Re DTMP and FCT – Grounds expansion requests: primary tax denied, but penalty allowed
A taxpayer has been largely unsuccessful before the AAT in seeking to expand her grounds of objection against income tax assessments and associated penalties.
The taxpayer was issued with an amended income tax assessment within time allowed by s 170(1) of the ITAA 1936 and objected to that assessment. The taxpayer requested the AAT to order that her grounds of objection to her income tax assessments and associated penalty assessments for the 2009 and 2010 years be expanded. The taxpayer also requested that, if her application for an expansion of her objection grounds were likely to be denied, the AAT advise her and allow her the opportunity to engage counsel to advance further argument.
The taxpayer’s husband had been the sole shareholder and director of a company. Following an audit, the Commissioner on 12 June 2012 amended the taxpayer’s 2009 and 2010 year assessments. The taxpayer objected to the relevant assessments on 12 July 2012 and the Commissioner made his objection decisions on 19 November 2012. The taxpayer then engaged her current solicitors shortly before 18 March 2015 who then asked that the grounds of objection be expanded on or about 18 March 2015.
The AAT denied the requests concerning the primary tax and procedure, but allowed the request in relation to the penalties. Among other things, the AAT said the objection process was completed in November 2012 with the consequence that the delay period exceeded 2 years.
The Tribunal explained its reasons as follows:
- Here, the prejudice to the Commissioner has been real. Had he been aware of the expanded grounds of objection he could, and in all probability would have, issued amended assessments to two other taxpayers well within time in order to protect the position in the event of successful pursuit of the expanded grounds of objection. The contention that it would be ground breaking for prejudice to the Commissioner’s position viz a viz third parties to be influential must be rejected. It is contrary to authority. In the present matter, that type of prejudice is not only influential, it is determinative. The Applicant has allowed the Commissioner to proceed in the belief that the grounds sought were not to be agitated and the Commissioner is now prevented from taking the steps required to assess another taxpayer for the income the Applicant now says belongs to someone else. That is material prejudice and, in circumstances where the delay is not explained in any meaningful way, determines the outcome. Absent that prejudice, the outcome would have been different.
- In essence the expanded penalty grounds are not a surprise and can be seen as stating the original grounds more formally.
- For penalties, the same prejudice considerations do not arise. Here the appropriate penalty is determined by referenced to the Applicant’s shortfall, if there be one, and the appropriate standard of penalty to apply which was squarely raised by the original grounds. Importantly, the Commissioner has not advanced any case of prejudice he suffers.
(Re DTMP and FCT [2016] AATA 684, AAT, File No: 2015/6065 and 2015/6134, O’Loughlin SM, 6 September 2016.)
[LTN 173, 7/9/16]
Basis for granting extension of reasons late – Extract from AAT reaons
- The Grounds Expansion Request has been made pursuant to s 14ZZK(a) of the Administration Act which is in the following terms:
Section 14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and …
- Section 14ZZK is a piece of remedial legislation. It allows grounds not previously advanced to be pursued. In making a decision to allow or reject an objection grounds expansion request, ordinary litigation principles are to apply.[4]
- In Hunter Valley Developments Wilcox J examined a series of authorities and distilled six guiding principles to be applied when considering exercise of discretionary powers to allow extensions of statutory time limits. The passage is as follows:
Section 11 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) does not set out any criteria by reference to which the court’s decision to extend time for an application for review under s. 5 is to be exercised. Already there have been a number of decisions of judges of this Court, all sitting at first instance, dealing with the approach proper to be taken. They differ a little, both in language and in emphasis, but I venture to suggest that from them may be distilled the following principles to guide, not in any exhaustive manner, the exercise of the court’s discretion:
1. Although the section does not, in terms, place any onus of proof upon an applicant for extension an application has to be made. Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper so to do. The “prescribed period” of twenty-eight days is not to be ignored (Ralkon Agricultural Co. Pty Ltd v. Aboriginal Development Commission). Indeed, it is the prima facie rule that proceedings commenced outside that period will not be entertained (Lucic v. Nolan). It is a pre-condition to the exercise of discretion in his favour that the applicant for extension show an “acceptable explanation of the delay” and that it is “fair and equitable in the circumstances” to extend time (Duff; Chapman v. Reilly).
2. Action taken by the applicant, other than by making an application for review under the Act, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished. A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision (who has not “rested on his rights”: per Fisher J in Doyle v Chief of Staff) and a case where the decision-maker was allowed to believe that the matter was finally concluded. Compare Doyle, Chapman, Ralkon and Douglas v. Allen with Lucic and Hickey v. Australian Telecommunications Commission. The reasons for this distinction are not only the “need for finality in disputes” (see Lucic) but also the “fading from memory” problem referred to in Wedesweiller v. Cole. Any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension: see Doyle, Duffat, Hickey.
3. However, the mere absence of prejudice is not enough to justify the grant of an extension: Douglas, Lucic, Hickey. In this context, public considerations often intrude (Lucic, Hickey). A delay which may result, if the application is successful, in the unsettling of other people (Ralkon, Becerra) or of established practices (Douglas) is likely to prove fatal to the application.
5. The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted: Lucic, Chapman.
6.Considerations of fairness as between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court’s discretion: Wedesweiller.
In considering the authorities it is, I believe, important to bear in mind the point made by Sheppard J. in Wedesweiller, relating to the diversity of decisions to which review may be sought under the Act:
” … there will be some cases which may be decided upon considerations which affect only the immediate parties. It will be appropriate to consider whether the delay which has taken place has been satisfactorily explained, the prejudice which may be caused to an applicant by the refusal of an application, the prejudice which may be suffered by the Government or a particular department if the application is granted and, generally, what the justice of the case requires. In other cases wider considerations will be involved.”
He went on to mention the reference to public interest made by Fitzgerald J. in Lucic.
It is in relation to the former category of cases, that is, those “which affect only the immediate parties” that the approach adopted by Bray C.J. in Lovatt v. Le Gall in respect of private litigation but adopted in this context in both Doyle and Duff, is apposite namely:
“If the defendant has suffered no prejudice, as when he was well within the limitation period of the plaintiff’s claim, or where the excess period of time is small, or where he cannot show that he has lost anything by reason of the delay, it may well be that the court will not find it difficult to come to the conclusion that it is fair and equitable in the circumstances to grant extension.” [Citations omitted]