The Full Federal Court has upheld an AAT decision treating 5 objections lodged by the taxpayer as having been lodged within time.

The taxpayer operated medical centres. This included buying medical centres and at the same time acquiring the services of the relevant practitioners who would pay the taxpayer a percentage of their fees they earned from the medical centre. It had been doing this since 2003. This is explained further, below, in an extract from the judgement.

The taxpayer originally treated these purchases and associated costs as non-deductible capital expenditure but in 2014, it became aware that the Commissioner had issued a Private Ruling to a doctor saying that their sales proceeds were assessable as income.

The taxpayer subsequently lodged an objection (within the relevant time limits) to its 2010 assessment and was successful in obtaining a deduction for the relevant expenses. It then lodged objections out of time to its 2003 to 2007 assessments, but the Commissioner refused to exercise his discretion under s 14ZW of the TAA to treat those objections as if they had been lodged within the required time.

The AAT overturned that decision in Primary Health Care Limited and FCT [2017] AATA 393 and the Full Federal Court has now upheld the AAT’s decision. The Full Court’s observations included:

  • the Commissioner’s argument that the AAT had failed to properly consider his argument that he would suffer prejudice if the objections were taken to be lodged on time proceeded upon “the flawed premise that there is a necessary symmetry between the tax treatment of a payment in the hands of [the taxpayer] and the Health Practitioner”. Further the Commissioner did examine the tax treatment of those payments and concluded they were on capital account independently of the position adopted by the taxpayer as to its own position;
  • the taxpayer’s position was distinguishable from cases where a taxpayer has deliberately delayed lodging an objection so as to game the tax system – that is, to delay so as to cause the Commissioner to be out of time to issue amended assessments to other taxpayers; and
  • there was a complete change in the Commissioner’s own position and therefore the AAT’s decision was not irrational.

(FCT v Primary Health Care Limited [2017] FCAFC 131, Full Federal Court, Kenny, Perram & Robertson JJ, 24 August 2017.)

Catchwords from Full Federal Court decision

INCOME TAX – objections to notices of assessment – application for extension of time for lodging objections – relevant matters for exercise of discretion – whether prejudice suffered by Applicant if objections lodged outside of time – whether explanation for delay can ever be positive factor towards exercise of discretion

ADMINISTRATIVE LAW – whether failure to take into account relevant consideration – whether decision irrational – whether improper exercise of discretionary power in s 14ZX(1) of Taxation Administration Act 1953 (Cth) (TAA)

Extract from the decision – facts and background (makes interesting reading)


  1. This is an appeal by the Commissioner of Taxation (‘Commissioner’) from a decision of the Administrative Appeals Tribunal (‘the Tribunal’) to treat five objections against assessments for the financial years 2003-2007 as having been lodged within time. The appeal is on, and limited to, a question of law.
  2. The Respondent, Primary Health Care Limited (‘Primary’), is an Australian company which has shares listed on the Australian Securities Exchange. Through an operating subsidiary, it has for many years carried on business as an operator of medical centres. For the purpose of operating its medical centres, Primary retains medical professionals such as doctors, dentists and so on (‘health practitioners’). This is done under written agreements. Many of the health practitioners in fact had their own practices before deciding to work for Primary. Where this was so, Primary has acquired those practices under practice sale deeds. For present purposes, three terms of the deeds are relevant:
    • the assignment by the health practitioner of the goodwill in the practice to Primary;
    • a covenant by the health practitioner to work for Primary for five years; and
    • a provision by Primary to pay the relevant purchase price.
  3. The backdrop to the short issue on this appeal is the question of whether the purchase price paid by Primary to the health practitioners is on the capital or revenue accounts. For the five financial years between 1 July 2003 and 30 June 2007, i.e. the 2003-2007 financial years, Primary submitted returns and was assessed on the basis that the purchase moneys paid by Primary to acquire each health professional’s practice was on capital account.
  4. Until 2014, Primary and the Commissioner had always approached the issue in that way. However, in 2014 a new view on the issue seems to have begun to develop within the Commissioner’s office which had its initial emphasis not so much on Primary but instead on the health practitioners working for it. On 31 January 2014, the Commissioner notified Primary that he was going to conduct a review to gain an understanding of the business relationship between Primary and its health practitioners and, specifically, to identify potential tax risks associated with the sale agreements.
  5. Having announced that he was going to conduct such a review, the Commissioner proceeded, on 8 April 2014, to issue Primary with a notice under the former s 264 of the Income Tax Assessment Act 1936 (Cth) requiring it to provide details of its health practitioners, the payments made to them and the purpose of the payments. This caused Primary to seek advice from Ernst & Young (‘EY’) about the tax treatment of the arrangements embodied in the practice sale deeds.
  6. On 5 May 2014, Primary became aware of a Private Ruling issued by the Commissioner to one of the health practitioners in which, for the first time, he took the position that in the hands of the health practitioner the sale proceeds were assessable income. In the present matter, the Tribunal observed that this was because the Commissioner had treated the purchase price as being a payment to secure the health practitioner’s services (rather than, as had previously been the case, for the purchase of the goodwill).
  7. Shortly afterwards, on 20 October 2014, EY provided Primary with a draft advice on the treatment of the sale proceeds, and on 15 January 2015, Primary filed an objection in relation to the 2010 financial year on the basis that it could claim the purchase price as a deduction. On 5 June 2015 the Commissioner allowed the objection in full for the 2010 financial year. This was not the way the matter had previously been approached.
  8. It was within three weeks of that date, on 23 June 2015, that Primary then lodged objections for the earlier financial years of 2003-2007. In the case of an entity such as Primary, an objection must be lodged within four years of the relevant assessment: Taxation Administration Act 1953 (Cth) (‘TAA’) s 14ZW(1)(aa)(ii). In relation to the financial years 2003-2007, the relevant assessments were all taken to have occurred on or before 10 January 2008. Primary was, therefore, well out of time in relation to all five objections.
  9. However, provision is made in s 14ZW(2) of the TAA for a taxpayer to lodge an objection out of time so long as it is lodged with a written request asking the Commissioner to deal with the objection as if it had been lodged within that period. And, if this is done and the Commissioner agrees to extend the time, the objection is taken to have been lodged within time: s 14ZX(3).
  10. Primary lodged such a written request with its five objections. Section 14ZX(1) of the TAA provides:

‘After considering the request, the Commissioner must decide whether to agree to it or refuse it.’

  1. On 29 June 2016, the Commissioner decided to refuse the request. This is a reviewable decision in the Tribunal by reason of s 14ZX(4) of the TAA. Primary took advantage of this and applied to the Tribunal which upheld its review application and substituted a new decision agreeing to the requests with the effect that the objections were taken to have been lodged within time.
  2. The Commissioner now appeals under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth). He alleges two errors of law. First, it is said that the Tribunal failed to take into account a relevant consideration of the kind discussed in Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24 at 39-41 (‘Peko-Wallsend’). The matter alleged not to have been taken into account was prejudice that would be suffered by the Commissioner consisting of his inability to consider whether, if the five objections were allowed, to amend the corresponding assessments issued to the health practitioners (the Commissioner himself being out of time). Secondly, it was submitted that the Tribunal had reasoned irrationally in accepting that Primary had an acceptable reason for its delay in lodging the five objections. Here the point was that it was not sufficient to justify late lodgement that all that had occurred was a change in the advice which Primary received. The specific submission for the Commissioner, advanced orally, was that ‘an explanation for delay that is rooted in the concept that the taxpayer [has] received different advice from different tax advisers should never be a factor that weighs in favour of granting an extension of time, absent some new or different matter emerging so as to independently justify that change of position’.
  3. For the reasons which follow the appeal should be dismissed with costs.

[Austlii Report; FJM; LTN 162, 25/8/17; TM August]

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