Tax Case Summaries – March 2023

ZIOLKOWSKI v Commissioner of Taxation (Taxation) – [2023] AATA 292 (02 March 2023) (Mr P W Taylor SC, Senior Member)

TAXATION – application for reinstatement – income tax assessment and penalty decision – extensive non-compliance with directions – citizen of Australia and United States of America. This is a case about residency and many other complications (the following para from the decision gives a taste of what was going on).

In early 1997, Dr Thomas Ziolkowski, a US citizen who then conducted a dermatology practice in Colorado USA, purchased a residential property in Potts Point, New South Wales. The following year he purchased another residential property in Boulder, Colorado. Thereafter he was a frequent visitor to Australia, and sometimes stayed for several months at a time. That pattern of activity continued for about the next fifteen years. During that time Dr Ziolkowski retained the Potts Point property, and used it during his various stays in Australia.

 

Hyder v Commissioner of Taxation – [2023] FCAFC 29 (08 March 2023) (Logan, Bromwich and Hespe JJ)

TAXATION – declarations and writ of prohibition sought against the Commissioner of Taxation pursuant to s 39B of the Judiciary Act 1903 (Cth) – Commissioner’s power to issue assessments to more than one taxpayer in respect of income from the same source – accrual of general interest charge (GIC) – whether Commissioner required to give credit for tax paid by different taxpayer when calculating GIC – whether due date for payment ought to be deferred – Commissioner’s power of recovery – where undertaking given not to commence recovery proceedings. The Taxpayer’s appeal was dismissed. The following gives some insight into the issues.

The gravamen of the Appellants’ complaint is that the Commissioner should be precluded from collecting income tax, penalties or GIC from Mr Hyder or the Trustee in circumstances in which SEPL has been assessed and paid tax on amounts referable to the net income of the EMH IV Family Trust and has not objected to the assessments issued to it.

At first instance, the primary judge, perhaps not surprisingly, construed the Appellants’ contentions as a challenge to the validity of the assessments issued to the Trustee and to Mr Hyder.  The Appellants were understood by the primary judge to be challenging the Commissioner’s exercise of his power to issue the amended assessments to the Trustee and Mr Hyder.

His Honour held that, having regard to the decision of the High Court in Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32; (2008) 237 CLR 146, those amended assessments, being neither tentative nor issued otherwise than in good faith, were valid. However, to the extent that the Commissioner had acknowledged those assessments to be alternative assessments, his Honour was concerned by the Commissioner’s attempt to recover on all of the assessments. It appears that, in the course of the hearing before the primary judge, the Commissioner had also formed the view that his conduct in seeking to recover against all of the assessments was not a proper exercise of power and provided an undertaking that he would not seek to recover on any of the assessments issued to the Trustee or the amended assessments issued to Mr Hyder until the respective challenges to objection decisions in respect of those assessments under Pt IVC of the Taxation Administration Act 1953 (Cth)  had been determined and the correct taxpayer or taxpayers and correct basis for assessment had been determined.

Having regard to the undertaking provided by the Commissioner, the primary judge declined to issue a writ of prohibition in the exercise of his discretion, but declared that the conduct of the Commissioner prior to the giving of that undertaking had been unlawful.

Before this Court, the Appellants contend that further relief ought to have been issued in the form of further declarations and a writ of prohibition.

 

G&J Drivas Pty Ltd v Sydney Metro – [2023] NSWLEC 20 (13 March 2023) (Duggan J)

COMPULSORY ACQUISITION – compensation – construction of s 56(1)(a) of Land Acquisition (Just Terms Compensation) Act 1991 – determination of market value – decrease in land value caused by public purpose – advised of acquisition 12 months prior to acquisition – applicant ceased progress of construction – construction work not undertaken to be disregarded – determination of market value on basis work had continued – valuation methodology

COMPULSORY ACQUISITION – compensation – assessment under s 59 of Land Acquisition (Just Terms Compensation) Act 1991 – disturbance – claim for multiple valuation reports – stamp duty – actual use of land – claim upheld under s 59(1)(f)

 

Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue– [2023] NSWCA 40 (14 March 2023) (Meagher and Leeming JJA, Griffiths AJA) 

TAXES AND DUTIES – payroll tax – taxable wages – relevant contracts – taxpayer operated medical centres – taxpayer contracted with medical practitioners to practise at centres on terms that medical practitioners would pay 30% of medicare benefits received to applicant – taxpayer made claims on Medicare on behalf of most medical practitioners and remitted 70% to them – whether amounts paid by taxpayer to medical practitioners deemed to be taxable wages – whether medical practitioners supplied services to taxpayer – whether payments made for or in relation to the performance of work relating to relevant contract – whether determination by NCAT that medical practitioners supplied services to taxpayer (as well as to patients) gave rise to any question of law.

DECISION – Dismiss the summons filed 3 August 2022 seeking leave to appeal, with costs

 

Galea v Camilleri; The Estate of Patricia Camilleri – [2023] NSWSC 206 – 15 March 2023

TAXES AND DUTIES — Definition of “tax agent service” in Tax Agent Services Act 2009 (Cth) — “tax agent service” includes advising an entity about liabilities or obligations that arise or could arise under a taxation law or representing an entity in their dealings with the Commissioner

TAXES AND DUTIES — Whether work carried out by an accountant or registered tax agent in relation to the Duties Act 1997 (NSW) which is not a “taxation law” as defined involves such agent impermissibly engaging in legal practice such as to contravene s 10 Legal Profession Uniform Law (NSW) — Agent not joined as a party — In absence of joinder procedural fairness precludes finding on the issue determined

The Court did not finally decide the issue, because there was no ‘bright line’ as explained in para 957, extracted below.

1. 957. There are decisions of Courts in NSW (and, indeed, other jurisdictions) dealing with the meaning of various antecedent forms of the phrase “engage in legal practice” in s 10 Uniform Law as well as NSW decisions dealing with s 10 Uniform Law itself. Those decisions emphasise thatthe expression “engage in legal practice” means “engage in legal practice as a legal practitioner” (Felman v Law Institute of Victoria [1998] 4 VR 324 (Felman v Law Institute of Victoria) at 352 per Kenny JA (Winneke P and Brooking JA agreeing); Council of New South Wales Bar Association v Dwyer [2015] NSWCA 302 at [12] per Emmett JA (Basten and Ward JJA – as their Honours then were – agreeing);

• • • what constitutes engaging in legal practice is a question of fact to be determined objectively in each case (Council of the Law Society of New South Wales v Australian Injury Helpline Ltd (2008) 71 NSWLR 715; [2008] NSWSC 627 (Council of the Law Society of New South Wales v Australian Injury Helpline Ltd) at [55] per Adams J; Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3) [2021] NSWSC 1482 at [792] per Williams J; Vaughan v Legal Services Board [2008] VSC 200 at [5] per Pagone J);

• • • what constitutes engaging in legal practice is a question of fact to be determined objectively in each case (Council of the Law Society of New South Wales v Australian Injury Helpline Ltd (2008) 71 NSWLR 715; [2008] NSWSC 627 (Council of the Law Society of New South Wales v Australian Injury Helpline Ltd) at [55] per Adams J; Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3) [2021] NSWSC 1482 at [792] per Williams J; Vaughan v Legal Services Board [2008] VSC 200 at [5] per Pagone J);

• • • there is no bright line in separating the permissible legal work from the impermissible legal practice (Council of the Law Society of New South Wales v Australian Injury Helpline Ltd at [55]); and

• • • some activities (such as the giving of advice) regularly performed by legal practitioners are also frequently lawfully performed by persons who are not legal practitioners (including, e.g., accountants, financial advisors and tax agents etc) (Kekatos v The Council of the Law Society of New South Wales [1999] NSWCA 288 at [18] per Giles JA (Handley and Powell JJA agreeing); Felman v Law Institute of Victoriaat 350).

 

TAXES AND DUTIES — Land tax — Liability — Exemptions — Exemption for land used for primary production — Whether the dominant use of land was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce — Land used both for breeding, educating and training horses, and spelling them between races and for the sale of covering services and of progeny — Meaning of “dominant use” — Relationship between use and purpose

DECISION – Appeal allowed; land tax assessments confirmed

 

TAXATION – Income tax – taxpayer’s onus to prove assessment is excessive or otherwise incorrect – lack of substantiation – whether administrative penalties were correctly applied at 75% – whether administrative penalties were correctly increased by 20% – decision under review affirmed

 

TAXATION – appeal against decision of the Australian Administrative Appeals Tribunal – where Commissioner conducted an audit and issued amended assessments – where Commissioner disallowed objection – where Tribunal upheld Commissioner’s decision save as to the shortfall penalty – where appeal brought under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) – where applicant contends that the Tribunal erred in its construction of s 355-205 Income Tax Assessment Act 1997 (Cth) – where applicant contends that as a result of error in construction the Tribunal failed to determine the main issue – where respondent disputes both grounds – where respondent maintains that proceedings are incompetent as applicant seeks to raise new matters – where applicant claims entitlement to notional deduction pursuant to Income Tax Assessment Act 1997, Division 355 – where tax offset may be available for R&D entities which incur R&D expenditure – consideration of meaning of ‘entity’ under Income Tax Assessment Act 1997 – consideration of circumstances in which, a Court, on appeal, from Tribunal, may make factual findings – appeal dismissed

 

TAXATION – Goods and Services Tax – A New Tax System (Goods and Services Tax) Act 1999 (Cth) – whether applicant entitled to input tax credits in respect of payment of invoices for provision of services – whether services acquired in carrying on an enterprise – APPEAL dismissed

1. By the amended assessments, the Commissioner denied the Applicant’s claims in respect of input tax credits that related to invoices paid by the Applicant for services provided by lawyers and other professionals in relation to issues concerning members of the Lewski family and affiliated entities (Lewski Family Group). 
5. In broad terms, the ultimate issue in this proceeding is whether the Applicant, acting in its capacity as the trustee of the William Lewski Family Trust, is entitled to input tax credits in respect of its payment of invoices for the provision of Litigation Services and Other Services.  This issue raises the following sub‑issues:
   

   (a)          Did the Applicant acquire the services by way of a taxable supply to the Applicant, as required by s 11‑5(a) and s 11‑5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act)?

   (b)          If so, did the Applicant acquire those services in carrying on an enterprise and thus acquire those services for a creditable purpose, as required by s 11‑5(a) and s 11‑15(1) of the GST Act?

   (c)          If so, did the acquisitions relate to making supplies that would be input taxed as financial supplies (with the result that the services would not be taken to be acquired for a creditable purpose, as provided by s 11‑15(2)(a) of the GST Act)?

TAXATION – goods and services tax – eligibility to claim input tax credits – 4 year time limit in section 105-55 of Schedule 1 to the Tax Administration Act 1953 (Cth) – whether reviewable GST decision – decision under review affirmed.

 

TAXATION – INCOME TAX – where applicants provided agistment for stock owned by their related company – whether agistment activities constituted carrying on a business – consideration of indicia of a business – whether legal expenses related to claim against former employer deductible – whether legal expenses related to claim for future economic loss capital in nature – whether legal expenses related to claim for future expenses and past special damages of a private or domestic nature – whether amount of legal expenses related to past economic loss and interest on past economic loss proven – decision set aside and remitted for reconsideration with direction that legal expenses relating to past economic loss and interest on past economic loss are allowable deductions

TAXATION – ADMINISTRATIVE PENALTIES – whether shortfall due to recklessness or lack of reasonable care – whether penalty should be wholly or partly remitted – decision set aside and remitted for reconsideration

 

Denjim Pty Ltd v National Gold Pty Ltd; Denjim Pty Ltd v AU Gold Pty Ltd (No 2) – [2023] QSC 54 (30 March 2023) (Cooper J)

PROCEDURE – SECURITY FOR COSTS – PLAINTIFF OR APPLICANT SUBSTANTIALLY IN POSITION OF DEFENDANT – where the second and third defendants by counterclaim have brought applications for security for costs against the plaintiffs by counterclaim – where, inter alia, the plaintiff companies by counterclaim, were registered on the same date, the relevant mining agreements were entered into; do not own any real property in Queensland; and the paid up capital of each of the plaintiff companies by counterclaim is $100 – whether the plaintiffs by counterclaim will not be able to pay the costs of the defendants by counterclaim if ordered to pay – whether the discretion to make an order for security for costs is enlivened

TAXES AND DUTIES – STAMP DUTIES – EVIDENCE AND PROCEDURE – OTHER STATES AND TERRITORIES – where the second and third defendants, by counterclaim, seek the plaintiffs, by counterclaim, to lodge the agreements with the Queensland Revenue Office – where the plaintiffs, by counterclaim, submitted the court’s role, is to make a ruling, under s 487 of the Duties Act 2001 (Qld) – whether orders for the lodgement of the agreements for the assessment of duty should be made

 

TAXES AND DUTIES – Dutiable transactions – Liability – Cancelled transfers of dutiable property – Application for reassessment and refund of duty – Application lodged outside the statutory time limit – No discretion to extend the time limit

 

 

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[Tax Month – February 2023; next month – 18.4.23]