The Federal Court has effectively dismissed a taxpayer’s claim for relief from fraud or evasion assessments.
- On 24 April 2013, the Commissioner issued amended assessments to the taxpayer for the 2007 to 2010 income years inclusive in reliance on s170(1) item 5 of the ITAA 1936 (fraud or evasion).
- The taxpayer brought proceedings under s 39B of the Judiciary Act 1903 alleging jurisdictional error in the opinion of fraud or evasion formed by the Commissioner, and applied for orders quashing the Commissioner’s fraud or evasion opinion and quashing the amended assessments as invalid for lack of power to make them, absent a valid fraud or evasion opinion.
- In addition, the taxpayer sought to restrain the Commissioner from forming a fresh fraud or evasion opinion without the leave of the Court.
- The taxpayer has also challenged his liability to the tax as assessed in proceedings brought under Part IVC of the Taxation Administration Act 1953 in the AAT.
The taxpayer’s statement of claim alleged the “purported” formation of a fraud or evasion opinion by the Commissioner recorded in a single document dated variously 20 February 2013, 1 March 2013 and 13 March 2013: paragraphs 3(c) and 19. The taxpayer argued that the purported fraud or evasion opinion “is not an opinion at all” by reason of jurisdictional error and was therefore invalid.
The Commissioner demurred to the entire statement of claim on the basis that the material facts alleged in the statement did not provide a basis in law for the relief sought by the taxpayer for various the following reasons:
1.1 the material facts alleged by the taxpayer, if established, could only amount to errors in the process of assessment and therefore could only amount to noncompliance by the taxpayer with the provisions of the 1936 Act;
1.2 section 175 of the 1936 Act provides that the validity of assessments is not affected by any non-compliance with any provisions of the 1936 Act;
1.3 as a consequence the material facts alleged by the taxpayer do not go to jurisdiction to issue the relevant assessments or otherwise vitiate the relevant assessments;
1.4 only where a purported assessment is not an “assessment” for the purpose of s 175 of the 1936 Act will jurisdictional error arise and jurisdictional error will only arise where:
(a) the purported assessment is tentative or provisional; or
(b) the product of conscious maladministration, and
1.5 the material facts alleged by the taxpayer are incapable of sustaining an allegation that the relevant assessments are not “assessments” for the purpose of s 175 of the 1936 Act.
After review, the Federal Court found that the Commissioner’s demurrer to the taxpayer’s claim provided a complete answer to the taxpayer’s claims for relief for reasons summarised in the judgement as follows:
- The taxpayer contended that s 175 does not apply to protect the amended assessments from challenge on the grounds pleaded in the s 39B proceedings. It was argued that s 175 is only concerned to protect an assessment from challenge by reason of some defect or irregularity in the making of the assessment and, it was said, the section does not operate where the power of the Commissioner to make an assessment is at issue, or preclude judicial determination by the Court of the question whether an assessment is, or is not, invalid. It was further contended that the material facts pleaded in the statement of claim did not establish that the Commissioner had formed an opinion that there was fraud or evasion or establish that he was of that opinion at the time of amending the assessments.
- The taxpayer’s contention that the material facts pleaded (and which are deemed to be established for the purposes of the demurrer) do not establish that the Commissioner had formed an opinion there had been fraud or evasion or was of that opinion at the time of making the assessments, is based on the misconception that the errors identified in forming the requisite opinion would have the effect of nullifying the assessment by reason that the power to issue the amendment assessments was conditioned upon the Commissioner forming the requisite opinion before amending the assessment. Futuris however, is authority that errors in the bona fide exercise of the assessment power are protected by s 175 from challenge for jurisdictional error under s 39B. To put it another way, such errors by the Commissioner in the exercise of his power of amendment conferred under the 1936 Act are within the scope and operation of s 175 with the consequence that such errors do not found a complaint for jurisdictional error and do render the amended assessment invalid. The taxpayer’s right of challenge to the Commissioner’s power to make the amended assessment is through the Part IVC process, not by way of the s 39B proceedings.
(Chhua v FCT [2017] FCA 1127, Federal Court, Davies J, 22 September 2017.)
[FCA Judgement; LTN 183, 25/9/17; TM Sept 2017]