed as the taxpayer contended it should be. The risk is that taxpayers will be called on to pay amounts that are lawfully due under the statute. In those circumstances, applying the word `risk' may be seen to carry with it some unwarranted pejorative connotation. Nevertheless, it must be recognised that the call may be made well after the year of income concerned. This may well cause hardship, or at least inconvenience, to a taxpayer who has ordered his or her affairs on the basis of the Commissioner's earlier statement that nothing was owed. But hardship or inconvenience is seldom, if ever, sufficient reason for not complying with a statutory obligation. Further, insofar as the argument seeks to suggest that the Commissioner should be precluded from assessing what is due, it is a proposition that encounters the serious difficulties that lie in the way of applying doctrines of estoppel in circumstances of this kind.''

[Footnotes omitted]

15. (a) The decision in Ryan is clear authority for the proposition that ``certainty and finality'', however desirable, are not concepts which are addressed by the Act.

(b) It must be remembered that the decision in Boral, even though it is supportive of the Respondent's position, is a decision of a Senior Member of this Tribunal.

16. (a) At the end of the day I must come to a decision, having regard to all relevant factors, as to whether I should exercise my discretion in favour of the Applicant.

(b) The delay was, as I have said, lengthy and indeed there was no real explanation for it unless it is possible to take the view that the Applicant's ignorance of its rights constitutes an explanation of a sort. This is a factor weighing against the Applicant.

(c) But there are other factors which favour the Applicant. It did not rest on its rights because it did not know it had any. There is no prejudice to the Respondent and, as indicated by Hill J in Brown, considerations of fairness in relation to other taxpayers are unlikely to be relevant in a tax matter. If there are other clubs in a similar position, they too may be entitled to relief.

(d) ``Finality'' is not, however, a necessary aspect of the Act; so much is clear from the decision in Ryan.

(e) That there is merit in favour of the Applicant cannot be doubted. Its case may or may not be strong, but the actions of the Respondent in relation to later years are indicative that it is more likely than not that the Applicant has a strong case on the merits, and as set out previously, Hill J in Brown indicated that the stronger the case the more likely it is that the application will be granted.

(f) The ``not a penny more and not a penny less'' argument emerging from Lighthouse Philatelics must be significant in a case such as this, and especially where any countervailing finality argument has been substantially weakened by the decision in Ryan.

(g) As Hill J said in Brown (and as indicated previously in these Reasons) there is some degree of overlap between certain of the relevant factors to be taken into consideration. Where a taxpayer pays tax in ignorance of the fact that he is probably not obliged to do so, and where he takes remedial action as soon as, or at all events within a reasonable period after he becomes aware of his rights, it is my view that justice demands that he be afforded an opportunity to pursue those rights. I am mindful of the fact that I am here concerned with remedial legislation, and which should be interpreted accordingly. This assumes of course that there is no prejudice to the Respondent and this is so in this case. Such a view must, in my opinion, outweigh the delay factor.

(h) There is, as set out previously, no prejudice to the Respondent.

(i) There is no need (having regard, inter alia, to Hill J in Brown) to take into account considerations of fairness in relation to other taxpayers.

(j) In light of the decision in Ryan, finality, however desirable, is not a decisive factor.

(k) Although, as Mr Gageler correctly contends, the law was settled at the time of Cronulla-Sutherland, an exemption application was by no means then or thereafter simple or free of complexity; on the contrary, it required,

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as the T Documents demonstrate, considerable time, trouble and presumably expense.

17. The delay is undoubtedly lengthy in respect of the 1985 relevant year and less so in relation to later years. It is not as lengthy as the table indicates if one takes into account that the effective ``start'' date was 1996 and not 1998. It may be that there is a time limit beyond which one should not go; Mr Gageler pointed out that the longer periods are in excess of statutory limitation periods. It may be that in allowing an extension of time in respect of all relevant years, and not some of them only I am approaching or am indeed at the limit. But I do not think that this is a case where it is possible to distinguish realistically between the 1995 relevant year and the 1990 relevant year on the basis that there are some relevant years on either side of the divide. The delay in either event is lengthy, and explicable only by the fact that the Applicant became aware of its rights some considerable time after they arose. It is also relevant, I think, to have some regard to the fact that in broad terms, relevant time periods have increased under self-assessment. Weighing up all of the factors as best I can, I incline to the view that justice will best be served by granting the relief sought.

18. It is for these Reasons that I think it just to exercise my discretion in favour of the Applicant. Accordingly, the objection decision under review is set aside, and the objections in respect of the relevant years must be treated as duly made.


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