The NSW Court of Appeal has held that the Commonwealth (in effect the ATO) was not required to disclose protected information to a company (with Administrator appointed) was suing the Commonwealth to recover money paid by a shadow director to satisfy his tax debts in breach of his fiduciary duties which the Administrator alleged the Commissioner knew when he accepted payment. At first instance the Court allowed the notice to produce the ‘protected information’, but the Full Court held that the information remained protected.
The respondent Kupang Resources Pty Ltd (Kupang) brought proceedings against the Commonwealth seeking to recover moneys paid by Mr Phillip Grimaldi to satisfy his taxation debts. In earlier proceedings in the Federal Court, Mr Grimaldi had been held to have breached his fiduciary duties to Kupang, then known as Chameleon Mining NL. Kupang alleged that Mr Grimaldi paid the Commonwealth, to its knowledge, with funds obtained through breaches of fiduciary duty.
Kupang issued a notice to produce to the Commonwealth requiring production to Kupang of “protected information” as defined in s 355-30 of Sch 1 to the Taxation Administration Act 1953 (Cth), relevantly, information that was “disclosed or obtained under or for the purposes of a taxation law … when it was disclosed or obtained” and “relates to the affairs of an entity”, which includes an individual or body corporate. Pursuant to s 355-25, it is an offence for a taxation officer to disclose protected information to “another entity … or to a court or tribunal”, subject to certain exceptions, including under s 355-50 where the disclosure by a taxation officer is made in performance of the taxation officer’s duties. Pursuant to s 355-75, a taxation officer is not to be required to disclose “to a court or tribunal” protected information, subject to an exception where it is necessary to do so for the purpose of carrying into effect the provisions of, relevantly, a taxation law. The Commonwealth applied to set aside the notice to produce issued by Kupang.
The primary judge dismissed the Commonwealth’s application and held that UCPR, r 21.10 does not require production either directly or consequentially to the court and therefore the Commissioner of Taxation cannot rely on the prohibition on compulsory disclosure of protected information to a court or tribunal contained in s 355-75 of Sch 1 to the Taxation Administration Act (Cth). The primary judge also held that the prohibition on disclosure of protected information to any entity under s 355-25 did not apply because an exception in s 355-50 applied because the disclosure was in performance of the taxation officer’s duties in defending proceedings brought by Kupang.
The Commonwealth sought leave to appeal against the dismissal of its application to set aside the notice to produce. Leave was granted. The single issue raised on appeal was whether the Commonwealth is required to produce for inspection by a party to proceedings documents obtained by the Commonwealth for the purposes of administering taxation laws.
Held (per Gleeson JA, Basten AJA; Macfarlan JA dissenting), allowing appeal:
(Per Gleeson JA, Basten AJA):
1. Section 355-25 is a prohibition on disclosure of protected information to “another entity … or to a court or tribunal”: [46].
2. It is artificial to treat the exception to s 355-25 in s 355-50(1) or item 1 in s 355-50 as satisfied in this case. The proposed disclosure, if made, would be in complying with an obligation imposed by some other statutory regime, not in performance of the taxation officer’s duties, or for the purpose of administering any taxation law: [44].
3. Compulsory powers to disclose otherwise than to a court or tribunal provide no exception to the prohibition in s 355-25. Reading s 355-75 as the sole restraint on compulsory disclosure is erroneous: [46].
4. Although in some cases a taxation officer will have the power to disclose protected information for the purpose of administering a taxation law, such as under s 355-50, the only ability of a third party to obtain information by compulsion is that identified in, and limited to, the exception in s 355-75, which was not engaged in this case: [47].
Federal Commissioner of Taxation v Tamarama Fresh Juices Australia Pty Ltd (2017) 252 FCR 471; [2017] FCAFC 154; Javorsky v Federal Commissioner of Taxation [2005] NSWSC 167; (2005) 216 ALR 619
(Per Macfarlan JA, contra):
1. The requirement in the notice to produce documents to Kupang for inspection does not amount to a requirement to disclose the documents “to a court or tribunal” as described in s 355-75: [3]. The provision in its literal terms does not extend to disclosure to a person or entity which is not a court or tribunal, and therefore s 355-75 does not apply to Kupang’s notice to produce: [6].
Although application of s 355-75 might produce arbitrary results, it is not for the Court to determine how best those objectives should be achieved when the legislature has chosen clear words to delineate the extent of the immunity granted: [8].
(Commonwealth of Australia v Kupang Resources Pty Ltd [2022] NSWCA 77, NSW Court of Appeal, Macfarlan JA, Gleeson JA and Basten AJA, 30 May 2022.) [LTN 116, 22/6/22]
[Tax Month – July 2022 – Previous Month, 6.7.22]