Decision impact statement

Rigoli v Commissioner of Taxation

Court Citation(s):
[2014] FCAFC 29
2014 ATC 20-446
(2014) 96 ATR 19

Venue: Federal Court of Australia
Venue Reference No: VID 891 of 2013
Judge Name: Edmonds, Jessup and McKerracher JJ
Judgment date: 18 March 2014
Appeals on foot: No
Decision Outcome: Largely favourable.
Taxpayer's appeal dismissed.
Commissioner's cross-appeal dismissed.

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
Income tax
Default assessments
Burden of proof
Merits review
Excessive

Précis

Outlines the ATO's response to this case which concerned whether, to establish in a tax appeal that a default assessment is excessive, a taxpayer can 'concede' parts of the Commissioner's calculation or must prove the actual amount of his taxable income.

Brief summary of facts

During the 1994 to 2001 income years, the taxpayer carried on business in partnership. The partnership did not keep business records. The taxpayer did not initially lodge an income tax return for any of those years of income, and the Commissioner made default assessments under section 167 of the Income Tax Assessment Act 1936 ('ITAA 1936') of the amount upon which, in his judgment, income tax ought to be levied for each year. The taxpayer objected to the assessments on the simple ground that he had 'no taxable income'.

Before the AAT, the taxpayer treated the assessments as if they were assessments for each year of his assessable income less allowable deductions. In so doing, his counsel informed the AAT that the taxpayer no longer challenged the amounts which he claimed had been identified by the Commissioner as his assessable income ('the concession'). He maintained that what was then left in dispute before the AAT was his entitlement to deductions by way of depreciation which the Commissioner had not allowed.

The AAT (SM Fice) [2012] AATA 757 accepted the taxpayer's arguments that the Commissioner had made assessments of the taxpayer's taxable income, in the sense of assessable income less allowable deductions, and that a taxpayer could prove that such assessments were excessive simply by a correction to one element of the assessments. The AAT accepted the 'concession' of the taxpayer about the amount of his assessable income and proceeded to determine that the assessments were excessive because the taxpayer was entitled to some depreciation deductions.

On the Commissioner's appeal from the decision of the AAT, the Federal Court (Pagone J) [2013] FCA 784 made it clear that, for a taxpayer to succeed in establishing that an assessment under section 167 was excessive, the taxpayer must establish what was the actual amount of his taxable income, and not just point to some error made by the Commissioner in his calculation. That could not be done, as the AAT thought in this case, by assuming that only part of the assessment was in contention before it. The AAT erred in thinking that what was before it under section 167 was an assessment of taxable income, being assessable income less allowable deductions, rather than an assessment of the amount on which the Commissioner considered income tax ought to be levied. The Court concluded that the taxpayer had not discharged his burden of proof, allowed the Commissioner's appeal, set aside the decision of the AAT and remitted the proceeding to it.

The taxpayer appealed to the Full Court. The Commissioner filed a cross-appeal from the order of the Court remitting the matter to the AAT, on the basis that, having found that the burden of proof under section 14ZZK of the Taxation Administration Act 1953 had not been discharged by the taxpayer, remitter was futile.

Issues decided by the court

The Taxpayer's appeal

The Full Court dismissed the taxpayer's appeal, finding that the 'reasoning and conclusions of the primary judge were entirely correct'. [27]

The taxpayer's central argument was that the primary judge mischaracterised both the substance and the effect of the 'concession' made before the AAT. In essence, the proposition was that, in accepting the 'concession', the AAT was engaged under subsection 43(1) of the Administrative Appeals Tribunal Act 1975 ('AAT Act') in a merits review of what the Commissioner had done under section 167, which was different to what a court would do in judicial review. The AAT was said to have treated the 'concession' as the taxpayer adopting evidence of the Commissioner.

The Full Court found that the taxpayer's burden of proof was not discharged by the 'concession' made. The concession was not understood by the AAT to be the taxpayer adducing any evidence about his taxable income, rather it was an acceptance that his assessable income was not in dispute before the AAT. The AAT was not purporting to form any judgment of an amount under section 167. [20]-[22].

The Full Court also noted that the taxpayer's argument about merits review by the AAT ignores the effect of section 14ZZK, which requires the taxpayer to prove that an assessment is excessive. [26]

The Commissioner's cross-appeal

The Full Court dismissed the cross-appeal on the basis that it was difficult to identify any legal error in the exercise of the trial judge's discretion under subsection 44(5) of the AAT Act to remit the matter to the AAT, especially as the Commissioner made no express submissions to his Honour that doing so would be futile, and that he should simply affirm the Commissioner's objection decisions. [33]

However, the Court observed at [34] that:

"Doubtless because the question of remittal was not raised before the primary judge, his Honour did not consider the practicalities of the course which he ordered. Now that the question has been raised, and debated, on the cross-appeal, and while we would not interfere with the exercise of his Honour's discretion, we do propose to introduce a limitation on the nature of the proceeding which the AAT will then conduct."

The condition imposed on the return of the proceeding to the AAT is that no further evidence be adduced unless proper cause is shown.

ATO view of Decision

The ATO notes that the Court's decision is consistent with the Commissioner's view on what is required by a taxpayer in a tax appeal to discharge the onus of showing that an assessment issued under section 167 is excessive. The ATO also respectfully accepts the decision of the Full Court on the Commissioner's cross-appeal.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

None

Implications on Law Administration Practice Statements

None

Legislative References:
Income Tax Assessment Act 1936
s 166
s 167

Taxation Administration Act 1953
s 14ZZ
s 14ZZK

Administrative Appeals Tribunal Act 1975
s 43(1)
s 44(5)

Case References:
Federal Commissioner of Taxation v Dalco
(1990) 168 CLR 614
[1990] HCA 3
90 ATC 4088
(1990) 20 ATR 1370

Gashi v Federal Commissioner of Taxation
(2013) 209 FCR 301
[2013] FCAFC 30
2013 ATC 20-377

House v R
(1936) 55 CLR 499

Ma v Federal Commissioner of Taxation
(1992) 37 FCR 225
92 ATC 4373
(1992) 23 ATR 485

Minister for Immigration and Ethnic Affairs v Gungor
(1982) 42 ALR 209

Minister for Immigration and Multicultural Affairs v Thiyagarajah
(2000) 199 CLR 343
[2000] HCA 9

Peacock v Repatriation Commission
(2007) 161 FCR 256
[2007] FCAFC 156

Rawson Finances Pty Ltd v Federal Commissioner of Taxation
[2013] FCAFC 26
2013 ATC 20-374
(2013) 296 ALR 307

Repatriation Commission v Nation
(1995) 57 FCR 25

Shi v Migration Agents Registration Authority
(2008) 235 CLR 286
[2008] HCA 31

Other References:
PS LA 2007/24