SAFFRON v FC of T
Judges:Beaumont J
Court:
Federal Court
Beaumont J
I have now heard evidence and submissions on the remaining issues, viz. additional tax and costs.
Additional tax
As has been noted, only the 1984 assessments are before the Court. (The 1987 assessments are before the Tribunal and will be dealt with in separate reasons for decision.)
As has been said, the 1984 assessments, issued on 2 March 1984, were made in respect of the years ended 30 June 1977-1982. However, additional tax was assessed in respect of the year 1977-1981, i.e. not for the year ended 30 June 1982. This year of income was treated differently by the Commissioner because, as has been noted, previous losses were not carried forward.
The amounts of the assessments
Details of the 1984 assessments of additional tax are as follows:
----------------
1. 1977 year: Tax avoided -- $5,897
---------- Additional tax -- $11,278
(i.e. 191%, expressed as a percentage -- total penalty
to tax avoided)
2. 1978 year: Tax avoided -- $39,580
---------- Additional tax -- $49,475
(i.e. 124%)
3. 1979 year: Tax avoided -- $24,454
---------- Additional tax -- $40,905
(i.e. 167%)
4. 1980 year: Tax avoided -- $74,318
---------- Additional tax -- $117,677
(i.e. 159%)
5. 1981 year: Tax avoided -- $65,875
---------- Additional tax -- $94,833
(i.e. 143%)
----------------
The legislative context of the assessments of additional tax and the statutory power to remit
It is common ground that the 1984 assessments were made pursuant to the provisions of s. 226(2)(a) of the Income Tax Assessment Act 1936 (``the Assessment Act'') in the form in which it was inserted in that Act by No. 76 of 1982, s. 10, effective 13 September 1982. Relevantly, s. 226(2)(a) provided:
``226(2) Any taxpayer who-
- (a) omits from his return any assessable income;
- ...
shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him, or the amount of $2, whichever is the greater.''
It is also common ground that the remission provisions contained in s. 226(3) of the Act were, at all material times, as follows:
``226(3) The Commissioner may in any case, for reasons which he thinks sufficient, and either before or after making any assessment, remit the additional tax or any part thereof.''
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(As has been noted, the taxpayer was convicted of the offence of conspiring to defraud the Commonwealth - Crimes Act 1914, s. 86A. It is agreed that there is a close nexus between the facts involved in the criminal trial and these tax appeals. Section 226(4) of the Assessment Act provided:
``226(4) If in any case in which a taxpayer is liable to pay additional tax under this section a taxation prosecution is instituted in respect of the same subject matter, the additional tax shall not be payable unless and until the prosecution is withdrawn.''
However, s. 226(4) could not apply here. By s. 222 it was provided that, in Part VII, ``taxation prosecution'' means ``a proceeding by the Crown for the recovery of a pecuniary penalty under this Act''. (My emphasis.) As has been said, the Crown proceeded under the Crimes Act.)
The statutory ``appeal'' provisions
The taxpayer now seeks judicial review (i.e. ``appeals'') in respect of the Commissioner's relevant decision-making process. As has been said, the relevant assessments were made in March 1984. The taxpayer objected in May 1984. The Commissioner disallowed the objections in July 1984. The taxpayer requested the Commissioner, in September 1984, to treat the objections as appeals and to forward them to the Supreme Court of New South Wales. This was done in August 1985. However, in November 1985, the taxpayer was charged with the offence of conspiracy. In September 1986, he was committed for trial. He was tried in 1987, convicted and sentenced. He appealed. His appeal was dismissed in 1988. The hearing of the tax appeals could not proceed until the criminal charges had been finally dealt with.
It is common ground that the relevant legislative provisions are as follows:
By s. 186 of the Assessment Act, the Commissioner ``shall consider the [taxpayer's] objection, and may either disallow it, or allow it either wholly or in part, and shall serve the taxpayer... with written notice of his decision.''
By s. 187(1) of the Assessment Act, as it stood in 1984, a taxpayer "dissatisfied with the decision may, within 60 days after such service, in writing request the Commissioner either-
(a) to refer the decision to a Board of Review for review, or
(b) to treat his objection as an appeal and to forward it to a specified Supreme Court."
By s. 197 of the Assessment Act, as it stood in 1984, ``where, at the request of the taxpayer, the Commissioner has treated his objection as an appeal and forwarded it to a Supreme Court, the appeal shall be heard by a single Judge of the Court''. By s. 199(1), ``the Supreme Court hearing an appeal under s. 197 may make such orders as it thinks fit, and may by such order confirm, reduce, increase or vary the assessment''.
By s. 4 of the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987, transitional provisions were made relating to taxation laws, including the Assessment Act. By s. 4(3) where, under a provision of a relevant tax law, an objection had been forwarded to a Supreme Court but the hearing of proceedings in respect of the objection had not begun before 1 September 1987, the proceedings were transferred to the Federal Court as if the objection had been forwarded to this Court; and the Federal Court has jurisdiction to hear and determine the proceedings (s. 4(3)(a), (b), (c)).
The Commissioner's decision-making process
The Commissioner's process of decision- making, in the present connection, proceeded in two stages: (1) the making of the assessments; and (2) the review of the assessments upon considering whether to disallow the taxpayer's objections.
(On behalf of the taxpayer, it was contended that, in these proceedings, only (1) was relevant and that (2) was irrelevant. I have difficulty in accepting this. It is true that, in the substantive sense, the ultimate question for the Court is whether the taxpayer has discharged the burden of proving that the assessment is excessive (Assessment Act, s. 190(b)). But it does not follow that material coming into existence after the making of the assessment is irrelevant. Such material may well be relevant in the adjectival sense, for instance, to the question of what relief the Court should, in the exercise of its discretion, grant. Moreover, events happening after the assessment was made could well throw light on the question whether the assessment was excessive. As has been said, this is judicial review of the Commissioner's administrative action, including his own processes of review, not an ``appeal'' in the strict sense.)
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(a) The making of the assessments
The decision to assess the additional tax was made, on behalf of the Commissioner, in February 1984 by Mr. K.D. McColl, then a supervisor in an investigation unit. Mr. McColl had regard to several reports of another officer, Mr. A.C. Morrow, and to the Commissioner's Taxation Ruling No. IT 2012, dated 14 February 1983, which deals with the subject of remission under s. 226(3) of additional tax imposed by s. 226(2).
In the preamble to the Ruling, the following is stated:
``2. It is appropriate to remember that it is s 226(2) which imposes the penalty and the provision automatically comes into effect as soon as the conditions for its operation exist, ie there has been an understatement of taxable income etc. The extent of the penalty, ie double the tax avoided, is an indication of the seriousness with which the Parliament regards evasion. What authorising officers are doing, of course, in determining a rate is remitting a penalty, in whole or in part, that has already been imposed and they remit only for reasons considered as sufficient. The new guidelines give an indication as to the reasons that might be regarded as `sufficient' for the purposes of s 226(3).
3. The purpose of the heavy penalties imposed by s 226(2) is to ensure the accuracy of returns on which the income tax system is based. It is clear from the wording of that provision that those penalties are not intended to be applied only in cases of fraud or other deliberate evasion but also where the evasion is a result of factors such as carelessness, ignorance of the law, etc. The policy relating to the remission of additional tax has been framed accordingly.''
The Ruling itself is, relevantly, as follows:
``RULING
7. This ruling consists of-
- (a) guidelines in the form of a broad outline of the approach which ought generally to be adopted in the exercise of the discretion under s 226(3) paragraph (8) and explanatory notes regarding particular aspects of that approach (paragraphs 9-30);...
- ...
Guidelines for remission of s 226(2) additional tax
8. The discretion under s 226(3) should be exercised so as to reduce the penalty imposed by s 226(2) in accordance with the following guidelines.
...
Non-voluntary Cases, ie all other adjustments to which s 226(2) applies (Note 2) - a basic penalty of -
- • 10 per cent per annum of the tax avoided for the period up to and including 13 February 1983 and 20 per cent per annum thereafter (see Note 3), plus
- • 40 per cent of the tax avoided
subject to increase by a further percentage of the tax avoided (as indicated below [see, relevantly, (a), (c) and (e) below]), depending on the seriousness of the offence, for each of the following circumstances that exists (Note 4).
- (a) Deliberate steps have been taken, either before or after commencement of official enquiries, to conceal omitted income or support a false claim (Note 5) - 10 per cent to 50 per cent.
- ...
- (c) There has been previous tax evasion by or on behalf of the taxpayer (Note 7) - 10 per cent to 50 per cent.
- ...
- (e) There is other tax evasion, not subject to additional tax under s 226(2), by or on behalf of the taxpayer (Note 9) - 10 per cent to 50 per cent.
The basic rate of penalty (10 per cent or 20 per cent per annum plus 40 per cent flat), subject to increase as indicated above, is to be applied to all items penalisable under s 226(2) except in certain limited situations where the statutory penalty may be further reduced (Note 10). Care should, of course, be exercised to ensure that the penalty calculated in accordance with the above guidelines does not exceed the statutory maximum of 200 per cent of the tax avoided.''
The following ``Notes'' are presently material:
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``Note 5
21. An additional percentage of the tax avoided should be added to the basic penalty where deliberate steps have been taken to conceal the evasion. Instances would be accounts or other assets under a false name, falsified invoices, altered cheque butts and the like, or where the taxpayer works under a false name, by means of which omitted income has been concealed or claims for false deductions or rebates supported. Although these acts will be of varying degrees of seriousness, it is considered that by far the greater part of offences will fall within the 10 per cent to 25 per cent range with the higher end of the range being reserved for extreme cases of fraud. Examples of cases falling within the lower half of the scale would be the falsification of several documents to support a false claim or the omission of income of, say, $200 from a single building society account in a false name. Of these the former may be the more serious in which case it should attract a slightly higher rate of penalty. As all the circumstances of a particular case need to be taken into account in determining the seriousness of an offence it is not practicable to illustrate the particular percentage of penalty different situations would attract.
...
Note 7
23. Further penalty should also be applied where previous tax evasion, or participation in a tax avoidance scheme which has been subject to s 226(2) penalty, has occurred. Where the former applies the rate of additional tax will depend on whether the evasion was considered deliberate or not and the extent and number of previous offences. For example, a situation where substantial omissions, considered deliberate, are established and the taxpayer has been the subject of two previous investigations within the past 10 years, substantial understatements having been found in all years examined, would obviously attract a penalty in the upper end of the 10 per cent to 50 per cent range. A Husband/Wife Check case detected and penalised for the second time would also warrant additional penalty under this heading but possibly in the middle range of this category.
...
Note 9
25. When deciding a taxpayer's degree of culpability regard should also be had to the extent to which the taxpayer has understatements of taxable income additional to those to which section 226(2) applies. Accordingly, a further percentage of penalty should be added where tax evasion involving non-penalisable items has occurred. The rate of this additional penalty will depend on the extent of the evasion and whether it is considered deliberate or not. It is envisaged that, as non-penalisable adjustments usually constitute only a small proportion of overall understatements, the majority of cases would fall within the lower half of the penalty scale provided.
Note 10
26. The purpose of this note is to give an indication of the kind of case where the statutory penalty may be remitted beyond what these guidelines refer to as the basic penalty, or the basic rate of penalty. As is indicated in Note 2, penalties should not be reduced beyond the basic rate merely because the taxpayer claims the understatement or overclaim was the result of carelessness, or ignorance as to liability to tax, or the fault of his agent. For the statutory penalty to apply, an intent to evade tax is not required. As Evatt J said in
FCT v Trautwein (No 3) (1936) 56 C.L.R. 211 at 217: `The object of the section is to impose a heavy penalty so as to ensure the accuracy of returns, upon which the whole income tax system of the Commonwealth is based'.27. It is acknowledged, however, that from time to time there will be cases where the appropriate circumstances warrant further remission of the s 226(2) penalty. These cases should be seen as limited and exceptional. It is not possible to specify all those situations where it is considered further remission is warranted but in broad terms they will be situations where, more often than not because of a combination of circumstances rather than a single circumstance, the taxpayer's offence is considered either wholly or substantially excusable. Thus, while no one factor such as carelessness, ignorance, serious ill health or advanced age would normally warrant
ATC 4461
further remission, the presence of two or more of such factors might well amount to extenuating circumstances warranting a reduction in penalty.28. In listing a number of circumstances regarded as sufficient to warrant further remission of penalty it is pointed out that the list is not intended to be exhaustive but only an indication of the kind of circumstances warranting further reduction of the penalty. At the same time, it is emphasised that the kinds of cases indicated are intended to be exceptional and limited. A broad brush approach should not be taken.
29. Subject to these comments, circumstances of the kind warranting further remission would include cases where you are satisfied that-
- (i) the taxpayer's offence was occasioned by carelessness of a less serious nature and there are other mitigating factors, eg advanced age or serious illness, which excuse that carelessness to a substantial extent;
- (ii) the taxpayer's offence was occasioned by ignorance of the law in the sense that, in the particular exceptional circumstances, he could not reasonably be expected to have been aware of the requirements in question;
- (iii) the taxpayer has made a genuine and, in the particular exceptional circumstances, excusable mistake in interpreting the law. (Both this and the preceding kind of case could probably only occur where the return was not prepared by an agent);
- (iv) the office adjustment is clearly contentious. This does not mean that there should be a further remission of penalty merely because the precise quantum of the adjustment cannot be proved. A lower penalty should be considered only where the quantum or legality of the adjustment is open to serious and genuine dispute; or
- (v) the effect of the penalty, having regard to the taxpayer's net assets and his potential earning capacity, would be such as to amount to a `ruinous imposition', i.e. leave the taxpayer with little or no remaining assets.
30. In cases such as these the circumstances will have been considered sufficiently exceptional to warrant a further reduction in the penalty on the grounds that the taxpayer's offence was either substantially or wholly excusable. In the former case, ie where the offence is considered substantially, but not wholly, excusable, a reduction in what might be called the culpability component of the penalty to say, 15 per cent might be appropriate. In the latter case, where the circumstances are so exceptional that the taxpayer's offence is considered to be wholly excusable, the whole of the culpability component of the penalty may be remitted. Any remission of the per annum component of the penalty should be allowed in only the most exceptional cases.''
Mr. McColl said that he had regard to Mr. Morrow's view that, in accordance with para. 8 of the Ruling, aggravating factors (a), (c) and (e) were applicable here. As has been noted, a range of 10% to 50% was mentioned in para. 8(a). Here, 50% was assessed. A similar range was mentioned in para. 8(c). Here, 20% was assessed. A similar range was mentioned in para. 8(e). Here, 15% was assessed.
That is, a total of 85% of the tax avoided was allowed for these ``aggravating factors''. (In addition, as has been seen, a 10% p.a. component was allowed to 13 February 1983, together with a component of 20% p.a. from 14 February 1983, together with a ``flat rate component'' of 40%. No challenge is made in respect of these items.)
Mr. Morrow's views were stated in a report dated 24 February 1984 as follows:
"REPORT ON PENALTIES
AUDITOR'S COMMENTS - see folio attached.
It is submitted that `Aggravating Factors' (a), (c) and (e) apply in this case.
FACTOR (a)
The understatements of income have been detected by examination of a `second set of books' for a number of businesses associated with the taxpayer and a comparison of those details with entries in a book styled `A.S.'. Details concerning the `A.S.' Book are outlined in the Supplementary Report attached. As the entries in these books are related to amounts
ATC 4462
withdrawn by Mr Saffron from the takings of various establishments and other sources under his influence and/or control and, as those amounts have never been returned as income in the various income tax returns of neither the entity concerned nor Mr Saffron, the extent of penalty recommended is 50%.FACTOR (c)
It is submitted that this factor applies because a previous Investigation into the taxpayer's affairs, which was completed in June 1972, revealed shortages of income ($5,538) and consequent evasion of tax ($3,174.40) for the 1966, 1967, 1969 and 1970 years of income.
Additional tax in terms of sub-section 226(2) of $792 (25% of tax evaded) was added to the amendments. Additionally, the taxpayer has been involved in tax avoidance schemes [see, however, below] and additional tax in terms of sub-section 226(2) has been imposed in that regard. Because the previous evasion could not be viewed in anyway [sic] as a `substantial omission', I am recommending that the penalty applicable should be at the lower end of the 10%-50% scale and 20% is suggested in this regard.
FACTOR (e)
The adjustment to be effected to the 1981 and 1982 returns incorporate the deletion of sub-section 80 losses which were allowed when originally assessing the returns. It is necessary to delete these substantial losses because the additional income now being added far exceeds the losses assessed. As sub-section 226(2) does not apply to these loss adjustments, this factor should apply to compensate the Revenue. The penalty recommended is 15%.
SUMMARY
In the circumstances, it is recommended that the Commissioner's discretion under sub- section 226(3) be exercised so as to reduce the additional tax imposed by sub-section 226(2) as follows:-
(a) Per Annum -- 10% per annum to
Component 13.2.83
-- 20% per annum from
14.2.83
(b) Flat Rate
Component -- 40% of tax avoided
-- 50% of tax avoided for
Factor (a)
-- 20% of tax avoided for
Factor (c)
-- 15% of tax avoided for
Factor (e)''
Beside ``Factors (a), (c) and (e)'', Mr. McColl had written a reference to ``Notes 5, 7 and 9'' respectively.
(b) The disallowance of the taxpayer's objections
As has been said, the Commissioner disallowed the taxpayer's objections. This was done in July 1984 by Mr. J.C. McCauley, another supervisor, who had regard to several reports made by Mr. B.W. Saunders, a senior investigation officer, together with the earlier reports of Messrs McColl and Morrow. Mr. McCauley said in his evidence that he considered that the amount of additional tax was appropriate and in accordance with the guidelines in the Commissioner's Ruling.
The nature of the present ``appeals''
As has been mentioned, the present ``appeals'' are, in truth, not appeals from decisions, but applications, made pursuant to statute, for judicial review of administrative action. It is common ground that in respect of the 1984 assessments, now before the Court in this sense, judicial review may be granted where the taxpayer shows that the assessment of additional tax is ``excessive''. It is said, on behalf of the taxpayer, that, in respect of ``aggravating factors'' (c) and (e), the present matter falls within the statement of principle made by Dixon J. in
Avon Downs Pty Ltd v FC of T (1949) 9 ATD 5 at 10; (1949) 78 CLR 353 at 360. The Court's power to review judicially a discretion conferred upon the Commissioner, such as s. 226(3), was there explained as follows:
``His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub- section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his
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decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.''
See also
Babka v FC of T 89 ATC 4963; (1989) 89 ALR 373 per Hill J. at ATC 4972; ALR 384;
FC of T v Jackson 90 ATC 4990; (1990) 27 FCR 1 per Hill J. at ATC 5000; FCR 13.
The taxpayer's challenge
On behalf of the taxpayer, the imposition of additional tax in respect of each of ``aggravating factors'' is challenged. It is submitted that the processes undertaken were flawed in concept in certain respects, wrong in principle and manifestly unreasonable, whether looked at individually or in terms of an overall outcome. It is also said that the ruling itself is unreasonable.
It is convenient first to look at each of the challenged factors separately and then, if necessary, to consider the result overall.
(1) Aggravating factor (c)
It will be recalled that, under the guidelines in the Ruling, a further percentage of the tax avoided, in the range 10% to 50%, might be imposed if there had been previous ``tax evasion'' or, as Note 7 stated, ``tax avoidance'' and s. 226(2) additional tax assessed in that connection. No tax avoidance scheme has been suggested before me, despite the assertion to the contrary in Mr. Morrow's report in February 1984.
By letter dated 16 August 1990, the Australian Government Solicitor provided further particulars of the Commissioner's allegation that there had been previous tax evasion by the taxpayer as follows:
``2(a) An audit was [conducted in respect of] Mr Saffron [involving] the period 1966 to 1970. The audit concluded that $5,538 in income was understated and additional [income but not penalty] tax amounted to $3,174.40. Penalties of $792 were imposed. No fraud was detected. The adjustments were the result of accounting omissions...''
Mr. McCauley, but not Mr. McColl, said in his evidence that he took into account the Commissioner's documentation of the investigation of the taxpayer's affairs in the period 1966-1970. That documentation (Ex. ATJ) shows (Part G) that there were three items of omitted income: (1) Interest ($503); (2) Director's fees ($200); (3) Value of board and quarters ($4,159) - a total of $4,862. As has been said, the tax avoided was $2,773 and penalties totalling $792 were assessed.
In Part J of Ex. ATJ the following comments are sought from the officer responsible:
``1. In which years are understatements submitted to be due to-
- (a) fraud or evasion?
- (b) non-disclosure of all material facts?''
In completing the document, no comment was made by the officer in respect of item (a), but in respect of item (b) the following comment was written:
``1966 to 1970''
On behalf of the taxpayer, reliance is placed upon the officer's approach. It is said, for the taxpayer, that ``evasion'' has a settled meaning in revenue law; and that its meaning could not be applied here whether there was no more than an omission to return income.
In
Denver Chemical Manufacturing Company v FC of T (1949) 9 ATD 60; (1949) 79 CLR 296, Dixon J. said (at ATD 64; CLR 313-4):
``To apply these principles it is necessary to consider what relevant conduct amounts to evasion and whether the Board correctly applied their minds to the question of evasion. I think it is unwise to attempt to define the word `evasion'. The context of s. 210(2) shows that it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the Commissioner should consider the taxpayer
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liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion. [Emphasis added]In the present case the Board concluded that the appellant intentionally omitted the income from the return and that there was no credible explanation before them why he did so. They thought that the conduct of the taxpayer answered the description of an avoidance of tax by evasion. The majority of the Board expressed their conclusion thus by adopting the expressions used by Mr. Justice McTiernan in Barripp's case [Barripp v. Commissioner of Taxation...] That part of their reason seems to me to be a statement which brings the case completely within s. 210(2)(a) and to state a conclusion which exhibits no error of law...''
See also
FC of T v Westgarth & Anor (1949-1950) 81 CLR 396 per Fullagar J. at 414;
Australasian Jam Co Pty Ltd v FC of T (1953) 10 ATD 217; (1953) 88 CLR 23 per Fullagar J. at ATD 223; CLR 34.
In my opinion, ``evasion'' is used in the Ruling in the above sense. That is to say, some blameworthy conduct (as Dixon J. put it) or active or passive fault (as Fullagar J. expressed it) must have occurred.
As has been seen, the main item of omitted income was the ``Value of Board and Quarters'' in the amount of $4,159 (Ex. ATJ - Part G). This item was discussed in the Supplementary Report of the Senior Investigation Officer, dated 13 June 1972, as follows:
"SPECIFIC ADJUSTMENTS
24. The adjustments detailed in folio 41 have been agreed to by the taxpayer and, except for section 26(e) adjustments, were caused no doubt by the complexity of his affairs and the difficulty of communication between the different accountants employed. [Emphasis added]
VALUE OF BOARD AND QUARTERS
25. Saffron and his family occupied a serviced flat at `Raffles Private Hotel', Ramsgate Avenue, Bondi which was conducted by Tirrana Pty Ltd but no adjustment was made in the accounts for the rent free tenancy. In accordance with the rates set out in Instructions to Assessors 257 of 30 September 1966, an amount of $1,092 was determined as applicable to the two adults and child involved for 1967 and in the statement of adjustments (folio 41) the amount has been reduced for prior years pro rata with base wage rate variations.
26. In May 1967 Saffron and his family removed to 109 Hopetown Avenue, Vaucluse, a property owned by Anson Investments Pty Ltd. A.19151, and Saffron's loan account was debited with a rent of $40 per week. After considerable discussion as to the standard of the premises it was decided to accept the rental arrangements for the month of June 1967 but it was determined that the following amounts would give a more reasonable reflection of the value to Saffron of the occupancy of the property:-
Rental Gas, Elect,
Year Value Phone Total Returned Increase
1968 $50 p.w. $2 p.w. $52 p.w. $40 p.w. $624 p.a.
1969 $50 p.w. $2 p.w. $52 p.w. $40 p.w. $624 p.a.
1970 $55 p.w. $2 p.w. $57 p.w. $40 p.w. $884 p.a.
27. The last valuation of the property was on 27 August 1968 and on the basis of the principles outlined in N.S.W.I.T.C.M. 734, a rental value equal to 6% of the I.C.V. of $44,000 would amount to $50 p.w. The values proposed in para. 26 are well in excess of this and for 1971 will be increased to a total of $62 per week.
28. Agreement to accept the proposed adjustments was obtained on the basis that the adjustment for the value of board and quarters supplied at Ramsgate Avenue, Bondi and the adjustment for the excess value over that returned by the company in respect of Hopetown Avenue, Vaucluse would be effected in the personal assessments of the taxpayer. Adjustment on
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the basis suggested, in view of the agreement obtained, do not conflict with the instructions in N.S.W.I.T.C.M. 750 and acceptance of the proposal is recommended."In my view, this could not be described as tax ``evasion''. Nor, as has been said, was it so described by the Commissioner's officer in Part J, Note 1, of Ex. ATJ.
It follows, in my opinion, that the Commissioner has addressed the wrong legal question in this connection. The matter should, to this extent, be remitted to the Commissioner for further consideration (see, e.g.,
Sinclair v Mining Warden at Maryborough & Anor (1975) 132 CLR 473 per Barwick CJ at 480; per Gibbs J. at 483).
In these circumstances, it is not necessary to deal with the other arguments advanced on behalf of the taxpayer in the present context.
(2) Aggravating factor (e)
As has been seen, for this factor to apply, again, there must have been ``evasion''. Yet the evidence discloses no more than that the taxpayer made a claim to carry forward losses when, in truth, the losses were not so available. Again, in my view, this does not indicate the existence of the necessary ingredient of blameworthiness. It must follow that, here also, the Commissioner has not addressed the correct legal question. To this extent, also, the assessment will be set aside and this aspect of the matter remitted to the Commissioner for his reconsideration.
Costs
The Commissioner succeeded on the main issues dealt with in my reasons given on 22 December 1992. Costs should follow that event; that is, the Commissioner should have the costs of those issues, including the costs involved in any application made in connection with the giving of evidence by ``X''. However, the taxpayer has succeeded on the additional tax issue. Looking at the matter overall, I think that it is appropriate that the taxpayer pay three- quarters of the Commissioner's costs of the whole of the proceedings in this Court on the footing that no existing order for costs is to be disturbed.
THE COURT ORDERS:
1. That the appeals from the respondent's disallowance of the applicant's objections to the assessments for the years ended 30 June 1977 to 1981 inclusive:
- (i) be allowed in relation to the additional tax imposed in the assessments; and
- (ii) be otherwise dismissed.
2. That the appeal from the respondent's disallowance of the applicant's objection to the assessment for the year ended 30 June 1982 be dismissed.
3. That the respondent's decisions on the objections to the assessments for the years ended 30 June 1977 to 1981 inclusive be set aside and there be substituted therefor decisions that the objections:
- (i) be allowed in relation to the additional tax imposed in the assessments; and
- (ii) be otherwise disallowed.
4. That the assessments for the years ended 30 June 1977 to 1981 inclusive be remitted to the respondent to reconsider according to law the exercise of his discretion under s. 226(3) of the Income Tax Assessment Act 1936, as it applied to the years in question, to remit additional tax imposed by s. 226(2).
5. Order that the applicant pay three-quarters of the respondent's costs of the proceedings.
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