On 3 August 2018, the Federal Court has struck down, as invalid, the AAT’s earlier order, that the Commissioner produce certain internal advices, that the Taxpayer believed agreed with the stance it took on whether gold could be re-refined, for GST purposes.

The AAT concluded that they were ‘relevant’ to its review of the objection decision, and therefore it could order the Commissioner to produce these documents, under s37 of the AAT Act (as modified by s14ZZF(1)(a)(v) of the TAA).

The Commissioner sought judicial review of the AAT’s decision and won, with the Court holding that the AAT’s decision was infected with ‘jurisdictional error’ and was invalid.

This much will make no sense, and requires further explanation.

The original AAT order (that the Commissioner produce certain internal opinions) was ACN 154 520 199 Pty Ltd v Commissioner of Taxation [2018] AATA 33. The details are explained more fully in this related TT article.

The following, however, gives you enough to go on, for the moment.

  1. The Taxpayer contended that it was entitled to input tax credits on acquiring second hand gold, on the basis that the circumstances engaged GST-free treatment, of its first sale, of the Gold, under s38-385 of the GST Act (which makes the supply of a ‘precious metal’ GST-free, if it is the first supply, after ‘refining’). Other supplies, of a ‘precious metal’, are input taxed, under s40-100 (which would preclude the taxpayer claiming credits, on the gold it acquired, as one of its inputs). Section 9-30(3) says that the ‘GST-free’ treatment has precedence over input taxed treatment.
  2. The Commissioner, however, disallowed the input tax credits, on the basis that the Taxpayer had not relevantly ‘refined’ the Gold, for the purposes of the GST-free provision (s38-385). He also imposed 50% penalties, on the basis that the Taxpayer had been ‘reckless’ as to correctness of the position it took (in claiming the input tax credits). The 50% penalties, alone, were about $58m (meaning the primary tax would be about $116m).
  3. The Commissioner’s basis for saying that the Taxpayer had ‘not refined’ the Gold, was that the Gold was already 99.9% ‘fine’, and the threshold for a metal to be ‘precious’ is 99.5%. His argument was that it was not possible to relevantly ‘refine’ that which was already refined sufficiently to be a ‘precious metal’. His argument was ‘refine[ing]’ for these purposes, must start off under the 99.5% fine threshold. [Dare I say it: a very ‘fine’ distinction.]
  4. The Taxpayer became aware that some ATO officers had previously agreed with its position or at least agreed that the relevant ‘refining’ doesn’t have to be the first ‘refining’ of the ore.
  5. It was those internal reports that the Taxpayer wanted produced, and the AAT ordered the Commissioner to produce them.
  6. But to order the Commissioner to supply these internal opinions, the AAT had to form the opinion that they would be ‘relevant’ its review of the objection decision (see, for instance, s37(2) of the AAT Act).
  7. The Taxpayer contended, and the AAT agreed, that the fact that there was a time when ATO officers agreed with the Taxpayer’s position (or partly did) was relevant to whether its statements were ‘reckless’ or even ‘careless’ and also relevant to whether any ‘shortfall penalty’ (properly established) could sill be remitted under s298-20 of the TAA. This provision does not limit the Commissioner’s power, to remit such penalties (meaning that anything is potentially ‘relevant’).
  8. In the AAT, the Taxpayer argued that its stance was ‘reasonably arguable’ in the technical sense required s284-15 of the TAA (even thought that is not relevant to GST liabilities (see s284-90(1), item 4). And, it seems, the Taxpayer only argued this, for the purposes of seeking s298-20 remission of those penalties. That definition of ‘reasonably arguable’ does call for an assessment of how arguable the matter is, by reference to ‘relevant authorities‘ and the internal ATO advices, were not ‘authorities’ of that type.

The Commissioner’s main submission, was that, the AAT stands in the shoes of the Commissioner, in merits review, and must determine the liabilities assessed are excessive. This is done, based on the relevant facts and law, and an internal ATO advice (about those facts and law) is not, inherently, one of those facts, or law. In this sense, he contended, they must be irrelevant.

The Court summarised this as follows.

  1. The Commissioner submits that, given that the Tribunal stands in the shoes of the Commissioner for the purposes of a s 14ZZK(b)(ii) merits review of the decision not to remit the penalties imposed, and must, when considering that decision, determine the questions of fact and law for itself, the historical legal opinions of ATO officers are and must be irrelevant. On that argument, any such view expressed cannot be of any moment to the Tribunal’s decision. Accordingly, the Commissioner submits, it was not open to the Tribunal to form the opinion that any internal legal advices on this topic may be relevant.

The Court did determine that the Internal ATO Advices could not be ‘relevant’ – for the purposes of the AAT’s power to order their production, and the AAT’s ‘opinion’ that they were relevant, was infected by ‘jurisdictional error’ and was invalid.

The fundamental reason for this, the Court said, was that it was an ‘objective’ task (to assess whether the Taxpayer’s position was ‘reasonably arguable’) and the ‘internal advices’ sought, could not be relevant, as they were only the ‘subjective’ opinion of one officer.

The Court put it this way.

  1. In the circumstances of this case, in [the AAT] forming the opinion that the legal advices, sought to be produced, may be relevant, to the review of [part of] the objection decision, not to remit the penalties, even if that is carried out by reference to whether [the Taxpayer] had a reasonably arguable position, on the no refining issue, the Tribunal could not avoid addressing the question of whether the objective test, which the Tribunal accepted had to be applied, could be affected by a subjective opinion that was not before the decision-maker and not known to EBS. [emphasis added]

Perhaps the substantive result might have been different, if the Taxpayer had put its case differently.

  1. The Taxpayer could have submitted that it only relied on it’s position being ‘reasonably arguable’ in a colloquial sense – that is, in setting the limits of what can be argued reasonably.
  2. It could have contended that the objective test, of what is ‘reasonable’, is inherently set by reference to the aggregate of the ‘subjective’ opinions of technical people, about technical matters, in which they have relevant expertise.
  3. In determining the amount of penalty to impose, the Commissioner does have to consider what the current ‘objective’ standard of reasonableness is, but this is the aggregate of subjective peer opinion (as explained above).
  4. The fact that one or more ATO officers, subjectively agreed with the Taxpayer’s position (at least in part) is a ‘fact’. And this ‘fact’ is relevant because it is a good indicator of the reasonable scope for arguing the Taxpayer’s position. This is so, because the advices express the genuinely held opinion, of a technical person about a technical issue, in which they had expertise. The opinions were ‘unvarnished’ in that they were  expressed prior to any ‘revisionist’ effect of the subsequent thinking, that went on in the Commissioner’s office.
  5. Whatever the potency of this ‘fact’, it remains relevant, as a fact (not as a ‘relevant authority’).
  6. It is not to the point that this ‘fact’ did not exist at the time the Taxpayer made the statement in its return, or that it did not exist at the time any assessment was issued, or that it it did not exist at the time the objection decision was made (or was not known by that decision maker).
  7. The point is that this ‘fact’ did exist, at the time the AAT was reviewing the objection decision, and it was ‘relevant’ to that review, at that time, in the way I have explained. If that is right, then it activates the AAT’s s37 power to order production of those internal advices.

(Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in Liquidation) [2018] FCA 1140 – The Federal Court of Australia, before Bromich J, 3 August 2018)

FJM 20.8.18

[Sievers: Article on ACN case; Tax Month – August 2018]


  1. Was the underlying contest about whether the Taxpayer was entitled to about $116k in input tax credits on gold it acquired?
  2. Was the taxpayer’s argument that, its first sale of the gold was ‘GST-free’ as it was the first sale after the gold was ‘refined’ (within the meaning of s38-385 of the GST Act)?
  3. Did the Commissioner agree that a gold that was already ‘fine’ enough to meet the definition of ‘precious metal’ (99.5% fine) could not be relevantly further ‘refined’ under the relevant GST-free provision?
  4. Did the Commissioner impose 50% ‘reckless’ shortfall penalties, when denying the input tax credits?
  5. Did ATO officers write internal advices agreeing with the Taxpayer’s position, or agreeing in part?
  6. Did the Taxpayer want copies of these advices?
  7. Did the AAT’s power to compel the Commissioner to produce those advices, depend on them being ‘relevant’ to the AAT’s review of the objection decision (including the penalties parts of the decision)?
  8. Did the taxpayer argue that these internal advices helped show that its position was ‘reasonably arguable’?
  9. Did the Federal Court agree that these advices were ‘relevant’ to this ‘reasonably arguable’ point?
  10. Was this because the advices were ‘subjective’ views and ‘reasonably arguable’ required an objective assessment of how arguable the position is?
  11. Cold the position have been different, if the Taxpayer did not put its case int terms of being ‘reasonably arguable’ as defined in the TAA?
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