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CASE 26/95

Members:
RD Fayle SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 12 April 1995

RD Fayle (Associate Professor)

On 4 April 1994 the applicant, through her then appointed tax agent, lodged a notice of objection against the assessment of income tax made in relation to the year ended 30 June 1988. That assessment was issued on 29 May 1989, more than 4 years earlier and was therefore out of time. The objection was accompanied by a request to the Deputy Commissioner of Taxation, [``the respondent''] to allow the applicant an extension of time in which to lodge the objection, pursuant to s 14ZW(2) of the Taxation Administration Act 1953, [``TAA''] which reads:

``14ZW(2) If the 4 years or 60 days have passed, the person may nevertheless lodge the objection with the Commissioner together with a written request asking the Commissioner to deal with the objection as

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if it had been lodged within the 4 years or 60 days.''

2. The reference to 4 years or 60 days in the subsection is a reference to the statutory time period in which a taxpayer may lodge an objection under the TAA. The two periods relate to periods before and after amendments to the Act which came into force on 1 March 1992. In this instance, since the relevant notice of assessment was notified to the taxpayer before 1 March 1992 then the time period in which the taxpayer had to lodge an objection was, in terms of s 14ZW(1)(c), ``60 days after notice of the taxation decision to which it relates has been served on the person''. Therefore, as mentioned, the notice of objection was lodged with the respondent over 4 years late.

3. The respondent duly considered the application for extension of time, pursuant to s 14ZX of the TAA and refused it, notifying the agent on 23 August 1994. The applicant has since applied to this Tribunal to review the respondent's decision. The relevant legislation in this respect is contained in Part IVC of the TAA as follows:

``14ZZA The AAT Act applies in relation to:

  • (a) the review of reviewable objection decisions; and
  • (b) the review of extension of time refusal decisions; and
  • (c) AAT extension application;

subject to the modifications set out in this Division.''

4. Subsection 14ZQ(1) defines an ``extension of time refusal decision'' as meaning a decision of the Commissioner under subsection 14ZX(1) to refuse a request by a person.

5. Subsection 14ZX(1) states: ``After considering the request, the Commissioner must decide whether to agree to it or refuse it''. As mentioned, it was refused by the respondent.

6. The taxpayer was represented by Mr P Moltoni, a chartered accountant and the respondent by Mr F Maloney, an officer of the respondent. The taxpayer was called by Mr Moltoni to give evidence and the Tribunal received into evidence two exhibits.

7. The evidence is that in the late 1960s the applicant, together with her late husband, her two sons, her daughter and a daughter-in-law, purchased two adjacent lots of undeveloped land. Nothing much was done until the early 1970s when the interests of the applicant's eldest son and his wife were acquired in equal shares by the other four joint owners. In 1975, or thereabouts, the land was subdivided which resulted in two new cul-de-sacs and 16 separate residential lots. The joint owners operated under a registered business name. Half of the lots were sold before 1981, the profits being returned as assessable income. In 1981 there remained 8 lots and the applicant and her late husband assumed ownership, coming to an arrangement with their son and daughter. Partnership income tax returns, prepared by the applicant's tax agent of many years, Hendry Rae and Court, Chartered Accountants, were filed for each year of income. These disclosed the profits arising from the sale of the lots and deductions for expenses such as rates and taxes, accountancy fees, bank charges, electricity, motor vehicle expenses (explained by the witness as relating to the costs of visiting the properties relating to fire breaks etc) and sundries, resulting in net partnership income and partnership losses for respective years. The returns described the partners as ``property developers'' and were assessed as submitted.

8. In the partnership income tax return for the year ended 30 June 1982 the four joint owners elected, pursuant to s 36A(2) of the Income Tax Assessment Act 1936 [``ITAA''], to transfer the remaining 8 lots to the applicant and her late husband at cost. Presumably, this election was accepted by the respondent on the basis as submitted, that the unsold blocks were trading stock. As a result no assessable income was attributed pursuant to s 36 of the ITAA.

9. Between January 1983 and August 1984 three lots were sold outright and another was sold subject to a contract of sale, the purchaser paying by instalments. The partnership continued to return the proceeds as assessable income, claiming expenses. At all material times the applicant and her husband were in gainful employment, the principal source of their incomes.

10. On 16 November 1986 the applicant's husband died, at which time four unsold lots remained. A partnership return from 1 July 1986 to the date of death was filed with the respondent on 10 March 1988. This return described the partners as ``land developers'' and contained another s 36A(2) election signed

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by the applicant and the executor of her husband's estate, a partner with the firm of Hendry Rae and Court, the tax agent. The election, presumably taken by the respondent in good faith, purported to assign the deceased's half interest in the lots to the applicant, deferring any otherwise assessable income until actual realisation of the lots by sale. Failure to elect in this way would have given rise to deemed assessable income of the estate by dint of s 36A(1) and s 36 of the ITAA.

11. The applicant's income tax return for the year ended 30 June 1988, filed in April 1989, described her as a ``land developer'' and disclosed as assessable income profits of $24,552 arising from the sale of two of the remaining four blocks, a half-interest in which was transmitted to her in consequence of her husband's death, the titles being then joint tenancies. The return also claimed a deduction for a partnership loss of $379 in relation to the final partnership tax return to the date of her husband's death.

12. The applicant continued to lodge income tax returns through her agent which, for each of the two following years, described her as a ``land developer''. In fact the applicant had retired from active work in 1981 and her evidence was that she was troubled by this description of her and the inclusion of the profits on the sale of lots since her husband's death, matters which she said finally led her to seek another tax agent.

13. The applicant gave evidence that things came to a head when she called upon Hendry Rae and Court to sign her 30 June 1991 income tax return which they had prepared. She firstly refused to sign it maintaining that it was incorrect for the reasons already given.

14. The applicant's evidence was that in either October or November 1991 she approached another firm, McGillivray Partners, Certified Practicing Accountants, to obtain a second opinion on the efficacy of her 30 June 1988 return. Exhibit A1 is a letter dated 1 May 1992, addressed to the applicant from McGillivray Partners, which serves to support the applicant's evidence that she was dissatisfied with the return prepared by her agent for the year ended 30 June 1988. The content of the letter is not relevant except to say that it suggests that there was an error in her 1988 return, an opinion disavowed by Mr Maloney and one on which the Tribunal does not find it necessary to comment. Suffice it to say that the applicant's evidence was that she now felt that her suspicion about the return was vindicated.

15. The applicant also said in evidence that at the time of the visit to McGillivray Partners, they advised her to lodge an objection, that is, in October or November 1991.

16. The evidence at this point is not at all clear except to say that after refusing to sign the 1991 return, the applicant approached her present tax agent who, in April 1994, instigated the objection against the assessment for the year ended 30 June 1988 together with the request for an extension of time in which to lodge it, which gave rise to the matter now under review.

17. Whilst it is true that the law relating to the matters which ought to be considered by the respondent (and hence this Tribunal upon review) in considering any request under s 14ZX(2) of the TAA, is not definitively settled, and probably never will be due to the inherent subjective nature of attributing relative weights to relevant matters, the Tribunal is guided by a considerable body of law on the matter.

18. In Pulitano and Telstra Corporation Limited, (unreported No. N93/233 of 27 July 1993), a case concerning a request for an extension of time application pursuant to s 29(7) of the AAT Act, Senior Member Barbour made observations which are most helpful and decidedly appropriate in this case. These observations are reproduced in full below:

  • ``When deciding the question of whether or not to grant an extension of time, the Tribunal has often had recourse to the principles laid down by Wilcox J in
    Hunter Valley Developments v Minister for Home Affairs and Environment (1984) 3 FCR 344, a case concerning the power of the Federal Court to extend time pursuant to the Administrative Decisions (Judicial Review) Act 1977. These guidelines were distilled by Deputy President Todd in Johnson and Commonwealth of Australia (unreported, 5 January 1990), and have been applied in recent Tribunal decisions such as Freeman and Australian Postal Corporation (unreported, 9 July 1993), and Rowe and Comcare (unreported, 1 June 1993). In Collis and Australian and Overseas Telecommunications Corporation (un- reported, 4 December 1992), I summarised them as follows:

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    `(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 her 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.'

A review of Tribunal and other decisions concerning the discretion to grant or refuse an extension of time shows that the primary thrust of any such inquiry is that the Tribunal do what is just and equitable between the parties.

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.

In considering the principles as annunciated by Wilcox J in Hunter Valley, and their relevance to this application, I recognise in recent cases a broader approach to the exercise of the discretion to grant an extension of time. In
A'Hearn v Comcare 18 AAR 22, Hill J observed (at page 24):

`I should say that Wilcox J in Hunter Valley Developments Pty Ltd (supra) was at pains to make clear that he was not seeking to set out principles of law governing the exercise of discretion to extend time. Care must be taken by the Tribunal to ensure that there is not a slavish adherence to the matters which are referred to in that judgment, which are listed merely as matters for guidance, in determining the extension of time under the Administrative Decisions (Judicial Review) Act 1977 (Cth), a context which differs slightly from that of the AAT Act...', and at page 26, `At the end of the day the discretion of a court or tribunal given power to extend time will be a wide one, to be exercised as the justice of the case may require. As Richards J, delivering the leading judgment in the Court of Appeal in
Avery v No 2 Public Service Appeal Board [1973] 2 NZLR 86 at 92, said:

``In order to determine the justice of any particular case the Court should I think have regard to the whole history of the matter, including the conduct of the parties, the nature of the litigation and the need of the applicant on the one hand for leave to be granted together with the effect which the granting of leave would have on other persons involved.'''

... As Deputy President Todd remarked in
Re Ardesia Pty Ltd and Chief Minister for ACT (1991) 23 ALD 255, when refusing an extension of time in relation to an appeal against a decision fixing the capital sum relevant to the value of a block of land:

`This is not a case of an unrepresented would-be applicant in a social security or employees' compensation case. It is a commercial case and in such matters it seems to me that there is a higher,... duty to be timely in making applications.'''

19. These principles found support by Sweeney J in
Fardon v FC of T 92 ATC 4339 at 4347-4348 and by von Doussa J in
Windshuttle v DFC of T 93 ATC 4992 at 4994.

20. This application is a commercial case involving an applicant who had the benefit of professional advice and assistance in the preparation and lodgement of her income tax returns over many years, including the year in question. The evidence does not point to any unreasonable tardiness on the part of the two

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tax agents involved, although it could be said that McGillivray Partners took too long to respond to the applicant's instructions in October or November 1991.

21. Mr Moltoni made three submissions on behalf of the applicant - firstly, that at all material times the applicant had expressed dissatisfaction with her former tax agent; secondly, that with hindsight, in his opinion, the former tax agent failed to advise the applicant properly in relation to the taxation of the sale of the lots which became entirely hers after her husband's death; and thirdly, after seeking a second opinion on the efficacy of the 1988 return and being advised that there was a case to argue that it was incorrect, she approached her present tax agent for advice. The tenor of this advice was that the 1988 return was incorrect. The applicant then instructed her tax agent to submit the objection and extension of time request now under review.

22. Mr Maloney for the respondent submitted that the objection has no merit in any event and would not be allowed either by the respondent or, he opined, on review or appeal. Further, he submitted that now to require the respondent to consider the objection would severely prejudice him because the objection is founded on a proposition, that in relation to the relevant year the taxpayer was not carrying on a business, a question of fact which may be difficult to rebut given the demise of a key witness and the fading memories displayed by the applicant whilst giving her evidence in chief and under cross examination. He also submitted that the respondent is charged with the proper administration of the ITAA and relies on finality of assessments. To allow the applicant to open an assessment made over four years ago in accordance with the return submitted by a registered tax agent and in relation to which no indication of dissatisfaction was previously conveyed to the respondent either in writing or verbally, would severely prejudice and frustrate the administration.

23. In reaching a decision as to whether to grant the extension of time requested, the Tribunal considers the evidence before it in relation to the tests annunciated by Wilcox J in Hunter Valley, (as paraphrased by Deputy President Todd [supra]), bearing in mind the appropriate caution issued by Hill J in A'Hearn v Comcare, that these do not have the force of law and are but guidelines not to be slavishly followed without proper regard to the relevant circumstances of the case.

The Guidelines

(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.

24. This guideline places an onus on the taxpayer to show that it is proper and appropriate, in the interest of justice, to grant an extension of time in the particular circumstances. It would appear to require the taxpayer to convince the decision maker that there are unusual or special circumstances and that the failure was not due only to inadvertence. Whether these conditions prevailed in this case will only be revealed by an examination of the remaining tests.

(ii) It is relevant whether the applicant rested on her rights or took action to make the decision-maker aware the decision was being contested.

25. The applicant was represented, at all material times by her tax agent, a member firm of a recognised professional body, the Institute of Chartered Accountants. There is no evidence to suggest that the agent would not properly have represented the applicant. Indeed, the applicant said that she had confidence in the competence of her agent firm with whom she had dealt with for over 30 years. Her complaint, so far as her evidence goes, was that she did not like being described as a ``property developer''. Also, that she did not think that she should have been taxed on the profits of $24,552 from the sale of two lots in September 1987 because she and her late husband regarded these, which were two of the four lots they took on from the former partnership with her son and daughter, as an investment for their retirement.

26. The applicant's evidence clearly shows that she put great store in the performance of her then agent as she had no understanding of the ramifications of entering into the two s 36A(2) elections which have the effect of deferring tax on the lots until their actual sale. The applicant did not seem to appreciate that she and her husband had enjoyed considerable tax benefits flowing from the manner in which her former agent had presented the income tax returns for the partnership, which returns had been assessed accordingly.

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27. The partnership returns for the years of income ended 30 June 1985 and 1986 and to the date of death in 1986 (T10, T11 and T16) were signed by the applicant and include financial accounts prepared by her agent. These prima facie represent that a business was being conducted by the applicant and her late husband, an assertion apparently accepted on face value by the respondent. The final return for the partnership also included a s 36A(2) election signed by the applicant and a partner of the tax agent firm in his capacity as executor of the estate of the applicant's late husband. This too apparently was accepted by the respondent on the assumption that the then unsold lots were trading stock assets of the partnership.

28. When, in May 1992, the applicant eventually received a second opinion in relation to the 1988 return assessed two years previously (on 29 May 1989) which opinion suggested (rightly or wrongly) that the return was incorrect, it was not for another two years, in April 1994, that the respondent became aware of the dissatisfaction. The respondent was unaware of any dissatisfaction for almost five years after having made the assessment in question.

(iii) Any prejudice to the respondent that would be caused by granting the extension of time.

29. Clearly, having regard to the time which has elapsed in this matter there would be prejudice to the respondent if the request was granted. The lapse of time would give rise to obvious evidentiary difficulties since persons who might be called to rebut evidence adduced from witnesses for the applicant may not be traceable or if so, may not have records or even a clear recollection of events going back to the early 1980s let alone the 1960s and early 1970s when the land was first acquired and later developed.

30. The respondent's onus of rebuttal may also be impeded because a key witness has since died and the other key witness, the applicant, was unable to recall important past events. The applicant is an elderly lady who impressed the Tribunal as a person of high ethical standards who was unwilling to speculate on facts when she found it difficult to remember details of events long past.

31. In the opinion of the Tribunal, the respondent would be severely prejudiced if the objection was allowed because he would be precluded from issuing amended assessments in relation to the previous partnership returns since the 6 year relation-back period under s 170(2), which began on 29 May 1989, ends on 30 May 1995, a date by which this matter could not be resolved even with the most expeditious passage of review possible.

(iv) Any wider prejudice to the general public in terms of disruption to established practices.

32. Should the extension sought be granted then there is no obvious reason why that might result in a prejudice to the general public. There might be a class of members of the general public who may feel prejudiced if this extension was granted. That class is those members of the public who, for whatever reasons, accepted an income tax assessment without contesting it but, after the time to object had elapsed, received professional advice that they ought to have challenged that assessment at the time. However, the Tribunal concludes that prima facie there is no obviously wide prejudice to the general public if this request was granted.

Summary of Findings

33. In considering whether to exercise its discretion to extend time to lodge an objection, the Tribunal has found that:

  • (1) the applicant was properly represented at every stage leading up to and well after the assessment of income tax for the year ended 30 June 1988;
  • (2) the applicant did not make it plain to either her agent nor officers of the ATO that she intended to dispute the substance of the assessment;
  • (3) there was an unreasonable lapse of time between the applicant gaining independent confirmation that her suspicions about the efficacy of the assessment in question had foundation and acting upon that advice;
  • (4) the delays are not the result of tardiness on the part of the two tax agents involved; and
  • (5) to grant an extension of time as requested would result in severe prejudice to the Commissioner, particularly in relation to both evidentiary matters and procedural matters concerning fairness.

34. In view of these findings, the Tribunal has not found it necessary to make any findings about the strength of the applicant's case on the substantive issues.

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35. For the reasons set out above, the Tribunal in the exercise of its discretion, finds that the respondent was correct in refusing to deal with the applicant's objection as if it had been lodged within the prescribed period of 60 days.

Decision

The decision under review is affirmed.


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