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25 Jun 07 Taxpayer's appeal on invalid amended assessments upheld - Futuris

The Full Federal Court (Heerey, Stone and Edmonds JJ) has upheld the taxpayer's appeal from the decision of Finn J, who had dismissed an application made by the taxpayer (Futuris) under s 39B of the Judiciary Act 1903 (Cth) that amended assessments issued by the Commissioner in pursuance of the operation of Part IVA was invalid and ought to be quashed.

As a result of the Part IVA assessment, an amount that had previously been included in the taxpayer's assessable income was "double counted". The Commissioner was aware of the "double counting" when he issued the assessment. However, assuming that the Part IVA assessment was ultimately upheld in objection and appeal proceedings, the Commissioner took the view that the "double counting" could be corrected by a compensating adjustment under s 177F(3) ITAA 1936.

The Full Court said, at paras 53-54:

"...we are of the view that the Second Amended Assessment is not an assessment which is protected by s 175 and subs 177(1) because it was not a bona fide exercise of the power to assess. The Commissioner knew, at the time he issued the Second Amended Assessment, that the taxable income of Futuris for the year ended 30 June 1998 could be no greater than $169,038,135 and yet he issued the Second Amended Assessment for a taxable income of $188,988,223, being $19,950,088 more than he knew it to be. Moreover, the Commissioner knew, at the time he issued the Second Amended Assessment, that the tax assessed on the sum of $188,988,223, namely, $68,035,760.28, was $7,182,031.68 more than it should be; and that the additional tax (penalty) and interest were correspondingly greater than they should be by virtue of the tax assessed being overstated.

54 The Commissioner’s application of the provisions of the ITAA to facts which he knew to be untrue - that there is no possibility that the amount of $19,950,088 could be assessable income of Futuris over and above the maximum tax benefit of $82,950,090 - brings the case squarely within terms of what the Full Court said in Darrell Lea in the extract of its reasons in [44] above - '... it could not be a bona fide exercise of the assessing power to assess that person to tax in respect of that income.' "

Futuris Corporation Ltd v FCT [2007] FCAFC 93 (Full Federal Court; Heerey, Stone and Edmonds JJ; 22 June 2007).

For a copy of the decision, go here

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